SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number: 1-14868
______________
BUNZL PLC
(Exact name of Registrant as specified in its charter)
ENGLAND
(Jurisdiction of incorporation or organization)
110 Park Street, London WIK 6NX
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
___________________________ _____________________________________
Ordinary Shares of 25 pence each The New York Stock Exchange*
*Traded in the form of American Depositary Receipts evidencing American
Depositary Shares representing such ordinary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the
period covered by the Annual Report.
Ordinary Shares of 25 pence each 467,024,892
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES: NO X
Indicate by check mark which financial statement item the registrant has
elected to follow:
Item 17 X Item 18:
TABLE OF CONTENTS
_________________
Page
Presentation of Information.......................................................................................1
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the United States Private Securities
Litigation Reform Act of 1995.....................................................................................2
Part I............................................................................................................3
Item 1. Identity of Directors, Senior Management and Advisers...............................................3
Item 2. Offer Statistics and Expected Timetable.............................................................3
Item 3. Key Information.....................................................................................3
Selected Financial Data.................................................................................3
Risk Factors............................................................................................6
Item 4. Information on the Company..........................................................................8
History of the Group....................................................................................8
Business Overview......................................................................................10
Organizational Structure...............................................................................18
Properties.............................................................................................18
Item 5. Operating and Financial Review and Prospects.......................................................18
Operating Results......................................................................................18
Liquidity and Capital Resources........................................................................29
Research and Development...............................................................................31
Trend Information......................................................................................31
Item 6. Directors, Senior Management and Employees........................................................31
Directors and Senior Management........................................................................31
Compensation...........................................................................................32
Board Practices........................................................................................32
Employees..............................................................................................33
Share Ownership........................................................................................34
Item 7. Major Shareholders and Related Party Transactions.................................................36
Major Shareholders.....................................................................................36
Related Party Transactions.............................................................................37
Item 8. Financial Information.............................................................................37
Consolidated Statements and Other Financial Information................................................37
Significant Changes....................................................................................37
Item 9. Listing Details...................................................................................37
Market Price Information...............................................................................37
Item 10. Additional Information...........................................................................38
Memorandum and Articles of Association.................................................................38
Material Contracts.....................................................................................38
Exchange Controls......................................................................................38
Taxation...............................................................................................39
Documents on Display...................................................................................42
Item 11. Quantitative and Qualitative Disclosures about Market Risk.......................................42
Item 12. Description of Securities other than Equity Securities...........................................44
Part II..........................................................................................................44
Item 13. Defaults, Dividend Arrearages and Delinquencies..................................................44
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.....................44
Item 15. Controls and Procedures..........................................................................44
Part III.........................................................................................................45
Item 17. Financial Statements.............................................................................45
Item 18. Financial Statements.............................................................................45
Item 19. Exhibits.........................................................................................45
i
PRESENTATION OF INFORMATION
In this Annual Report on Form 20-F (the "Annual Report"), the term the
"Company" or "Bunzl" refers to Bunzl public limited company, alone or together
with its subsidiary undertakings, as the context so permits. The term "Group"
refers to Bunzl together with its subsidiary undertakings. The Company's fiscal
year ends on December 31. References in this Annual Report to a particular year
are to the fiscal year unless otherwise indicated.
In this Annual Report, the term "ordinary shares" refers to ordinary
shares of 25 pence each of the Company, and the term "ADSs" refers to American
depositary shares each representing five ordinary shares and evidenced by
American depositary receipts ("ADRs").
The Company's consolidated financial statements (the "Consolidated
Financial Statements") that form part of this Annual Report are presented in
pounds sterling and are prepared in accordance with accounting principles
generally accepted in the United Kingdom ("UK GAAP") which differ in certain
respects from accounting principles generally accepted in the United States ("US
GAAP"). The principal differences between UK GAAP and US GAAP affecting the
Group are explained in Note 28 of the Notes to the Consolidated Financial
Statements beginning on page F-29 of this Annual Report.
On January 1, 2002 under UK GAAP the Group adopted Financial Reporting
Standard ("FRS") 19 'Deferred Tax'. As a result of adopting FRS19, the results
for 2001 and previous years have been restated. In addition, in order to ensure
comparability, results for 2001 and previous years have been restated to reflect
those operations which meet the UK GAAP definition of "discontinued operations"
for the year ended December 31, 2002 as discontinued operations in prior years.
As explained in Note 28 of the Notes to the Consolidated Financial
Statements beginning on page F-29 of this Annual Report, under US GAAP the Group
adopted Statement of Financial Accounting Standard ("SFAS") 142 'Goodwill and
Other Intangible Assets' on January 1, 2002. Under SFAS142 goodwill and
intangible assets with indefinite lives are no longer amortized but instead
tested for impairment annually. The proforma effect of adopting SFAS142 on prior
periods is shown in Note 28 of the Notes to the Consolidated Financial
Statements beginning on page F-29 of this Annual Report.
In this Annual Report, references to "US dollar(s)", "US$" or "$" are
to currency of the United States ("US") and references to "pound(s) sterling",
"sterling", "GBP", "pence" or "p" are to currency of the United Kingdom ("UK").
Solely for convenience, this Annual Report contains translations of certain
pound sterling amounts into US dollars at specified rates. These translations
should not be construed as representations that the pound sterling amounts
represent such US dollar amounts or could be converted into US dollars at the
rates indicated. The following tables show for the periods and dates indicated
certain information concerning the US dollar exchange rate for pounds sterling
based on the noon buying rate in New York City for cable transfers in pounds
sterling as announced for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate"). On February 28, 2003, the Noon Buying Rate was
$1.57 to GBP1.00.
1
Noon Buying Rate
_____________________________________________
Period end Average(1) High Low
__________ ___________ ________ ______
(dollars per pound sterling)
Period Ended December 31
1998........................................................... 1.66 1.66 1.72 1.61
1999........................................................... 1.62 1.61 1.65 1.55
2000........................................................... 1.50 1.51 1.65 1.40
2001........................................................... 1.45 1.44 1.50 1.37
2002........................................................... 1.61 1.51 1.61 1.41
2003 (2)....................................................... 1.57 1.61 1.65 1.57
Month Ended
September 30, 2002............................................. 1.57 1.53
October 31, 2002............................................... 1.57 1.54
November 30, 2002.............................................. 1.59 1.54
December 31, 2002.............................................. 1.61 1.56
January 31, 2003............................................... 1.65 1.60
February 28, 2003.............................................. 1.65 1.57
------------------
(1) The average of the Noon Buying Rates on the last day of each full month
during the relevant period.
(2) January 1 through February 28, 2003.
For the preparation and consolidation of financial information in this
Annual Report, the year end exchange rates used for translating US dollars into
pounds sterling for the years 1998, 1999, 2000, 2001 and 2002 were,
respectively, $1.66, $1.61, $1.49, $1.46 and $1.61 to GBP1.00 and the average
exchange rates used for the years 1998, 1999, 2000, 2001 and 2002 were,
respectively, $1.65, $1.61, $1.50, $1.44 and $1.51 to GBP1.00.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This Annual Report contains certain forward-looking statements within
the meaning of the United States Private Securities Litigation Reform Act of
1995 that involve a number of risks and uncertainties. A number of factors could
cause actual results, performance or achievements of the Group or industry
results to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
factors include, but are not limited to, the following: (i) changes in demand
for the Group's products worldwide; (ii) changes in the costs of raw materials;
(iii) changes in the pound sterling/dollar exchange rate and the exchange rates
between pounds sterling and other currencies in which the Group's businesses
operate; (iv) changes in the political or fiscal regime of Bunzl's areas of
activity; (v) principal changes in UK and US tax legislation or similar laws or
regulations; (vi) cost inflation within the industrial sectors and economies in
which Bunzl operates; (vii) changes in environmental legislation; (viii) changes
in UK and US LIBOR rates and (ix) the risk factors identified in Item 3. "Key
Information - Risk Factors". The foregoing list of factors should not be
construed as exhaustive. Forward-looking statements can be identified by, among
other things, the use of forward-looking terminology such as "believes",
"expects", "may", "will", "should", "seeks", "pro forma", "anticipates" or
"intends" or the negative of any thereof, or other variations thereon or
comparable terminology, or by discussions of strategy or intentions.
Forward-looking statements in this Annual Report include, but are not limited
to, certain statements under (i) Item 3. "Key Information- Risk Factors", (ii)
Item 4. "Information on the Company- Business Overview" and "- Properties",
(iii) Item 5. "Operating and Financial Review and Prospects", (iv) Item 8.
"Financial Information - Consolidated Statements and other Financial Information
- Legal Proceedings", and (v) Item 11. "Quantitative and Qualitative Disclosures
about Market Risk- Credit Risk". Such forward-looking
2
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks, uncertainties
and other factors. Accordingly, any forward-looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Due to such uncertainties and risks, readers are cautioned not to
place undue reliance on such forward-looking statements, which speak only as of
the date hereof.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
Item 3. KEY INFORMATION
SELECTED FINANCIAL DATA
The selected financial data set out below is extracted or derived from
the Consolidated Financial Statements included in this Annual Report or
previously published (except where restated as referred to in "Presentation of
Information" on page 1 of this Annual Report) and should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto.
The Consolidated Financial Statements for each of the five years ended
December 31, 2002 have been audited by KPMG Audit Plc, Chartered Accountants and
Registered Auditor.
The Consolidated Financial Statements are prepared in accordance with UK
GAAP which differ in certain respects from US GAAP. The principal differences
between UK GAAP and US GAAP affecting the Group are explained in Note 28 of the
Notes to the Consolidated Financial Statements beginning on page F-29 of this
Annual Report.
For a description of new accounting standards adopted for the
Consolidated Financial Statements for the year ended December 31, 2002 see Item
5. "Operating and Financial Review and Prospects - Operating Results- Background
- Financial Reporting Standards and Accounting Policies".
3
Consolidated Profit and Loss Account
for the year ended December 31
_____________________________________________________________
2002 2001* 2000* 1999* 1998*
_________ _________ _________ _________ _________
GBPm GBPm GBPm GBPm GBPm
Amounts in accordance with UK GAAP
Sales
Continuing operations............................... 2,673.6 2,558.3 2,182.4 1,765.5 1,547.5
Discontinued operations (1)......................... 161.7 318.2 321.2 363.1 391.8
_________ _________ _________ _________ _________
Total sales......................................... 2,835.3 2,876.5 2,503.6 2,128.6 1,939.3
Operating profit
Continuing operations............................... 191.8 186.9 164.0 134.1 117.5
Discontinued operations (1)......................... 7.5 14.9 19.6 23.9 21.9
_________ _________ _________ _________ _________
Total operating profit.............................. 199.3 201.8 183.6 158.0 139.4
Profit on sale of discontinued operations........... 2.5 - 7.1 0.2 0.5
Loss on disposal of fixed assets.................... - - (4.8) - -
Provision for loss on discontinued business......... - - - - (17.9)
_________ _________ _________ _________ _________
Profit on ordinary activities before interest....... 201.8 201.8 185.9 158.2 122.0
Net interest payable................................ (5.8) (14.1) (12.5) (7.7) (8.2)
_________ _________ _________ _________ _________
Profit on ordinary activities before taxation 196.0 187.7 173.4 150.5 113.8
------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Profit before taxation, goodwill amortization and 209.6 200.5 178.2 153.5 132.3
exceptional items
------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
Taxation on profit on ordinary activities (2)....... (70.3) (70.4) (64.7) (60.0) (41.5)
_________ _________ _________ _________ _________
Profit on ordinary activities after taxation (2).... 125.7 117.3 108.7 90.5 72.3
Profit attributable to minorities................... (0.5) (0.4) (0.6) (0.6) (0.3)
_________ _________ _________ _________ _________
Profit for the financial year (2)................... 125.2 116.9 108.1 89.9 72.0
_________ _________ _________ _________ _________
Earnings per share (2)
Basic earnings per share............................ 27.1p 25.5p 23.7p 19.9p 16.0p
Adjusted earnings per share (3)..................... 30.0p 28.3p 25.1p 20.8p 19.0p
Diluted earnings per share.......................... 26.9p 25.2p 23.5p 19.7p 15.8p
Dividends paid and proposed per share............... 11.2p 10.35p 9.4p 8.3p 7.35p
Weighted average ordinary shares
Basic (million)..................................... 461.4 458.6 455.8 452.3 451.1
Diluted (million)................................... 465.3 463.8 460.0 456.3 455.5
------------------
* Restated on adoption of FRS19 'Deferred Tax'.
(1) Discontinued operations principally comprise the Paper Distribution
business which was sold on July 1, 2002. Discontinued operations also
include the Group's job-lot converting business sold in 1999 and
Filtrona's instruments business sold in 2000.
(2) As explained in the Accounting Policies section on page F-6 of this Annual
Report, the Group has adopted FRS19 'Deferred Tax' for the year ended
December 31, 2002. This has resulted in a restatement of the
taxation charge for the year ended December 31, 2001 which increased by
GBP0.8 million (2000: GBP(0.2) million, 1999: GBP3.8 million,
1998: GBP(0.1) million). Earnings per share information has therefore
been restated based on these restated earnings.
(3) The differences between earnings per share and adjusted earnings per share
are as follows: (i) for 1998 - the effect of goodwill amortization of
GBP1.1 million, the profit on sale of discontinued operations and the
provision for loss on discontinued business; (ii) for 1999 - the effect
of goodwill amortization of GBP3.2 million and the profit on sale of
discontinued operations; (iii) for 2000 - the effect of goodwill
amortization of GBP7.1 million, the profit on sale of discontinued
operations and the loss on disposal of fixed assets; (iv) for 2001 - the
effect of goodwill amortization of GBP12.8 million, and (v) for 2002 -
the effect of goodwill amortization of GBP16.1 million and the profit on
sale of discontinued operations.
4
Consolidated Profit and Loss Account
for the year ended December 31
_______________________________________________________
2002+ 2001 2000 1999 1998
________ ________ ________ ________ ________
Amounts in accordance with US GAAP GBPm except per share information expressed in pence
Sales
Continuing operations................................ 2,673.6 2,558.3 2,193.3 1,806.3 1,596.9
Net income for the financial year
Continuing operations................................ 126.5 91.6 84.3 57.2 69.6
Discontinued operations (1).......................... 21.3 10.8 13.1 13.8 (0.6)
________ ________ ________ ________ ________
147.8 102.4 97.4 71.0 69.0
________ ________ ________ ________ ________
Earnings per share
Continuing operations................................ 27.4 20.0 18.5 12.6 15.4
Discontinued operations (1).......................... 4.6 2.3 2.9 3.1 (0.1)
________ ________ ________ ________ ________
Basic earnings per share............................. 32.0 22.3 21.4 15.7 15.3
________ ________ ________ ________ ________
Diluted earnings per share........................... 31.6 22.0 21.1 15.5 15.2
Dividends paid per share............................. 10.6 9.75 8.6 7.6 7.0
Consolidated Balance Sheet
at December 31
_______________________________________________________
2002 2001* 2000* 1999* 1998*
GBPm GBPm GBPm GBPm GBPm
________ ________ ________ ________ ________
Amounts in accordance with UK GAAP
Fixed assets...................................... 523.4 514.4 446.6 282.7 217.7
Current assets.................................... 813.9 775.7 697.5 577.1 521.0
________ ________ ________ ________ ________
Total assets...................................... 1,337.3 1,290.1 1,144.1 859.8 738.7
________ ________ ________ ________ ________
Creditors: amounts falling due within one year (471.4) (514.3) (569.5) (362.4) (306.9)
Creditors: amounts falling due after more than
one year.......................................... (265.3) (255.1) (126.4) (120.9) (119.9)
Provisions for liabilities and charges............ (54.3) (62.1) (60.0) (58.5) (45.6)
Minority equity interests......................... (2.3) (2.1) (2.3) (1.9) (1.8)
________ ________ ________ ________ ________
Shareholders' funds: equity interests............. 544.0 456.5 385.9 316.1 264.5
________ ________ ________ ________ ________
Share capital
Capital stock (GBPm).............................. 116.8 116.0 115.2 114.3 113.4
Number of shares (million)........................ 467.0 463.9 460.7 457.3 453.8
Amounts in accordance with US GAAP
Total assets (GBPm)................................ 1,461.8 1,511.7 1,377.7 1,093.7 981.1
Shareholders' funds: equity interests (GBPm)....... 741.8 714.1 651.9 576.8 535.3
------------------
* As explained in the Accounting Policies section on page F-6 of this
Annual Report, the Group has adopted FRS19 'Deferred Tax' for the
year ended December 31, 2002 which has resulted in the restatement
of the Consolidated Financial Statements for 2001 and previous years.
+ As explained in Note 28 of the Notes to the Consolidated Financial
Statements beginning on page F-29 of this Annual Report, the Group
adopted SFAS142 'Goodwill and Other Intangible Assets' on
January 1, 2002. Under SFAS142 goodwill and intangible assets with
indefinite lives are no longer amortized but instead
tested for impairment annually. The proforma effect of adopting
SFAS142 on prior periods is shown in Note 28 of the Notes to the
Consolidated Financial Statements beginning on page F-29 of this Annual
Report.
(1) Includes profit on disposal of discontinued operations in 2002 of
GBP14.3 million, representing a basic earnings per share impact of
3.1 pence.
5
RISK FACTORS
Investors, holders and prospective purchasers of ADSs should carefully
consider the risk factors discussed below as well as the other information
included in this Annual Report (including, without limitation, the "Cautionary
Statement for Purposes of the 'Safe Harbor' Provisions of the United States
Private Securities Litigation Reform Act of 1995" and Item 5. "Operating and
Financial Review and Prospects"). Bunzl's business, financial condition or
results of operations could be materially affected by any or all of these risks
or by other risks that Bunzl cannot presently identify.
Bunzl faces competition that may reduce its market share and growth potential
Bunzl faces competition from international companies as well as local
and regional companies in the countries in which it operates. In addition,
many of Bunzl's customers have chosen to source products from Bunzl as they have
looked to outsourced solutions to service their own requirements. If this trend
was reversed and customers decided to satisfy their requirements themselves or
source products directly from manufacturers or other suppliers, this could
result in a loss of business and a resulting adverse effect on Bunzl's operating
results. Increased competition and unanticipated actions by competitors or
customers could lead to downward pressure on prices and/or a decline in Bunzl's
market share in any of Bunzl's businesses which would adversely affect Bunzl's
results and hinder its growth potential.
Bunzl's growth is partly dependent on the ability to complete acquisitions and
integrate operations of acquired businesses
A significant portion of Bunzl's historical growth has been achieved
through acquisitions of businesses and the Group's growth strategy includes
additional acquisitions. There can be no assurance that Bunzl will be able to
make acquisitions in the future or that any acquisitions Bunzl does make will be
successful.
Bunzl makes acquisitions with the expectation that these acquisitions
will result in benefits to the Group. Achieving these benefits depends on the
timely, efficient and successful execution of a number of post acquisition
events, often including integrating the business of the acquired company into
Bunzl's purchasing programs, distribution network, marketing programs and
reporting and information systems. In general Bunzl cannot offer assurances that
it will be able to successfully integrate the acquired company's operations or
personnel or realize the anticipated benefits of the acquisition. The ability to
integrate acquisitions may be adversely affected by many factors, including the
relative size of a business and the allocation of the Group's limited management
resources among various integration efforts.
The results of operations may be adversely affected by expenses Bunzl incurs
in making acquisitions, by amortization of acquisition related intangible
assets with definite lives and by additional depreciation expenses
attributable to acquired assets. Any of the businesses Bunzl acquires may also
have liabilities or adverse operating issues, including some that Bunzl fails
to discover before the acquisition. Additionally, Bunzl's ability to make
future acquisitions may depend upon obtaining additional financing. There can
be no assurance that the Group will be able to obtain additional financing on
acceptable terms.
Managing Bunzl's growth may be difficult and the Group's growth rate may decline
Bunzl has expanded its operations over recent years. This growth has
placed significant demands on the Group's managerial, administrative and
operational resources. Bunzl cannot be sure that this growth will continue. To
the extent that the Group's customer base and services continue to grow, this
growth is expected to place a significant demand on Bunzl's managerial,
administrative and operational resources. The future performance and results of
operations will depend in part on Bunzl's ability to successfully implement
enhancements to the Group's business management systems and to adapt those
systems as necessary to respond to changes in the business. Similarly, the
Group's growth has created a need for expansion of its facilities from time to
time. As Bunzl nears
6
maximum utilization of a given facility, operations may be constrained and
inefficiencies may be created, which could adversely affect operating results
unless the facility is expanded or volume is shifted to another facility.
Conversely, as additional facilities are added or existing facilities expanded,
excess capacity may be created. Any excess capacity may also create
inefficiencies and adversely affect the operating results.
Bunzl's operating results may be adversely affected by increased
costs, shortages of purchased products or labor, or disruption to
distribution or production facilities
Many of the products the Group supplies have a significant plastic and/or
paper content. As a consequence movements in natural gas, oil and pulp prices
as well as other raw material prices may affect the cost of the products
purchased by the Group. In addition, many of the raw materials used for the
products produced by Bunzl are also subject to price volatility caused by
changes in global supply and demand. If commodity price changes result in
unexpected increases in the cost of Bunzl's purchased products and raw
materials, Bunzl may not be able to increase its prices to offset these costs
without suffering reduced volume, revenue and operating income. Bunzl may also
be adversely affected by shortages of such purchased products.
Similarly, Bunzl's operating results could be adversely affected by
labor or skill shortages or increased labor costs due to increased competition
for employees, higher employee turnover or increased employee benefit costs.
Bunzl would be affected if there was a catastrophic failure of its
major distribution, production facilities or supply chain. In addition, the
maintenance and development of information systems may result in systems
failures which may adversely affect business operations.
Product liability claims could have an adverse effect on the Group's business
Like any other distributor and manufacturer of products, Bunzl faces an
inherent risk of exposure to product liability claims if the products Bunzl
sells, or the products sold by companies acquired by Bunzl, cause injury or
illness. The Group may be subject to liability, which could be substantial,
because of actual or alleged contamination in products sold by Bunzl or by
companies Bunzl has acquired, including products sold by those companies before
Bunzl acquired them. Bunzl has, and management believes that the companies Bunzl
has acquired have had, liability insurance with respect to certain product
liability claims. However, there can be no guarantee that this insurance will
continue to be available at reasonable cost or at all, or will be adequate to
cover product liability claims against Bunzl, or companies Bunzl has acquired.
If Bunzl or any of the Bunzl acquired companies do not have adequate insurance,
product liability claims and costs associated with product recalls, including a
loss of business, could have a material adverse effect on the Group's business,
operating results and financial condition.
Bunzl's business may be adversely impacted by unfavorable economic conditions or
other developments and risks in the countries in which it operates
Bunzl's business is somewhat dependent on general economic conditions in the
US, the UK and other important markets. A significant deterioration in these
conditions, including a reduction in consumer spending levels, could have an
adverse effect on Bunzl's business and results of operations. Many of Bunzl's
businesses are involved in the distribution of products which is a business
characterized by a high volume of sales with relatively low profit margins. A
significant portion of Bunzl's sales is at prices that are based on product cost
plus a percentage markup. Accordingly the results of operations may be
negatively impacted when the price of products goes down, even when the
percentage markup remains constant. In addition, Bunzl may be adversely affected
by political and economic developments in any of the countries where Bunzl has
distribution networks or production facilities. Bunzl's operations are also
subject to a variety of other risks and uncertainties relating to trading in
numerous foreign countries, including political or economic upheaval, the
imposition of any import or investment restrictions, including tariffs and
import quotas or any restrictions on the repatriation of earnings and capital,
and changes in tax regulation and international tax treaties. Bunzl may also be
adversely affected by movements in the valuation of, and returns from, the
investments held by its pension funds.
7
In addition, Bunzl's operating results are sensitive to, and may be
materially adversely impacted by, difficulties with the collectibility of
accounts receivable, inventory control, price pressures, severe weather
conditions and increases in wages or other labor costs, energy costs and fuel or
other transportation related costs. There can be no assurance that one or more
of these factors will not adversely affect the future operating results.
Bunzl may be adversely affected by fluctuations in exchange and interest rates
Bunzl may be adversely affected by fluctuations in exchange rates. The
results of Bunzl's operations are accounted for in pounds sterling but the
majority of the Group's sales are made and income earned in US dollars and other
foreign currencies. Movements in exchange rates used to translate foreign
currencies into pounds sterling may have a significant impact on Bunzl's
reported results of operations from year to year.
Bunzl may also be adversely impacted by fluctuations in interest rates,
mainly through an increased interest expense. See Item 11. "Quantitative and
Qualitative Disclosures about Market Risk - Interest Rate Risk".
Bunzl may be adversely affected by government regulations
Bunzl's operations are affected by various statutes, regulations and laws in
the countries and markets in which it operates. The Group is subject to various
laws applicable to businesses generally, including laws affecting land usage,
zoning, environment, health and safety, labor and employment practices,
competition and other matters. Bunzl cannot predict whether future developments
in laws and regulations concerning its businesses will affect its earnings in a
materially adverse manner or whether its operating units will be successful in
meeting future demands of regulatory agencies in a manner which will not
materially adversely affect Bunzl's business, financial condition or results of
operations.
ITEM 4. INFORMATION ON THE COMPANY
HISTORY OF THE GROUP
Bunzl had its origins in Bratislava, Slovakia, in the middle of the
nineteenth century. The headquarters moved to London and the Company was
incorporated in England in 1940, gaining a listing on the London Stock Exchange
as a public company in 1957.
In the early 1980s there were significant changes to the Group. Its
Austrian paper mills were sold and it embarked on a strategy of expanding into
outsourcing services in the US and into paper distribution in the UK. In the mid
to late 1980s the Group diversified into many other businesses including parcel
and goods transportation in the UK and building products distribution in the US.
During the 1990s the Group disposed of a number of businesses, focusing on those
businesses which reflected the Group's evolution towards outsourcing and its
increasing service orientation.
In 2002 the final break with the paper industry occurred when the
Paper Distribution business area was sold. Following this disposal the Group was
reorganized in August 2002 into two business areas: Outsourcing Services and an
enlarged Filtrona (comprising the businesses of the former Filtrona and Plastics
business areas).
Strategy and Development
The Company has grown by following a strategy of expanding in those areas
where it can build its international competitive position through both organic
growth and acquisitions combined with the disposal of lower margin, lower growth
businesses. This evolution has given the Group an increasing focus on higher
return, higher growth businesses, with each business area becoming increasingly
international and service oriented.
Organic growth has been the result of a consistent emphasis on market
focus, service orientation and efficiency. To supplement this organic growth,
the Group has spent cash of some GBP171 million in 2000, GBP95 million in 2001
and
8
GBP77 million in 2002 on acquisitions and raised cash of GBP12 million in 2000,
GBP1 million in 2001 and GBP111 million in 2002 from disposals. The principal
disposal in 2002 was the sale of the Paper Distribution business area for which
Bunzl will receive a further GBP18 million deferred cash consideration which is
payable in two tranches of GBP10 million and GBP8 million on July 1, 2003 and
July 1, 2004 respectively. Details of significant transactions within the last
five years are outlined below. Over the same period sales of continuing
operations (including acquisitions) have increased from GBP1,547.5 million in
1998 to GBP2,673.6 million in 2002.
The acquisition of Enitor in March 1998 represented the Group's first move
into Europe in plastic profiles following the purchase of American Filtrona
Corporation in the US in 1997. In November 1998 the North American Outsourcing
Services business was further enhanced by the acquisition of the grocery supply
business of International Paper's xpedx division.
In March 1999 Provend was acquired, adding to the Group's Outsourcing
Services disposable supplies business in the UK and providing the opportunity to
become a leading operator in the closely related vending sector. In September
1999 the Group acquired Brierley Almond which specializes in the supply of goods
not for resale to supermarkets throughout the UK.
In January 2000 Davidson Plastics, a profile extrusion operation based in
the US Pacific North West was acquired. In April 2000 the acquisition of
Shermond, a specialist supplier of gloves and other disposable products to the
healthcare and hygiene sectors, further expanded the Group's Outsourcing
Services business in the UK. In July 2000 the Group acquired Greenham, which is
primarily involved in the distribution of supplies including cleaning and
hygiene, personal protection and construction consumables. Based in the UK with
operations in Denmark, Ireland and Germany, it enhanced the Group's position in
cleaning and hygiene supplies and developed the personal protection products
business. In August 2000 the Outsourcing Services business in Ireland was
further developed with the purchase of Allegro, a distributor of cleaning and
hygiene supplies. In December 2000 the acquisition of Koch Supplies was
completed, which strengthened the growing activities supplying the food
processor and packing industry in the US. Also in December 2000 the North
American Outsourcing Services business was further enhanced by the acquisition
of Schrier Brothers, one of the largest redistributors in the North East.
In February 2001 ICCS MacGregor, a distributor of supplies to hotels,
nursing homes and contract cleaners in Scotland, was added to the Group's
Outsourcing Services business in the UK. In May 2001 the Group acquired 51% of
Filtrati taking its ownership to 100%. Renamed Filtrona Italia, it has become a
full member of the Group's global Filtrona network. In June 2001 Outsourcing
Services in North America was extended with the acquisition of Godin which
supplies supermarkets, food processors and industrial companies in Quebec. In
July 2001 the Group's European retail supply business was expanded by acquiring
the UK carrier bag supply business from BPI thus building on the Group's
international sourcing operations. The Group completed a number of transactions
in October 2001 in Outsourcing Services. It acquired Eastern Paper which
supplies supermarkets, redistributors and food processors in the Maritimes thus
completing the Group's geographic coverage of Canada. In Europe, the Group
acquired the DKI Group which supplies packaging consumables and equipment to the
Danish supermarket and food processing industries, strengthening the Group's
position in the Scandinavian market. In a move to strengthen the Group's
position supplying the US food processor industry it purchased Packers, a long
established supplier to the beef and pork processing industries based in Omaha,
Nebraska and with small branches in Canada and the UK. In November 2001 the
Group further expanded Outsourcing Services in Europe with the acquisition of W
A Blyth, a distributor of personal protection equipment and cleaning and hygiene
supplies in Wales and South West England.
The Group bought Lockhart from Sodexho in May 2002. Lockhart is one of the
UK's leading suppliers of catering equipment to the foodservice industry
including hotels, caterers, restaurants, retailers and the licensed trade. In
late June 2002 the Group acquired Kenco in Seattle. Kenco is a redistribution
business which strengthened the position of the Group's Outsourcing Services
business in the Pacific North West of the US.
In the last two months of 2002 the Group announced four acquisitions which
added to the Outsourcing Services business in different parts of the world. In
early November Lesnie's, a distributor of supplies to food processors and
9
retailers based in Sydney, Australia, was acquired. This expands the Group's
position in Australasia. In November, the Group agreed to purchase Darenas, a UK
national distributor of cleaning and hygiene supplies, and completed shortly
thereafter. It is an excellent fit with the existing operations. In December,
the Group acquired Saxton, a US redistribution business based in Phoenix with
locations also in Kansas City and Denver, which will strengthen the Group's
position both in cleaning and hygiene and in the relevant regions. In late
December the Group purchased Thomas McLaughlin, a leading distributor of
catering equipment in both Northern Ireland and the Republic of Ireland.
McLaughlin is a logical extension of the Group's existing business in Ireland
and complements the acquisition of Lockhart earlier in the year.
In February 2003 the Group purchased Enterprise, a distributor of plant
supplies to food processors in Dallas, Texas; Greeley, Colorado; Atlanta,
Georgia and St Joseph, Missouri.
The final link to Bunzl's paper making and converting past was broken with
the disposal in August 1999 of the last of the Group's job-lot converting
businesses in the US. Bunzl's only consumer plastics business, the Stewart Group
in the UK, was sold in December 1999.
In October 2000 Bunzl sold Filtrona's instruments business. Based in the UK
with sales worldwide, it was the Group's only capital equipment business and, as
such, was becoming less relevant to the evolving business to business
consumables focus of the Group.
During 2001 the Group completed the disposal of the video and air
conditioning distribution and installation businesses that it acquired with
Greenham in July 2000. These did not fit with the Group's long term plans for
the development of Greenham within the Group's Outsourcing Services business
area.
The disposal of the Paper Distribution business area in July 2002, with
its UK focus and strong links to Bunzl's nineteenth century roots in paper,
marked an important stage in Bunzl's evolutionary approach. It represented the
final break with the paper industry and was the last step of a process which has
seen Bunzl reducing its commitment to paper and channeling resources both
organically and by acquisition into higher return, higher growth businesses,
particularly outsourcing.
Following this disposal the Group was reorganized in August 2002 into
two business areas: Outsourcing Services and an enlarged Filtrona (comprising
the businesses of the former Filtrona and Plastics business areas). This
combination was made feasible by the simplification of both the constituent
businesses over the past few years and their increasing internationalization.
Operating as Filtrona, the new business constitutes a small number of
international niche businesses in supply and light manufacture with a number of
technical and market overlaps. It is being managed by a single more cost
effective structure. Both Outsourcing Services and Filtrona fit with the Group's
focus on providing business to business consumables and are becoming
increasingly service oriented.
The continuing objective of both the acquisition and disposal activity has
been to concentrate resources on a manageable group of successful businesses
where the Group can continue to demonstrate competitive advantage.
BUSINESS OVERVIEW
The Company is a holding company conducting its operations through
its subsidiary undertakings. The Group is an international group of companies
involved in the provision of outsourcing solutions and customer service oriented
distribution and light manufacture, primarily of plastic and paper based
products. The Group had annual sales of GBP2,835.3 million in 2002 and, as of
December 31, 2002, approximately 12,000 employees in approximately 260 locations
in 24 countries throughout the world.
The Company's shares are quoted on the London Stock Exchange and the
ADSs are quoted on the New York Stock Exchange. Its principal executive offices
are located at 110 Park Street, London, W1K 6NX (telephone number
011-44-20-7495-4950; fax number 011-44-20-7495-4953; website www.bunzl.com).
10
The Group's operations are organized primarily by international line of
business into two business areas. The table below sets out the sales by business
area for the Group's continuing operations for the three years ended December
31, 2000, 2001 and 2002.
2002 2001 2000
_________ ________ _________
GBPm GBPm GBPm
Outsourcing Services........................................... 2,231.2 2,129.1 1,783.1
Filtrona....................................................... 442.4 429.2 399.3
A segmental analysis of the results of these business areas is set out in
Note 1 of the Consolidated Financial Statements on page F-8 and is discussed in
the following pages.
In July 2002 the Group completed the disposal of the Paper Distribution
business area.
In August 2002 the Group combined its operations previously designated
Filtrona and Plastics. Operating as Filtrona the enlarged business area
constitutes a small number of international niche businesses in service oriented
supply and light manufacture with a number of technical and market overlaps.
Outsourcing Services
The Outsourcing Services business area operates in North America, Europe
and Australasia, where Bunzl believes it is the leading supplier of a range of
products including outsourced food packaging, disposable supplies and cleaning
and safety products for supermarkets, redistributors, caterers, food processors,
hotels, contract cleaners and other users. Outsourcing Services is the Group's
largest business area. It had operating profit before goodwill amortization of
GBP169.3 million (approximately 73% of the Group's operating profit before
goodwill amortization) in 2002 with numerous warehouses throughout North
America, Europe and Australasia and a total of 7,064 employees as of December
31, 2002.
The table below sets out selected financial and other information for
the Outsourcing Services business area as of and for each of the three years
ended December 31, 2000, 2001 and 2002.
2002 2001 2000
________ ________ ________
Sales (GBPm)...................................................... 2,231.2 2,129.1 1,783.1
Operating profit before goodwill amortization (GBPm).............. 169.3 161.9 131.1
Profit margin (%)............................................... 7.6 7.6 7.4
Employees....................................................... 7,064 6,746 6,197
Activities
The business area provides outsourced food packaging, disposable
supplies, cleaning and hygiene products and personal protection and catering
equipment. Product catalogs and order lists are provided for customers to place
their orders, which can be received by telephone, fax or electronically via
computer link. Internet ordering is also being used in parts of the business.
In its supermarket and retail operations, Bunzl operates three main
programs: (i) direct-store-door, where deliveries are made to individual user
locations, (ii) warehouse replenishment, where Bunzl restocks a customer's
warehouse on a planned basis, and (iii) cross-docking where orders are picked
for individual stores of a customer's supermarket chain, for example, and
pallets are prepared, labeled by store and delivered to the customer's
warehouse. In cross-docking programs these disposables are not stored in the
customer's warehouse, they simply cross from the customer's inward dock to the
outward dock and are loaded onto the customer's delivery truck with the grocery
supplies for each store. Some cross-docking customers collect their disposables
from Bunzl's warehouse, as do redistribution customers, which are smaller
independent distributors which do not source the relevant products directly from
manufacturers.
11
Market Characteristics
Customers are keen to reduce storage space taken up by a wide variety
of products which are often bulky, low cost plastic and paper disposable
products, so demand is strong for Bunzl's outsourcing programs which deliver
direct to their outlets on an as needed basis or via the cross-docking
program described above.
Demand continues to grow for ready to eat, reheat or cook at home meals,
known as takeout food. These products are available in retail food courts,
displayed as a range of ready to go starters, main courses and desserts which
are often prepared on the premises. Customers can choose from set meals or a la
carte from menu boards. Bunzl supplies an extensive range of specialized
packaging and foodservice equipment for this purpose. With case-ready meats,
produce, bakery and other food types gaining acceptance in the market, Bunzl is
also obtaining an increasing share of business from food processors.
Many of Bunzl's larger customers are using electronic data interchange,
which involves utilizing linked computer systems, for placing orders and
handling billing and account management information. This method of
communication is quick and efficient both for customers and for Bunzl.
In Europe, the role of larger distributors has been steadily
increasing, replacing a distribution process characterized by regional,
fragmented, typically family owned enterprises or manufacturers supplying
customers direct. There is an increasing trend towards a full outsourcing
service.
Products
Bunzl distributes thousands of items. Typically a branch might carry
around 3,000 lines and have access to many more within the Group. Some examples
of products are listed below by user type.
Foodservice: meat trays, labels, plastic and paper bags, clear
plastic containers, aluminum foil, merchandizing tags, platters, cake domes,
plastic microwavable and oven proof takeout food packaging, straws and stirrers,
plastic cutlery, napkins, custom printed food boxes, pizza boxes, burger wraps,
tumblers, paper plates, vending machine ingredients, cups and catering
equipment.
Hygiene and cleaning: paper towels, toilet tissue, liquid soap,
disinfectant, cloths, floor polish, refuse sacks, mops and disposable gloves.
Hotel guest amenities and supplies: custom printed soaps, shampoos,
coasters, straws, disposable tablecloths, napkins and candles.
Personal protection equipment: disposable workwear, high visibility
workwear, footwear, gloves, respiratory protective equipment and hearing
protection.
Suppliers and Customers
Bunzl purchases its supplies from a variety of manufacturers of plastic
and paper packaging, plastic bags, clingfilm, aluminum foil, napkins, tissue,
janitorial and other products ranging from large multinational organizations to
smaller specialist manufacturers. Products are sourced both locally from
domestic suppliers and imported from overseas. There has been supplier
consolidation over recent years and suppliers are increasingly deciding to move
away from direct sell of smaller shipments and instead utilize third parties
like Bunzl for distribution of their products.
Customers range greatly in size. Larger customers include major national,
and sometimes international, chains of supermarkets, fast food outlets, hotels,
contract caterers, contract cleaning groups and food processors. Smaller
customers include local independent operators in these sectors, cafes and
sandwich shops and redistribution customers (as described above).
12
Raw Materials
Many of the products the Group supplies have a significant plastic and/or
paper content with plastic polymers predominating. As a consequence movements in
natural gas, oil and pulp prices as well as other raw material prices may affect
the cost of the products purchased by the Group.
Competition
The market is highly competitive in all sectors and geographic areas
of operation. Competitors range from large distribution companies to small,
local distributors in specific geographic areas. Many manufacturers also
distribute their own products, selling directly to their larger customers, and
many of the Group's customers also have distribution operations.
Bunzl has extensive distribution networks which can offer service to
customers on both a local and national basis. It is a specialist in its field
and is able to anticipate as well as meet customer needs and trends.
Considerable investment in technology makes Bunzl a fast and efficient operator
and management believes that this, combined with experienced and well organized
teams of staff, ensures customers get the right product at the right price at
the right time.
Organic Growth
The Outsourcing Services business has grown organically by seeking
to consistently develop long term relationships with customers and attract new
ones. A particular growth area has been in expanding outsourcing services
programs for customers which can be tailored to their precise needs. The
programs can yield cost, space and working capital savings for these customers.
Another growth driver has been in identifying market trends and exploiting
their potential, such as takeout food and food processors described above.
Supermarkets, food processors, contract caterers and cleaners and
the redistribution side of the business, where Bunzl supplies product to other
small distributors, have all seen growth over the years.
Acquisitions
The US business has been strengthened over the last five years. In 1998
the grocery supply business of International Paper's xpedx division was
purchased. In December 2000 the acquisition of Koch Supplies was completed,
which strengthened the growing activities supplying the food processor and
packing industry in the US. Also in December 2000 the North American Outsourcing
Services business was further enhanced by the acquisition of Schrier Brothers,
one of the largest redistributors in the North East. In October 2001 Bunzl
acquired Packers, a long established supplier to the beef and pork processing
industries based in Nebraska and with small branches also in Canada and the UK.
In July 2002 Kenco, a redistribution business based in Seattle, Washington was
acquired. In December 2002 the Group acquired Saxton, a redistribution business
based in Phoenix with locations also in Kansas City and Denver, which will
strengthen the Group's position both in cleaning and hygiene and the relevant
regions. In February 2003 the Group purchased Enterprise, a distributor of plant
supplies to food processors in Dallas, Texas; Greeley, Colorado; Atlanta,
Georgia and St Joseph, Missouri.
In June 2001 the acquisition of Godin in Quebec enabled Bunzl to serve
national customers across Canada. In October 2001 the Group's geographic
coverage of Canada was completed with the acquisition of Eastern Paper in the
Maritimes.
A number of significant acquisitions have also helped develop the
European Outsourcing Services business. In early 1999 Provend was acquired
adding to the Group's Outsourcing Services disposable supplies business in the
UK and providing the basis to develop, in management's view, a leading position
in the closely related vending sector. In September 1999 the acquisition of
Brierley Almond complemented the Group's growing business with
13
retailers and represented a further step towards replicating in Europe
the Group's outsourcing program in the North American grocery sector. In April
2000 the acquisition of Shermond Products in the UK strengthened Bunzl's
position in the growing healthcare sector. In July 2000 the Group acquired
Greenham, which is primarily involved in the distribution of supplies including
cleaning and hygiene, personal protection and construction consumables. Based in
the UK with operations in Denmark, Ireland and Germany, it enhanced the Group's
position in cleaning and hygiene supplies and developed the personal protection
products business. In August 2000 the Outsourcing Services business in Ireland
was further developed with the purchase of Allegro, a distributor of cleaning
and hygiene supplies. In February 2001 ICCS MacGregor, a distributor of supplies
to hotels, nursing homes and contract cleaners in Scotland, was added to the
Group's Outsourcing Services business in the UK. In July 2001 the Group's
European retail supply business was expanded by acquiring the UK carrier bag
supply business from BPI thus building on the Group's international sourcing
operations and in October 2001 the Group acquired the DKI Group which supplies
packaging consumables and equipment to the Danish supermarket and food
processing industries, strengthening the Group's position in the Scandinavian
market. In November 2001 the Group further expanded Outsourcing Services in
Europe with the acquisition of W A Blyth, a distributor of personal protection
equipment and cleaning and hygiene supplies in Wales and South West England. In
May 2002 Lockhart, a distributor of catering equipment to the foodservice
industry, was acquired. In November the Group agreed to purchase Darenas, a UK
national distributor of cleaning and hygiene supplies, and completed shortly
thereafter. It is an excellent fit with the Group's existing operations. In late
December 2002 the Group purchased Thomas McLaughlin, a leading distributor of
catering equipment in both Northern Ireland and the Republic of Ireland.
McLaughlin is a logical extension of the Group's existing business in Ireland
and complements the acquisition of Lockhart earlier in the year.
In November 2002 the Group bought Lesnie's, a distributor of supplies to
food processors and retailers based in Sydney, Australia. This expands the
Group's position in Australasia.
Filtrona
Filtrona is a world leading supplier of outsourced cigarette filters,
ink reservoirs and other bonded fiber products, protective caps and plugs,
self-adhesive tear tapes and certain security products. It is also a leading
extruder of custom plastic profiles. It operates through wholly owned
subsidiaries and a number of jointly owned companies, principally in Asia.
Filtrona had operating profit before goodwill amortization of GBP54.2 million
(approximately 24% of the Group's operating profit before goodwill amortization)
in 2002 and 4,722 employees as of December 31, 2002
The table below sets out selected financial and other information for
the Filtrona business area as of and for the three years ended December 31,
2000, 2001 and 2002.
2002 2001 2000
Sales (GBPm).................................................... 442.4 429.2 399.3
Operating profit before goodwill amortization (GBPm)............ 54.2 52.3 53.7
Profit margin (%)............................................. 12.3 12.2 13.4
Employees..................................................... 4,722 4,738 4,707
Activities
The Group manufactures high quality filters which it sells to the
world's tobacco companies and, in particular, special filters for the low tar
cigarette market. Its bonded fiber products include reservoirs for writing
instruments, medical device components and household items. The Group's
self-adhesive tear tape is sold to tobacco companies and other consumer product
manufacturers. The Group also manufactures intermediate industrial products and
sells them to a large number of customers in a variety of industries for a range
of applications.
Filtrona currently has manufacturing facilities in the US, UK, Brazil,
Germany, India, Indonesia, Italy, Jordan, Mexico, the Netherlands, Paraguay,
Thailand and Venezuela.
14
Market Characteristics
The market for cigarettes using special filters of the type manufactured
by Bunzl continues to grow, leading to increased demand for Bunzl's products.
Filtrona's bonded fiber products meet the needs of, for example,
pen manufacturers and ink-jet printer manufacturers for component systems which
provide less expensive, more efficient and more flexible products.
The use of tear tape as a medium for brand promotion and security
purposes through the use of multi-colored text and images has added to the
growth of self-adhesive tear tape used as an easy opening device for product
overwrap.
The caps and plugs and extrusion businesses sell to a wide spectrum of end
use markets and, while benefiting from the overall trend of plastics to replace
other materials such as metals, are nevertheless somewhat dependent on the
overall level of activity in the economy.
Products
Cigarette filters, whose principal raw material is cellulose acetate tow,
reduce the level of tar and nicotine in cigarettes. Special filters, comprising
multiple segments and more effective filter media such as carbon, are key
components in producing lower tar cigarettes.
Bonded fiber products include ink reservoirs, which contain the ink and
control its flow in a variety of writing instruments and ink-jet printer
cartridges, fibers used to absorb and retain liquids in certain healthcare
testing devices and fibers which release liquid into the air in certain
household items such as air fresheners.
Plastic self-adhesive tear tape is an easy opening device applied as a
strip around consumer product wrapping and packaging to make opening the product
easier and increasingly also printed and used for brand promotion and security.
Protection caps and plugs are mainly used during the manufacturing process
or in the transportation of engineered products. Typical applications would be
to protect delicate parts of a car engine during transport and manufacture or
the thread of oil pipe segments during transportation to offshore oil rigs.
The extruded profiles are specialized, custom made products such as light
diffusers for offices and air conditioning ducting for aircraft.
Suppliers and Customers
Suppliers to the Group's filters and fibers businesses are mainly large
multinational chemical and paper companies which manufacture cellulose acetate
tow and other raw materials. Suppliers to the Group's plastics based businesses
are large multinational producers of plastic resins such as low density
polyethylene, polypropylene and PVC and focused suppliers of more specialized
products.
The worldwide cigarette industry forms the main customer base, including
large multinational manufacturers as well as local producers and government
owned tobacco monopolies. Other customers include large engineering companies in
sectors such as automotive and aircraft, international pen manufacturers,
ink-jet printer manufacturers, fast moving consumer goods companies and many
other engineering and manufacturing companies.
Raw Materials
The Group supplies filter products and accordingly the cost of sales is
affected by the price of acetate tow as well as other raw material prices. The
Group also supplies plastic products and, as a result, the cost of the raw
15
materials purchased by the Group is affected by resin prices which are
themselves affected by natural gas and oil prices as well as other factors.
Competition
The markets in which the Filtrona business area operates are highly
competitive.
The largest producers of cigarette filters are the multinational tobacco
companies which manufacture many filters in-house. There are also small local
filter producers in many different parts of the world. Bunzl is well positioned
to serve multinational customers since it has a wide geographic presence and
specializes in complex filters, which such customers tend to buy in rather than
manufacture themselves.
In addition to direct competition in Bunzl's fiber and self-adhesive tear
tape businesses, there are various other technologies which compete with Bunzl,
such as hot wax and thermal in tear tape and high performance foam in ink
reservoirs. Management believes that Bunzl's products offer customers a more
effective solution which can take advantage of industry trends.
The Group's caps and plugs businesses compete directly with focused,
privately owned, competitors in both North America and Europe and also with
alternative technologies which can achieve product protection capabilities.
Custom extruded plastic profiles are made by a variety of companies both larger
than Bunzl's businesses and smaller, focused, often privately owned companies.
Management believes that a customer service orientation and an emphasis on
timely and cost effective supply are hallmarks of all the Group's Filtrona
operations.
Acquisitions
In 1998 Bunzl purchased Enitor, a leading Dutch extruder, to complement
Bunzl Extrusion in the US. In January 2000 the Group purchased Davidson
Plastics, a profile extrusion business located in Washington State.
In May 2001 the Group acquired 51% of Filtrati, an Italian cigarette filter
and bonded fiber products manufacturer, taking Bunzl's ownership of Filtrati to
100%. Renamed Filtrona Italia, it has become a full member of the Group's global
Filtrona network.
Geographical Market Supplied
The following table shows the Group's total sales for 2000, 2001 and 2002
by geographical market supplied.
2002 2001 2000
_____________ ___________ ___________
GBPm GBPm GBPm
Europe........................................................ 957.9 1,009.6 821.1
North America................................................. 1,748.6 1,753.4 1,557.2
Rest of the world............................................. 128.8 113.5 125.3
_____________ ___________ ___________
2,835.3 2,876.5 2,503.6
_____________ ___________ ___________
The Group's largest operations by geographical markets supplied are the US
and the UK. Canada, Germany, the Netherlands, Australia, Ireland, Denmark and
Brazil are its next largest operations and it has smaller operations in other
countries in Europe, Asia and the Americas. In 2002 North America accounted for
62%, Europe 34% and the rest of the world (being South America, Australasia and
Asia) 4% of Group sales.
Technology
Effective information technology systems are critical to operations and
process management and for financial and general management control across the
Group. Substantial investment is continually made in computer systems throughout
the operations to improve the Group's ability to service customers, enhance its
market position, trade on
16
the internet and contribute to productivity gains. Management considers that
the quality of its systems is an important source of competitive advantage.
In the Outsourcing Services businesses there is continuing use of
Electronic Data Interchange for business transactions and communication between
Bunzl and its suppliers as well as customers. Bunzl devotes substantial
resources to this area. Internet ordering is also being used in parts of the
business.
Within Filtrona, management considers it to be of the utmost importance
also to remain up to date with the most appropriate technology for the
manufacture and supply of the products the Group produces. In this respect
investment continues to be made in new equipment for the manufacture of filter,
fiber, tear tape, caps and plugs, extrusion and other products.
Intellectual Property
It is the Group's policy to commit sufficient funds to enable it to keep
abreast of all relevant product, process, market and system developments in the
fields in which it operates.
The industries in which the Group is active as a manufacturer are not
generally characterized by proprietary products and although the Group's
companies hold or are licensed to use certain trademarks, patents and other
intellectual property rights, the successful continuation of the Group's
business is not dependent on such intellectual property rights and no one such
intellectual property right is, by itself, material to the Group's business.
Environmental Regulation
The Group is subject to a broad range of environmental laws and regulations
in each of the jurisdictions in which it operates, including the US. These laws
and regulations impose increasingly stringent environmental protection standards
on the Group regarding, among other things, air emissions, wastewater
discharges, the use and handling of hazardous waste and materials, waste
disposal practices and the remediation of environmental contamination. These
standards expose the Group to the risk of substantial environmental costs and
liabilities, including liabilities associated with divested assets and past
activities.
The Group has an established environmental policy pursuant to which all its
operating companies are committed to a program of continued improvement in
environmental performance and committed to ensuring that each business area
identifies and controls significant environmental risks associated with its
activities, products and services. Bunzl is also committed to compliance with
environmental legislation and regulations in the jurisdictions where Group
companies operate. The Group periodically reviews its environmental practices in
order to ensure that appropriate standards are being maintained. The Group
regularly incurs expenditure in connection with environmental compliance
requirements. Although the Group is involved in the remediation of contamination
of certain of its properties, it believes that its facilities and operations are
generally in compliance with environmental laws and regulations, with the
exception of such non-compliance as would not be expected to have a material
adverse effect on its financial condition or results of operations.
The Group believes that the amounts that it has budgeted and reserved will
enable it to satisfy its known and anticipated environmental obligations to the
extent that they can be estimated. However, environmental matters cannot be
predicted with certainty and there can be no assurance that these amounts will
be adequate. In addition, future developments, such as changes in law or
environmental conditions, could result in increased environmental costs and
liabilities that could have a material adverse effect on the Group's financial
condition or results of operations.
17
ORGANIZATIONAL STRUCTURE
Bunzl is a holding company conducting its operations through its subsidiary
undertakings (some of which are themselves intermediate holding companies of
other subsidiary undertakings). The following are the significant subsidiaries
of the Company as of December 31, 2002. Each subsidiary is wholly owned by the
Group.
Significant Subsidiary Country of Incorporation
___________________________________________ _________________________________
Bunzl American Holdings (No.1) Ltd England
Bunzl Distribution USA, Inc US
Bunzl Overseas Holdings Ltd England
Bunzl USA Holdings Corp US
Bunzl USA Inc US
Earthmedia Ltd England
Filtrona Richmond Inc US
PROPERTIES
As of December 31, 2002 the Group operated its various businesses from a
total of approximately 260 locations, the majority of which were in North
America and Europe with the remainder located in Australasia, Asia and South
America. Most of these facilities were leased by the Group, with the balance
owned by the Group. The Group believes that all such facilities are suitable and
adequate for their use, and generally have sufficient capacity for existing
needs and expected near term organic growth.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OPERATING RESULTS
The following discussion and analysis is based on the Company's
Consolidated Financial Statements, which appear on pages F-1 to F-33 of this
Annual Report. The Consolidated Financial Statements have been prepared in
accordance with UK GAAP, which differ in certain significant respects from US
GAAP.
For an explanation of the principal differences between UK GAAP and US GAAP
affecting the Group, see Note 28 of the Notes to the Consolidated Financial
Statements beginning on page F-29 of this Annual Report. This also includes a
reconciliation of profit, a statement of comprehensive income, earnings per
share, a reconciliation of the effect on earnings of adopting SFAS142 'Goodwill
and Other Intangible Assets', a reconciliation of equity shareholders' funds and
a consolidated cash flow statement.
Critical Accounting Policies
The results of the Group's operations and its financial condition are
dependent upon the utilization of accounting methods, assumptions and estimates
that are used as a basis for the preparation of the Consolidated Financial
Statements. The Consolidated Financial Statements of Bunzl are prepared in
accordance with UK GAAP and the accounting policies employed are set out under
the heading "Accounting Policies" on pages F-6 and F-7. The Company has
identified the following critical accounting policies and related methods,
assumptions and estimates which management believes are essential to
understanding the underlying financial reporting risks and the impact that these
accounting methods, assumptions and estimates have on the Group's reported
financial results. This information should be read in conjunction with the
Consolidated Financial Statements and this "Operating and Financial Review and
Prospects".
18
Goodwill
Bunzl has significant investments in goodwill as a result of acquisitions
of businesses. Goodwill arising on acquisitions made after December 31, 1997 is
capitalized and is amortized through the profit and loss account over its
estimated useful life, a period of up to 20 years, on a straight line basis.
Changes in these lives would result in different effects on the profit and loss
account. Goodwill is reviewed for impairment when events and circumstances
indicate that carrying values may not be recoverable and any impairments are
charged to the profit and loss account. Tests for impairment are based on
discounted cash flows and assumptions (such as discount rates, timing, growth
prospects and competitive environment) which are inherently subjective. Goodwill
arising on acquisitions made prior to January 1, 1998 remains eliminated against
reserves. In determining the profit and loss on disposal of a business, any
goodwill on acquisition, net of goodwill eliminated through the profit and loss
account as a result of any impairment in value or by amortization, is
transferred to the profit and loss reserve through the profit and loss account.
Accounting for Acquisitions
Acquisitions are accounted for at a purchase price based upon the fair
value of the consideration paid. Assets and liabilities acquired are measured at
fair value and the purchase price is allocated to assets and liabilities based
upon these fair values. Determining the fair values of assets and liabilities
acquired involves the use of significant estimates and assumptions (such as
discount rates, asset lives and recoverability).
Pensions
Bunzl accounts for pensions under Statement of Standard Accounting Practice
("SSAP") 24 'Accounting for Pension Costs' and provides additional disclosure in
accordance with the transitional requirements of FRS17 'Retirement Benefits'.
Under SSAP24 Bunzl charges pension costs to the profit and loss account on a
systematic basis over the expected remaining service lives of participating
employees. Differences between the amounts charged and the contributions paid
are treated as assets or liabilities. The application of SSAP24 requires the
exercise of judgment in relation to assumptions for further pay rises in excess
of inflation, employee demographics and the future expected returns on assets.
Bunzl determines the assumptions to be adopted in discussion with its
independent actuaries and believes that these assumptions are in line with UK
practice generally, but the application of different assumptions could have a
significant effect on the amounts reflected in the profit and loss account and
balance sheet.
Background
The following discussion and analysis of the Group's results of operations
and the Group's medium term prospects should be considered in light of certain
significant developments which have occurred in recent years in the Group.
Bunzl has followed a strategy of focusing its resources on areas where it
has, or can develop, real competitive advantage and which have sound organic
growth potential. This has resulted in a major change in the Group's structure
over the last ten years. The Group now comprises two business areas, Outsourcing
Services and Filtrona, both of which are international and continuing to develop
through a combination of good organic growth and acquisition.
Acquisitions
The Group spent GBP77 million on acquisitions during 2002. In the
Outsourcing Services business in late May, Lockhart was acquired from Sodexho.
Lockhart is a leading UK supplier of catering equipment to the foodservice
industry including hotels, caterers, restaurants, retailers and the licensed
trade. In late June the Group acquired Kenco in Seattle. Kenco is a
redistribution business which strengthens the position of the Outsourcing
Services business in the Pacific North West of the US.
19
In the last two months of 2002 Bunzl announced four acquisitions which
added to the Outsourcing Services business in different parts of the world. In
early November Lesnie's, a distributor of supplies to food processors and
retailers based in Sydney, Australia, was acquired. This expands the Group's
position in Australasia. In November, the Group agreed to purchase Darenas, a UK
national distributor of cleaning and hygiene supplies, and completed shortly
thereafter. It is an excellent fit with the existing operations. In the US,
Saxton, a redistribution business based in Phoenix with locations also in Kansas
City and Denver, was acquired in December, which will strengthen the Group's
position both in cleaning and hygiene and in the relevant regions. Finally, in
late December the Group purchased Thomas McLaughlin, a leading distributor of
catering equipment in both Northern Ireland and the Republic of Ireland.
McLaughlin is a logical extension of the Group's existing business in Ireland
and complements the acquisition of Lockhart earlier in the year.
In February 2003, the Group purchased Enterprise, a distributor of plant
supplies to food processors in Dallas, Texas; Greeley, Colorado; Atlanta,
Georgia and St Joseph, Missouri.
Disposals
The Group raised GBP111 million in cash from disposals in 2002. The
principal disposal was the sale of the Paper Distribution business area for
which Bunzl will receive a further GBP18 million deferred cash consideration
which is payable in two tranches of GBP10 million and GBP8 million on July 1,
2003 and July 1, 2004 respectively. The Group also exited the small machine
building activity at Jarrow following the disposal of the Filtrona instruments
business in 2000. The net profit on disposals in 2002 was GBP2.5m.
Price Movements
In 2000 prices of many of the Group's products rose in the US and in
Europe contributing to sales growth. In 2001 deflation had an adverse impact on
sales growth, particularly in the second half and deflation continued similarly
through 2002. Since early 2003, the high prices of natural gas, oil and resins
have caused the price of many plastic based products to rise.
Foreign Currency Movements
In both 2000 and 2001 the US dollar strengthened against the pound,
resulting in currency having a net favorable impact through translation. In 2002
the US dollar weakened resulting in currency having an adverse impact through
translation. For the preparation and consolidation of financial information, the
year end exchange rates used for translating US dollars into pounds sterling for
the years 2000, 2001 and 2002 were, respectively, $1.49, $1.46 and $1.61 to
GBP1.00 and the average exchange rates used for the years 2000, 2001 and 2002
were, respectively, $1.50, $1.44 and $1.51 to GBP1.00.
Financial Reporting Standards and Accounting Policies
The transitional rules of FRS17 'Retirement Benefits' have continued to be
applied and the full requirements of FRS19 'Deferred Tax' have been adopted in
the Consolidated Financial Statements for 2002 which has resulted in the
restatement of the Consolidated Financial Statements for 2001 and previous
years. There have been no other changes to the accounting policies of the Group
from the previous year. See F-33 for further discussion of certain recent
Accounting Standards Board ("ASB") and Financial Accounting Standards Board
("FASB") pronouncements.
2002 compared with 2001
Results
The Group's sales and operating profit in 2002 exceeded those of 2001,
primarily as a result of strong operating performance and underlying organic
growth combined with acquisition activity, despite difficult economic conditions
around the world, price deflation and unfavorable currency movements, the last
of which reduced growth
20
rates by approximately 4 percentage points. Sales of continuing operations
rose by 5% or GBP115.3 million, from GBP2,558.3 million to GBP2,673.6 million,
reflecting a good operating performance partly offset by unfavorable exchange
rate movements and price deflation, with businesses acquired during the year
contributing GBP48.6 million of this increase. Sales of discontinued operations
were GBP161.7 million compared to GBP318.2 million in 2001. Total sales
including discontinued operations, fell by 1% or GBP41.2 million, from
GBP2,876.5 million to GBP2,835.3 million due to the disposal of the Paper
Distribution business area in July 2002.
Following the disposal of Paper Distribution, the Group was reorganized in
August into two business areas: Outsourcing Services and an enlarged Filtrona,
comprising the old Filtrona and the former Plastics business. Both Outsourcing
Services and Filtrona recorded increases in sales despite challenging market
conditions. Operating profit of continuing operations before goodwill
amortization increased by 4%, or GBP8.5 million, from GBP199.1 million to
GBP207.6 million, with businesses acquired during the year contributing GBP4.0
million. Operating profit before goodwill amortization of discontinued
operations was GBP7.8 million compared to GBP15.5 million in 2001. Total
operating profit before goodwill amortization increased marginally from GBP214.6
million to GBP215.4 million. The only exceptional item in 2002 was a profit on
the sale of discontinued operations of GBP2.5 million. There were no exceptional
items in 2001. Including a net interest charge of GBP5.8 million, profit before
tax increased by 4% from GBP187.7 million to GBP196.0 million. Profit before
tax, exceptional items and goodwill amortization increased by 5% from GBP200.5
million to GBP209.6 million. Goodwill amortization was GBP16.1 million in 2002
and GBP12.8 million in 2001.
The net interest charge decreased to GBP5.8 million from GBP14.1 million,
as a result of lower average borrowings due to strong cash generation from
operations, disposal proceeds exceeding acquisition spend and lower interest
rates. Net interest cover (profit on ordinary activities before interest,
divided by net interest payable) was 35 times.
Continuing operations margin (operating profit from continuing operations
before goodwill amortization divided by sales from continuing operations) was
constant at 7.8%, while the margin for the Group as a whole (total operating
profit divided by total sales) rose from 7.5% to 7.6% due to the disposal of the
lower margin Paper Distribution business area.
Currency had a net unfavorable impact in the year through translation
primarily due to the volatility and weakness of the US dollar against sterling.
This translation effect is the major way that currency impacts the Group
although there was also a small transaction effect on certain parts of the
business.
The tax charge of GBP70.3 million represents an effective rate of 33.6% on
the profit on underlying operations (excluding taxation, exceptional items and
goodwill amortization) compared to an effective rate of 35.1% in 2001. Including
exceptional items and goodwill amortization, the overall rate was 35.9% compared
with 37.5% in 2001. The effective rate is higher than the nominal UK tax rate of
30.0% principally because most of the Group's operations are in countries with
higher tax rates.
Profit for the financial year increased by 7% from GBP116.9 million to
GBP125.2 million. The weighted average number of shares in issue rose to 461.4
million in 2002 from 458.6 million in 2001 due to the exercise of employee share
options. Earnings per share rose by 6% from 25.5p to 27.1p, while adjusted
earnings per share, after eliminating exceptional items and goodwill
amortization, rose by 6% from 28.3p to 30.0p. An interim dividend of 3.65p per
share and a final dividend of 7.55p will represent an increase of 8% for the
year, at a total cost of GBP52.3 million, with dividend cover (adjusted earnings
per share, divided by dividends paid and proposed in the year per share) at 2.7
times.
Total assets less current liabilities increased by GBP90.1 million from
GBP775.8 million to GBP865.9 million. This was largely accounted for by an
increase in goodwill, higher long term debtors, increased cash and short term
deposits and lower short term borrowings. Group return on capital employed
(operating profit, divided by net operating capital employed excluding goodwill)
was 40.7% compared to 37.9% in 2001.
21
Obligations due within one year under operating leases decreased from
GBP57.2 million at December 31, 2001 to GBP34.3 million at December 31, 2002.
30% of these operating leases expire in more than five years, compared to 41% in
2001. At the year end the Group was committed to, but had not provided for,
capital expenditure of GBP1.4 million.
Despite the slowdown in the world economy, high levels of capital
expenditure have continued to be invested in the business. Facilities have been
refurbished and upgraded improving both capacity and efficiency. The Group has
continued to invest substantially in computer systems, focusing on improving
systems and installing them in newly acquired companies. These improvements have
enhanced the Group's systems infrastructure and e-commerce capability.
Maintaining an up-to-date asset base remains a priority as it enhances the
Group's market position and enables it to serve its customers better thereby
providing it with a source of real competitive advantage.
The Group has accounted for pensions under SSAP24 'Accounting for Pension
Costs' and has included disclosure in Note 21 of the Notes to the Consolidated
Financial Statements beginning on page F-21 of this Annual Report as required by
the transitional rules of FRS17 'Retirement Benefits'. SSAP24 accounting has
been based on the most recent formal actuarial valuations, which for the main UK
and US defined benefit pension schemes were performed at April 2000 and January
2002 respectively, resulting in funding levels of 101% and 86% respectively. Due
to continuing unfavorable market conditions, informal reviews were performed at
October 2002 which identified lower funding levels. These were, however, still
comfortably in excess of relevant minimum funding requirements that would
necessitate short term funding action. Nevertheless, in addition to the regular
cash contribution of GBP12.1 million paid into the Group's defined benefit
pension schemes, the Group made a GBP20.0 million special contribution in
December 2002, broadly representing the present value of all contribution
holidays previously taken by the Group.
The FRS17 disclosure in Note 21 of the Notes to the Consolidated Financial
Statements beginning on page F-21 of this Annual Report shows a deficit net of
deferred tax of GBP43.7 million which has increased from GBP17.5 million in 2001
due to poor equity returns and falling bond yields. The Group has reviewed its
pension arrangements including benefits and contribution rates. The defined
benefit schemes have now been closed to new members and new employees will in
future be invited to participate in defined contribution schemes. The profit and
loss impact of contributions to the Group's pension schemes in 2002 was at a
similar level to that in 2001 and is expected to remain at around that level in
2003.
Discussion by Business Area
Outsourcing Services
Outsourcing Services is Bunzl's largest and most profitable business area.
Good organic growth and acquisitions caused sales to increase by 5% to
GBP2,231.2 million from GBP2,129.1 million in 2001, despite unfavorable exchange
rate movements which impacted both sales and profits by 3%. The continuing focus
on greater efficiencies and control of operating costs also contributed to good
performance and operating profit before goodwill amortization rose by 5% to
GBP169.3 million from GBP161.9 million in 2001.
Trading conditions remained challenging as a result of the economic
slowdown in North America and Europe, despite which the Group achieved good
volume growth. Customers continued to favor outsourced solutions to service
their requirements, as these often prove to be cost effective. In this context,
the Group's specialist knowledge of the market, efficient operations and
competitive pricing made it attractive to both existing and new customers. The
Group's focus on greater efficiencies and control of operating costs enabled it
to keep operating margin (sales divided by operating profit before goodwill
amortization) constant at 7.6%, despite price deflation arising from an
imbalance of supply and demand.
In North America Bunzl believes it is the largest distributor of
supermarket supplies such as plastic and paper packaging and bags, labels and
cleaning materials. This business has experienced organic growth due to
increased outsourcing and the growing demand for packaging for ready to eat
meals and fresh and freshly prepared food and
22
drink. The integration of Godin and Eastern Paper, both acquired in 2001,
has benefited Bunzl's ability to service national grocery chains in Canada.
The Group has further developed its food processor supplies business in the
US, both organically and through the acquisitions of Koch (in 2000) and Packers
(in 2001). The Group is now well placed, in management's opinion, to take
advantage of the trend towards supermarkets and food service operators
purchasing case-ready meats, produce, bakery and other food types by providing
the specialist packaging they require.
The Group's redistribution business distributes disposable products and
janitorial supplies to sub-distributors who sell to smaller outlets as well as
these and other specialized products to other customers including non-food
retailers, healthcare providers and airlines. It also expanded during the year,
enhanced by the acquisition of Kenco, based in Seattle, in June 2002 and Saxton,
based in Phoenix, in December 2002.
The Group now has 65 warehousing and distribution centers in North America
serving all 50 states as well as Canada, Mexico and the Caribbean, supplying
more than 60,000 different items. The Group uses Electronic Data Interchange
(EDI) to communicate internally and externally with customers, particularly in
the grocery trade. This system facilitates order placement, shipping and
invoicing, reducing errors and delays. It provides customized order guides and a
choice of distribution system. The Group has rolled out its electronic catalog
in the US which enables medium sized customers to order over the internet thus
expanding electronic ordering processes to a large number of customers,
particularly redistributors.
The Group has an ongoing program to upgrade the facilities of its EDI
systems and its electronic customer catalog to reduce operating costs and
enhance the scope and quality of the service offered to customers.
In Europe, management believes the Group's specialist distribution,
procurement capabilities and market knowledge are a source of competitive
advantage, enabling Bunzl to provide customers with one stop solutions
particularly in the UK, Ireland, Germany, Benelux and Scandinavia. This business
has increased sales, despite deteriorating economic conditions particularly in
mainland Europe, as a result of new contract wins, an expansion of the product
range and the integration of new businesses acquired in 2001 and 2002, in
particular, Lockhart, a leading supplier of catering equipment in the UK.
Management believes that Bunzl's suppliers will continue to consolidate and
rationalize their customer distribution operations, providing opportunities for
further growth in this area.
The Group's retail supplies business has implemented full goods not for
resale consolidation programs for major UK supermarkets and other non-food
retailers. The Group's healthcare supply business, Shermond, performed well and
added some new products to its range.
Bunzl's hotel and catering supplies business, which operates in the UK, the
Netherlands, Germany, Ireland and Scandinavia, frequently in conjunction with
the Group's vending supplies business, continues to serve many leading catering
and hotel groups and important contracts have been won or renewed in the past
year. The acquisition in 2002 of both Lockhart and McLaughlin, who are leading
suppliers of catering equipment in the UK and Ireland, has added a wide range of
items to the Group's product offering.
The Outsourcing Services business in Australia performed well over the
year, and its position was strengthened in November 2002 by the acquisition of
Lesnie's, one of the leading distributors of packaging and related consumables
and equipment supplies to the food processor industry in Australasia. Lesnie's
complements Bunzl's processor supplies businesses in North America and Europe
and provides the Group with a base from which to develop customer and supplier
relationships in New Zealand.
Bunzl's cleaning and industrial supplies business performed strongly with a
number of important projects commencing during the year. In November, the Group
agreed to purchase Darenas, a cleaning and hygiene supplies business with
national coverage in the UK, and completed shortly thereafter. The Group is
developing its business with the food processor industry building on its
acquisitions in the UK, Denmark and Ireland and management believes that
23
Bunzl is in a good position to win further business from the larger food
producers and processors, and cleaning and facilities management groups.
Bunzl Vending Services has strengthened its position as a leading
independent vending operator in the UK with strong organic growth. It has won
significant new contracts and serves customers in the retail and catering
sectors and facilities management and financial services groups. The business
has also strengthened its presence in the North East of the UK to enhance its
service to customers there.
Filtrona
During the year ended December 31, 2002 the Group was reorganized so that
the enlarged Filtrona now comprises the old Filtrona and the former Plastics
business. Filtrona now constitutes a small number of international businesses
engaged in service-oriented supply and light manufacture for niche markets,
including outsourced filters, ink reservoirs and other bonded fiber products,
protective caps and plugs, tear tape, security products and extruded plastics.
The reorganization is providing certain cost savings as well as intangible
benefits arising from bringing together skills in overlapping technologies and
markets. Filtrona's sales rose by 3% from GBP429.2 million to GBP442.4 million
and operating profit before goodwill amortization increased by 4%, from GBP52.3
million to GBP54.2 million, despite the continuing weakness of the manufacturing
environment which primarily affected the Group's North American businesses and
the adverse impact of currency translation which reduced sales and profits by 4%
and 5% respectively.
Growth was particularly robust in the filter businesses in the Americas and
Europe, driven in part by increasing demand for Western brands with special
filters, often including charcoal, in Russia and the Far East, particularly
Korea, and growth in South America. The market for low tar and other special
filters continues to expand, boosted by consumer fashion, awareness and stricter
legislative requirements. While it is the current practice of cigarette
manufacturers to outsource the supply of many of these filters, self-manufacture
of some simpler carbon filters is becoming more viable as certain types have
become standard on more popular brands. Notwithstanding this, cigarette
manufacturers are constantly working on more complex innovations to meet the
more challenging requirements of the market and management believes Bunzl is
well placed to assist them with its range of filter, fiber and plastic
technologies, experience and know how.
The fibers business, based in Richmond, Virginia and in Reinbek, Germany
sells reservoirs made using bonded fiber technology for products including pens
and printers, medical device components and household items. The successful
development of ink reservoirs for a new generation of inkjet printers and the
inkjet printer aftermarket has contributed to the growth of the business this
year.
The tear tape business had another good year as demand for both standard
self-adhesive tear tape and tear tape with added value features grew strongly.
The use of tear tape as a medium for brand promotion and security purposes
through the use of multicolored text and images has become increasingly
attractive to Bunzl's customers. As Bunzl makes advances in printing and
application technology, the Group is able to offer customers increasingly
specialized products and services. Bunzl continues to invest in this business to
enhance its ability to serve international customers and to support the
development of new and more sophisticated tear tape and other security products.
Although the weakness of many of its industrial and manufacturing markets
continued through the second half of 2002, the caps and plugs business continued
to show resilience in North America, with the European business moving ahead.
This good overall performance overcame the softness of sales to the oil sector,
which affected North America in particular. The business continued to grow its
distribution operations, adding further product lines and strengthening its
network in Europe, particularly in France and Germany.
Again, despite the continuing weakness in the manufacturing environment,
the sales of the European extrusion business continued to progress
satisfactorily, particularly to its export markets including the UK. The US
business saw growth with its customers in the fence panel, highway control,
medical and recreational sectors, particularly
24
where it sells proprietary products. However the difficult conditions in
some other markets in the US held the extrusion business back overall. A
significant contract for specialized products with a new customer, a leading
national manufacturer of building supplies, was won towards the year end. The
business in Mexico, where there are some interesting potential projects, also
grew.
2001 compared with 2000
Results
The Group's sales and operating profit in 2001 exceeded those of 2000,
primarily as a result of good operating performance and underlying organic
growth combined with acquisition activity. Sales of continuing operations
increased by 17%, or GBP375.9 million, from GBP2,182.4 million to GBP2,558.3
million with businesses acquired during the year contributing GBP64.8 million of
this increase. Sales of existing businesses rose by 14%, or GBP311.1 million,
from GBP2,182.4 million to GBP2,493.5 million, reflecting a good operating
performance and net favorable exchange rate movements partly offset by price
deflation. Sales of discontinued operations were GBP318.2 million compared to
GBP321.2 million in 2000. For the Group as a whole, sales increased by 15%, or
GBP372.9 million, from GBP2,503.6 million to GBP2,876.5 million.
Operating profit of continuing operations before goodwill amortization
increased by 17%, or GBP28.6 million, from GBP170.5 million to GBP199.1 million
with businesses acquired during the year contributing GBP3.7 million of this
increase. Operating profit before goodwill amortization of discontinued
operations was GBP15.5 million compared to GBP20.2 million in 2000. For the
Group as a whole operating profit before goodwill amortization increased by 13%
from GBP190.7 million to GBP214.6 million. There were no exceptional items in
the year compared to a net exceptional profit of GBP2.3 million in 2000.
Including a GBP1.6 million higher interest charge, profit before tax was
GBP187.7 million, 8% higher than the GBP173.4 million in 2000. Profit before
tax, excluding the impact of the exceptional items in 2000 and goodwill
amortization, increased by 13% from GBP178.2 million to GBP200.5 million.
Goodwill amortization was GBP12.8 million in 2001 and GBP7.1 million in 2000.
The net interest charge increased to GBP14.1 million from GBP12.5 million
as a result of higher average borrowings incurred to finance acquisitions,
partly offset by lower US interest rates. Net interest cover (profit on ordinary
activities before interest, divided by net interest payable) was 14 times.
Continuing operations margin (operating profit from continuing operations
before goodwill amortization, divided by sales from continuing operations), was
constant at 7.8% while the margin for the Group fell from 7.6% to 7.5% due to
more difficult trading conditions in the Paper Distribution business area.
Currency had a net favorable impact in the year through translation
primarily due to the strengthening of the US dollar against sterling. This
translation effect is the major way that currency impacts the Group although
there was also a small transaction effect on certain parts of the business.
The tax charge of GBP70.4 million represented an effective rate of 35.1% on
the profit on operations (excluding exceptional items and goodwill amortization)
compared to an effective rate of 35.5% in 2000. Including the impact of the
exceptional items in 2000 and goodwill amortization, the overall rate was 37.5%
compared with 37.3% in 2000. The effective rate was higher than the nominal UK
tax rate of 30.0% principally because most of the Group's operations are in
countries with higher tax rates.
Profit for the financial year increased by 8% to GBP116.9 million. The
weighted average number of shares in issue rose to 458.6 million from 455.8
million in 2000 due to the exercise of employee share options. Earnings per
share increased by 8% from 23.7p to 25.5p. However after adjusting for
exceptional items in 2000 and goodwill amortization, earnings per share
increased 13% from 25.1p to 28.3p. An interim dividend of 3.4p per share and a
final dividend of 6.95p delivered an increase of 10% for the year, at a total
cost of GBP48.0 million, with dividend cover (adjusted earnings per share,
divided by dividends paid and proposed in the year per share) at 2.7 times.
25
Total assets less current liabilities increased by GBP201.2 million from
GBP574.6 million to GBP775.8 million. This was largely accounted for by an
increase in goodwill, higher cash and short term deposits and lower short term
borrowings. Group return on capital employed (operating profit, divided by net
operating capital employed excluding goodwill) was 37.9% compared to 38.1% in
2000.
Obligations due within one year under operating leases increased from
GBP44.0 million at December 31, 2000 to GBP57.2 million at December 31, 2001.
41% of these operating leases expire in more than five years, compared to 54% in
2000. At the year end the Group was committed to, but had not provided for,
capital expenditure of GBP1.2 million.
Despite the slowdown in the world economy, investment across the Group once
again exceeded depreciation although by a lesser amount than in recent years.
Facilities have been refurbished and upgraded improving both capacity and
efficiency. The Group has continued to invest substantially in computer systems,
focusing on improving existing systems, installing them in newly acquired
companies and, in certain areas, for example Paper Distribution, introducing new
systems and rolling them out across the relevant business. These improvements
have enhanced the Group's systems infrastructure and e-commerce capability.
Maintaining an up-to-date asset base remains a priority as it enhances the
Group's market position and enables it to service its customers better thereby
providing it with a source of real competitive advantage.
Discussion by Business Area
Outsourcing Services
Outsourcing Services is Bunzl's largest and most profitable business area.
Good organic growth, favorable exchange rate movements and acquisitions caused
sales to increase by 19% to GBP2,129.1 million from GBP1,783.1 million in 2000.
Continuing tight control of operating costs also contributed to good performance
and operating profit before goodwill amortization rose by 23% to GBP161.9
million from GBP131.1 million in 2000.
2001 was a year in which the Group suffered the tragic loss of a number of
customers in Manhattan on September 11. The Group also experienced increasingly
difficult economic conditions in North America, despite which it achieved good
volume growth. Customers continued to favor outsourced solutions to service
their requirements, as these often prove to be the cost effective route. In this
context, the Group's specialist knowledge of the market, efficient operations
and competitive pricing made it attractive to both existing and new customers.
In North America Bunzl believes it is the largest distributor of
supermarket supplies such as plastic and paper packaging and bags, labels and
cleaning materials. This business has experienced organic growth due to
increased outsourcing and the growing need for specialized packaging for fresh
and freshly prepared foods. As supermarkets expand their ranges of ready to heat
and ready to eat meals, the Group has seen demand for specialized packaging for
these products increase. This type of packaging needs to be attractive as well
as microwave, freezer and/or oven proof.
The Group expanded its North American business in June through the
acquisition of Godin, a distributor based in Quebec. This purchase extended the
Group's geographic coverage of Canada, enabling it to service national
customers. These include Canada's second largest grocery company, with more than
1,300 stores across the country, which awarded Bunzl a sole supply contract in
the summer.
In October the Group acquired Eastern Paper, a distributor based in the
Maritimes area of Canada. This business supplies supermarkets, redistributors
and food processors, and is a leading distributor in the Atlantic Canada market.
With this acquisition, the Group's geographic coverage of Canada is complete.
The Group has been growing its food processor supplies business in the US,
both organically and through strategic acquisitions and Bunzl is now a
significant participant in this field. With case-ready meats, produce, bakery
and other food types gaining acceptance in the market, the Group is planning to
win an increasing share of business
26
from food processors. Koch, acquired in December 2000, is a supplier to the
processor industry and has been successfully integrated into the business.
In October the Group announced the important acquisition of Packers, a food
processor supplies business based in Omaha, Nebraska. Packers is a long
established supplier to the beef and pork processing industries, with customers
principally in the US, but with additional small branches in Canada and the UK.
This purchase complements Koch well. The Group now has a strong base in the food
processing segment from which to continue to grow.
The Group's redistribution business, which distributes supplies to a large
number of sub-distributors who sell to outlets often with a particular
geographic or end user focus, also expanded during the year. Schrier, which the
Group bought in December 2000, integrated well into Bunzl and the Group also
expanded into Puerto Rico. This gave the Group a new base from which to service
the Group's expanding grocery, food processing and redistribution businesses in
the Caribbean.
The Group had 67 warehousing and distribution centers in North America
serving all 50 states as well as Canada, Mexico and the Caribbean, supplying
more than 50,000 different items. The Group uses Electronic Data Interchange to
communicate internally and externally with customers, particularly in the
grocery trade. This system facilitates order placement, shipping and invoicing,
reducing errors and delays. It provides customized order guides and a choice of
distribution system.
The Group completed the national roll out of its electronic catalog in the
US which enables medium sized customers to order over the internet thus
expanding electronic ordering processes to a large number of customers,
particularly redistributors.
In Europe, management believes the Group's outsourcing business is one of
the fastest growing specialist distribution groups. A source of Bunzl's
competitive strength is the Group's ability to provide a 'one-stop shop' for
customers in a number of market sectors, often across Europe.
In the Group's retail supplies business, the Group expanded its customer
base by purchasing the warehouse and distribution activities of BPI's carrier
bag business in July. This business mainly supplies UK supermarkets and other
high street retailers and has enabled the Group to build on its international
sourcing capabilities. The Group also won a long term contract to supply
outsourced services for all goods not for resale with a leading UK supermarket
group. The Group's healthcare supply business, Shermond, had another excellent
year increasing both sales and profits.
In mainland Europe Bunzl acquired the DKI Group from the Danish Grocers
Federation in October. DKI supplies packaging consumables and equipment to the
Danish supermarket and food processing industries. This addition to the Group's
Scandinavian operations increased Bunzl's product offering and widened the
Group's customer base in this market.
In the hotel and catering supplies business, the Group's Australian
operation had a good year despite challenging market conditions. In the UK, the
Netherlands and Germany the Group continued to build on its growing position as
the logical partner for customers and suppliers, with some notable contract wins
with leading caterers and hotel groups. The Group also started a new catering
supplies business in Denmark, building on its growing presence there.
In the cleaning and industrial supplies business, the integration of
Greenham, acquired in 2000, progressed smoothly. In October the Group further
strengthened its position through the acquisition of W A Blyth, a distributor of
personal protection equipment and cleaning and hygiene supplies which serves
customers in Wales and South West England. This acquisition increased the
Group's presence in these areas and fits well with its existing business. The
Group also expanded its Irish business supplying safety products and personal
protection equipment.
27
The Group's vending supplies business Provend was rebranded as Bunzl
Vending Services, and continued to perform well. The Group won significant new
business with a number of attractive customers. In October the Group opened a
national call center in Colchester and during the year the Group strengthened
its position in Southern England. Management believes the Group is now well
established as a leading vending operator in the UK.
Filtrona
Sales of Filtrona were up 7% to GBP429.2 million from GBP399.3 million in
2000 and operating profit before goodwill amortization was down 3% to GBP52.3
million from GBP53.7 million in 2000. The environment for manufacturing was
difficult in both the UK and the US for most of the year with the US economy as
a whole close to recession since March. The terrorist attacks in September
further depressed demand across a broad spectrum of US manufacturing industry.
Sales were boosted by the inclusion for the first time of Filtrati following the
acquisition in May of the outstanding 51% of its shares which Bunzl did not
already own. The overall margin reduction reflects the difficult trading
conditions and the inclusion of all of the sales and profits of Filtrati as a
subsidiary compared to 0% of sales and 49% of profits previously included as an
associate. This business, which supplies cigarette filters and ink reservoirs,
was renamed Filtrona Italia.
Demand for the Group's special filters continued to grow. Many larger
cigarette manufacturers typically prefer to outsource the supply of special
filters and the market for low tar special filters is growing in most key
cigarette markets around the world. The Russian market for carbon filters saw
particularly significant growth and the Group's European sales were also boosted
by the integration of the Italian business. There was continuing growth from
Asia, where Western brands with special filters remained in demand.
Within the Group's fibers business, which supplies reservoirs for pens and
printers, medical device components such as the wicks for pregnancy testing kits
and household products, Bunzl was working jointly with a customer on a reservoir
for their new generation of inkjet printers. The Group was also pursuing a range
of new applications for its fibers technology, including manufacture of
specialized wicks for laboratory use in DNA testing. The new plant in Richmond,
Virginia gave the fibers business an upgraded facility as well as some new
technology and some organizational changes in the business were made to give
greater accountability by product and market.
Self-adhesive tear tape grew strongly during the year, particularly
Supastrip Impact which can incorporate multicolored text or images and can be
produced in various widths. This product line offers customers in competitive
retail markets a number of promotional and security opportunities for their
products. The added value derived when tape is used in this way makes it an
attractive and growing part of the business and the Group invested in an
advanced printing press in the UK to support this development. The Group also
invested in new production equipment in the US, adding a coater to its finishing
capability. Management believes that the Group now has the largest print and
coating capacity of any supplier.
Sales of caps and plugs remained relatively buoyant as the Group moved the
business further into distribution. The Group's enhanced distribution network in
Europe including a new and successful outlet in Poland allowed it to broaden
significantly its product offering. The Group has expanded its catalog by around
1,000 new products and has sent out over 100,000 copies. The Group continued to
seek new products to add to its offering both in Europe and the US.
Despite general manufacturing weakness in Europe, the Group's Dutch
extrusion business performed well, particularly selling into the UK. The Group
has rebranded the extrusion business in the US as Bunzl Extrusion to help it
when selling into major accounts across the country. While overall the US
business operated in a difficult environment, some sectors, for example, the
fence panel and highway businesses based in Washington State, continued to do
well. The Group's new operation in Mexico has, in management's view, also made a
successful start. During the year, Bunzl Extrusion won a major new international
customer, a world leader in refrigeration and food merchandising for
supermarkets and convenience stores.
28
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Group's liquidity have been cash generated from
operations and cash received from disposals of businesses. Some of these funds
have been used to fund acquisitions, to pay interest, dividends and taxes, and
to fund capital expenditure.
Cash flow
Net cash inflow from operating activities was GBP216.4 million, a GBP19.7
million reduction compared to 2001 principally due to a special pension
contribution of GBP20.0 million. Gross capital expenditure of GBP33.4 million
was used to refurbish and expand facilities and to upgrade and replace computer
systems. Sales of fixed assets generated a cash inflow of GBP2.4 million
resulting in a net capital expenditure of GBP31.0 million. An acquisition spend
of GBP77.0 million, net disposal proceeds of GBP111.3 million and other related
cash outflows of GBP0.7 million resulted in a net cash inflow of GBP33.6 million
on acquisitions and disposals.
Shareholders' funds increased by GBP87.5 million from GBP456.5 million at
the end of 2001 to GBP544.0 million at the end of 2002. Gearing (net debt
divided by shareholders' funds) fell from 51.4% at the end of 2001 to 19.5% at
the end of 2002 due to strong operating cash flow and disposal proceeds
exceeding acquisition spend. Management believes that the Group's balance sheet
remains strong and has adequate working capital for its needs.
Borrowings
At December 31, 2002, the Group had gross borrowings of GBP298.2 million,
of which GBP139.8 million comprised a US dollar Bond of $225 million. Net of
cash and liquid resources of GBP192.2 million, the Group's net debt at December
31, 2002 was GBP106.0 million, a decrease of GBP128.5 million from GBP234.5
million at the end of 2001.
The Group is funded in part by a mixture of one to seven year
multi-currency committed credit facilities from 12 banks totaling GBP313.7
million and the US dollar Bond totaling $225 million. The facilities mature
between 2003 and 2007, and the loans under these facilities are drawn for
various periods, at interest rates based on US dollar LIBOR. Loans of GBP119.2
million were drawn under these facilities at average rates of approximately 1.6%
at the end of 2002. All GBP119.2 million of these loans were classified for
accounting purposes as repayable between two and five years. The Group's US
dollar Bond issued in 2001 has three tranches of $75m, $100m and $50m bearing
interest rates of 6.4%, 6.7% and 7.1% and which will become due on July 2, 2006,
July 2, 2008 and July 2, 2011, respectively. The seven and ten year tranches
together with $25m of the five year tranche were swapped to floating rates of
interest based on three month US dollar LIBOR. Interest rate caps are in place
to reduce the Group's floating rate exposure to movements in US dollar LIBOR.
Loans amounting to GBP1.5 million as of December 31, 2002 were secured by
either fixed or floating charges on various assets of the relevant Group
borrower. The credit agreements under which the banks provide these facilities
contain customary terms and conditions, including various financial and
operating covenants (such as maximum gearing and minimum interest cover levels
and customary negative pledge and reporting covenants). The US dollar Bond also
contains similar financial and operating covenants. The Group believes that it
is in compliance with all such covenants and that they do not presently impose
undue restrictions on its activities. In addition the Group maintains
uncommitted and overdraft facilities to maintain short term flexibility.
Obligations due within one year under operating leases decreased from
GBP57.2 million at December 31, 2001 to GBP34.3 million at December 31, 2002.
30% of these operating leases expire in more than five years, compared to 41% at
December 31, 2001. At the year end the Group was committed to, but had not
provided for, capital expenditure of GBP1.4 million. It is anticipated that
these commitments will be fulfilled out of operating cash flow.
Other than as described above, the Group does not have any material
commitments of a long term basis for either capital expenditures or payments on
debt obligations.
29
Pensions
The Group has accounted for pensions under SSAP24 'Accounting for Pension
Costs' and has included disclosure in Note 21 of the Notes to the Consolidated
Financial Statements beginning on page F-21 of this Annual Report as required by
the transitional rules of FRS17 'Retirement Benefits'. SSAP24 accounting has
been based on the most recent formal actuarial valuations, which for the main UK
and US defined benefit pension schemes were performed at April 2000 and January
2002 respectively, resulting in funding levels of 101% and 86% respectively. Due
to continuing unfavorable market conditions, informal reviews were performed at
October 2002 which identified lower funding levels. These were, however, still
comfortably in excess of relevant minimum funding requirements that would
necessitate short term funding action. Nevertheless, in addition to the regular
cash contribution of GBP12.1 million paid into the Group's defined benefit
pension schemes, the Group made a GBP20.0 million special contribution in
December 2002, broadly representing the present value of all contribution
holidays previously taken by the Group.
The FRS17 disclosure in Note 21 of the Notes to the Consolidated Financial
Statements beginning on page F-21 of this Annual Report shows a deficit net of
deferred tax of GBP43.7 million which has increased from GBP17.5 million in 2001
due to poor equity returns and falling bond yields. The Group has reviewed its
pension arrangements including benefits and contribution rates. The defined
benefit schemes have now been closed to new members and new employees will in
future be invited to participate in defined contribution schemes. The profit and
loss impact of contributions to the Group's pension schemes in 2002 was at a
similar level to that in 2001 and is expected to remain at around that level in
2003.
Contractual obligations
The following table summarizes Bunzl's principal contractual obligations at
December 31, 2002.
Payments due by period
______________________
Less than After
Total 1 year 1-5 years 5 years
GBPm GBPm GBPm GBPm
_____________________________________________
Long-term debt ................................................... 298.2 36.4 168.4 93.4
Finance lease obligations ........................................ 0.3 0.2 0.1 -
Operating leases ................................................. 185.5 34.3 70.8 80.4
Capital expenditure .............................................. 1.4 1.4 - -
Further information relating to the Group's long term debt is set out in
Item 5. "Operating and Financial Review and Prospects -- Liquidity and Capital
Resources - Borrowings" on page 29 of this Annual Report. Operating leases
principally relate to land and buildings. The Group's future operating cash flow
is expected to be sufficient to meet these contractual obligations.
Treasury policies and controls
Bunzl has a centralized treasury department to control external borrowings
and manage interest rate and foreign currency risks. Treasury policies are
approved by the Board of Directors 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 only to manage its
foreign currency and interest rate risks arising from underlying business
activities. No transactions of a speculative nature are undertaken. The
department is subject to periodic independent reviews by the internal audit
department. Underlying policy assumptions and activities are reviewed by the
executive directors. Controls over exposure changes and transaction authenticity
are in place and 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 credit
exposure to each counterparty.
30
Interest rate risk
The Group's strategy is to ensure with a reasonable amount of certainty
that the overall Group interest charge is protected against material adverse
movements in interest rates. Interest rate caps are in place to reduce the
Group's floating rate exposure to movements in US dollar LIBOR.
Foreign currency risk
The majority of the Group's net assets are in currencies other than
sterling. The Group's policy is to limit the translation exposure and resulting
impact on shareholders' funds by borrowing in those currencies in which the
Group has significant non-sterling net assets and by using forward foreign
exchange contracts. As the majority of non-sterling net assets are in US
dollars, borrowings are primarily in US dollars. The Group does not hedge the
translation effect of foreign currency movements on the profit and loss account.
The majority of the Group's transactions are carried out in the functional
currency of the Group's operations and so transaction exposures are limited.
However where they do occur the Group's policy is to hedge exposures as soon as
they are committed using forward foreign exchange contracts.
RESEARCH AND DEVELOPMENT
It is the Group's policy to commit sufficient funds to enable it to keep
abreast of all relevant product, process, market and system developments in the
fields in which it operates.
In 2000, 2001 and 2002 the Group spent GBP3.8 million, GBP3.7 million, and
GBP4.7 million, respectively, on its research and development activities.
TREND INFORMATION
The combination of good volume growth, strong positions in the markets in
which the Group operates and a continuing pipeline of potential acquisitions
within the Group's areas of focus means that management currently believes that
the underlying prospects of the Group are good and that, at constant exchange
rates, the Group will continue to develop the business satisfactorily.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
The business of the Company is managed by the Board of directors,
comprising executive and non-executive directors. The directors and executive
officers of the Company as of February 24, 2003 are as follows:
Name Position Age
___________________________________________________________________________________________
A.J. Habgood Chairman 56
A.P. Dyer Deputy Chairman - Non-executive Director 70
D.M. Williams Finance Director 57
P.G. Lorenzini Managing Director, Outsourcing Services 63
L.C. McQuade Non-executive Director 75
S.G. Williams Non-executive Director 55
P. Heiden Non-executive Director 46
J.F. Harris Non-executive Director 54
C.A. Banks Non-executive Director 62
31
A.J. Habgood was appointed as Chairman in 1996, having joined the Company
as Chief Executive in 1991. He was formerly a director of The Boston Consulting
Group and Chief Executive of Tootal Group PLC. He is a non-executive director of
Schroder Ventures International Investment Trust plc.
A.P. Dyer has been Deputy Chairman since 1996 having been Chairman from
1993. He joined The BOC Group plc in 1989 and subsequently became Chief
Executive and Deputy Chairman until his retirement in 1996.
D.M. Williams is Finance Director having joined the Group in 1991 in that
role. He was previously with Tootal Group PLC where he held a number of
financial and operating roles including Group Finance Director. He is a
non-executive director of George Wimpey PLC where he chairs the Audit Committee.
P.G. Lorenzini is Managing Director, Outsourcing Services having joined
Bunzl in 1983 with the acquisition of PCI Mac-Pak. He was appointed President of
Bunzl Distribution USA in 1986 and joined the Board in 1999 with continuing
responsibility for the Group's largest and most successful business.
L.C. McQuade was appointed as a non-executive director in 1991 and is
retiring in May 2003. He was formerly Vice Chairman of Prudential Mutual Fund
Management Inc. He is a non-executive director of Oxford Analytica Inc, Quixote
Corporation, Solar Lighting Inc., Laredo National Bancorp and a founding partner
of River Capital International LLC.
S.G. Williams was appointed as a non-executive director in 1994. After
training as a lawyer and a period with Slaughter and May, he joined the legal
department at Imperial Chemical Industries plc. In 1986 he joined Unilever as
Joint Secretary and was appointed General Counsel in 1993.
P. Heiden has been a non-executive director since 1998. Previously with
Hanson plc, he joined Rolls-Royce plc in 1992, becoming a director responsible
for their Industrial Businesses in 1997 and Finance Director in 1999. In January
2003 he was appointed Chief Executive of FKI plc.
J.F. Harris was appointed a non-executive director in 2000 and is senior
independent director and Chairman of the Audit Committee. Appointed Finance
Director of Unichem Plc in 1986 and Chief Executive in 1992, he became Chief
Executive of the enlarged Alliance Unichem Plc in 1997 and Chairman in 2001. He
is a non-executive director of Anzag AG.
C.A. Banks was appointed a non-executive director in June 2002 and is
Chairman of the Remuneration Committee. Previously Chief Executive of Ferguson
Enterprises, the largest North American subsidiary of Wolseley plc, he joined
the Board of Wolseley in 1992 and was appointed Group Chief Executive in 2001.
COMPENSATION
Reference is made to pages A-1 to A-7 of this Annual Report, which contain
Annex A thereto, the Directors' Remuneration Report.
BOARD PRACTICES
The Board
The Board has established the following committees.
The Remuneration Committee
The membership of the Remuneration Committee comprises all of the
non-executive directors with the exception of L.C. McQuade. The Chairman of the
Committee is C.A. Banks. The terms of reference of the Committee, as approved by
the Board, embody the purpose of the Committee as ensuring that the Company's
32
executive directors and senior executives are fairly rewarded for their
individual contributions to the Group's overall performance having due regard to
the interests of the shareholders and to the financial and commercial health of
the Group. Members of the Committee do not have any personal financial interest
(other than as shareholders) in matters decided by the Committee, nor do they
have any potential conflict of interest arising from cross-directorships or day
to day involvement in running the Group's business. The Committee meets at least
three times a year and at other times as may be required. While the Chairman of
the Company, A.J. Habgood, is not a member of the Committee, he normally attends
meetings except when the Committee is considering matters concerning himself.
The primary purpose of the remuneration policy is to help ensure the
recruitment, retention and motivation of the executive directors by providing
fair reward for the responsibilities they undertake and the performance they
achieve on behalf of shareholders. The Committee also oversees the
administration of the Company's share incentive schemes for employees. The Board
itself determines the remuneration of the non-executive directors.
The Audit Committee
The membership of the Audit Committee comprises all of the non-executive
directors, with the exception of L.C. McQuade, and is chaired by J.F. Harris.
The Committee considers reports from the Group's internal and external auditors.
The reports from the internal audit function cover specific matters arising
during the year in addition to matters which are the subject of regular review.
The Committee also regularly reviews the resourcing of the internal audit
function and its program of investigations. The Committee reviews the half year
and annual financial statements before formal submission to the Board for
approval. The Committee is also responsible for reviewing the appointment of the
external auditors and the broad scope of the annual audit. The Committee meets
at least twice a year and at such other times as may be required. While the
Finance Director, D.M. Williams, is not a member of the Committee, he normally
attends meetings although the Committee has the authority to discuss matters
with the external auditors without executive Board members present.
The Nominations Committee
The Nominations Committee meets as and when required and recommends
candidates for both executive and non-executive positions on the Board for the
consideration of the Board as a whole. A.P. Dyer, A.J. Habgood and S.G. Williams
are members of the Committee which is chaired by A.P. Dyer.
Directors' Service Contracts
A.J. Habgood and D.M. Williams each have service contracts which provide
for one year's notice from the Company and six months' notice from themselves.
There are no provisions for predetermined compensation in excess of one year's
remuneration and benefits in kind. P.G. Lorenzini has a fixed term service
contract which runs to December 31, 2003. The non-executive directors are paid
an annual fee for their services plus a daily fee for attending meetings of the
Board and Board Committees. In addition, where relevant, they are paid a fee for
chairing the Remuneration and Audit Committees. The non-executive directors do
not have service contracts, are not eligible for pension scheme benefits and do
not participate in any of the Group's bonus or share incentive plans. For
details of directors' compensation, see Annex A to this Annual Report, the
Directors' Remuneration Report, on pages A-1 to A-7.
EMPLOYEES
As of December 31, 2002, the Group had 11,849 employees (2001: 12,549,
2000: 11,938), of whom 4,545 were located in North America and 4,619 in the UK.
An insignificant number of the Group's employees are represented by trade
unions. The Group has not experienced any significant strikes or work stoppages
in recent years and considers its employee relations to be good.
33
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 a
statement of business standards with which it expects its employees to comply.
Bunzl encourages involvement of employees in the performance of the business in
which they are employed and aims to achieve a sense of shared commitment.
SHARE OWNERSHIP
The following table sets forth, as of December 31, 2002, the total amount
of ordinary shares owned by the directors, and the percentage of the ordinary
shares of the Company represented by such ordinary shares outstanding as of such
date.
Percentage of
Title of class Identity of person or group Amount owned class
________________________________ __________________________________________ ______________________ ________________
Ordinary shares A.J. Habgood 218,730 0.05%
Ordinary shares A.P Dyer 47,774 0.01%
Ordinary shares L.C. McQuade 29,195 0.01%
Ordinary shares D.M. Williams 100,542 0.02%
Ordinary shares S.G. Williams 5,707 0.00%
Ordinary shares P. Heiden - 0.00%
Ordinary shares P.G. Lorenzini 893,858* 0.19%
Ordinary shares J.F. Harris 3,103 0.00%
Ordinary shares C.A. Banks 5,000 0.00%
_____________________ ________________
1,303,909 0.28%
------------------
* Includes 13,973 ordinary shares in the form of 2,794.6 ADRs acquired
pursuant to the US Stock Purchase Plan (see page 35 of this Annual Report).
Share Option Schemes and Plans
The Company operates the following share plans for the benefit of its
employees relating to the purchase of securities from the Company or its
subsidiaries.
The Bunzl plc Sharesave Scheme (1991) (the "Sharesave Scheme")
The Sharesave Scheme, approved by shareholders at the 1991 Annual General
Meeting, is approved by the UK Inland Revenue and was open to all UK employees,
including the UK based executive directors, who had completed at least one year
of continuous service. No further options will be granted under the Sharesave
Scheme which expired in May 2001. It is linked to a contract for monthly savings
of up to GBP250 per month over a period of either three or five years. Under the
Sharesave Scheme options were granted to participating employees at a discount
of up to 20% to 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.
As of February 28, 2003, under the Sharesave Scheme there were options
outstanding to purchase 1,806,689 ordinary shares, at exercise prices ranging
from 167 pence to 365 pence, exercisable at various dates until April 30, 2006.
The Bunzl plc Sharesave Scheme (2001) (the "2001 Sharesave Scheme")
The 2001 Sharesave Scheme was approved by shareholders at the 2001 Annual
General Meeting and has replaced the Sharesave Scheme. The 2001 Sharesave Scheme
is also approved by the UK Inland Revenue. It operates on a similar basis to the
Sharesave Scheme as summarized above. As at February 28, 2003 under the 2001
Sharesave Scheme there were options outstanding to purchase 1,159,932 ordinary
shares, at exercise prices ranging from 356 pence to 389 pence, exercisable at
various dates from November 1, 2004 until October 31, 2007.
34
The Bunzl plc International Sharesave Plan (the "International Sharesave Plan")
The International Sharesave Plan was introduced following the approval of
the 2001 Sharesave Scheme by shareholders. It operates on a similar basis to the
2001 Sharesave Scheme save that it is linked to a contract for monthly savings
of up to EUR400 per month over a period of three years and options are granted
to participating employees at a discount of up to 20% to the market price
prevailing five days before the date of invitation to apply for the option. As
at February 28, 2003, there were 111,896 options outstanding at an exercise
price of 389 pence under the International Sharesave Plan to employees in the
Netherlands and Germany, which are normally exercisable on May 1, 2005.
The Executive Share Option Scheme (No.2) (the "No.2 Scheme")
The No.2 Scheme, approved by shareholders at an Extraordinary General
Meeting in 1984, is approved by the UK Inland Revenue. No further options will
be granted under the No.2 Scheme, which expired in 1994. The options granted
under the No.2 Scheme are normally capable of being exercised on or after the
third anniversary of the date of grant of the relevant option. As permitted by
the amendments to the rules of the No.2 Scheme approved by shareholders at the
1992 Annual General Meeting, some of the options are also capable of being
exercised at a price of 85% of the full exercise price stated on or after the
fifth anniversary of the date of grant of the relevant option provided that,
during any five consecutive financial years since the option was granted, the
increase in the adjusted earnings per share of the Company is equal to or
greater than the increase in the Retail Prices Index over that period, plus 10%.
As of February 28, 2003, under the No.2 Scheme there were options
outstanding to purchase 291,248 ordinary shares, at exercise prices ranging from
126 pence to 169 pence, exercisable until September 5, 2004.
The 1994 Executive Share Option Scheme (the "1994 Scheme")
The 1994 Scheme replaced the No.2 Scheme and was approved by shareholders
at the 1994 Annual General Meeting. The 1994 Scheme is consistent with
principles expressed at that time in guidelines by bodies representing
institutional investors. In particular a Company performance condition,
determined by the Remuneration Committee, has to be satisfied before options may
normally be exercised. Options granted to date under the 1994 Scheme may
normally only be exercised if, during any three consecutive financial years
since the option was granted, the increase in the adjusted earnings per share of
the Company is equal to or greater than the increase in the Retail Prices Index
over that period, plus 6%. This condition has been satisfied in respect of
options granted prior to 2001 under the 1994 Scheme.
On August 31, 1999 Bunzl filed a Registration Statement with the US
Securities and Exchange Commission on Form S-8 to register 14 million ordinary
shares of 25 pence each, for issuance pursuant to the 1994 Scheme and such
indeterminate number of additional shares which may be offered and issued to
prevent dilution resulting from stock splits, stock dividends or similar
transactions pursuant to the 1994 Scheme.
As of February 28, 2003 under the 1994 Scheme there were options
outstanding to purchase 14,640,251 ordinary shares, including market purchased
shares as well as new shares to be allotted, at exercise prices ranging from 212
pence to 482 pence, exercisable until February 24, 2013.
For details of options held by the executive directors and officers of the
Company, see Annex A to this Annual Report, the Directors' Remuneration Report,
on pages A-1 to A-7.
The US Employee Stock Purchase Plan (2000) (the "US Stock Purchase Plan")
Effective January 1, 2000 the Company adopted the US Stock Purchase Plan
for eligible employees of its US subsidiaries under which participating
employees make contributions through payroll deductions to their respective
employee option accounts ("Option Accounts"). At the end of every calendar
month, a custodian appointed by the Remuneration Committee withdraws funds
contributed to the participant's Option Account to purchase ADRs in the
35
open market on the participant's behalf. Under the US Stock Purchase Plan,
participants receive a 15% discount on the fair market value of the ADRs on the
purchase date. The discount participants receive may be increased at the
discretion of the Remuneration Committee, but in no event shall exceed the
greater of 15% of the fair market value of the ADRs on the purchase date and 15%
of the fair market value of the ADRs on the first business day of the relevant
calendar month. Under the US Stock Purchase Plan, participants are limited to
stock purchases which (taken together with all other stock options held by the
participant under any other stock purchase plan of the Company) in the aggregate
do not exceed $25,000 worth of ADRs for each calendar year. The US Stock
Purchase Plan is intended to satisfy the requirements of Section 423 of the
Internal Revenue Code of 1986, as amended. As of February 28, 2003, 118,122 ADRs
had been purchased under the US Stock Purchase Plan.
On December 27, 1999 Bunzl plc filed a Registration Statement on Form S-8
registering 3.5 million ADRs in connection with the Qualified US Stock Purchase
Plan and a non-qualified US stock purchase plan for eligible employees of Bunzl
Northeast, L.P., which the Company adopted effective January 1, 2000 and ended
effective December 31, 2001. Prior to its termination, 3,114 of ADRs were
purchased at a discount of 20% to fair market value on the applicable purchase
dates under the non-qualified US stock purchase plan.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
As far as the Company is aware, it is neither directly or indirectly owned
nor controlled by any corporation or by any foreign government.
The Company has been informed that as of December 31, 2002 Deutsche Bank AG
had a beneficial interest of 50,559,854 ordinary shares, representing 10.8% of
the outstanding ordinary shares. Beneficial ownership is determined in
accordance with the rules of the US Securities and Exchange Commission and
includes voting or investment power with respect to the securities. This
percentage has changed from 11.2% as of December 31, 2001 and 14.3% as of
December 31, 2000.
Under the Companies Act 1985, holders of voting securities of a listed UK
company must notify the Company of the level of their holding whenever it
reaches, exceeds or falls below specified thresholds. These thresholds are 3%
(beneficial) and 10% (non-beneficial) and every one percent movement in the
number of shares held which have voting rights. The following table sets forth,
as of February 28, 2003 the number of ordinary shares held by holders of more
than 3% and their percentage ownership which have been notified to the Company
in accordance with the provisions noted above.
%
________
Deutsche Bank AG........................................... 10.99
Scottish Widows Investment Partnership Ltd................. 3.99
Prudential plc............................................. 3.36
Legal & General Investment Management Ltd.................. 3.11
Barclays PLC............................................... 3.05
None of the Company's major shareholders have different voting rights.
As of February 28, 2003, 466,912 ordinary shares were held by 23
shareholders with registered addresses in the US. These figures do not include
either the number of ordinary shares held by shareholders with registered
addresses outside the US in which US residents have an interest or the number of
any such US residents. As of the same date, 1,272,375 ordinary shares were being
traded in the form of ADSs by 5 holders of record of ADSs.
The Company does not know of any arrangements which might result in a
change of its control.
36
RELATED PARTY TRANSACTIONS
There are no material transactions between the Company and any related
party. There are no loans outstanding from the Company to any related party.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
The Consolidated Financial Statements are set forth under Item 17.
"Financial Statements".
Legal Proceedings
The Company and its subsidiaries are defendants in a number of legal
proceedings incidental to their operations. While any litigation has an element
of uncertainty, the Company does not expect that the outcome of such
proceedings, either individually or in the aggregate, will have a material
adverse effect upon the Group's financial condition or results of operations.
SIGNIFICANT CHANGES
No significant changes have occurred since the date of the Consolidated
Financial Statements included herein.
ITEM 9. LISTING DETAILS
MARKET PRICE INFORMATION
The Company's share capital consists of one class of ordinary shares. The
trading market for the ordinary shares is the London Stock Exchange Limited (the
"London Stock Exchange") in London, England. The ADSs, each representing five
ordinary shares of the Company, have been listed on the New York Stock Exchange,
Inc. (the "NYSE") since October 29, 1998. The Bank of New York is the Company's
depositary (the "Depositary") issuing ADRs evidencing the ADSs.
The following table sets forth, for the periods indicated, the highest and
lowest middle market quotations for the ordinary shares, as derived from the
Daily Official List of the London Stock Exchange and high and low closing prices
of the ADSs on the NYSE.
London Stock Exchange NYSE
__________________________ ______________________
High Low High Low
__________________________ ______________________
(pence per ordinary
share) (US$ per ADR)
Annual High and Low Market Prices
1998.................................................... 343 199 23.50 19.75
1999.................................................... 361 219 28.50 18.50
2000.................................................... 438 278 31.00 22.13
2001.................................................... 488 408 35.35 29.90
2002.................................................... 547 368 39.80 29.35
Quarterly High and Low Market Prices
2001
First quarter........................................... 484 415 35.35 31.00
Second quarter.......................................... 486 408 34.00 29.90
Third quarter........................................... 488 423 34.00 31.00
Fourth quarter.......................................... 473 410 33.00 30.25
37
London Stock Exchange NYSE
__________________________ ______________________
High Low High Low
__________________________ ______________________
(pence per ordinary
share) (US$ per ADR)
2002
First quarter........................................... 530 405 37.15 29.35
Second quarter.......................................... 547 474 39.80 35.85
Third quarter........................................... 520 405 39.25 32.33
Fourth quarter.......................................... 479 368 37.65 30.69
Monthly High and Low Market Prices
2002
September............................................... 461 405 36.42 32.33
October................................................. 472 420 37.35 33.50
November................................................ 479 426 37.65 33.90
December................................................ 434 368 34.80 30.69
2003
January................................................. 399 345 33.14 29.04
February................................................ 385 351 30.77 28.98
Fluctuations between the pound sterling and the US dollar will affect the
dollar equivalent of the price of the ordinary shares on the London Stock
Exchange and the price of the ADSs on the NYSE. On February 28, 2003 the Noon
Buying Rate was $1.57 to GBP1.00.
For detail of deposit and transfer arrangements for the shares and ADSs see
Item 10. "Additional Information - Material Contracts".
ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
A summary of certain provisions of the Company's Memorandum and Articles of
Association is incorporated by reference to Item 10. "Additional Information -
Memorandum and Articles of Association" in the Company's Form 20-F previously
filed on June 27, 2002. The summary does not purport to be complete and is
qualified in its entirety by reference to the Company's Memorandum and Articles
of Association, copies of which have been incorporated by reference as Exhibit 1
hereto.
MATERIAL CONTRACTS
See Item 12. "Description of Securities other than Equity Securities".
EXCHANGE CONTROLS
There are currently no UK foreign exchange control restrictions on
remittances of dividends on the ordinary shares or the ADSs or on the conduct of
the Group's operations. There are no limitations under English law or the
Memorandum and Articles prohibiting persons who are neither residents nor
nationals of the UK from freely holding, voting and transferring shares in the
same manner as UK residents or nationals.
38
TAXATION
The following discussion is a summary of material UK tax and US federal
income tax consequences of the acquisition, ownership and disposition of
ordinary shares or ADSs by a US Holder (as defined below). This summary is not a
complete analysis or description of all the possible tax consequences of such
purchase, ownership or disposal. It deals only with ordinary shares or ADSs held
as capital assets by US Holders and does not address the tax consequences
applicable to all categories of US Holders, some of which may be subject to
special rules, such as:
* certain financial institutions;
* insurance companies;
* dealers in securities or foreign currencies;
* US Holders holding ordinary shares or ADSs as part of a hedge,
straddle or conversion transaction;
* US Holders whose functional currency is not the US dollar;
* US Holders liable for the alternative minimum tax;
* partnerships or other entities classified as partnerships for US
federal income tax purposes;
* tax exempt organizations; or
* a US holder that owns or one deemed to own 10% or more of any class
of stock of the Company.
This summary is based in part on representations of the Depositary and
assumes that each obligation in the Deposit Agreement, or any related document,
will be performed in accordance with its terms. The US Treasury has expressed
concern that parties to whom ADSs are pre-released may be taking actions that
are inconsistent with the claiming of foreign tax credits for US holders of
ADSs. Accordingly, the analysis of the creditability of UK taxes described below
could be affected by future actions that may be taken by the US Treasury.
This summary is intended as a general guide only and is based on UK
legislation and Inland Revenue practice and laws and practices of the US
currently in force (including the Internal Revenue Code of 1986, as amended to
the date hereof (the "Code"), judicial decisions and final, temporary and
proposed Treasury Regulations), as well as the US-UK double taxation convention
relating to income and gains (the "Income Tax Convention") and to estate and
gift taxes (the "Estate and Gift Tax Convention"), changes to any of which may
affect the tax consequences described herein, possibly with retroactive effect.
Holders should note that the US and the UK signed a new version of the Income
Tax Convention on July 24, 2001 (the "New Income Tax Convention") which was
approved by the UK Parliament on November 20, 2002 and by the US Senate on March
13, 2003. The New Income Tax Convention will not enter into force until the US
and UK have exchanged ratification instruments. As of March 18, 2003 such
instruments have not been exchanged. When the New Income Tax Convention is
effective, the tax treatment of dividends paid to US Holders will change.
Holders of ordinary shares or ADRs are advised to consult their own tax advisors
with respect to the tax consequences of the purchase, ownership or disposal of
their ordinary shares or ADSs, including specifically the consequences under
state and local tax laws.
For US federal income tax purposes and for the purposes of the Income Tax
Convention and the Estate and Gift Tax Convention, US Holders of ADSs will
generally be treated as the owners of the underlying ordinary shares.
As used herein, the term "US Holder" means a beneficial owner of ordinary
shares or ADSs that is, for US federal income tax purposes:
39
* a citizen or resident of the US;
* a corporation created or organized in or under the laws of the US or
of any political subdivision thereof; or
* an estate or trust the income of which is subject to US federal
income taxation regardless of its source.
In general, US Holders will be treated as the holder of the underlying
shares represented by those ADSs for US Federal income tax purposes.
Accordingly, no gain or loss will be recognized if US Holders exchange ADSs for
the underlying shares represented by those ADSs.
The US Treasury has expressed concerns that parties to whom ADSs are
released may be taking actions that are inconsistent with the claiming of
foreign tax credits for US Holders of ADSs. Accordingly, the analysis of the
creditability of UK taxes described below could be affected by future actions
that may be taken by the US Treasury.
UK and US Taxation of Distributions
The Company is not obliged to make any deduction for or on account of UK
tax from dividends paid or other distributions made by the Company to
shareholders.
For UK income tax purposes, an individual shareholder resident in the UK
for tax purposes who receives a dividend paid by the Company will be treated as
having received in respect of the dividend taxable income equal to the sum of
the dividend paid to him/her and the tax credit attaching to the dividend. The
tax credit will be equal to one ninth of the dividend paid (the "Tax Credit
Amount"). The tax credit will be sufficient to satisfy his/her lower or basic
rate income tax liability in respect of the dividend but further tax at a higher
rate may be payable depending on his/her personal circumstances. There will be
no payment of the tax credit or any part of it to an individual whose liability
to UK income tax on the dividend and the related tax credit is less than the tax
credit. After taking into account the effect of the UK withholding tax, an
"Eligible US Holder" (as defined below) is either unable to obtain payment in
respect of tax credits or the amount payable is less than 1% of the dividends to
which the tax credits relate.
If and when the New Income Tax Convention is effective, US Holders will no
longer be entitled to a payment in respect of any UK tax credit received, nor
will such dividends be subject to UK withholding tax.
For US federal income tax purposes, distributions paid with respect to
ordinary shares or ADSs (other than certain distributions of capital stock of
the Company or rights to subscribe for shares of capital stock of the Company)
will be treated as a dividend to the extent paid out of current or accumulated
earnings and profits (as determined under US federal income tax principles).
Until the New Income Tax Convention is effective, the amount of this dividend
will include the Tax Credit Amount associated with the dividend. Such dividends
will not be eligible for the "dividends received deduction" generally allowed to
corporations under the Code. To the extent that a distribution exceeds the
Company's current and accumulated earnings and profits, it will be treated as a
non taxable return of capital to the extent of the US Holder's tax basis in the
ordinary shares or ADSs, and thereafter as capital gain. The amount of the
distribution will equal the US dollar value of the pounds sterling received,
calculated by reference to the exchange rate in effect on the date such
distribution is received (which for holders of ADSs, will be the date such
distribution is received by the Depositary), whether or not the Depositary or
the US Holder in fact converts any pounds sterling received into US dollars at
that time. Any gains or losses resulting from the conversion of pounds sterling
into US dollars will be treated as ordinary income or loss, as the case may be,
of the US Holder and will be US source. Dividends generally will constitute
foreign source "passive" or "financial services" income for US foreign tax
credit purposes.
Subject to certain restrictions and limitations, an Eligible US Holder (as
defined below) who complies with the applicable filing requirements may elect to
claim a foreign tax credit against its US federal income tax liability for any
UK withholding tax. If an Eligible US Holder elects to claim such a foreign tax
credit, the dividend
40
income will, until the New Income Tax Convention is effective, include the Tax
Credit Amount associated with the dividend.
An "Eligible US Holder" means a US Holder who is a beneficial owner of an
ordinary share or an ADS and of the cash dividend paid with respect thereto who
is a US resident individual or a corporation resident in the US for the purposes
of any UK-US income tax convention. A holder of ordinary shares or ADSs will not
be an Eligible US Holder if (i) in the case of a corporation, the holder is also
resident in the UK for UK tax purposes, (ii) the holder holds the ordinary
shares or ADSs in a manner that is effectively connected with a permanent
establishment in the UK, through which such holder carries on business, or with
a fixed base in the UK, from which such holder performs independent personal
services, (iii) in certain circumstances, the holder is exempt from US federal
income tax on dividend income in the US, or (iv) in certain circumstances, the
holder holds 10% or more of the ordinary shares of the Company. In addition, a
US corporation will not be an Eligible US Holder if (i) it is a corporation
which, alone or together with one or more associated corporations, controls,
directly or indirectly, 10% or more of the voting stock of the Company, or (ii)
in certain circumstances, it is an investment or holding company, 25% or more of
the capital of which is owned, directly or indirectly, by persons who are not
individuals resident in, and are not nationals of, the US.
UK Taxation of Capital Gains
Holders of ADSs or ordinary shares who are US resident individuals or US
corporations, and who are not resident or ordinarily resident in the UK for UK
tax purposes, will not normally be subject to UK taxation on capital gains
realized on the disposal of their ordinary shares or ADSs, unless the ordinary
shares or ADSs are, or have been, used, held or acquired for the purposes of a
trade, profession or vocation carried on in the UK through a branch or agency,
at the time of the disposal.
US Taxation of Capital Gains
Under US federal income tax laws, gain or loss realized by a US Holder on
(i) the sale or exchange of ordinary shares or ADSs or (ii) the Depositary's
sale or exchange of ordinary shares received as distributions on the ADSs will
be subject to US federal income tax as capital gain or loss in an amount equal
to the difference between the US Holder's tax basis in the ordinary shares or
ADSs and the amount realized on the disposition. Gain or loss, if any, will be
US source. US Holders should consult their tax advisors regarding the US federal
tax treatment of capital gains, which may be taxed at lower rates than ordinary
income for individuals, and losses, the deductibility of which is subject to
limitations.
UK Inheritance Tax
Provided that any gift or estate tax due in the US is paid, the Estate and
Gift Tax Convention generally relieves from UK inheritance tax (being a tax
charge, broadly, on the value of an individual's estate at his/her death and
upon certain transfers of value (e.g. gifts) made by an individual during
his/her lifetime (generally within seven years of death)) the transfer of
ordinary shares or of ADSs where the shareholder or holder of the ordinary
shares or ADSs making the transfer is domiciled, for the purposes of the Estate
and Gift Tax Convention, in the US and not a national of the UK, for the
purposes of the Estate and Gift Tax Convention. This will not apply if the
ordinary shares or ADSs are part of the business property of an individual's
permanent establishment of an enterprise in the UK or pertain to the fixed base
in the UK of a person providing independent personal services. In the unusual
case where ordinary shares or ADSs are subject to both UK inheritance tax and US
estate or gift tax, the Estate and Gift Tax Convention generally provides for
tax paid in the UK to be credited against tax payable in the US or for tax paid
in the US to be credited against tax payable in the UK based on priority rules
set forth in the Estate and Gift Tax Convention.
41
UK Stamp Duty and Stamp Duty Reserve Tax ("SDRT")
No stamp duty will be payable on an instrument transferring an ADS or on a
written agreement to transfer an ADS, provided that the instrument or written
agreement of transfer remains at all times outside the UK and that the
instrument or written agreement of transfer is not executed in the UK. No SDRT
will be payable in respect of an agreement to transfer an ADS (whether made in
or outside the UK). Stamp duty or SDRT is, however, generally payable at the
rate of 1.5% of the amount or value of the consideration or, in some
circumstances, the market value of the ordinary shares, where ordinary shares
are issued or transferred to a person whose business is or includes issuing
depositary receipts, or to a nominee for such a person.
A transfer of, or an agreement to transfer, for value the underlying
ordinary shares will generally be subject to either stamp duty or SDRT, normally
at the rate of 0.5% of the amount or value of the consideration. A transfer of
ordinary shares from a nominee to its beneficial owner (including the transfer
of underlying ordinary shares from the Depositary or its nominee to an ADS
holder) under which no beneficial interest passes is subject to stamp duty at
the fixed rate of GBP5 per instrument of transfer.
US Backup Withholding and Information Reporting
Payments of dividends and sales proceeds may be subject to information
reporting requirements of the Code. Under US federal income tax laws, such
dividends and sales proceeds may also be subject to backup withholding unless
the US Holder (i) is a corporation or comes within certain exempt categories
and, when required, demonstrates this fact or (ii) provides a taxpayer
identification number on a properly completed Form W-9, or a substitute form,
and certifies that no loss of exemption from backup withholding has occurred and
that such holder is a US person. Any amount withheld under these rules will be
creditable against the US Holder's federal income tax liability. A US Holder who
does not provide a correct taxpayer identification number may be subject to
certain penalties.
DOCUMENTS ON DISPLAY
The documents concerning Bunzl which are referred to herein may be
inspected at the US Securities and Exchange Commission. You may read and copy
any document filed or furnished by us at the SEC's public reference rooms in
Washington D.C., New York and Chicago, Illinois. Please call the SEC at
+1-800-SEC-0330 (+1-800-732-0330) for further information on the reference
rooms. Documents filed or furnished made by us via EDGAR are available at the
SEC's website, http://www.sec.gov.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Bunzl has a centralized treasury department to control external borrowings
and manage the interest rate and foreign currency risks. Treasury policies are
approved by the Board of Directors 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 department is subject to periodic
independent reviews by the internal audit department. Underlying policy
assumptions and activities are reviewed by the executive directors. The Group's
principal market risks which arise from Bunzl's sources of finance and
operations relate to interest rate and foreign currency risks. Following
assessment of these risks, Bunzl enters into derivative and non-derivative
instruments as appropriate to manage these exposures. No transactions of a
speculative nature are entered into by the Group.
Interest Rate Risk
The Group's principal exposure to interest rate risk relates to changes in
US dollar and sterling interest rates. The Group's gross borrowings are mainly
(89% at December 31, 2002) denominated in US dollars of which the majority (88%
at December 31, 2002) are based on a floating US dollar interest rate (LIBOR)
with the balance having a fixed interest rate of 6.4%. The Group manages its
interest rate risk by reference to its forecast net borrowings. During the year
an average of 82% of forecast net debt was protected from adverse movements in
42
interest rates with fixed rate debt and interest rate caps for an average
period of 19 months. The Group's current asset investments are mainly (90% at
December 31, 2002) fixed term deposits denominated in sterling. The amount and
nature of interest rate instruments utilized by the Group is determined by
management upon an analysis of the composition of the Group's assets and
liabilities and related interest rate characteristics, as well as prevailing
market conditions and expectations.
Foreign Currency Risk
The Group publishes its financial statements in sterling but conducts its
business in many foreign currencies. The majority of Bunzl's assets,
liabilities, revenues and expenses are denominated in US dollars and other
non-sterling currencies. For example, approximately 70% of Bunzl's sales and
approximately 80% of operating profit before goodwill amortization for 2002 were
denominated in US dollars and other non-sterling currencies. As a result the
Group is subject to foreign currency exchange rate risk due to exchange rate
movements which will affect the translation of the Group's results and net
assets. The Group continually assesses foreign currency risks and monitors the
foreign exchange markets. The Group's policy is to limit the translation
exposure and resulting impact on shareholders' funds by borrowing in those
currencies in which the Group has significant non-sterling net assets and by
using foreign exchange forward contracts. The Group does not hedge the
translation effect on the profit and loss account. The majority of the Group's
transactions are carried out in the functional currency (sterling) of the
Group's operations and so transaction exposures are of limited significance. The
Group's operating profit is affected by the movement in sterling due to
translation exposure. For example, the impact on the Group's operating profit
before goodwill amortization of a 1% movement of sterling against the US dollar
would be approximately GBP1 million.
The Group uses derivative financial instruments, such as foreign exchange
forward contracts, to manage foreign currency risk arising from its underlying
business activities.
Credit Risk
A number of major international financial institutions are counterparties
to the financial instruments entered into by the Group. Credit risk arises from
the possibility that these counterparties may default on their obligations. The
amount of credit risk associated with derivatives is normally measured by the
positive market value, or replacement cost, of any given instrument. Bunzl has
no reason to expect non-performance by any of the counterparties to its
contracts involving financial instruments. Counterparties are approved by Bunzl
according to various criteria, including geographic presence and suitable credit
rating.
Quantitative Disclosure of Market Risk
The analysis below summarizes the sensitivity of the fair value of the
Group's financial instruments to selected changes in market rates and prices.
Fair values represent the present value of future cash flows based on market
rates and prices at the valuation date of December 31, 2002.
Foreign Currency Risk
The sensitivity analysis assumes an instantaneous 10% change in foreign
currency exchange rates from those as at December 31, 2002 with all other
variables held constant. The plus 10% case assumes a strengthening of sterling
and the minus (10)% case a weakening of sterling against all other currencies.
Fair value as at December
31, 2002 assuming an
Fair value as at December 31 exchange rate movement of
_____________________________ ___________________________
2002 2001 plus 10% minus (10)%
_____________________________ ___________________________
GBPm GBPm GBPm GBPm
Foreign exchange forward contracts................ (0.2) 1.2 9.8 (11.4)
43
Interest Rate Risk
The Group's US dollar Bond issued in 2001 has three tranches of $75m, $100m
and $50m bearing interest rates of 6.4%, 6.7% and 7.1% and which will become due
on July 2, 2006, July 2, 2008 and July 2, 2011 respectively. The seven and ten
year tranches together with $25m of the five year tranche were swapped to
floating rates of interest based on three month US LIBOR. The impact on the
Group's operating profit before goodwill amortization of a 1% movement in
interest rates would be approximately GBP1.5 million.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
The ADSs, each representing five ordinary shares of the Company, have been
listed on the NYSE since October 29, 1998. ADRs evidencing ADSs are issuable by
The Bank of New York, as depositary, pursuant to the Deposit Agreement dated as
of October 29, 1998 among the Company, the Depositary and the registered holders
and holders from time to time of the ADRs. The Deposit Agreement and the form of
ADR are exhibits to this Annual Report, having been incorporated by reference to
Exhibit A of the Company's Registration Statement on Form F-6 (File No.
333-9536) filed with the US Securities and Exchange Commission on October 20,
1998. Additional copies of the Deposit Agreement are available for inspection at
the Corporate Trust Office of the Depositary currently located at 101 Barclay
Street, New York, NY 10286, and the principal office in London of the agent of
the Depositary at 1 Canada Square, London E14 5AL. The Depositary's principal
executive office is located at One Wall Street, New York, NY 10286.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The Chairman and the Finance Director, after evaluating the effectiveness
of the Company's "disclosure controls and procedures" (as defined in Exchange
Act Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within
90 days of the filing date of this Annual Report, have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were adequate
and designed to ensure that material information relating to the Company and its
consolidated subsidiaries would be made known to them by others within those
entities.
Changes in internal controls.
There were no significant changes in the Company's internal controls or, to
the knowledge of the Chairman or Finance Director, in other factors that could
significantly affect the Company's internal controls subsequent to the
Evaluation Date.
44
PART III
ITEM 17. FINANCIAL STATEMENTS
Reference is made to pages F-1 to F-33 of this Annual Report.
Index to Consolidated Financial Statements Page
_____________________________________________________________________________________________________ ___________
Independent Auditors' Report to the Shareholders and Board of Bunzl plc.............................. F-1
Consolidated Profit and Loss Account................................................................. F-2
Consolidated Balance Sheet........................................................................... F-3
Consolidated Cash Flow Statement..................................................................... F-4
Consolidated Statement of Total Recognized Gains and Losses.......................................... F-5
Consolidated Reconciliation of Movements in Shareholders' Funds...................................... F-5
Accounting Policies.................................................................................. F-6
Notes to the Consolidated Financial Statements....................................................... F-8
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
ITEM 19. EXHIBITS
1. Memorandum and Articles of Association of the Company. (Incorporated by
reference to the Company's Form 20-F previously filed on June 21, 2001.)
2.1 Form of Deposit Agreement dated as of October 29, 1998 among the Company,
The Bank of New York and the holders from time to time of the American
Depositary Receipts issued thereunder. (Incorporated by reference to
Exhibit A of the Company's Registration Statement on Form F-6 (File No.
333-9536) filed on October 20, 1998.)
2.2 Form of American Depositary Receipt attached as Exhibit A to the Form of
Deposit Agreement. (Incorporated by reference to Exhibit A of the Company's
Registration Statement on Form F-6 (File No. 333-9536) filed on October 20,
1998.)
3. Service Agreement as of January 16, 1996 between the Company and A.J.
Habgood. (Incorporated by reference to the Company's Form 20-F previously
filed on June 21, 2001.)
4. Service Agreement as of January 16, 1996 between the Company and D.M.
Williams. (Incorporated by reference to the Company's Form 20-F previously
filed on June 21, 2001.)
5. Service Agreement as of February 25, 2002 between Bunzl USA Holdings
Corporation and P.G. Lorenzini. (Incorporated by reference to the Company's
Form 20-F previously filed on June 27, 2002.)
23. Consent of KPMG Audit Plc to the incorporation by reference of their report
dated February 24, 2003 under Item 3 of Part II of the Company's
Registration Statement on Form S-8 previously filed on December 27, 1999.
45
Independent Auditors' Report to the Shareholders and Board of Bunzl plc
We have audited the accompanying Consolidated Balance Sheet of Bunzl plc
and subsidiaries (the "Group") as at December 31, 2002 and 2001 and the related
Consolidated Profit and Loss Account, Consolidated Statement of Total Recognized
Gains and Losses, Consolidated Reconciliation of Movements in Shareholders'
Funds and Consolidated Cash Flow Statement for each of the years in the three
year period ended December 31, 2002 presented on pages F-2 to F-33. These
Consolidated Financial Statements are the responsibility of the directors of
Bunzl plc. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom and United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned Consolidated Financial Statements
present fairly, in all material respects, the financial position of the Group as
at December 31, 2002 and 2001 and the results of their operations and their cash
flows for each of the years in the three year period ended December 31, 2002 in
conformity with generally accepted accounting principles in the United Kingdom.
As more fully described in the Accounting Policies "Change of accounting
policy" note on page F-6 of the Consolidated Financial Statements, the Group has
adopted Financial Reporting Standard 19 'Deferred Tax' in the year ended
December 31, 2002. Consequently, the Group's Consolidated Financial Statements
as at December 31, 2001 and for each of the years in the two year period ended
December 31, 2001 have been restated.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected net income for the three years ended
December 31, 2002 and shareholders' equity as at December 31, 2002 and 2001, to
the extent summarized in Note 28 to the Consolidated Financial Statements. As
discussed in Note 28 to the Consolidated Financial Statements, effective January
1, 2002, the Group fully adopted the provisions of Statement of Financial
Accounting Standard 142 'Goodwill and Other Intangible Assets'.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London February 24, 2003
F-1
Consolidated Profit and Loss Account
for the year ended December 31
_______________________________
Notes 2002 2001* 2000*
_____ ____ ____ ______
GBPm GBPm GBPm
Sales
Existing businesses.................................... 2,625.0 2,558.3 2,182.4
Acquisitions +......................................... 48.6
_______ _______ _______
Continuing operations.................................. 2,673.6 2,558.3 2,182.4
Discontinued operations................................ 161.7 318.2 321.2
_______ _______ _______
Total sales............................................ 1 2,835.3 2,876.5 2,503.6
_______ _______ _______
Operating profit
Existing businesses.................................... 189.1 186.9 164.0
Acquisitions +......................................... 2.7
_______ _______ _______
Continuing operations.................................. 191.8 186.9 164.0
Discontinued operations................................ 7.5 14.9 19.6
_______ _______ _______
Total operating profit................................. 1,2 199.3 201.8 183.6
Profit on sale of discontinued operations.............. 26 2.5 - 7.1
Loss on disposal of fixed assets....................... - - (4.8)
_______ _______ _______
Profit on ordinary activities before interest.......... 201.8 201.8 185.9
Net interest payable................................... 3 (5.8) (14.1) (12.5)
_______ _______ _______
Profit on ordinary activities before taxation.......... 196.0 187.7 173.4
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Profit before taxation, goodwill amortization and 209.6 200.5 178.2
exceptional items
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Taxation on profit on ordinary activities.............. 4 (70.3) (70.4) (64.7)
_______ ________ _____
Profit on ordinary activities after taxation........... 125.7 117.3 108.7
Profit attributable to minorities...................... (0.5) (0.4) (0.6)
_______ ________ _____
Profit for the financial year.......................... 125.2 116.9 108.1
Dividends paid and proposed............................ 5 (52.3) (48.0) (43.0)
_______ ________ ______
Retained profit for the financial year................. 18 72.9 68.9 65.1
_______ ________ ______
Basic earnings per share............................... 6 27.1p 25.5p 23.7p
_______ ________ ______
Adjusted earnings per share............................ 6 30.0p 28.3p 25.1p
_______ ________ ______
Diluted earnings per share............................. 6 26.9p 25.2p 23.5p
_______ ________ ______
Dividends per share.................................... 5 11.2p 10.35p 9.4p
_______ _________ ______
_______________________
* Restated on adoption of FRS19 'Deferred Tax'.
+ Acquisitions relate to acquisitions made in 2002.
The Accounting Policies and Notes on pages F-6 to F-33 form part of these
Consolidated Financial Statements.
F-2
Consolidated Balance Sheet
at December 31
_______________
Notes 2002 2001*
_____ ____ ____
GBPm GBPm
Fixed assets
Intangible assets - goodwill.......................................... 7 289.5 258.8
Tangible fixed assets................................................. 8 199.6 226.0
Investments........................................................... 9 34.3 29.6
_____ _____
523.4 514.4
_____ _____
Current assets
Stocks................................................................ 10 217.5 241.7
Debtors: amounts receivable within one year.......................... 11 357.5 439.0
Debtors: amounts receivable after more than one year................. 11 46.7 15.0
Investments........................................................... 12 140.7 30.2
Cash at bank and in hand.............................................. 24 51.5 49.8
_____ _____
813.9 775.7
Current liabilities
Creditors: amounts falling due within one year....................... 13 (471.4) (514.3)
_____ _____
Net current assets.................................................... 342.5 261.4
_____ ______
Total assets less current liabilities................................. 865.9 775.8
Creditors: amounts falling due after more than one year.............. 14 (265.3) (255.1)
Provisions for liabilities and charges................................ 16 (54.3) (62.1)
_____ _____
Net assets............................................................ 546.3 458.6
_____ _____
Capital and reserves
Called up share capital............................................... 17 116.8 116.0
Share premium account................................................. 18 77.3 67.3
Revaluation reserve................................................... 18 1.5 1.6
Profit and loss account............................................... 18 348.4 271.6
_____ _____
Shareholders' funds: equity interests................................. 544.0 456.5
Minority equity interests............................................. 2.3 2.1
_____ _____
546.3 458.6
_____ _____
_____________________
* Restated on adoption of FRS19 'Deferred Tax'.
The Accounting Policies and Notes on pages F-6 to F-33 form part of these
Consolidated Financial Statements.
F-3
Consolidated Cash Flow Statement
for the year ended December 31
________________________________
Notes 2002 2001 2000
_____ _____ ____ ____
GBPm GBPm GBPm
Net cash inflow from operating activities.................... 23 216.4 236.1 176.5
_____ _____ _____
Returns on investments and servicing of finance
Interest received............................................ 5.2 1.1 2.2
Interest paid................................................ (11.6) (12.9) (12.5)
Dividends paid to minority shareholders...................... (0.1) (0.3) (0.3)
Other cash flows............................................. (2.5) (1.8) (2.6)
_____ ______ ______
Net cash outflow for returns on investments and servicing of
finance................................................... (9.0) (13.9) (13.2)
_____ ______ ______
Tax paid..................................................... (64.3) (54.9) (50.8)
_____ ______ ______
Capital expenditure
Purchase of tangible fixed assets............................ (33.4) (39.5) (49.3)
Disposal of tangible fixed assets............................ 2.4 1.8 3.1
_____ ______ ______
Net cash outflow for capital expenditure..................... (31.0) (37.7) (46.2)
____ ______ ______
Acquisitions and disposals
Purchase of businesses....................................... 25 (77.0) (79.8) (170.9)
Disposal of businesses....................................... 26 111.3 1.2 11.5
Other acquisition and disposal cash flows.................... (0.7) (0.9) (2.5)
______ ______ _____
Net cash inflow/(outflow) for acquisitions and disposals..... 33.6 (79.5) (161.9)
______ ______ ______
Equity dividends paid........................................ (48.0) (43.0) (38.0)
______ ______ ______
Net cash inflow/(outflow) before use of liquid resources and
financing................................................ 97.7 7.1 (133.6)
_______ ______ ______
Net cash outflow from management of liquid resources......... (128.7) (6.4) (3.1)
_______ ______ ______
Financing....................................................
(Decrease)/increase in short term loans...................... (37.0) (110.7) 139.2
Increase/(decrease) in long term loans....................... 37.4 123.4 (4.4)
(Decrease)/increase in finance leases........................ (0.3) 0.1 (0.3)
Shares issued for cash....................................... 7.9 7.1 6.7
______ ______ _____
Net cash inflow from financing............................... 8.0 19.9 141.2
______ ______ _____
(Decrease)/increase in cash in the financial year............ (23.0) 20.6 4.5
______ ______ _____
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash.................................. (23.0) 20.6 4.5
Decrease/(increase) in debt due within one year.............. 37.0 110.7 (139.2)
(Increase)/decrease in debt due after one year............... (37.4) (123.4) 4.4
Increase in current asset investments........................ 128.7 6.4 3.1
Exchange and other movements................................. 23.2 (8.4) (13.2)
_____ ______ ______
Movement in net debt in the year............................. 24 128.5 5.9 (140.4)
Opening net debt............................................. 24 (234.5) (240.4) (100.0)
______ _______ ______
Closing net debt............................................. 24 (106.0) (234.5) (240.4)
______ _______ ______
The Accounting Policies and Notes on pages F-6 to F-33 form part of these
Consolidated Financial Statements.
F-4
Consolidated Statement of Total Recognized Gains and Losses
for the year ended December 31
_______________________________
2002 2001* 2000*
______ _____ _____
GBPm GBPm GBPm
Profit for the financial year........................................... 125.2 116.9 108.1
Currency translation differences on foreign currency net investments.... (12.7) (5.4) (2.3)
_____ ______ _____
Total recognized gains and losses for the year.......................... 112.5 111.5 105.8
Prior year adjustment................................................... (10.0) - -
______ _____ _____
Total recognized gains and losses since last directors' report and
accounts............................................................. 102.5 111.5 105.8
_____ _____ _____
Consolidated Reconciliation of Movements in Shareholders' Funds
for the year ended December 31
______________________________
2002 2001* 2000*
____ _____ _____
GBPm GBPm GBPm
Opening shareholders' funds as previously reported........................ 466.5 395.1 325.6
Prior year adjustment..................................................... (10.0) (9.2) (9.5)
______ ______ ______
Opening shareholders' funds restated...................................... 456.5 385.9 316.1
Profit for the financial year............................................. 125.2 116.9 108.1
Dividends paid and proposed............................................... (52.3) (48.0) (43.0)
Transfer of goodwill on disposals......................................... 19.4 - 0.2
Issue of share capital.................................................... 7.9 7.1 6.7
Currency translation movement............................................. (12.7) (5.4) (2.2)
______ ______ ______
Closing shareholders' funds............................................... 544.0 456.5 385.9
______ ______ _____
____________________________
* Restated on adoption of FRS19 'Deferred Tax'.
The Accounting Policies and Notes on pages F-6 to F-33 form part of these
Consolidated Financial Statements.
F-5
Accounting Policies
a. Basis of preparation
The financial statements have been prepared under the historical cost convention
as modified by the revaluation of certain fixed assets and have been prepared in
accordance with applicable UK accounting standards. The following accounting
policies have been applied consistently in dealing with items which are
considered material in relation to the Group's Consolidated Financial
Statements, except as noted in paragraph c below.
b. Basis of consolidation
The Consolidated Financial Statements incorporate the assets and liabilities of
the Company and its subsidiary undertakings at December 31, 2002 and their
results for the periods during 2002 in which they were part of the Group. The
acquisition method of accounting has been adopted.
c. Change of accounting policy
On January 1, 2002 the Group adopted FRS19 'Deferred Tax' which requires full
provision to be made for deferred taxation arising from the different treatment
of certain items for accounting and taxation purposes. Deferred taxation is not
recognized on the unremitted earnings of overseas subsidiary undertakings where
there is no commitment to remit these earnings and deferred taxation assets are
recognized to the extent that they are regarded as more likely than not to be
recovered. Deferred taxation is not discounted. As a result of adopting FRS19,
deferred taxation liabilities at December 31, 2001 have been increased by
GBP10.0m. Accordingly, the opening consolidated profit and loss reserve at
January 1, 2002 has been reduced by GBP10.0m (2001: GBP9.2m, 2000: GBP9.5m) to
GBP271.6m (2001: GBP212.5m, 2000: GBP152.5m). Furthermore taxation on profit
before goodwill amortization and exceptional items has been increased by GBP0.1m
(2001: GBP0.8m, 2000: GBP(0.2)m).
d. Goodwill
Goodwill arising on acquisitions made after December 31, 1997 is capitalized and
is amortized through the profit and loss account over its estimated useful life,
a period of up to 20 years, on a straight line basis. Goodwill arising on
acquisitions made prior to January 1, 1998 remains eliminated against reserves.
In determining the profit or loss on disposal of a business, any goodwill on
acquisition, net of goodwill eliminated through the profit and loss account as a
result of any impairment in value or by amortization, is transferred to the
profit and loss reserve through the profit and loss account.
e. Foreign currencies
The results of overseas subsidiary undertakings have been translated into pounds
sterling at average exchange rates. Assets and liabilities denominated in
foreign currencies have been translated at year end exchange rates, except where
a forward foreign exchange contract has been arranged when the contracted rate
is used.
Exchange differences on the retranslation of opening net worth in overseas
subsidiary undertakings, net of related foreign currency borrowings and foreign
currency hedging contracts together with differences arising from the use of
average and year end exchange rates, have been taken to reserves. Other exchange
differences are taken to the profit and loss account.
Forward foreign exchange contracts hedging transaction exposures are revalued at
year end exchange rates with net unrealized gains and losses being taken to the
profit and loss reserve.
F-6
f. Tangible fixed assets
Until December 31, 1999 land and buildings were revalued periodically. As
permitted under FRS15, the valuations of land and buildings have not been and
will not be updated. All other assets are included at historical cost, less
accumulated depreciation. The profit or loss on sale of tangible fixed assets is
calculated by reference to the carrying values of the assets. The carrying
values of tangible fixed assets are periodically reviewed for impairment when
events or changes in circumstances indicate that the carrying values may not be
recoverable.
g. Depreciation
Tangible fixed assets are depreciated over their estimated remaining useful
lives at the following annual rates applied to book value less estimated
residual value:
Buildings 2% or life of lease if shorter
Plant and machinery 10 - 20%
Fixtures, fittings and equipment 10 - 25%
Depreciation is not provided on freehold land.
h. Leases
Where the Group has substantially all the risks and rewards of ownership of an
asset subject to a lease, the lease is treated as a finance lease. Future
installments payable under finance leases, net of finance charges, are included
in creditors with the corresponding asset value treated as a tangible fixed
asset and depreciated over the shorter of the estimated useful life and the term
of the lease. All other leases are treated as operating leases and the rentals
are charged to the profit and loss account on a straight line basis.
i. Sales
Sales are net sales invoiced to third parties for services provided and goods
sold, excluding inter company transactions and sales taxes.
j. Stocks
Stocks are valued at the lower of cost (on a first in, first out basis) and net
realizable value. For work-in-progress and finished goods, cost includes an
appropriate proportion of labor and overheads.
k. Pension benefits
The Group operates both defined benefit and defined contribution pension schemes
throughout the world. The funds of the principal schemes are administered by
trustees, are held independently from the Group and are not included in the
Consolidated Financial Statements. Pension costs are charged to the profit and
loss account on a systematic basis over the expected remaining service lives of
participating employees. Differences between the amounts charged and the
contributions are treated as assets or liabilities. Independent actuarial
valuations of defined benefit schemes are made approximately every three years.
Contributions paid to defined contribution schemes are charged to the profit and
loss account in the period in which they arise. During 2002 the Group continued
to adopt the transitional disclosure requirements of FRS17 'Retirement Benefits'
which will be fully adopted in the 2003 Consolidated Financial Statements.
F-7
Notes to the Consolidated Financial Statements
1. Segmental analysis
Net operating
Sales Operating profit assets
________________________ _________________________ _______________
2002 2001 2000 2002 2001 2000 2002 2001
____ ____ ____ ______ ____ ____ _____ _____
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Outsourcing Services............ 2,231.2 2,129.1 1,783.1 169.3 161.9 131.1 248.5 258.5
Filtrona........................ 442.4 429.2 399.3 54.2 52.3 53.7 200.8 224.2
Goodwill+....................... (15.8) (12.2) (6.5) 289.5 249.5
Corporate activities............ (15.9) (15.1) (14.3) 32.4 (2.5)
_______ ______ ______ ______ ______ ______ _____ ______
2,673.6 2,558.3 2,182.4 191.8 186.9 164.0 771.2 729.7
Discontinued operations 161.7 318.2 321.2 7.8 15.5 20.2 - 95.8
Goodwill........................ (0.3) (0.6) (0.6) - 9.3
_______ ______ ______ ______ ______ ______ _____ ______
2,835.3 2,876.5 2,503.6 199.3 201.8 183.6 771.2 834.8
_______ ______ ______ ______ ______ ______ _____ ______
Geographical origin
Europe.......................... 970.8 1,018.1 832.5 65.7 61.9 55.6 186.0 281.8
North America................... 1,754.9 1,756.0 1,560.8 150.9 155.2 136.4 223.9 254.5
Rest of the world............... 109.6 102.4 110.3 14.7 12.6 13.0 39.4 42.2
Goodwill++...................... (16.1) (12.8) (7.1) 289.5 258.8
Corporate activities............ (15.9) (15.1) (14.3) 32.4 (2.5)
_______ ______ ______ ______ ______ ______ _____ ______
2,835.3 2,876.5 2,503.6 199.3 201.8 183.6 771.2 834.8
_______ ______ ______ ______ ______ ______ _____ ______
Geographical market supplied
Europe.......................... 957.9 1,009.6 821.1
North America................... 1,748.6 1,753.4 1,557.2
Rest of the world............... 128.8 113.5 125.3
_______ ______ ______
2,835.3 2,876.5 2,503.6
_______ ______ ______
Reconciliation to consolidated balance sheet 2002 2001*
____ _____
GBPm GBPm
Net operating assets......................................................................... 771.2 834.8
Interest bearing cash, debt and investments.................................................. (102.0) (258.6)
Dividends and corporate taxes (Notes 11 and 13).............................................. (88.5) (77.8)
Provisions for deferred taxation and discontinued operations (Note 16)...................... (34.4) (39.8)
______ ______
Net assets................................................................................... 546.3 458.6
______ ______
_________________
* Restated on adoption of FRS19 'Deferred Tax'.
+ Goodwill amortization comprised Outsourcing Services GBP12.8m (2001:
GBP9.6m, 2000: GBP4.9m) and Filtrona GBP3.0m (2001: GBP2.6m, 2000:
GBP1.6m). Unamortized goodwill at December 31, 2002 comprised Outsourcing
Services GBP250.7m (2001: GBP207.7m, 2000: GBP159.1m) and Filtrona GBP38.8m
(2001: GBP41.8m, 2000: GBP34.6m).
++ By geographical origin goodwill amortization comprised Europe GBP10.1m
(2001: GBP8.3m, 2000: GBP5.5m) and North America GBP6.0m (2001: GBP4.5m,
2000: GBP1.6m). Unamortized goodwill at December 31, 2002 comprised Europe
GBP189.0m (2001: GBP154.3m, 2000: GBP138.3m), North America GBP96.5m (2001:
GBP104.5m, 2000: GBP65.3m), and rest of the world GBP4.0m (2001: GBPnil,
2000: GBPnil).
F-8
Notes to the Consolidated Financial Statements (continued)
2. Net operating charges
Existing Discontinued
businesses Acquisitions operations Total
2002 2002 2002 2002
__________ ____________ ____________ ______
GBPm GBPm GBPm GBPm
Changes in stock of finished goods and work-in-progress..... 4.6 (10.4) 26.4 20.6
Raw materials and consumables............................... 1,864.2 37.0 100.4 2,001.6
Employee costs.............................................. 307.4 5.9 13.3 326.6
Depreciation and other amounts written off tangible and
intangible fixed assets.................................. 46.9 1.4 1.2 49.5
Other operating charges..................................... 212.8 12.0 12.9 237.7
__________ ____________ ____________ _______
Net operating charges....................................... 2,435.9 45.9 154.2 2,636.0
__________ ____________ ____________ _______
Profit on ordinary activities is stated after charging:
Auditors' remuneration for statutory audit.................. 1.4 0.1 0.1 1.6
Depreciation and other amounts written off tangible and
intangible fixed assets:
owned and leased ........................................ 32.4 0.1 0.9 33.4
amortization of goodwill................................. 14.5 1.3 0.3 16.1
Hire of plant and machinery - rentals payable
------------------------------------------------------------
under operating leases...................................... 14.8 - 2.0 16.8
Existing Discontinued
businesses operations Total
2001 2001 2001
____________ ____________ ______
GBPm GBPm GBPm
Changes in stock of finished goods and work-in-progress................. (18.1) (1.0) (19.1)
Raw materials and consumables........................................... 1,839.4 251.9 2,091.3
Employee costs.......................................................... 300.8 25.8 326.6
Depreciation and other amounts written off tangible and intangible
fixed assets......................................................... 43.9 1.8 45.7
Other operating charges................................................. 205.4 24.8 230.2
____________ ____________ ________
Net operating charges................................................... 2,371.4 303.3 2,674.7
____________ ____________ ________
Profit on ordinary activities is stated after charging:
Auditors' remuneration for statutory audit.............................. 1.3 0.2 1.5
Depreciation and other amounts written off tangible and intangible
fixed assets:
owned and leased .................................................... 31.7 1.2 32.9
amortization of goodwill............................................. 12.2 0.6 12.8
Hire of plant and machinery - rentals payable under operating leases.... 13.8 3.8 17.6
F-9
Notes to the Consolidated Financial Statements (continued)
2. Net operating charges (continued)
Existing Discontinued
businesses operations Total
2000 2000 2000
____________ ____________ ______
GBPm GBPm GBPm
Changes in stock of finished goods and work-in-progress.................. (36.8) (1.6) (38.4)
Raw materials and consumables............................................ 1,585.3 246.7 1,832.0
Employee costs........................................................... 259.2 28.6 287.8
Depreciation and other amounts written off tangible and intangible fixed
assets................................................................ 32.9 1.9 34.8
Other operating charges.................................................. 177.8 26.0 203.8
____________ ____________ ________
Net operating charges.................................................... 2,018.4 301.6 2,320.0
____________ ____________ ________
Profit on ordinary activities is stated after charging:
Auditors' remuneration for statutory audit............................... 1.2 0.2 1.4
Depreciation and other amounts written off tangible and intangible fixed
assets:
owned and leased ..................................................... 26.4 1.3 27.7
amortization of goodwill.............................................. 6.5 0.6 7.1
Hire of plant and machinery - rentals payable under operating leases..... 11.2 3.6 14.8
Fees for non-audit work performed by the Company's auditors were GBP1.1m (2001:
GBP1.9m, 2000: GBP1.0m) for the Company and its UK subsidiary undertakings and
GBP0.8m (2001: GBP0.5m, 2000: GBP0.6m) for its non-UK subsidiary undertakings.
All of the fees for non-audit work related to tax compliance and advice, due
diligence and other duties carried out in respect of acquisitions and disposals
of businesses. The Company believes that, given their detailed knowledge of the
Group's operations, its structure and accounting policies and the importance of
carrying out detailed due diligence as part of the acquisition process, it is
appropriate for this additional work to be carried out by the Company's auditors
rather than another firm of accountants.
3. Net interest payable
2002 2001 2000
________ ________ ________
GBPm GBPm GBPm
Interest receivable
Bank deposits and unlisted investments.................................. 4.5 1.4 2.3
________ ________ ________
Total interest receivable............................................... 4.5 1.4 2.3
________ ________ ________
Interest payable
Bank loans and overdrafts............................................... (4.5) (11.8) (14.8)
Other loans............................................................. (5.8) (3.7) -
________ ________ ________
Total interest payable.................................................. (10.3) (15.5) (14.8)
________ ________ ________
Net interest payable.................................................... (5.8) (14.1) (12.5)
________ ________ ________
F-10
Notes to the Consolidated Financial Statements (continued)
4. Taxation on profit on ordinary activities
2002 2001* 2000*
____________ ____________ ______
GBPm GBPm GBPm
UK corporation tax
current year .................................................... 18.3 112.1 7.1
prior years ..................................................... (0.2) (0.9) (0.4)
double tax relief................................................ (6.5) (102.1) (0.5)
____________ ____________ ______
Total UK corporation tax at 30.0% (2001: 30.0%, 2000: 30.0%)........ 11.6 9.1 6.2
Overseas taxes
current year..................................................... 57.6 54.0 51.3
prior years...................................................... (1.0) 0.5 (0.6)
____________ ____________ ______
Total overseas taxes................................................ 56.6 54.5 50.7
Deferred taxation transfers
origination and reversal of timing differences................... 2.4 7.5 7.7
____________ ____________ ______
Total taxation for year............................................. 70.6 71.1 64.6
(Debited)/credited to other reserves................................ (0.3) (0.7) 0.1
____________ ____________ ______
Taxation on profit on ordinary activities........................... 70.3 70.4 64.7
____________ ____________ ______
_____________________
* Restated on adoption of FRS19 'Deferred Tax'.
Factors affecting taxation charge for the year
The taxation assessed for the year is higher than the standard rate of
corporation tax in the UK of 30.0%. The differences are as follows:
2002 2001 2000
____________ ____________ ______
GBPm GBPm GBPm
Profit on ordinary activities before taxation 196.0 187.7 173.4
Taxation charge at UK corporation tax rate of 30.0% (2001: 30.0%,
2000: 30.0%)..................................................... 58.8 56.3 52.0
Effects of:
permanent differences (primarily goodwill amortization)......... 3.1 1.8 (0.6)
capital allowances for period in excess of depreciation......... (1.3) (2.5) 1.2
other timing differences........................................ (4.4) (2.1) (4.8)
utilization of tax losses....................................... (0.3) (1.2) (0.1)
higher tax rates on overseas earnings........................... 12.5 10.8 10.9
adjustments to taxation charge in respect of previous periods... (1.2) (0.4) (1.0)
other items..................................................... 0.7 0.2 (0.6)
____________ ____________ ______
Current taxation charge for the year................................ 67.9 62.9 57.0
____________ ____________ ______
5. Dividends paid and proposed
Per share Total
_______________________________ __________________________________
2002 2001 2000 2002 2001 2000
_____ _______ ____ ______ ______ _____
GBPm GBPm GBPm
Interim dividend paid....... 3.65p 3.4p 3.05p 17.0 15.6 14.0
Proposed final dividend
payable.................. 7.55p 6.95p 6.35p 35.3 32.4 29.0
_____ _______ ____ ______ ______ _____
11.2p 10.35p 9.4p 52.3 48.0 43.0
_____ _______ ____ ______ ______ _____
F-11
Notes to the Consolidated Financial Statements
6. Earnings per share
2002 2001* 2000*
GBPm GBPm GBPm
______ ______ _____
Profit for the financial year......................................... 125.2 116.9 108.1
Adjustments+........................................................ 13.4 12.8 6.3
______ ______ _____
Adjusted profit for the financial year.............................. 138.6 129.7 114.4
______ ______ _____
Basic weighted average ordinary shares in issue (million)........... 461.4 458.6 455.8
Dilutive effect of share incentive schemes (million)................ 3.9 5.2 4.2
______ ______ _____
Diluted weighted average ordinary shares (million).................. 465.3 463.8 460.0
______ ______ _____
Basic earnings per share............................................ 27.1p 25.5p 23.7p
______ ______ ______
Adjusted earnings per share......................................... 30.0p 28.3p 25.1p
______ ______ ______
Diluted earnings per share.......................................... 26.9p 25.2p 23.5p
______ ______ ______
_________________
* Restated on adoption of FRS19 'Deferred Tax'.
+ Adjustments comprise goodwill amortization of GBP16.1m (2001: GBP12.8m,
2000: GBP7.1m), profit on sale of discontinued operations, net of taxation,
of GBP(2.7)m (2001: GBPnil, 2000: GBP(5.6)m) and loss on disposal of fixed
assets of GBPnil (2001: GBPnil, 2000: GBP4.8m).
Adjusted earnings per share is provided to reflect the underlying performance of
the Group.
7. Intangible assets - goodwill
2002
_____
Cost GBPm
Beginning of year.................................................................................. 282.9
Additions.......................................................................................... 65.0
Divestments........................................................................................ (11.5)
Currency translation movement...................................................................... (10.0)
______
End of year........................................................................................ 326.4
______
Amortization
Beginning of year.................................................................................. 24.1
Divestments........................................................................................ (2.5)
Charge in year..................................................................................... 16.1
Currency translation movement...................................................................... (0.8)
______
End of year........................................................................................ 36.9
______
Net book value at December 31, 2002................................................................ 289.5
______
2001
______
Cost GBPm
Beginning of year.................................................................................. 215.0
Additions.......................................................................................... 69.4
Divestments........................................................................................ (1.5)
_____
End of year........................................................................................ 282.9
_____
Amortization
Beginning of year.................................................................................. 11.4
Charge in year..................................................................................... 12.8
Currency translation movement...................................................................... (0.1)
_____
End of year........................................................................................ 24.1
_____
Net book value at December 31, 2001................................................................ 258.8
______
F-12
Notes to the Consolidated Financial Statements
8. Tangible fixed assets
Fixtures,
fittings
Land and Plant and and
buildings machinery equipment Total
2002 2002 2002 2002
________ _________ _________ ______
GBPm GBPm GBPm GBPm
Cost or valuation
Beginning of year...................................................... 84.2 256.2 87.6 428.0
Acquisitions........................................................... 0.8 1.4 0.7 2.9
Divestments............................................................ (6.2) (4.4) (9.4) (20.0)
Additions.............................................................. 5.3 20.1 8.0 33.4
Disposals.............................................................. (1.3) (7.2) (3.8) (12.3)
Currency translation movement.......................................... (4.3) (21.3) (2.8) (28.4)
________ _________ _________ ________
End of year............................................................ 78.5 244.8 80.3 403.6
________ _________ _________ ________
Depreciation
Beginning of year...................................................... 15.3 140.4 46.3 202.0
Divestments............................................................ (1.5) (3.0) (4.3) (8.8)
Charge in year......................................................... 3.1 20.6 9.7 33.4
Disposals.............................................................. (0.3) (5.6) (3.8) (9.7)
Currency translation movement.......................................... (0.7) (10.5) (1.7) (12.9)
________ _________ _________ ________
End of year............................................................ 15.9 141.9 46.2 204.0
________ _________ _________ ________
________ _________ _________ ________
Net book value at December 31, 2002.................................... 62.6 102.9 34.1 199.6
________ _________ _________ ________
Fixtures,
fittings
Land and Plant and and
buildings machinery equipment Total
2001 2001 2001 2001
GBPm GBPm GBPm GBPm
________ _________ _________ ________
Cost or valuation
Beginning of year...................................................... 77.4 237.9 79.3 394.6
Acquisitions........................................................... 2.4 2.0 0.7 5.1
Transfers.............................................................. 1.2 1.2 0.1 2.5
Additions.............................................................. 5.0 23.3 11.2 39.5
Disposals.............................................................. (1.4) (4.5) (3.3) (9.2)
Currency translation movement.......................................... (0.4) (3.7) (0.4) (4.5)
________ _________ _________ ________
End of year............................................................ 84.2 256.2 87.6 428.0
________ _________ _________ ________
Depreciation
Beginning of year...................................................... 12.8 126.2 40.4 179.4
Charge in year......................................................... 3.1 20.6 9.2 32.9
Disposals.............................................................. (0.6) (4.0) (3.1) (7.7)
Currency translation movement.......................................... - (2.4) (0.2) (2.6)
________ _________ _________ ________
End of year............................................................ 15.3 140.4 46.3 202.0
________ _________ _________ ________
________ _________ _________ ________
Net book value at December 31, 2001.................................... 68.9 115.8 41.3 226.0
________ _________ _________ ________
The net book value of tangible fixed assets includes assets held under finance
leases and hire purchase contracts totaling GBP0.5m (2001: GBP0.6m). Accumulated
depreciation of these assets amounts to GBP0.7m (2001: GBP1.2m).
F-13
Notes to the Consolidated Financial Statements
8. Tangible fixed assets (continued)
Fixtures,
Plant fittings
Freehold Long Short and and
Land buildings leasehold leasehold machinery equipment Total
_____ _________ _________ _________ _________ _________ _____
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
The net book value of tangible fixed
assets at December 31, 2002
comprised:
At cost................................. 1.4 44.5 6.3 8.1 244.8 80.3 385.4
At valuation............................ 8.8 6.8 2.6 - - - 18.2
_____ _________ _________ _________ _________ _________ _____
Cost or valuation....................... 10.2 51.3 8.9 8.1 244.8 80.3 403.6
Depreciation............................ (8.7) (3.3) (3.9) (141.9) (46.2) (204.0)
_____ _________ _________ _________ _________ _________ _____
Net book value at December 31, 2002..... 10.2 42.6 5.6 4.2 102.9 34.1 199.6
_____ _________ _________ _________ _________ _________ _____
Fixtures,
Plant fittings
Freehold Long Short and and
Land buildings leasehold leasehold machinery equipment Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
_____ _________ _________ _________ _________ _________ _____
The net book value of tangible fixed
assets at December 31, 2001
comprised:
At cost................................. 2.8 47.9 7.8 7.4 256.2 87.6 409.7
At valuation............................ 8.9 6.8 2.6 - - - 18.3
_____ _________ _________ _________ _________ _________ _____
Cost or valuation....................... 11.7 54.7 10.4 7.4 256.2 87.6 428.0
Depreciation............................ (8.2) (3.5) (3.6) (140.4) (46.3) (202.0)
_____ _________ _________ _________ _________ _________ _____
Net book value at December 31, 2001..... 11.7 46.5 6.9 3.8 115.8 41.3 226.0
_____ _________ _________ _________ _________ _________ _____
Fixtures,
Plant fittings
Land and and and
buildings machinery equipment Total
_________ _________ _________ _____
GBPm GBPm GBPm GBPm
The historical cost and the related depreciation of the tangible
fixed assets at December 31, 2002 are:
Historical cost....................................................... 77.0 244.8 80.3 402.1
Depreciation.......................................................... (15.9) (141.9) (46.2) (204.0)
_________ _________ _________ _______
Net book value at December 31, 2002................................... 61.1 102.9 34.1 198.1
_________ _________ _________ _______
Fixtures,
Plant fittings
Land and and and
buildings machinery equipment Total
_________ _________ _________ _____
GBPm GBPm GBPm GBPm
The historical cost and the related depreciation of the tangible
fixed assets at December 31, 2001 are:
Historical cost....................................................... 82.6 256.2 87.6 426.4
Depreciation.......................................................... (15.3) (140.4) (46.3) (202.0)
_________ _________ _________ _______
Net book value at December 31, 2001................................... 67.3 115.8 41.3 224.4
_________ _________ _________ _______
Future capital expenditure at December 31, 2002 consisted of commitments not
provided for of GBP1.4m (2001: GBP1.2m).
F-14
Notes to the Consolidated Financial Statements (continued)
9. Investments held as fixed assets
Own shares Unlisted Total
2002 2002 2002
_________ _________ ______
GBPm GBPm GBPm
Beginning of year at cost...................................................... 13.2 16.4 29.6
Additions...................................................................... 6.0 0.2 6.2
Currency translation movement.................................................. - (1.5) (1.5)
________ _________ _______
End of year at cost............................................................ 19.2 15.1 34.3
________ _________ _______
Own shares Unlisted Total
2001 2001 2001
_________ _________ ______
GBPm GBPm GBPm
Beginning of year at cost......................................................... 8.4 19.4 27.8
Additions......................................................................... 4.8 2.0 6.8
Transfer to subsidiary............................................................ (5.0) (5.0)
________ _________ _______
End of year at cost............................................................... 13.2 16.4 29.6
________ _________ _______
Own shares are ordinary shares of the Company held by the Group in an employee
benefit trust. The principal purpose of this trust is to hold shares in the
Company for subsequent transfer to certain senior employees and executive
directors under the Long Term Incentive Plan, the Deferred Annual Share Bonus
Scheme and to satisfy options granted under the 1994 Executive Share Option
Scheme in respect of market purchased shares. Full details of such Plan and
Schemes are set out in the Directors' Remuneration Report on pages A-1 to A-7 of
this Annual Report.
The assets, liabilities and expenditure of the trust have been incorporated in
the Group's Consolidated Financial Statements. At December 31, 2002 the trust
held 5,454,213 (2001: 4,376,743) shares, upon which dividends have been waived,
with an aggregate nominal value of GBP1.4m (2001: GBP1.1m) and market value of
GBP20.7m (2001: GBP19.3m).
10. Stocks
2002 2001
_______ _______
GBPm GBPm
Raw materials and consumables.............................................................. 17.5 21.1
Work-in-progress........................................................................... 2.7 3.3
Finished goods and goods for resale........................................................ 197.3 217.3
_______ _______
217.5 241.7
_______ _______
F-15
Notes to the Consolidated Financial Statements (continued)
11. Debtors
2002 2001
_______ _______
GBPm GBPm
Amounts receivable within one year
Trade debtors.............................................................................. 286.6 376.4
Other debtors.............................................................................. 43.5 32.8
Prepayments and accrued income............................................................. 23.4 26.3
Corporate taxes............................................................................ 4.0 3.5
_______ _______
357.5 439.0
_______ _______
Amounts receivable after more than one year
Pension fund prepayment.................................................................... 36.3 11.9
Other debtors.............................................................................. 10.4 3.1
_______ _______
46.7 15.0
_______ _______
404.2 454.0
_______ _______
12. Investments held as current assets
2002 2001
_______ _______
GBPm GBPm
Short term deposits repayable on demand.................................................... 3.2 20.7
Liquid resources........................................................................... 137.5 9.5
_______ _______
140.7 30.2
_______ _______
13. Creditors
2002 2001
_______ _______
GBPm GBPm
Amounts falling due within one year
Loans...................................................................................... 0.7 38.5
Overdrafts................................................................................. 35.5 25.7
Obligations under finance leases........................................................... 0.2 0.4
Trade creditors............................................................................ 227.3 253.9
Dividends proposed......................................................................... 52.3 48.0
Corporate taxes............................................................................ 40.2 33.3
Other taxation and social security contributions........................................... 5.7 7.4
Other creditors............................................................................ 24.1 25.6
Accruals and deferred income............................................................... 85.4 81.5
_______ _______
471.4 514.3
_______ _______
14. Creditors
2002 2001
_______ _______
GBPm GBPm
Amounts falling due after more than one year
Loans...................................................................................... 261.7 249.7
Obligations under finance leases........................................................... 0.1 0.2
Accruals and deferred income............................................................... 3.5 5.2
_______ _______
265.3 255.1
_______ _______
F-16
15. Financial instruments
Short term debtors and creditors are excluded from the following disclosures, as
permitted by FRS13 'Derivatives and Other Financial Instruments: Disclosures'.
Interest rate risk profile of financial assets and liabilities
The Group's financial assets consist of cash at bank and in hand, short term
cash deposits, liquid resources at floating rates of interest and other unlisted
investments. Financial assets at December 31, 2002 were GBP207.3m (2001:
GBP96.4m) of which 71% (2001: 31%) were denominated in sterling, 19% (2001: 48%)
were denominated in US dollars and 6% (2001: 11%) were denominated in euros.
The majority of the Group's financial liabilities are at floating rates of
interest set with reference to LIBOR for periods ranging from one day to three
months. During the year an average of 82% (2001: 59%) of forecast net debt was
protected from adverse movements in interest rates with fixed rate debt and
interest rate caps for an average period of 19 months (2001: 20 months).
After taking into account interest rate swaps, the interest rate and currency
profile of the Group's financial liabilities at December 31 was:
Floating Fixed Floating Fixed
rate rate Total rate rate Total
2002 2002 2002 2001 2001 2001
________ ______ ______ ________ ______ ______
GBPm GBPm GBPm GBPm GBPm GBPm
Sterling................................................ 25.1 - 25.1 18.5 - 18.5
US dollar............................................... 235.5 31.1 266.6 254.4 34.2 288.6
Other................................................... 6.5 - 6.5 7.4 - 7.4
________ ______ ______ ________ ______ ______
267.1 31.1 298.2 280.3 34.2 314.5
________ ______ ______ ________ ______ ______
Fixed rate financial liabilities have an interest rate of 6.4% (2001: 6.4%) and
a period of 42 months (2001: 54 months) until maturity.
Fair values of financial assets and liabilities
The fair values of financial assets and liabilities at December 31 were:
Book Fair Book Fair
value value value value
2002 2002 2001 2001
_______ _______ _______ _______
GBPm GBPm GBPm GBPm
Primary financial instruments issued to finance the Group's operations:
US dollar Bond............................................................. (139.8) (160.2) (154.1) (161.3)
Derivative financial instruments held to manage the interest rate profile:
Interest rate derivatives.................................................. - 16.7 - 5.6
Fair values have been calculated by discounting cash flows at the prevailing
interest rates. Fair values of other financial assets and liabilities are not
significantly different to book values.
F-17
Notes to the Consolidated Financial Statements (continued)
15. Financial instruments (continued)
Maturity of financial liabilities
The maturity of financial liabilities at December 31, was:
2002 2001
_______ _______
GBPm GBPm
Within one year.............................................................................. 36.4 64.6
After one year but within two years.......................................................... 15.5 61.8
After two years but within five years........................................................ 152.9 85.2
After five years............................................................................. 93.4 102.9
_______ _______
298.2 314.5
_______ _______
At December 31, 2002 loans amounting to GBP1.5m (2001: GBP0.6m) were secured by
either fixed or floating charges on various assets of the relevant companies.
The Group's available undrawn committed facilities at December 31 were:
2002 2001
_______ _______
GBPm GBPm
Expiring within one year..................................................................... 121.1 103.4
Expiring after one year but within two years................................................. 0.5 22.6
Expiring after two years..................................................................... 72.9 93.1
_______ _______
194.5 219.1
_______ _______
16. Provisions for liabilities and charges
2002 2001*
_______ _______
GBPm GBPm
Pensions..................................................................................... 1.0 0.9
Discontinued operations...................................................................... 1.8 2.1
Deferred taxation (Note 19).................................................................. 32.6 37.7
Other........................................................................................ 18.9 21.4
_______ _______
54.3 62.1
_______ _______
Discontinued Deferred*
Pensions operations taxation Other Total
_________ ____________ _________ ________ _______
GBPm GBPm GBPm GBPm GBPm
Movements
At January 1, 2002.......................................... 0.9 2.1 37.7 21.4 62.1
Charge...................................................... 0.1 0.8 2.4 - 3.3
Acquisitions and disposals.................................. - - (1.5) 2.9 1.4
Utilized.................................................... - (0.9) - (5.0) (5.9)
Transfer to current taxation................................ (3.5) (3.5)
Currency translation movement............................... - (0.2) (2.5) (0.4) (3.1)
_________ ____________ _________ ________ _______
At December 31, 2002........................................ 1.0 1.8 32.6 18.9 54.3
_________ ____________ _________ ________ _______
* Restated on adoption of FRS19 'Deferred Tax'.
F-18
Notes to the Consolidated Financial Statements (continued)
16. Provisions for liabilities and charges (continued)
Discontinued Deferred*
Pensions operations taxation Other Total
_________ ____________ _________ ________ _______
GBPm GBPm GBPm GBPm GBPm
Movements
At January 1, 2001......................................... 0.8 5.1 32.3 21.8 60.0
Charge .................................................... 0.1 - 7.5 1.4 9.0
Acquisitions............................................... - - (1.9) 4.7 2.8
Utilized .................................................. - (3.1) - (6.5) (9.6)
Currency translation movement.............................. - 0.1 (0.2) - (0.1)
_________ ____________ _________ ________ _______
At December 31, 2001....................................... 0.9 2.1 37.7 21.4 62.1
_________ ____________ _________ ________ _______
* Restated on adoption of FRS19 'Deferred Tax'.
Other provisions relate primarily to vacant properties, workers' compensation
claims, legal claims and environmental clean up costs.
17. Share capital
2002 2001
___________ ___________
GBPm GBPm
Authorized: 680 million (2001: 680 million) ordinary shares of 25p each........... 170.0 170.0
___________ ___________
Issued and fully paid ordinary shares of 25p each................................. 116.8 116.0
___________ ___________
Number of ordinary shares in issue
Beginning of year................................................................. 463,882,138 460,657,486
Issued during year following option exercises..................................... 3,142,754 3,224,652
___________ ___________
End of year....................................................................... 467,024,892 463,882,138
___________ ___________
Details of share options granted and exercised during the year and those
outstanding at December 31, 2002, in each case in respect of options over new
issue shares, under the Company's Sharesave Scheme (1991), Sharesave Scheme
(2001), International Sharesave Plan, Executive Share Option Scheme (No.2) and
1994 Executive Share Option Scheme are set out in the following table:
Options outstanding at
2002 Grants 2002 Exercises 12.31.02
______________________ _____________________ ______________________
Number Price (p) Number Price (p) Number Price (p)
__________ ________ __________ _________ __________ __________
Sharesave Scheme (1991)............ 1,208,056 141-365 1,812,511 167-365
Sharesave Scheme (2001)............ 1,080,059 356-389 47,165 361-389 1,254,346 356-389
International Sharesave Plan....... 120,875 389 - 111,936 389
Executive Scheme (No.2)............ 352,450 87-169 291,248 126-169
1994 Executive Scheme.............. 2,654,250 461 1,873,746 212-450 9,691,780 212-461
__________ __________ __________
3,855,184 3,481,417 13,161,821
__________ __________ __________
Options outstanding at
2001 Grants 2001 Exercises 12.31.01
__________ ________ __________ _________ __________ __________
Number Price (p) Number Price (p) Number Price (p)
__________ ________ __________ _________ __________ __________
Sharesave Scheme (1991)............ 498,382 365 917,821 136-365 3,471,563 141-365
Sharesave Scheme (2001)............ 558,867 361 - 553,443 361
Executive Scheme (No.2)............ 137,512 87-169 643,698 87-169
1994 Executive Scheme.............. 2,994,250 448-460 2,169,319 212-384 9,626,776 212-460
__________ __________ __________
4,051,499 3,224,652 14,295,480
__________ __________ __________
The outstanding options are exercisable at various dates up to August 2012
(2001: December 2011).
F-19
Notes to the Consolidated Financial Statements (continued)
18. Movements on reserves
Share
premium Revaluation Profit and
account reserve loss* account
________ ____________ ______________
GBPm GBPm GBPm
At January 1, 2002................................................... 67.3 1.6 271.6
Premium on exercise of options....................................... 10.0 (2.9)
Transfer of goodwill on disposals.................................... 19.4
Currency translation movement........................................ (0.1) (12.6)
Retained profit for the financial year............................... 72.9
________ ____________ ______________
At December 31, 2002................................................. 77.3 1.5 348.4
________ ____________ ______________
Share
premium Revaluation Profit and
account reserve loss* account
________ ____________ ______________
GBPm GBPm GBPm
At January 1, 2001................................................... 56.5 1.7 212.5
Premium on exercise of options....................................... 10.8 (4.5)
Currency translation movement........................................ (0.1) (5.3)
Retained profit for the financial year............................... 68.9
________ ____________ ______________
At December 31, 2001................................................. 67.3 1.6 271.6
________ ____________ ______________
Share
premium Revaluation Profit and
account reserve loss* account
________ ____________ ______________
GBPm GBPm GBPm
At January 1, 2000.................................................. 47.6 1.7 152.5
Premium on exercise of options...................................... 8.9 (3.1)
Transfer of goodwill on disposals................................... 0.2
Currency translation movement....................................... - (2.2)
Retained profit for the financial year.............................. 65.1
________ ____________ ______________
At December 31, 2000................................................ 56.5 1.7 212.5
________ ____________ ______________
* Restated on adoption of FRS19 'Deferred Tax'.
At December 31, 2002 the cumulative amount of goodwill written off to reserves
in respect of acquisitions made prior to January 1, 1998, net of goodwill
attributable to subsidiary undertakings disposed of, was GBP287.9m (2001:
GBP307.3m, 2000: GBP307.3m).
Included within the profit and loss reserve is GBP90.9m (2001: GBP177.2m, 2000:
GBP177.2m) being the special reserve of the Company. The special reserve arose
from the reduction and subsequent cancellation of the share premium account in
1987 and 1988 respectively. During the year GBP86.3m was transferred to the
profit and loss reserve. At December 31, 2002, the remaining GBP90.9m of the
special reserve was not considered to be distributable but will be transferred
to the profit and loss reserve in the 2003 Consolidated Financial Statements.
Currency gains of GBP9.0m (2001: GBP(1.2)m, 2000: GBP(3.0)m) relating to foreign
currency exchange contracts and borrowings to finance investment overseas have
been included within the currency translation movement in the profit and loss
reserve.
F-20
Notes to the Consolidated Financial Statements (continued)
19. Deferred taxation
2002 2001*
_________ __________
GBPm GBPm
Accelerated capital allowances..................................................... 11.3 11.2
Pension provisions and other timing differences.................................... 21.3 26.5
_________ __________
32.6 37.7
_________ __________
The potential liability for deferred taxation not provided above is:
capital gains on disposal of properties......................................... 0.9 0.9
_________ __________
0.9 0.9
_________ __________
* Restated on adoption of FRS19 'Deferred Tax'.
Deferred taxation has been accounted for in respect of future remittances of the
accumulated reserves of overseas subsidiary undertakings only to the extent that
such distributions are accrued as receivable. No provision has been made for
potential corporate taxation on the unrealized revaluation surpluses in respect
of properties which are expected to be held for the foreseeable future.
20. Contingent liabilities
2002 2001
_________ __________
GBPm GBPm
Bank guarantees.................................................................... 1.3 1.5
Other items........................................................................ 8.6 11.6
_________ __________
9.9 13.1
_________ __________
Other items principally comprise trade and other guarantees.
21. Pensions
The Group operates both defined benefit and defined contribution pension schemes
throughout the world. The funds of the principal schemes are administered by
trustees and are held independently from the Group.
The net pension cost for the Group was GBP16.1m (2001: GBP16.1m, 2000: GBP13.8m)
of which GBP8.7m (2001: GBP11.0m, 2000: GBP9.7m) was in respect of principal
defined benefit schemes which provide benefits based on final pensionable
salary. This cost is assessed in accordance with the advice of independent
qualified actuaries.
Valuations of the principal UK defined benefit schemes were carried out as at
April 5, 2000. The regular pension cost of the principal UK defined benefit
schemes is adjusted for the amortization of the difference between the actuarial
surpluses and the prepayment on the balance sheet over the remaining service
lives of current employees and is offset by interest arising on the surpluses.
The results of the most recent actuarial valuations of the principal defined
benefit schemes were:
UK US
_________________ _________________
Date of most recent valuations............................................... April 5, 2000 January 1, 2002
Projected unit Entry age
Method used.................................................................. method normal method
Main assumptions:
investment return/return on assets per annum.............................. 6.0% 8.0%
salary increases per annum................................................ 4.25% 5.0%
market value of investments at last valuation date........................ GBP144.8m GBP54.5m
level of funding, being the actuarial value of assets expressed as a
percentage of the accrued service liabilities........................... 101% 86%
F-21
Notes to the Consolidated Financial Statements (continued)
21. Pensions (continued)
The Group operates other schemes overseas in accordance with local practice and
legislation. Some of these schemes are externally funded, while others are
internally funded, the amount set aside being shown in provisions for
liabilities and charges.
FRS17 'Retirement Benefits'
Whilst the Group continues to account for pension costs in accordance with
SSAP24 'Accounting for Pension Costs', under FRS17 'Retirement Benefits' the
following additional transitional disclosures are required:
The principal assumptions used by the independent qualified actuaries in
updating the most recent valuations of the principal UK and US schemes to
December 31 for FRS17 purposes were:
UK US
____________________ __________________
2002 2001 2002 2001
_________ ________ ________ _______
Rate of increase in salaries......................................... 3.25% 3.5% 4.0% 5.0%
Rate of increase in pensions......................................... 2.25% 2.5% - -
Discount rate........................................................ 5.5% 6.0% 6.75% 7.25%
Inflation rate....................................................... 2.25% 2.5% 2.5% 3.5%
The assumptions used by the actuaries are the best estimates chosen from a range
of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice.
The fair value of the schemes' assets, which are not intended to be realized in
the short term and may be subject to significant change before they are
realized, and the present value of the schemes' liabilities, which are derived
from cash flow projections over long periods and are therefore inherently
uncertain, are:
2002 UK schemes 2002 US schemes 2001 UK schemes 2001 US schemes
____________________ ___________________ ____________________ ____________________
Long term Long term Long term Long term
rate of rate of rate of rate of
return GBPm return GBPm return GBPm return GBPm
__________ ________ __________ _______ ___________ _______ __________ ________
Equities.................. 7.0% 94.4 9.7% 34.9 7.5% 110.9 10.4% 37.1
Bonds..................... 4.5% 32.3 5.7% 15.9 5.0% 33.1 6.4% 14.2
Other..................... 4.0% 15.7 4.3% 0.1 4.0% 0.8 5.5% 1.6
________ _______ _______ ________
Total market value........ 142.4 50.9 144.8 52.9
Present value of scheme
liabilities............ (189.5) (67.3) (161.6) (61.7)
________ _______ _______ ________
Deficit................... (47.1) (16.4) (16.8) (8.8)
Deferred taxation......... 14.1 5.7 5.0 3.1
________ _______ _______ ________
Net pension liability..... (33.0) (10.7) (11.8) (5.7)
________ _______ _______ ________
If FRS17 had been fully adopted, the Group's net assets and profit and loss
reserve at December 31 would have been as follows:
2002 2001*
_______ _______
GBPm GBPm
Net assets excluding pensions.............................................................. 521.2 450.2
Pensions................................................................................... (43.7) (17.5)
_______ _______
Net assets including pensions.............................................................. 477.5 432.7
_______ _______
Profit and loss reserve excluding pensions................................................. 323.3 263.2
Pensions................................................................................... (43.7) (17.5)
_______ _______
Profit and loss reserve including pensions................................................. 279.6 245.7
_______ _______
* Restated on adoption of FRS19 'Deferred Tax'.
Pensions are stated net of deferred taxation.
F-22
Notes to the Consolidated Financial Statements (continued)
21. Pensions (continued)
If FRS17 had been fully adopted, the amounts included in the Consolidated
Financial Statements would have been as follows:
Amounts charged to operating profit 2002
_______
GBPm
Current service cost.................................................................................. 9.9
Past service costs.................................................................................... 1.7
_______
Total operating charge................................................................................ 11.6
_______
Amounts included as other finance costs 2002
_______
GBPm
Expected return on pension scheme assets.............................................................. 15.0
Interest on pension liabilities....................................................................... (14.4)
_______
Net financial return.................................................................................. 0.6
_______
Amounts recognized in the statement of total recognized gains and losses 2002
_______
GBPm
Actual return less expected return on assets.......................................................... (42.2)
Experience loss on liabilities........................................................................ (6.7)
Impact of changes in assumptions relating to the present value of scheme liabilities.................. (15.4)
_______
Actuarial loss........................................................................................ (64.3)
_______
Movements 2002
_______
GBPm
At January 1, 2002.................................................................................... (25.6)
Current service cost.................................................................................. (9.9)
Contributions......................................................................................... 32.1
Past service costs.................................................................................... (1.7)
Settlements and curtailments.......................................................................... 4.1
Net financial return.................................................................................. 0.6
Actuarial loss........................................................................................ (64.3)
Currency translation movement......................................................................... 1.2
_______
At December 31, 2002.................................................................................. (63.5)
_______
% of
scheme
assets/
Experience gains and losses liabilities 2002
____________ ________
GBPm
Difference between actual and expected return on scheme assets............................ (22%) (42.2)
Experience loss on liabilities............................................................ (3%) (6.7)
Amount recognized in the statement of total recognized gains and losses................... (25%) (64.3)
F-23
Notes to the Consolidated Financial Statements (continued)
22. Operating lease commitments
Land and Land and
buildings Other buildings Other
2002 2002 2001 2001
___________ _________ ___________ _______
GBPm GBPm GBPm GBPm
At December 31 the Group had the following annual commitments
under non-cancelable operating leases:
expiring within one year....................................... 5.5 3.8 2.3 3.4
expiring between one and five years............................ 9.1 5.5 17.4 10.5
expiring after five years...................................... 10.1 0.3 22.2 1.4
___________ _________ ___________ _______
24.7 9.6 41.9 15.3
___________ _________ ___________ _______
23. Reconciliation of operating profit to net cash inflow from operating activities
2002 2001 2000
___________ _________ ________
GBPm GBPm GBPm
Operating profit............................................................ 199.3 201.8 183.6
Adjustments for non-cash items:
depreciation............................................................. 33.4 32.9 27.7
goodwill amortization.................................................... 16.1 12.8 7.1
other.................................................................... (4.3) (1.8) 1.7
Working capital movement:
stocks................................................................... (4.9) 3.6 (2.2)
debtors.................................................................. (8.8) (1.2) (26.1)
creditors................................................................ 14.5 (3.4) (6.5)
Special pension contribution................................................ (20.0) - -
Other cash movements........................................................ (8.9) (8.6) (8.8)
___________ _________ ________
Net cash inflow from operating activities................................... 216.4 236.1 176.5
___________ _________ ________
24. Analysis of net debt
Exchange
1.1.02 Cash flow movements 12.31.02
_______ _________ _________ ________
GBPm GBPm GBPm GBPm
Cash at bank and in hand........................................ 49.8 3.1 (1.4) 51.5
Short term deposits repayable on demand......................... 20.7 (15.6) (1.9) 3.2
Overdrafts...................................................... (25.7) (10.5) 0.7 (35.5)
_______ _________ _________ ________
Cash............................................................ 44.8 (23.0) (2.6) 19.2
_______ _________ _________ ________
Debt due within one year........................................ (38.5) 37.0 0.8 (0.7)
Debt due after one year......................................... (249.7) (37.4) 25.4 (261.7)
Finance leases.................................................. (0.6) 0.3 - (0.3)
_______ _________ _________ ________
(288.8) (0.1) 26.2 (262.7)
_______ _________ _________ ________
Liquid resources................................................ 9.5 128.7 (0.7) 137.5
_______ _________ _________ ________
Net debt........................................................ (234.5) 105.6 22.9 (106.0)
_______ _________ _________ ________
F-24
Notes to the Consolidated Financial Statements (continued)
24. Analysis of net debt (continued)
Exchange Other
1.1.01 Cash flow movements non-cash 12.31.01
_________ ___________ ___________ __________ _________
GBPm GBPm GBPm GBPm GBPm
Cash at bank and in hand........................ 37.1 12.9 (0.2) - 49.8
Short term deposits repayable on demand......... 13.6 7.1 - - 20.7
Overdrafts...................................... (26.3) 0.6 - - (25.7)
_________ ___________ ___________ __________ _________
Cash............................................ 24.4 20.6 (0.2) - 44.8
_________ ___________ ___________ __________ _________
Debt due within one year........................ (144.2) 110.7 0.8 (5.8) (38.5)
Debt due after one year......................... (123.2) (123.4) (3.1) - (249.7)
Finance leases.................................. (0.5) (0.1) - - (0.6)
_________ ___________ ___________ __________ _________
(267.9) (12.8) (2.3) (5.8) (288.8)
_________ ___________ ___________ __________ _________
Liquid resources................................ 3.1 6.4 - - 9.5
_________ ___________ ___________ __________ _________
Net debt........................................ (240.4) 14.2 (2.5) (5.8) (234.5)
_________ ___________ ___________ __________ _________
Other non-cash relates to loan notes issued on acquisition of businesses.
Exchange
1.1.00 Cash flow movements 12.31.00
_________ ___________ ___________ _________
GBPm GBPm GBPm GBPm
Cash at bank and in hand..................................... 24.5 12.0 0.6 37.1
Short term deposits repayable on demand...................... 11.5 1.3 0.8 13.6
Overdrafts................................................... (16.5) (8.8) (1.0) (26.3)
_________ ___________ ___________ _________
Cash......................................................... 19.5 4.5 0.4 24.4
_________ ___________ ___________ _________
Debt due within one year..................................... (0.9) (139.2) (4.1) (144.2)
Debt due after one year...................................... (118.0) 4.4 (9.6) (123.2)
Finance leases............................................... (0.8) 0.3 - (0.5)
_________ ___________ ___________ _________
(119.7) (134.5) (13.7) (267.9)
_________ ___________ ___________ _________
Liquid resources............................................. 0.2 3.1 (0.2) 3.1
_________ ___________ ___________ _________
Net debt..................................................... (100.0) (126.9) (13.5) (240.4)
_________ ___________ ___________ _________
F-25
Notes to the Consolidated Financial Statements (continued)
25. Acquisitions
The principal acquisitions made during 2002 were Lockhart, acquired in May,
Kenco, acquired in June, Lesnie's, acquired in November, Darenas, which the
Company agreed to acquire in November and completed shortly thereafter, and
Saxton and Thomas McLaughlin, each acquired in December.
Acquisitions have been accounted for under the acquisition method of accounting
and contributed GBP2.7m to operating profit in 2002 (2001: GBP2.5m, 2000:
GBP4.2m).
On acquisition the assets and liabilities of the businesses acquired were
adjusted to reflect their fair values to the Group. The fair value adjustments
are provisional and will be finalized in the 2003 Consolidated Financial
Statements.
Provisional fair value adjustments
_____________________________________
Consistency
Book value of Fair value
at accounting of assets
acquisition Revaluation policy Other acquired
_____________ ____________ ____________ _______ ____________
GBPm GBPm GBPm GBPm GBPm
A summary of the effect of acquisitions in 2002
is detailed below:
Tangible fixed assets........................... 3.0 (0.1) 2.9
Stocks.......................................... 13.3 (0.5) 12.8
Debtors......................................... 18.0 (0.6) 17.4
Creditors....................................... (16.9) (0.4) (17.3)
Net bank overdrafts............................. (3.0) (3.0)
Provisions for liabilities and charges.......... - (2.9) (2.9)
Deferred taxation............................... 0.2 1.5 1.7
Taxation........................................ (1.0) (0.5) (1.5)
_____________ ____________ ____________ _______ ____________
13.6 (0.1) (2.9) (0.5) 10.1
_____________ ____________ ____________ _______
Goodwill............................................................................................ 65.0
____________
Consideration....................................................................................... 75.1
____________
Satisfied by:
Cash consideration.................................................................................. 74.0
Deferred consideration.............................................................................. 1.1
____________
75.1
____________
The net cash outflow in the period in respect of acquisitions was:
Cash consideration.................................................................................. 74.0
Net bank overdrafts acquired........................................................................ 3.0
____________
Net cash outflow in respect of acquisitions......................................................... 77.0
____________
The principal fair value adjustments are as follows:
The adjustment in respect of tangible fixed assets comprises the revaluation of
freehold properties which have been valued on an open market, existing use basis
by qualified valuers.
The adjustments to stocks, debtors and creditors reflect their estimated
realizable value.
The adjustment to provisions for liabilities and charges includes amounts
relating to the reassessment of potential liabilities that were not fully
recognized on acquisition.
The adjustment to deferred taxation reflects the recognition of a deferred
taxation asset for anticipated relief on fair value adjustments.
F-26
Notes to the Consolidated Financial Statements (continued)
25. Acquisitions (continued)
The principal acquisitions made during 2001 were ICCS MacGregor acquired in
February, Filtrati acquired in May, Godin acquired in June, BPI acquired in
July, DKI Group, Eastern Paper and Packers each acquired in October and W A
Blyth acquired in November.
Provisional fair value adjustments
_____________________________________
Consistency
Book value of Fair value
at accounting of assets
acquisition Revaluation policy Other acquired
_____________ ____________ ____________ _______ ____________
GBPm GBPm GBPm GBPm GBPm
A summary of the effect of acquisitions in 2001
is detailed below:
Tangible fixed assets............................ 8.3 (3.2) 5.1
Stocks........................................... 27.8 (2.3) 25.5
Debtors.......................................... 26.4 (6.9) 19.5
Creditors........................................ (24.2) (24.2)
Net bank overdrafts.............................. (3.7) (3.7)
Provisions for liabilities and charges........... (3.6) (1.1) (4.7)
Deferred taxation................................ (1.3) 3.2 1.9
Taxation......................................... (1.2) 0.6 (0.6)
Minority interest................................ 0.3 0.3
_____________ ____________ ____________ _______ ____________
28.8 (3.2) (7.1) 0.6 19.1
_____________ ____________ ____________ _______
Goodwill............................................................................................ 69.4
____________
Consideration....................................................................................... 88.5
____________
Satisfied by:
Cash consideration.................................................................................. 76.1
Deferred consideration.............................................................................. 12.4
____________
88.5
____________
The net cash outflow in the period in respect of acquisitions was:
Cash consideration.................................................................................. 76.1
Net bank overdrafts acquired........................................................................ 3.7
____________
Net cash outflow in respect of acquisitions......................................................... 79.8
____________
The principal fair value adjustments are as follows:
The adjustment in respect of tangible fixed assets comprises the revaluation of
freehold properties which have been valued on an open market, existing use basis
by qualified valuers.
The adjustments to stocks and debtors reflect their estimated realizable value.
The adjustment to provisions for liabilities and charges includes amounts
relating to the reassessment of potential liabilities that were not fully
recognized on acquisition.
The adjustment to deferred taxation reflects the recognition of a deferred
taxation asset for anticipated relief on fair value adjustments.
F-27
Notes to the Consolidated Financial Statements (continued)
26. Disposals
Paper Distribution was disposed of in July 2002 and the Group's small machine
building activity at Jarrow was exited during the year.
These businesses contributed GBP7.5m to operating profit in 2002.
The effect of disposals in 2002 on the net assets of the Group was: GBPm
_______
Intangible assets - goodwill...................................................................... (9.0)
Tangible fixed assets............................................................................. (11.2)
Stocks............................................................................................ (29.8)
Debtors........................................................................................... (98.4)
Creditors......................................................................................... 39.5
Net bank overdrafts............................................................................... 0.8
Deferred taxation................................................................................. (0.2)
Taxation.......................................................................................... 1.7
_______
Net assets disposed............................................................................... (106.6)
Goodwill previously written off to reserves....................................................... (19.4)
Net cash proceeds................................................................................. 128.5
_______
Profit on sale of discontinued operations......................................................... 2.5
_______
The net cash inflow in the period in respect of disposals was: GBPm
_______
Net cash proceeds................................................................................. 128.5
Deferred cash consideration....................................................................... (18.0)
Net bank overdrafts disposed...................................................................... 0.8
_______
Net cash inflow in respect of disposals........................................................... 111.3
_______
The video and air-conditioning distribution and installation businesses of
Greenham were disposed of during 2001.
The effect of disposals in 2001 on the net assets of the Group was: GBPm
_______
Intangible assets - goodwill...................................................................... (1.5)
Creditors......................................................................................... 0.3
_______
Net assets disposed............................................................................... (1.2)
Net cash proceeds................................................................................. 1.2
_______
-
_______
The net cash inflow in the period in respect of disposals was: GBPm
_______
Net cash proceeds................................................................................. 1.2
_______
Net cash inflow in respect of disposals........................................................... 1.2
_______
27. Companies Act 1985
The Consolidated Financial Statements do not constitute "statutory accounts"
within the meaning of the Companies Act 1985 of Great Britain for any of the
periods presented. Statutory accounts for the year ended December 31, 2001 have
been filed with the United Kingdom's Registrar of Companies. The statutory
accounts for the year ended December 31, 2002 will be delivered to the Registrar
of Companies following the Company's Annual General Meeting. The auditors have
reported on these accounts. The reports were unqualified and did not contain
statements under Section 237(2) or (3) of the Act.
These Consolidated Financial Statements exclude certain parent company
statements and other information required by the Companies Act 1985, however,
they include all material disclosures required by generally accepted accounting
principles in the United Kingdom including those Companies Act 1985 disclosures
relating to the statements of income and balance sheet items.
F-28
Notes to the Consolidated Financial Statements (continued)
28. Summary of significant differences between UK GAAP and US GAAP
The Group's Consolidated Financial Statements are prepared in accordance with UK
GAAP which differ in certain significant respects from US GAAP. Set out below is
a summary of the significant differences, a reconciliation of profit from UK
GAAP to US GAAP, a statement of comprehensive income, earnings per share, a
reconciliation of the effect on earnings of adopting SFAS142, a reconciliation
of equity shareholders' funds from UK GAAP to US GAAP and a consolidated cash
flow statement on a US GAAP basis.
(a) Goodwill and other intangible assets
Under UK GAAP goodwill arising on acquisitions made after December 31, 1997 is
capitalized and is amortized through the profit and loss account over a period
of up to 20 years. Goodwill arising on acquisitions made prior to January 1,
1998 remains eliminated against equity reserves.
Under US GAAP the excess of the fair value of the consideration paid over the
fair value of the net assets acquired including identifiable intangible assets
is assigned to goodwill. Under US GAAP the Group ceased amortizing all goodwill
from January 1, 2002 upon full adoption of SFAS142 'Goodwill and Other
Intangible Assets'. Goodwill is capitalized and is now subject to an annual
impairment test to identify any impairment loss. SFAS141 'Business Combinations'
was adopted by the Group from July 1, 2001. Accordingly, identifiable intangible
assets are capitalized and amortized over their useful economic life.
Under UK GAAP the profit or loss on disposal of a business acquired prior to
January 1, 1998 is calculated after taking account of any goodwill written off
to reserves. Under US GAAP an adjustment to the UK GAAP profit or loss is made
in respect of goodwill previously amortized.
(b) Own shares
Under UK GAAP the Company recognizes as an asset the cost of acquiring its own
shares to satisfy the requirements of the Long Term Incentive Plan and the
Deferred Annual Share Bonus Scheme and to satisfy options granted under the 1994
Executive Share Option Scheme in respect of market purchased shares. Under US
GAAP this is presented as a reduction of equity shareholders' funds, as these
shares are treated as treasury shares.
(c) Ordinary dividends
Under UK GAAP ordinary dividends are accounted for in the period to which they
relate which may be earlier than the date of declaration. Under US GAAP ordinary
dividends are accounted for in the period in which they are declared.
(d) Property revaluation
Under UK GAAP until December 31, 1999 land and buildings were revalued
periodically and depreciation based on such revalued amounts. As permitted under
FRS15 'Tangible Fixed Assets', the valuations of land and buildings have not
been and will not be updated. Under US GAAP revaluations of fixed assets are not
permitted and depreciation is calculated based on historic cost.
(e) Pension costs
Under UK GAAP the expected cost of pensions is charged to the Group's profit and
loss account so as to spread the cost of pensions over the expected service
lives of employees. Surpluses arising from actuarial valuations are similarly
spread. Under US GAAP costs and surpluses are also spread over the expected
service lives but based on prescribed actuarial assumptions, allocation of costs
and valuation methods which differ from those used for UK GAAP. Furthermore, US
GAAP requires the recognition of an additional minimum pension liability which
is recorded through the statement of comprehensive income. This reflects the
extent to which the funding status of any scheme does not cover the unfunded
accumulated benefit obligation for that scheme.
F-29
Notes to the Consolidated Financial Statements (continued)
28. Summary of significant differences between UK GAAP and US GAAP
(continued)
(f) Share schemes
Under UK GAAP the Group recognizes a compensation cost for only the cost of its
own shares acquired to satisfy the requirements of the Long Term Incentive Plan
and the Deferred Annual Share Bonus Scheme. Under US GAAP APB Opinion 25
requires a compensation cost to be recorded for all of the Group's performance
based executive share schemes and for the discount provided to employees in
respect of the Sharesave Schemes.
(g) Derivative instruments
Under UK GAAP changes in the fair value of interest rate derivatives are not
recognized in the financial statements but are disclosed in Note 15.
Furthermore, gains and losses on foreign exchange contracts used for hedging net
investments have been taken to reserves. Under US GAAP derivative financial
instruments are required to be recorded in the balance sheet as either an asset
or liability at fair value. Changes in the fair value of these derivative
instruments are recognized in the profit and loss account unless specific hedge
accounting criteria are met. Certain of the Group's derivatives qualify for
hedge accounting under US GAAP thereby reducing the effect on the profit and
loss account from gains and losses arising from changes in their fair values.
(h) Deferred taxation
The adoption of FRS19 'Deferred Tax' on January 1, 2002 has eliminated the
significant differences between accounting for deferred taxation under UK GAAP
and US GAAP. As a result, the adjustments for taxation now primarily relate to
the effect of other US GAAP adjustments.
(i) Discontinued operations
UK GAAP and US GAAP have different criteria for determining discontinued
operations. Under US GAAP discontinued operations would exclude the exiting of
the small machine building activity at Jarrow.
(j) Cash flows
The principal difference between UK GAAP and US GAAP is in respect of
classification. Under UK GAAP the Group presents its cash flows from operating
activities, returns on investments and servicing of finance, tax paid, capital
expenditure, acquisitions and disposals, equity dividends paid, management of
liquid resources and financing. US GAAP requires only three categories of cash
flow activities which are operating, investing and financing. Cash flows arising
from tax paid and returns on investments and servicing of finance under UK GAAP
are, with the exception of dividends paid to minority shareholders, included as
operating activities under US GAAP. Dividend payments are included as a
financing activity under US GAAP. In addition capital expenditure and
acquisitions and disposals under UK GAAP are presented as investing activities
under US GAAP.
Under UK GAAP cash comprises cash in hand, deposits repayable on demand and
overdrafts. Under US GAAP cash and cash equivalents include short term, highly
liquid investments with original maturities of less than three months and
excludes overdrafts.
(k) Exceptional items
Under UK GAAP profit on sale of discontinued operations is disclosed as an
exceptional item after operating profit. Under US GAAP this profit is not
treated as exceptional.
(l) Statement of comprehensive income
Under UK GAAP the statement of total recognized gains and losses is similar to
the statement of comprehensive income under US GAAP.
F-30
Notes to the Consolidated Financial Statements (continued)
28. Summary of significant differences between UK GAAP and US GAAP (continued)
for the year ended December 31
_________________________________
Profit Note 2002 2001* 2000*
______ _______ _______ _______
GBPm GBPm GBPm
Continuing operations.................................................... 118.5 105.6 88.2
Discontinued operations.................................................. 6.7 11.3 19.9
_______ _______ _______
Profit for the financial year in accordance with UK GAAP................. 125.2 116.9 108.1
_______ _______ _______
US GAAP adjustments:
Amortization of goodwill and other intangibles........................... (a) 13.4 (8.9) (8.7)
Disposal of business..................................................... (a) 9.6 - 0.1
Pension costs............................................................ (e) 1.3 (0.4) 2.9
Share option expense..................................................... (f) (0.5) (5.0) (5.3)
Capital instruments and derivatives...................................... (g) (1.2) 1.0 -
Deferred taxation........................................................ (h) - - 1.7
Taxation on above adjustments............................................ - (1.2) (1.4)
_______ _______ _______
Net income for the financial year in accordance with US GAAP............. 147.8 102.4 97.4
_______ _______ _______
Continuing operations.................................................... 126.5 91.6 84.3
Discontinued operations (1).............................................. 21.3 10.8 13.1
_______ _______ _______
Net income for the financial year in accordance with US GAAP............. 147.8 102.4 97.4
_______ _______ _______
for the year ended December 31
_________________________________
Statement of comprehensive income 2002 2001 2000
_______ _______ _______
GBPm GBPm GBPm
Net income for the financial year in accordance with US GAAP...................... 147.8 102.4 97.4
Additional minimum pension liability net of income tax (2)........................ (53.4) - -
Currency translation net of income tax (3)........................................ (23.6) (4.1) 8.1
_______ _______ _______
Comprehensive income in accordance with US GAAP................................... 70.8 98.3 105.5
_______ _______ _______
Earnings per share in accordance with US GAAP..................................... 32.0p 22.3p 21.4p
_______ _______ _______
Diluted earnings per share in accordance with US GAAP............................. 31.6p 22.0p 21.1p
_______ _______ _______
* Restated on adoption of FRS19 'Deferred Tax'.
(1) Includes profit on disposal of discontinued operations in 2002 of
GBP14.3 million, representing a basic earnings per share impact of 3.1
pence.
(2) Income tax on additional minimum pension liability for 2002 was GBP23.7
million (2001: GBPnil, 2000: GBPnil).
(3) Income tax on currency translation for 2002 was GBP0.6 million (2001:
GBP0.4 million, 2000: GBP(0.1) million).
F-31
Notes to the Consolidated Financial Statements (continued)
28. Summary of significant differences between UK GAAP and US GAAP
(continued)
for the year ended December 31
_________________________________
Goodwill and other intangible assets - adoption of SFAS142 2002 2001 2000
___________ __________ ________
GBPm GBPm GBPm
Net income for the financial year in accordance with US GAAP.................... 147.8 102.4 97.4
Goodwill amortization........................................................... 21.7 15.8
___________ __________ ________
Adjusted net income for the financial year in accordance with US GAAP............ 147.8 124.1 113.2
___________ __________ ________
Earnings per share in accordance with US GAAP................................... 32.0p 22.3p 21.4p
Goodwill amortization........................................................... 4.7p 3.5p
___________ __________ ________
Adjusted earnings per share in accordance with US GAAP.......................... 32.0p 27.0p 24.9p
___________ __________ ________
Diluted earnings per share in accordance with US GAAP........................... 31.6p 22.0p 21.1p
Goodwill amortization........................................................... 4.7p 3.4p
___________ __________ ________
Adjusted diluted earnings per share in accordance with US GAAP.................. 31.6p 26.7p 24.5p
___________ __________ ________
at December 31
_________________________________
Equity shareholders' funds Note 2002 2001* 2000*
______ ________ _________ __________
GBPm GBPm GBPm
Equity shareholders' funds in accordance with UK GAAP.................... 544.0 456.5 385.9
US GAAP adjustments:
Goodwill and other intangibles........................................... (a) 226.1 236.7 243.6
Own shares............................................................... (b) (19.2) (13.2) (8.4)
Ordinary dividend........................................................ (c) 35.3 32.4 29.0
Disposal of business..................................................... (a) 9.6 - -
Property revaluations.................................................... (d) (1.5) (1.6) (1.7)
Pensions................................................................. (e) (80.8) (0.3) 0.1
Capital instruments and derivatives...................................... (g) - (0.2) -
Deferred taxation........................................................ (h) 1.6 1.8 2.1
Taxation on above adjustments............................................ 26.7 2.0 1.3
_______ _________ ________
Equity shareholders' funds in accordance with US GAAP.................... 741.8 714.1 651.9
_______ _________ ________
* Restated on adoption of FRS19 'Deferred Tax.'
for the year ended December 31
_________________________________
Consolidated cash flow statement 2002 2001 2000
__________ __________ _________
GBPm GBPm GBPm
Net cash inflow from operating activities........................................ 153.3 168.1 113.9
Net cash inflow/(outflow) from investing activities.............................. 2.6 (117.2) (208.1)
Net cash (outflow)/inflow from financing activities.............................. (30.2) (30.9) 107.5
__________ __________ _________
Net increase in cash and cash equivalents per US GAAP............................ 125.7 20.0 13.3
Exchange adjustments............................................................. (4.0) (0.2) 1.4
Cash and cash equivalents at beginning of year per US GAAP....................... 70.5 50.7 36.0
__________ __________ _________
Cash and cash equivalents at end of year per US GAAP............................. 192.2 70.5 50.7
__________ __________ _________
F-32
Notes to the Consolidated Financial Statements (continued)
28. Summary of significant differences between UK GAAP and US GAAP
(continued)
Recent ASB and FASB pronouncements
The Group continued to adopt the transitional disclosure requirements of FRS17
'Retirement Benefits' in the Consolidated Financial Statements for the year
ended December 31, 2002. FRS17 was issued in December 2000 and addresses the
method in which pension costs are charged to the profit and loss account. The
Group will fully adopt FRS17 in 2003.
In April 2002, the FASB issued SFAS145 'Rescission of FASB Statements 4, 44 and
64, Amendment of FASB Statement 13, and Technical Corrections'. SFAS145 provides
for the rescission of several previously issued accounting standards, new
accounting guidance for the accounting for certain lease modifications and
various technical corrections that are not substantive in nature to existing
pronouncements. SFAS145 is effective for accounting years ending on or after May
15, 2002. The Group has evaluated the impact of SFAS145 and it has had no
material impact on the Group's 2002 Consolidated Financial Statements.
In July 2002, the FASB issued SFAS146 'Accounting for Costs Associated with Exit
or Disposal Activities' SFAS146 covers the recognition of liabilities for costs
associated with an exit or disposal activity and provides the accounting and
reporting requirements for such obligations, and nullifies the guidance in
Emerging Issues Task Force ("EITF") Issue 94-3 'Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity'.
SFAS146 is effective for plans initiated after December 31, 2002. Since SFAS146
applies to future activities, which may not yet have been envisaged, the future
impact of the application of SFAS146 to the Group cannot be determined.
In November 2002, the FASB issued FASB Interpretation ("FIN") 45 'Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others'. FIN45 elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the non-contingent obligation undertaken in issuing the
guarantee, that is, the obligation to stand ready to perform in the event that
specified triggering events or conditions occur. FIN45 also incorporates without
change, the guidance in FIN34 'Disclosure of Indirect Guarantees of Indebtedness
of Others', which is being superseded. FIN45 does not have a material effect on
the Group's results.
In December 2002, the FASB issued SFAS148 'Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS123'. This
provides alternative methods of transition for a stock-based employee
compensation and amends disclosure requirements of SFAS123 about the method of
accounting for stock-based employee compensation and the effect of the method on
reported results. The Group accounts for stock-based compensation under Auditing
Practices Board Opinion 25 and therefore SFAS148 will have no effect on the
Group.
EITF02-13 'Deferred Income Tax Considerations in Applying the Goodwill
Impairment Test in FASB Statement 142' was issued in September 2002. SFAS142 was
adopted for the year ended December 31, 2002. The impact of including deferred
income taxes within the impairment test in SFAS142 was not material to the
Group.
EITF02-16 'Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor', which was issued in November 2002, states
that a cash consideration received by a customer from a vendor is presumed to be
a reduction of the prices of the vendor's products or services and should
therefore be characterized as a reduction of cost of sales when recognized in
the customer's income statement. EITF02-16 has not had a material impact on the
Group.
EITF02-17 'Recognition of Customer Relationship Intangible Assets Acquired in a
Business Combination' was issued in October 2002. The customer lists acquired by
the Group continued to meet the criteria outlined in both SFAS141 and EITF02-17.
The impact of EITF02-17 was not material to the Group.
F-33
ANNEX A
Directors' Remuneration Report
for the year ended December 31, 2002
Terms of reference of the Remuneration Committee
The terms of reference of the Remuneration Committee ('the Committee'), as
approved by the Board, embody the purpose of the Committee as ensuring that the
Company's executive directors and senior executives are fairly rewarded for
their individual contributions to the Group's overall performance having due
regard to the interests of the shareholders and to the financial and commercial
health of the Group.
Membership
All members of the Committee, who are identified on page 19 of the Annual
Review and Summary Financial Statement, are independent non-executive directors.
The Committee is chaired by Mr C A Banks who succeeded Mr A P Dyer in February
2003. Members of the Committee do not have any personal financial interest
(other than as shareholders) in matters decided by the Committee, nor do they
have any potential conflict of interest arising from cross-directorships or day
to day involvement in running the Group's business.
The Committee meets at least three times during the year and at other times
as may be required. While the Chairman of the Company, Mr A J Habgood, is not a
member of the Committee, he normally attends meetings except when the Committee
is considering matters concerning himself.
Audit
The directors' remuneration in 2002 and the details of the directors'
interests in the Company's ordinary shares disclosed on pages A-4 to A-7 have
been audited by the Company's independent external auditor.
Remuneration policy
The Company's current remuneration policy for 2003 and beyond is designed
to help ensure the recruitment, retention and motivation of the executive
directors by providing fair reward for the responsibilities they undertake and
the performance they achieve on behalf of shareholders. In this context, the
Committee's policy is to set the overall remuneration package at a competitive
level and in a form that permits significant additional remuneration to be
earned for high performance over a sustained period. This is normally to be
achieved by benchmarking base pay against comparator companies and a range of
factors, including performance (see below), and by providing, in addition, short
term and long term incentives geared to performance.
In assessing the balance of performance related and non-performance related
elements of remuneration, base pay and benefits are treated as non-performance
related, whereas annual bonus (including awards under the Deferred Annual Share
Bonus Scheme) and long term incentives are treated as performance related. For
this purpose, share options are valued at one third of their face value on
grant. On this basis, the Committee sets the remuneration package such that at
least half the total target remuneration package is derived from the performance
related elements.
Both the overall competitiveness of the remuneration package and the
balance between performance and non-performance related elements are kept under
regular review in the light of market practice and the needs of the Company. The
Committee commissions reports and receives advice on directors' remuneration
from independent remuneration and benefits consultants, namely Monks Partnership
and New Bridge Street Consultants, who may from time to time provide other
services to the Company on remuneration and benefit matters that are not the
subject of review by the Committee. The Committee has asked for two specific
surveys to be carried out on its behalf by Monks Partnership in 2003. One
addresses annual bonus plans and the other deals with long term incentives.
Further details of the remuneration policy and how it is currently applied to
the various aspects of remuneration is provided in the relevant sections below.
A-1
With regard to external pay survey data, the Committee reviews each year,
prior to the annual review of base pay in January, information on remuneration
and benefit levels based on an external survey conducted on its behalf by Monks
Partnership. The Committee seeks to maintain, wherever possible, a consistent
and appropriate basis for comparison year on year in terms of the survey
methodology and, in particular, the use of comparator groups on which the survey
is based. There are three comparator groups that the Committee uses. These are
related to sales, profit before tax and market capitalization. In each case the
comparator group consists of 20 non-financial UK based companies that have
substantial operations overseas. 10 of the companies in each comparator group
are the next highest and 10 are the next lowest compared to Bunzl. The results
from each of the comparator groups are blended by Monks Partnership to provide
an overall assessed market position as at 1 January of the year of the review.
Neither Monks Partnership nor New Bridge Street Consultants provide specific
recommendations to the Committee on remuneration or benefit levels for the
executive directors. The Committee does, however, review survey information
provided by them in the light of its established remuneration policy before
making its decisions. All decisions of the Committee were implemented in full.
Base pay
The base pay of each executive director is set to reflect the size and
scope of that director's responsibilities undertaken on behalf of the Board, the
level of overall performance achieved and experience in the post. As stated
above, it is benchmarked against comparator companies and the actual pay level
is set after taking account of performance, relevant external survey data and
the general movement of base pay within the Group.
Annual Bonus Plan
The executive directors participate in an annual bonus plan intended to
support the Company's overall remuneration policy. The bonus plan for each
executive director contains meaningful targets that seek to focus attention on
one or two key measures of short to medium term achievement. In 2002, the target
for the annual bonus for the UK executive directors was linked to the Group's
achievement of earnings per share after certain specified adjustments ('eps').
Detailed terms of the plan were determined by the Committee and provided for a
bonus to be awarded if the Group achieved, in 2002, a threshold eps level. No
bonus was to be awarded for eps achievement below the threshold level. The bonus
plan provided for an increase in the bonus award pro rata for eps achievement
above the threshold up to a target level of eps and for above target
achievement. Half of this annual bonus is normally paid in cash and half is
deferred under the rules of the Deferred Annual Share Bonus Scheme ('DASBS',
details of which are set out below). For Mr P G Lorenzini, the bonus plan was
based on the profit and return on average capital employed achieved in the
business for which he is directly responsible. A maximum bonus award was
specified in each case. Bonus awards are not pensionable.
Under the DASBS, eligible executives, including the UK executive directors,
receive the deferred element of their annual bonus as an award of ordinary
shares. The ordinary shares are purchased in the market and deposited with the
Bunzl Group General Employee Benefit Trust (the 'Trust') until 1 March in the
third year after the year in which the award is made, following which they are
transferred to the executive provided normally that the executive has remained
in the employment of the Group throughout that period. The DASBS forms a part of
the annual bonus plan so as to provide, in total, an annual bonus opportunity
linked to the overall performance of the Group, with a significant portion of
any bonus award held in shares for a three year period. The Committee believes
this supports the overall remuneration policy and contributes to the alignment
of executives' and shareholders' interests. In 2002, an award of 45,061 shares
was made in respect of Mr A J Habgood and an award of 24,578 shares was made in
respect of Mr D M Williams. In both cases the shares would transfer to Mr A J
Habgood and Mr D M Williams respectively on 1 March 2005, subject to the rules
of the DASBS.
The Committee also reviews and authorizes the outline structure of annual
bonus plans for other senior executives within the Group. These plans are based
on performance targets relevant to individual businesses or areas of
responsibility and are compatible with the principles of the bonus plans
approved for the executive directors.
A-2
Share based incentives
The Committee believes that the long term performance of the Group is an
important consideration for shareholders and that share based incentives are an
important part of helping to align the interests of shareholders and those
employed by the Group. The Committee welcomes the fact that each of the
executive directors currently has a meaningful holding of Bunzl shares.
The Group operates an Executive Share Option Scheme under which the
executive directors and other senior executives in the Group may be granted
options over Bunzl shares. The 1994 Executive Share Option Scheme (the '1994
Scheme') replaced the Executive Share Option Scheme (No.2) (the 'No.2 Scheme'),
which expired in 1994, and was approved by shareholders at the 1994 Annual
General Meeting. The 1994 Scheme is consistent with principles expressed in
guidelines issued, at the time of its approval, by bodies representing
institutional investors. In particular a Company performance condition,
determined by the Committee, has to be satisfied before options may normally be
exercised. Options granted to date under the 1994 Scheme may normally only be
exercised if, during any three consecutive financial years since the option was
granted, the increase in the adjusted earnings per share of the Group is equal
to or greater than the increase in the Retail Prices Index over that period,
plus 6%. This condition, which was approved by shareholders at the time the 1994
Scheme was adopted, has been satisfied in respect of options granted prior to
2001 under the 1994 Scheme. The grant of executive share options is made on a
discretionary basis, taking account of each executive's performance and job
responsibilities. In normal circumstances options granted are exercisable,
subject to satisfaction of the relevant performance condition as referred to
above, not earlier than three years and not later than 10 years after the date
of grant. Options were granted to the UK executive directors in February and
August 2002 in respect of market purchased shares that are held through the
Trust. As the 1994 Scheme is due to expire next year, it is the Committee's
current intention to adopt a new Executive Share Option Scheme. Shareholders
will be asked to approve this new Scheme at the 2004 Annual General Meeting.
The Sharesave Scheme (2001) replaced the Sharesave Scheme (1991), which
expired in 2001, (together the 'Sharesave Schemes') and was approved by
shareholders at the 2001 Annual General Meeting. The Sharesave Schemes are
approved by the Inland Revenue and are open to all UK employees, including
executive directors, who have completed at least one year of continuous service.
They are linked to a contract for monthly savings of up to GBP250 per month over
a period of either three or five years. Under the Sharesave Schemes options are
granted to participating employees at a discount of up to 20% to 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 Group introduced, with effect from 1
January 2000, the Bunzl Employee Stock Purchase Plan (US) following approval
given at an Extraordinary General Meeting of shareholders held on 5 October
1999. This Plan provides an opportunity for Bunzl Group employees in the US,
including Mr P G Lorenzini, to purchase Bunzl shares in the form of American
Depositary Receipts ('ADRs') at a 15% discount to the market price, up to an
annual maximum of 10% of remuneration or $25,000 worth of ADRs, whichever is
lower. The purchase of the ADRs is funded by after-tax payroll deductions from
the employee with the employing company contributing the 15% discount.
Based on the authority obtained at the 2001 Annual General Meeting, the
Company introduced the International Sharesave Plan during 2002 in the
Netherlands and Germany. This operates on a similar basis to the Sharesave
Scheme (2001) except that monthly savings are limited to EUR400 per month and
options are normally exercisable three years after they have been granted. None
of the executive directors are eligible to participate in this Plan.
The table below shows the number of options held by the directors at 31
December 2002 and options granted to and exercised by the directors during 2002
under the No.2 Scheme, the 1994 Scheme and the Sharesave Schemes, all of which
have been approved by shareholders.
A-3
Market Date Expiry
Granted Exercised Exercise price at from date
during during price exercise which
1.1.02 year year 31.12.02 (p) (p) exercisable
A J Habgood No.2 Scheme 147,058 147,058 - 115.6 530.5
No.2 Scheme 47,490 - 47,490 151 23.6.97 22.6.04
No.2 Scheme 31,980 - 31,980 129 23.6.99 22.6.04
Sharesave Scheme 8,712 8,712 - 198 437
Sharesave Scheme 4,613 - 4,613 356 1.11.07 1.5.08
1994 Scheme 406,504 - 406,504 246 9.3.02 8.3.09
1994 Scheme 150,000 - 150,000 289 1.3.03 28.2.10
1994 Scheme 125,000 - 125,000 384 30.8.03 29.8.10
1994 Scheme 135,000 - 135,000 455.5 27.2.04 26.2.11
1994 Scheme 145,000 - 145,000 450 29.8.04 28.8.11
1994 Scheme 155,000 - 155,000 482 28.2.05 27.2.12
1994 Scheme 190,000 - 190,000 461 29.8.05 28.8.12
D M Williams No.2 Scheme 70,778 - 70,778 151 23.6.97 22.6.04
No.2 Scheme 23,592 23,592 - 129 520.5
Sharesave Scheme 3,145 - 3,145 308 1.11.03 1.5.04
1994 Scheme 145,782 - 145,782 246 9.3.02 8.3.09
1994 Scheme 29,275 - 29,275 245 30.3.02 29.3.09
1994 Scheme 80,000 - 80,000 289 1.3.03 28.2.10
1994 Scheme 65,000 - 65,000 384 30.8.03 29.8.10
1994 Scheme 65,000 - 65,000 455.5 27.2.04 26.2.11
1994 Scheme 70,000 - 70,000 450 29.8.04 28.8.11
1994 Scheme 75,000 - 75,000 482 28.2.05 27.2.12
1994 Scheme 90,000 - 90,000 461 29.8.05 28.8.12
Mr P G Lorenzini currently has no options under the terms of any Company
share option scheme. The exercise price of executive options under the No.2
Scheme is the mid-market price of an ordinary share on the date of grant of the
option. The exercise price of executive options under the 1994 Scheme is the
market price prevailing on the day immediately preceding the date of grant of
the option or, if higher in the case of options granted prior to 2001, the price
on the date of grant. For savings-related options under the Sharesave Scheme the
exercise price is the mid-market price of an ordinary share on the day
immediately preceding the date of invitation to apply for the option, less 20%.
The options granted under the No.2 Scheme and 1994 Scheme are normally
capable of being exercised on or after the third anniversary of the date of
grant of the relevant option. As permitted by the amendments to the rules of the
No.2 Scheme, approved by shareholders at the 1992 Annual General Meeting, some
of the options are also capable of being exercised at a price of 85% of the full
exercise price, on or after the fifth anniversary of the date of grant for the
relevant option, provided that, during any five consecutive financial years
since the option was granted, the increase in the adjusted earnings per share of
the Group is equal to, or greater than, the increase in the Retail Prices Index
over that period, plus 10%. This condition has been satisfied in respect of
certain options granted in 1994, the only year for which it is still relevant.
These options may now be exercised at a price of 129p.
The mid-market price of an ordinary share on 31 December 2002 was 380p and
the range during 2002 was 368p to 547p.
The 1999 Directors' Remuneration Report recorded the Committee's decision
not to grant any awards under the Long Term Incentive Plan ('LTIP') to the
directors in 1999. This decision has also applied in 2000, 2001 and 2002. The
status of the outstanding LTIP awards, as they affect the executive directors,
other than Mr P G Lorenzini who does not participate in the LTIP, is as follows.
A-4
The 1996 awards of 71,875 ordinary shares to Mr D M Williams vested at the
end of 1999 and became exercisable from 1 January 2001. He exercised this award
on 28 October 2002 giving a total market value on exercise of GBP324,695. The
awards granted in 1997 to Mr A J Habgood and Mr D M Williams of 139,887 and
89,326 ordinary shares respectively also vested at the end of 1999 and these
shares became exercisable on 1 January 2000 and will expire on 31 December 2003.
The 1998 awards of 141,000 and 89,000 ordinary shares to Mr A J Habgood and Mr D
M Williams respectively vested at the end of 2000. They became exercisable on 1
January 2001 and will expire on 31 December 2004. No awards were exercised by Mr
A J Habgood in 2002 and the market value of awards exercised by him in 2001 was
GBP628,704. No awards were exercised by Mr D M Williams in 2001.
Any shares required to fulfil entitlements under the LTIP, DASBS and the
1994 Scheme in respect of options over market purchased shares will be provided
by the Trust. Mr A J Habgood and Mr D M Williams are deemed by virtue of the
Companies Act 1985 to be interested in all the shares held by the Trust, which
at 31 December 2002 amounted to 5,454,213 ordinary shares, because they are
potential beneficiaries under the Trust together with all other directors and
employees of the Group. These interests do not reflect the awards actually made
to them individually through the Trust that are summarized above.
The Company's total shareholder return over the last five years compared to
that of the FTSE Support Services Sector is shown in the graph on page 24 of the
Annual Review and Summary Financial Statement (although the Company has only
been a constituent of this Sector since December 1998).
Retirement benefits
As stated in the Accounting Policies section of the financial statements
and elaborated upon in the relevant Note thereto, the Group utilizes both
defined benefit and defined contribution pension schemes throughout the world.
In the UK the Group has historically operated as its main contributory scheme
for senior executives the Bunzl Senior Pension Scheme ('BSPS'). BSPS provides
for members' contributions currently at the rate of 5% of pensionable salary
(which is basic salary), rising to 9% with effect from 1 April 2003, with the
Group being responsible for the balance of the cost of providing the benefit as
determined from time to time by the consulting actuaries to BSPS. Subject to
Inland Revenue limits, BSPS members are eligible for a pension which accrues at
a maximum rate of 3% per annum up to two thirds of pensionable salary, with a
normal retirement age of 60 years. BSPS also provides for payment of certain
benefits in the event of death or disability. The current UK executive directors
may choose to be members of BSPS or to opt for a private pension scheme. In the
event that a director opts for a private pension scheme the Company also
contributes to lump sum life assurance cover equivalent to that provided under
BSPS. Because of the cap on pensionable salary introduced in the Finance Act
1989, the amount of direct contribution by the Company to pension schemes for
the UK executive directors is limited and arrangements have therefore been made
to provide the executive directors with an allowance which permits them to make
provision, of their choice, in respect of that part of their salary which
exceeds the cap. In the US the main scheme for employees is the non-contributory
Bunzl USA, Inc Retirement Plan ('US Plan'). Subject to IRS limits, members of
the US Plan earn a lifetime pension which accrues at the 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 $140,000. The US Plan also provides for
certain benefits in the event of death or disability. These plans are now closed
to new entrants who will be offered a defined contribution arrangement. Because
of the cap on pensionable salary under the US Plan, the pensions of senior US
executives are limited and arrangements have been made to provide certain
executives with supplementary pensions through a Senior Executive Retirement
Agreement ('SERA'). Mr P G Lorenzini's SERA provides for a lifetime pension of
$370,000 per annum, payable upon retirement.
Executive directors' service contracts
It is the Company's policy that executive directors are normally employed
on contracts that provide for 12 months' notice from the Company and six months'
notice from the executive. Mr A J Habgood and Mr D M Williams each have service
contracts dated 16 January 1996 that provide for these notice periods. The only
circumstances in which there is predetermined compensation for termination of
these contracts are where there is a change of control of the Company. There are
no provisions for predetermined compensation in excess of one year's
remuneration and benefits in kind. Mr P G Lorenzini has a fixed term service
contract dated 25 February 2002 which runs to 31 December 2003. Early
termination of this contract for reasons other than cause would require payment
by the Company of the balance of Mr Lorenzini's entitlement under the contract.
A-5
Other principal benefits for executive directors
In common with many senior executives in the Group, the executive directors
are eligible for certain benefits which include the provision of a company car
and payment of its operating expenses including fuel, in line with prevailing
Group policies, and, in the case of Mr A J Habgood and Mr D M Williams, private
medical plan coverage under the Company's prevailing UK healthcare plan. Mr P G
Lorenzini participates in welfare benefit plans made available to all US
employees of the Group covering life insurance, medical, dental and disability
cover.
Non-executive directors
The non-executive directors are paid an annual fee for their services plus
a daily fee for attending meetings of the Board and Board Committees. In
addition, where relevant, they are paid a fee for chairing a Board Committee.
The non-executive directors do not have service contracts, are not eligible for
pension scheme membership or other employee benefits and do not participate in
any of the Group's bonus, share option or long term incentive plans. The
non-executive directors' pay is reviewed annually, based on external market
survey data, and is determined by the Board.
Directors' remuneration
The following table gives details of each director's remuneration for the
year.
Annual cash Pension
Salary/fees bonus allowance Benefits Total Total
2002 2002 2002 2002 2002 2001
_____________ ___________ _________ _________ _______ _________
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Executive
A J Habgood 675.0 228.2 180.6 23.8 1,107.6 1,022.6
D M Williams 365.0 123.4 80.5 28.2 597.1 545.9
P G Lorenzini 827.8 577.9 - 25.8 1,431.5 1,412.4
Non-executive
A P Dyer 88.2 - - - 88.2 76.3
L C McQuade 45.3 - - - 45.3 42.5
S G Williams 32.0 - - - 32.0 28.1
P Heiden 32.0 - - - 32.0 24.7
J F Harris 35.4 - - - 35.4 26.1
C A Banks 20.3 - - - 20.3
Notes
1 The remuneration for Mr P G Lorenzini, Mr A P Dyer and Mr L C McQuade is
paid or determined in US dollars and has been translated at the average
exchange rates for the year of GBP1: $1.51 in respect of 2002 and GBP1:
$1.44 in respect of 2001.
2 The remuneration for Mr C A Banks relates to the period from 1 June 2002
(the date of his appointment to the Board) to 31 December 2002.
3 Benefits incorporate all taxable benefits arising from employment by the
Company that principally relate to the provision of a company car.
4 The figures above represent remuneration earned as directors during the
relevant financial year including, in the cases of Mr A J Habgood, Mr D M
Williams and Mr P G Lorenzini, performance related elements which are
paid in cash in the year following that in which they are earned.
5 The fees paid in respect of Mr S G Williams' services are paid to his
employer, Unilever PLC, and not to Mr S G Williams personally.
A-6
6 As Mr A J Habgood is not a member of the Company pension scheme, the
Company normally makes a direct pension contribution, at Mr A J Habgood's
direction, to a personal pension scheme in his name. In 2002 this amounted
to GBP29,160 (2001: GBPnil). In accordance with Mr A J Habgood's contract
of employment the relevant amount paid as a direct pension contribution
has been deducted from the total pension allowance in 2002. The balance is
shown in the table above as the pension allowance. The values of the
pension benefits in the cases of Mr D M Williams and Mr P G Lorenzini
are shown in the table below and are not included in the
directors' remuneration table on the previous page. In addition the
Company pays all necessary contributions, on actuarial advice, to a
Senior Executive Retirement Agreement ('SERA') for Mr P G Lorenzini.
For 2002 this amounted to GBP208,791 (2001: GBP223,549).
Change in transfer
value of accrued
Transfer benefits during the Transfer
Accrued benefits value of year, after deducting value of
accrued contributions made by accrued
Accrued benefits benefits at the director during the benefits
at 31.12.01 at 31.12.02 31.12.01 year 31.12.02
________________ ________________ ____________ ________________________ __________
GBP GBP GBP GBP GBP
D M Williams 29,336 32,653 453,909 115,918 574,665
P G Lorenzini* 23,102 25,154 169,648 39,304 208,952
* Excluding SERA entitlements
Notes
1 The increase in accrued benefits during the year excludes the effect of
inflation on the accrued pension as at the start of the year.
2 Accrued benefits are the annual amount that would be paid on retirement at
the normal retirement age based on service to 31 December 2002.
3 The above figures do not take account of any Additional Voluntary
Contributions that all members of BSPS have the option to make.
4 The transfer values of accrued benefits for Mr D M Williams and Mr P G
Lorenzini have been calculated on the casis of actuarial advice in
accordance with any relevant actuarial legislation and, in the case of
Mr D M Williams, is net of his contributions.
5 In addition Mr P G Lorenzini participates in the Bunzl USA, Inc Deferred
Savings (401k) Plan. The Company makes matching contributions to this
Plan. During 2002 such contributions amounted to GBP5,066 (2001: GBP5,313).
A-7
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
By: /s/ D.M. Williams
----------------------
Name: D.M. Williams
Title: Finance Director
London, England
Dated: March 25, 2003
CERTIFICATIONS
I, Anthony J. Habgood, Chairman of Bunzl plc, certify that:
1. I have reviewed this Annual Report on Form 20-F of Bunzl plc;
2. Based on my knowledge, this Annual Report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this Annual Report;
3. Based on my knowledge, the Consolidated Financial Statements,
and other financial information included in this Annual Report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
Annual Report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report is
being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this Annual Report (the "Evaluation Date"); and
(c) presented in this Annual Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this Annual Report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 25, 2003
/s/ A.J. Habgood
-------------------------
A.J. Habgood
Chairman, Bunzl plc
I, David M. Williams, Finance Director of Bunzl plc, certify that:
1. I have reviewed this Annual Report on Form 20-F of Bunzl plc;
2. Based on my knowledge, this Annual Report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this Annual Report;
3. Based on my knowledge, the Consolidated Financial Statements,
and other financial information included in this Annual Report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
Annual Report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this Annual Report
is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to
the filing date of this Annual Report (the "Evaluation Date"); and
(c) presented in this Annual Report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this Annual Report whether or not there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 25, 2003
/s/ D.M. Williams
---------------------------
D.M. Williams
Finance Director, Bunzl plc
Exhibit Number Description of Document Sequentially
Numbered Page
1. Memorandum and Articles of
Association of the Company.
(Incorporated by reference
to the Company's Form 20-F
previously filed on June 21,
2001.)
2.1 Form of Deposit Agreement
dated as of October 29, 1998
among the Company, The Bank
of New York and the holders
from time to time of the
American Depositary Receipts
issued thereunder.
(Incorporated by reference
to Exhibit A of the
Company's Registration
Statement on Form F-6 (File
No. 333-9536) filed on
October 20, 1998.)
2.2 Form of American Depositary
Receipt attached as Exhibit
A to the Form of Deposit
Agreement. (Incorporated by
reference to Exhibit A of
the Company's Registration
Statement on Form F-6 (File
No. 333-9536) filed on
October 20, 1998.)
3. Service Agreement as of
January 16, 1996 between the
Company and A.J. Habgood.
(Incorporated by reference
to the Company's Form 20-F
previously filed on June 21,
2001.)
4. Service Agreement as of
January 16, 1996 between the
Company and D.M. Williams.
(Incorporated by reference
to the Company's Form 20-F
previously filed on June 21,
2001.)
5. Service Agreement as of
February 25, 2002 between
Bunzl USA Holdings
Corporation and P.G.
Lorenzini. (Incorporated by
reference to the Company's
Form 20-F previously filed
on June 27, 2002.)
23. Consent of KPMG Audit Plc to E-1
the incorporation by
reference of their report
dated February 24, 2003
under Item 3 of Part II of
the Company's Registration
Statement on Form S-8
previously filed on December
27, 1999.