Berendsen plc Report and Accounts 2013
We help our customers move forward. We work with them to keep their operations going and drive for success. And we’re constantly improving our own business – getting stronger, smarter and fit for the future. Always moving forward.
We take pride in doing what we’re best at. Why? Because this enables our customers to do what they’re best at – and that means we’re helping them grow. We’ve made great progress this year. We’re Europe’s leading textile service business. And we’ll keep striving to be better, ensuring we, and our customers, are always moving forward.
A year of continued strong performance Read more on our financial performance: Pages 14–17
Revenue £m
992.0
985.1
1,054.2
+3% underlying £1,054.2m
pence
158.9 139.8
142.4
+7% underlying £158.9m 2012
59.8 48.4
2011
2013
50.7
Dividend per share pence
+18% 59.8 pence
23.4
2012**
25.5
28.0
2012**
2013
*Before amortisation of customer contracts and exceptional items **Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised)
139.4
£m
2013
125.1 93.1
2011
Return on Invested Capital (post-tax) %
+10% 28 pence 2011
Free cash flow
+11% £139.4m
£m
2011
Adjusted earnings per share*
Adjusted operating profit*
7.9
2012
8.5
2013 9.3
+9% 9.3% 2011
2012
2013
2011
2012
2013
Berendsen plc Report and Accounts 2013
06
08
How we manage our business
Key figures, products and services by strategic segment.
Core growth
Manage for value
We are well-positioned to benefit from the positive long-term outsourcing trends in the European textile rental market. Our market is worth
€10.7bn
Margin opportunities and strong cash generation
10
Our CEO reports on our 2013 business progress. In this section we also present our seven strategic priorities which are integral to the way we do business – from an operational and financial viewpoint to extra-financial focus areas, risk management and remuneration.
Financial review
Our CFO provides an analysis of our financial development and performance during the year, including our year end financial position.
10 CEO overview 12 Our integrated strategy 14 Our performance: key performance indicators 18 Summary overview: key actions and implementation 20 Financial review
24 Workwear
28 Facility
32 UK Flat Linen
34 Manage for value
36 Principal risks and uncertainties 44 Our people 50 Corporate responsibility
58 Chairman’s address
7
60 Board of directors 62 Corporate governance statement 80 Report on directors’ remuneration
strategic priorities
80 Annual statement by chair of the remuneration committee
82 Directors’ remuneration policy
88 Annual report on remuneration
105 Directors’ responsibilities for the financial statements
Business review
UK Flat Linen
Workwear
Flat Linen outside UK
Facility
Clinical Solutions and Decontamination
Governance
100 Directors’ report
24
A more detailed insight into our operations with operational highlights and plans for 2014.
08 Market report
24 Business line review
20
Our integrated strategy and performance
04 At a glance 06 Business model
Strategic report
High-value, organic growth and high-margin returns
Strong market position
01
108 Independent auditors’ report 112 Consolidated income statement
50
CR overview
Our people
Details of how we develop and retain our own talent.
113 C onsolidated statement of comprehensive income 114 Consolidated balance sheet 115 Consolidated cash flow statement 116 Consolidated statement of changes in equity 118 Accounting policies to the consolidated financial statements 125 Notes to the consolidated financial statements 169 Independent auditors’ report to the members of Berendsen plc 170 Parent company financial statements 171 Accounting policies to the parent company financial statements
58
Delivering sustainable value
Our commitment to good governance and what it means to Berendsen, headed up by our Non-executive Chairman, Iain Ferguson.
174 Notes to the parent company financial statements 179 Five year record 180 Shareholder information and calendar
Financial statements
A review of our Corporate Responsibility (CR) activities in 2013 according to our three CR priority focus areas.
44
02
Berendsen plc Report and Accounts 2013
03
Berendsen plc Report and Accounts 2013
04 At a glance
20 Financial review
06 Business model
24 Business line review
08 Market report
24 Workwear
10 CEO overview
28 Facility
12 Our integrated strategy
32 UK Flat Linen
14 Our performance: key performance indicators
34 Manage for value
18 Summary overview: key actions and implementation
36 Principal risks and uncertainties 44 Our people 50 Corporate responsibility
Strategic report. Governance
Always moving forward…
Excellent teamwork
7,000
new workwear users in the UK means 35,000 individual pieces of garments handled by us.
We continuously develop new garment products; implementing new functional technologies into the workwear.
Our products add value to our customers through enhanced safety, functionality, comfort and effective branding.
Financial statements
Key to our success in Workwear is to unlock the experience and knowledge accumulated within our company, and share it. Through this we are achieving both operational excellence and organic growth, our customers are responding positively to our services and they are staying for a long time. A good example is a recent partnership between our British and German colleagues, who combined excellent teamwork and sourcing skills to provide Airbus UK with the services needed. A good relationship with the German Airbus customer existed and resulted in a five-year contract with Airbus UK and 7,000 new wearers of our garments.
04
Berendsen plc Report and Accounts 2013
At a glance
We are Europe’s leading textile services business. Our business is managed by strategic segments which helps us to have a clear direction on investment.
Organised into two segments…
Continuing our track record for growth… Revenue £m
992.0
985.1
1,054.2
+3% underlying £1,054.2m Adjusted operating profit*
Core growth 2011
2012
139.8
142.4
2013
business lines in this segment are The management focus for business characteristic of higher revenue growth lines in this segment is on cash and return generation and margin improvement
Key figures by strategic segment
+7% underlying £158.9m 2012**
29%
2013 59.8
48.4
50.7
71%
+18% 59.8 pence
87%
2011
8.5
Key figures by business line: Revenue
Workwear 2011
pence
23.4
2012
25.5
2013 28.0
+10% 28 pence Free cash flow
2012
2013 139.4
£m
125.1 93.1
2011
2012
2013
% of group
£305.8m 29% (2012: £288.0m)
Facility
£243.3m
23%
£204.6m
19%
£231.2m
22%
£69.3m
7%
(2012: £212.8m)
UK Flat Linen
(2012: £196.7m)
2011
+11% £139.4m
Operating profit
9.3
+9% 9.3% Dividend per share
Revenue
2013
Core growth
(post-tax) %
7.9
2012**
Manage for value
Return on Invested Capital
Core growth Manage for value
13% 2011
pence
Manage for value
158.9
£m
Adjusted earnings per share*
We manage our business lines in two clear strategic segments: core growth and manage for value. This allows us to focus our capital allocation more effectively within each segment, building a better overall business in line with our strategy.
Flat Linen (outside UK) Clinical Solutions and Decontamination
(2012: £218.0m)
(2012: £69.6m)
Operating profit*
% of group
£60.5m
35%
£62.5m
36%
£27.3m
16%
£18.2m
10%
£4.5m
3%
(2012**: £51.0m)
(2012: £54.1m)
(2012**: £25.8m)
*Before amortisation of customer contracts and exceptional items **Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised)
(2012: £21.0m)
(2012: £2.9m)
05
Berendsen plc Report and Accounts 2013
Strategic report
Leading our markets with innovative products and services…
250,000 Delivery addresses…
Workwear Read more: Pages 24–27
Facility Core growth
Read more: Pages 28-31
UK Flat Linen
Flat Linen (outside UK) Read more: Pages 34–35
Market-leader position
employees…
What we do:
Products and services:
Workwear: We rent, launder, maintain and deliver workwear to a wide range of private and public organisations. What we do:
16
countries…
Products and services:
Where we operate: Czech Rep.
Denmark
Estonia Latvia Lithuania Netherlands Norway Poland Slovakia Sweden Denmark
Cleanroom: We deliver and service our Cleanroom customers with the highest expertise on a wide range of Cleanroom products.
Denmark
Latvia
Netherlands Norway Sweden
Germany
Netherlands Sweden
Products and services:
We supply rental linen and laundering services to the hospitality and healthcare sectors in the UK.
What we do:
market-leader positions.
Where we operate:
Washroom: We enable commercial washrooms to achieve the highest standards of hygiene via a comprehensive range of marketleading products and services.
What we do:
9
Czech Rep. Denmark Finland Germany Netherlands Norway Poland Slovakia Sweden UK
Mats: We provide floor protection mats for commercial users, reducing the dirt and moisture brought into their premises and delivering a saving on the overall cleaning costs.
Russia
Where we operate: UK
Products and services:
We supply rental linen and laundering services to the hospitality and healthcare sectors outside the UK.
What we do: Clinical We provide a full range Solutions and of specialist services to Decontamination operating theatres. Read more: Pages 34–35
15,000
Where we operate: Austria Denmark Germany Ireland Sweden
Products and services:
Where we operate: UK
Financial statements
Manage for value
Read more: Pages 32–33
customers…
Governance
Our facility business line is split into three areas:
153,000
06
Berendsen plc Report and Accounts 2013
Business model
We are focusing on value creation. We create value for our shareholders by providing added-value solutions and services for our customers, leveraging and managing these for greater efficiency. We add value by… …managing our two segments differently: Core growth Manage for value Business line characteristics:
Business line characteristics:
kkHigh-value
kkStable margins
kkOrganic growth
kkStrong cash generation
kkHigh-margin returns
Growing our contract base by focusing on sales and marketing, undeveloped markets and acquisitions Workwear
Facility
UK Flat Linen
Maintaining a high volume and broad level of contracts Flat Linen (outside UK)
Clinical Solutions and Decontamination
…using our competitive strengths: kkExperience and expertise of our management teams kkInnovation to find and invest in solutions for our customers kkScale and location to the benefit of our customers kkDevelopment of expansion and consolidation strategies
…focusing on operational improvement: kkCommercial effectiveness kkBetter buying power kkWorking capital efficiency kkBest practice transfer
...redeploying cash effectively: Cash returns Strengthening our balance sheet Debt management
Returns to shareholders
Progressive dividend policy
Reinvesting in our business to reinforce our competitive strengths Bolt-on acquisitions
Capital expenditure on tangible and intangible assets
07
Berendsen plc Report and Accounts 2013
Our business is intrinsically focused on adding value. We create value for our customers by providing specialist solutions to their non-core activities more cost-effectively and efficiently. Many of the services we provide for them are critical to keep their businesses moving. Therefore, alongside investment in sales and distribution capabilities, production plants and textiles, we also invest in our people, innovative solutions and relationships across the supply chain. This ensures that we differentiate our customer service, provide peace of mind and create value for them for the long term. This is demonstrated by our high customer retention rate.
We focus on operating as efficiently as possible, making the most of our scale, market leadership and geographical location. We use our scale to procure products as cost-effectively as we can, and manage our operations as
Creating value for our shareholders We are a returns focused and cashgenerative business. We are committed to maintaining a progressive dividend policy and this is one of our main group key performance indicators (KPI) targets. Our growth in dividend per share is important to our investors and we are mindful of the need for our capital allocation to meet the long-term aspirations of our shareholders.
Dividend per share pence
23.4
+10% 28 pence
2011
Return on Invested Capital
7.9
(post-tax) %
28.0
25.5
2012
2013
9.3
8.5
+9% 9.3% 2011
2012
2013
Governance
Creating value throughout the business
effectively as possible by sharing best practice, standardising processes and drawing from our significant in-house management experience and expertise. Recent investments in a contract and commercial terms management programme and our focus on improved sales process and support is enabling us to identify and manage our contract base with appropriate returns.
Always moving forward…
Peace of mind services
We believe that through our focused business lines we can identify specific customer needs and deliver results. In 2013 we ran a focused campaign for a new toilet brush service line, selling 3,122 new brushes which is 2,000 more than previously.
We deliver peace of mind to our customers who know that they can rely on us to service essential parts of their business day in, day out. We manage around 153,000 contracts across our business areas. 1
toilet brushes sold by our new service line.
4 2
3
Financial statements
Focus on things that matter
3,122
Strategic report
Creating value for our clients
08
Berendsen plc Report and Accounts 2013
Market report
We are well positioned for present and future opportunities. We make sure we understand the dynamics characteristic of our overall marketplace, so that we can identify the opportunities they provide and use these to achieve further growth. The market in which we operate… Our business provides specialist service solutions to source, clean and maintain the textiles that our customers need to keep their business running. Typically, these services are non-core to our clients’ activities, who ‘outsource’ these services to specialist providers, like us, who can provide cost-effective and efficient services.
Market size and growth potential… The value of the European textile rental market is estimated to be Euros 10.7 billion. The market experiences a continued increase in the outsourcing of textile services by organisations seeking to achieve efficiency gains in their non-core operations. This trend is further accelerated by companies merging to become global players with centralised sourcing processes and by some companies expanding into new geographic territories. In addition, the introduction of greater hygiene-related regulation coupled with greater awareness of the importance of hygiene and resource efficiency among many organisations has expanded the market for our services.
Key market segments… The European textile rental market in which we operate can be broken down into six key areas. We organise our business by strategic focus and not by market segment and our presence (by key business line) is summarised in the table below. Key figures by business line: Hotels and Washroom Workwear Healthcare Restaurants services
Mats
Mats 10%
Cleanroom
Manage for value
Core growth
Workwear
Washroom services 12%
Facility UK Flat Linen
Workwear 32%
Hotels and restaurants 22%
Flat Linen (outside UK)
Healthcare 24%
Clinical Solutions and Decontamination
The supply side: Who and where? In terms of supply the market is still extremely fragmented. We compete with a small number of major players who, like us, operate across national boundaries. We also come up against a large number of small, local operators. Given the fragmented nature of supply, there has been a significant level of consolidation in recent years through acquisitions and we expect this trend to continue. Market-leader position
Workwear is the largest European textile rental segment. We hold the leading position in: k Denmark k Netherlands k Norway k Poland k Sweden
The majority of market growth is still expected to come from the developed countries but the role of emerging economies is acknowledged and will become increasingly important in the longer term.
Local operators
Other large players
Share of European textile rental market
Berendsen plc Report and Accounts 2013
09
Strategic report
The demand side: Why? Within each of our business lines there are market dynamics that will influence individual market segments (e.g., the closure of NHS laundries which could lead to revenue growth for private sector operators). These specific market trends are detailed in our Business Line review section on page 24. Here, we outline the five ‘big picture’ trends, which will have a long-term influence on the demand for the outsourcing of our services.
Why Berendsen?
1
Client focus on efficiency gains in non-core operations
The specialist services we provide are predominantly non-core activities for our clients. Our density and scale in our key geographies allow us to provide an expert and cost-efficient service, meeting our client’s needs and allowing them to free up capital to invest in their own business.
2
General industrial consolidation and moving into new geographies, globalisation
As clients expand, we can expand with them, working efficiently across national boundaries.
3
Compliance with Health & Safety regulations and more stringent hygiene standards and legislation
Our services may be non-core but they are often absolutely critical for the safe day-to-day running of our clients’ operations (e.g. food industry, R&D centres, hospitals). Our track record in understanding evolving standards and our ability to devise innovative products and service to meet them means we are a partner of choice in many industries.
Read more: Page 49
4
Environmental responsibility throughout the supply chain Read more: Pages 50-55
Our economies of scale means that we can launder and sterilise far more cost-effectively and efficiently than our clients. Our focus on reducing our use of water, electricity, chemicals, oil & gas and CO2 emissions (WECO) not only gives us a competitive advantage but also gives our clients the confidence to use us as part of their own environmental supply chain due diligence.
What does this mean for us?
We will continue to focus, as a priority, in these areas and in our current geographical areas of operation where we have density, scale and a strong track record. By focusing, as a group, on the following four action areas, we aim to convert these market opportunities into increased revenue and returns for the business:
Actions underpinning our potential for growth in revenue and returns: 1 Focus on sales effectiveness 2 Improvement in capital efficiency 3 Active portfolio management 4 Development of consolidation and expansion strategies However, we do recognise the importance of emerging markets and the role these are likely to play in the longer term. In addition to our core markets we are looking at opportunities elsewhere as is evidenced by entering the Russian market as a specialist.
Always moving forward…
Recognising growth potential Our biggest competitor, in most parts of our business, is the company that manages the services we offer themselves. In Workwear, for example, we estimate that the outsourced market represents only about one-third of the total market.
Financial statements
The overall long-term outsourcing trends remain extremely positive and, whilst, medium-term growth in the European textile service business remains moderate, we foresee considerable ongoing opportunities in our three core growth business lines: Workwear, Facility and UK Flat Linen.
Governance
Mega-trend
10
Berendsen plc Report and Accounts 2013
Chief Executive Officer’s overview
We are keeping our positive momentum. In 2013 we made further progress against our strategic objectives, building on the initiatives we have put in place. The results for the year reflect continued momentum.
Further excellent progress
Key points in this section: Clearly managed business lines Our 2nd full year of operating under our new structure is bringing benefits across the group. Increased focus on sales efficiency
5 years
Our sales pipeline is the strongest for five years.
KPI 4
Investing in our people
£2.24m
training spend.
KPI
6
ROIC continues to improve
9.3%
Our ROIC continues to improve against our target. Group key financial performance indicators are set out on: Pages 14-17
2
KPI
We are pleased to report a strong set of results for the year, which reflected continued momentum towards achieving our strategic objectives. Reported revenue increased 7% compared to the same period last year with the underlying level up 3% for the group. In our core growth businesses underlying revenue growth was 4%. Adjusted operating profit was up 12%, representing 7% on an underlying basis. The adjusted operating margin for the group increased 60 bps to 15.1%. Adjusted earnings per share for the group were up 18% to 59.8 pence from 50.7 pence last year and we are increasing our full year dividend by 10%. We continued to deliver strong free cash flow in line with our strategic objectives. Free cash flow increased 11% to £139.4 million (£125.1 million), a conversion of 137% of our adjusted profit after tax as a result of our continued focus on capital allocation and drive for capital efficiency. We also improved our key return on invested capital measure by 80bps from 8.5% in 2012 to 9.3% this year. Moving towards double digit returns remains a top strategic objective.
Outlook We are pleased to have delivered a strong set of results, as we make progress towards our strategic objectives. Our focus remains on the many further opportunities to improve our business. The board expects to achieve another year of good progress in 2014.
Peter Ventress Chief Executive Officer
Progress implementing our strategic plan This has been a year of building on the momentum we built up in 2012 and further capitalising on the benefits of the business line structure. The energy that our change of management structure has generated and the focus on delivery cannot be underestimated. We continue to see this reflected in the excellent results we have posted. 2013 was a year of faltering economic progress, marked by some uncertainty in our markets. As the year progressed we started to see the benefits of economic improvement in our hotel businesses, especially the UK where we ended the year with stronger volumes than we have seen for some time. Overall, however, it was a year where growth was hard to come by and delivered largely through self-help. I am particularly pleased to see that we increased our organic growth rates for both our Core businesses and the group overall beyond what we achieved in 2012. We have always been a company whose foundation is operational excellence. Ours is a leveraged model and the constant effort to manage our service more effectively and efficiently is a hallmark of the company. We can see again this year that we have improved our operating margins, once again hitting an all-time high for the company. As we improve efficiency we also increase the available capacity within our plants, managing further investment in new capacity and increasing our return. While the growth agenda has been key to our strategy, so has our ability to deliver this profitably with excellent levels of cash generation.
Berendsen plc Report and Accounts 2013
11
Making good progress We have already come a long way. Recruiting the right people, making policies, analysing current contracts, implementing a contract management tool and much more. It is a continuous process.
Strategic report
“The new Supply Chain and Procurement team will have a significant impact on the company. To meet our overall strategic objectives, we will deliver measurable savings, and innovate with expanded market knowledge and leveraged buying power.” Claude Sada Group Supply Chain and Procurement Director
Always moving forward…
Significant savings from a central approach In 2013, we have worked to re-organise our Supply Chain and Procurement function, focusing on both direct and indirect procurement. It is clear that we will benefit from a more centrally coordinated approach and, we believe that a strong focus on our £350 million addressable spend will deliver considerable savings.
£450K
31% cut in costs and improved quality in container covers for our German linen carts.
We have continued to invest in management capability, as you will read on pages 44 to 48, with a particular focus on identifying those management behaviours that are both the key to the current strength of the group but will also shape our development in facing future challenges. We seek to identify and develop the talent we have across the group with tailored programmes to support their progress. We increased the number of management trainees we brought in this year and it has been exciting to see their engagement and early contribution to ensuring we capture the models of best practice that our business lines are implementing. We have this year undertaken a comprehensive employee survey and it is clear from the results that our success is built on the engagement of our 15,000 employees day in, day out. At the same time it gives us good information into where we can do better and we are committed to capitalising on the valuable insights this provides. We recognise that the health and safety of our employees is of paramount importance. We will continue to invest in this area, and I know that the Operational Risk Management Group will diligently take forward the learnings from our independent external review of health and safety that is nearing completion. In April, a new Director of Group Procurement and Supply Chain joined us, bringing a new breadth of experience to the group. His primary objective will be
As one of our first strategic actions in 2011, we changed the name of the group to Berendsen plc, continuing to trade as Berendsen in Continental Europe but retaining the trading name of Sunlight for the UK. It is an expression of our ‘One Berendsen’ theme that management in the UK decided to change the trading name of our UK textile businesses from Sunlight to Berendsen in 2013. A further milestone in the implementation of our strategy has been our move, in a very small way, into Russia where we will support an existing cleanroom customer. While international expansion has not been a priority for us, given the opportunities we see in existing markets, this will provide experience and knowledge of operating in faster growth, but more challenging markets beyond our existing footprint.
The year ahead We prepare ourselves for another year of hard work in 2014. We do not yet see the full benefits of economic recovery and we remain focused to make sure we are disciplined in identifying risks and capturing the opportunities ahead of us. We do carry good momentum, however, into 2014 from the actions we have taken since we moved to a business line structure at the start of 2012. We recognise that there is still opportunity to make progress by further leveraging the experience we have across the group. This extends into all parts and the key to our future success remains those marginal improvements we make at local level that in aggregate make us stronger, smarter and fitter for the future.
Financial statements
saved by procuring certain items directly from the supplier in Asia for Scandinavian Flat Linen.
As well as focusing on delivering our results we are determined to build on already solid foundations to create a sustainable model of industry leadership. We have continued to build on the capabilities and potential of One Berendsen, supporting the delivery through focus that our business lines are striving for with targeted investments in capability.
to drive the next phase of development in our procurement strategy. It is clear there are opportunities available from further leveraging our scale in procuring textiles, pooling our buying of indirect products and services, streamlining our supply chain and improving the management of supplier performance.
Governance
We have already made significant savings in many parts of our business. One example is procuring certain items directly from the supplier in Asia for Scandinavian Flat Linen. By meticulously categorising the products needed, getting samples from different suppliers and testing their materials to get the right quality, we have saved £450K on one project alone for our benefit and our customers.
One Berendsen
12
Berendsen plc Report and Accounts 2013
Our integrated strategy
We are integrating our long-term objectives around the group. Our seven strategic objectives guide our long-term focus – from how we manage roles and CR to how we reward our directors.
1
2
Integrated thinking
5
See how our remuneration measures are aligned with our strategy: Pages 80-99
Financial
6
n-financial No
7
3
4
See how we are managing our business to achieve our strategic objectives: Pages 24-35
See how our CR priority areas link with our strategic objectives: Pages 50-55
13
Berendsen plc Report and Accounts 2013
Strategic report
Delivering sustainable organic growth
1
3
4
Organic revenue growth
Improving capital efficiency
KPI:
We are a cash-generative business with a solid capital structure. We believe there is scope for improved margins and returns. Our historic five-year cash conversion range was 80% to 140%, and we are targeting at least 100% over the medium term. We are targeting a double-digit return on invested capital (ROIC) over the medium term.
ROIC Free cash flow/ adjusted profit
Maintaining a sound financial position
KPI:
We believe in maintaining a sound financial position and working with our key banking relationships and other sources of finance, in particular our private placement investors. The majority of our financing requirements are available beyond 2016 at fixed rates of 5.1%. We operate well within our financial covenants (net debt to EBITDA 3x).
Net debt to EBITDA
Improving financial returns by leveraging operational efficiency
KPI:
The highest returns are available where we have density and scale. Our experienced business teams drive for efficiency and to be the lowest cost provider in their markets. By further leveraging operational efficiency and widening the application of best practice, we will be able to achieve high single-digit earnings per share (EPS) growth and a progressive dividend policy.
5
6
7
Integration:
Dividend per share
KPI:
The board and senior management prioritise the importance of maintaining a safe and healthy working environment for all of our employees and those others who work with us. The number of incidents reported remains relatively low but we continue to strive for the highest standards.
Maintaining a motivated workforce driven by an experienced management team
KPI:
Reducing our impact on the environment
Integration:
Adjusted earnings per share
Major injury rate
The responsibility for staff training and recruitment lies with our business line unit management but we are also developing group-wide programmes to support this. We focus on induction training at all levels, and individual development plans.
Integration:
Integration:
Integration:
Senior management retention rate
KPI:
Integration:
Group We understand the risks and opportunities associated with the environmental impact of our operations. Areas of particular importance to us include water use, energy consumption CO2 emissions (including our CO2 emissions), transport, and the use and disposal of detergents.
For more detail on our performance against KPIs: Pages 14-17
Key: Remuneration measure CR measure Linked to principal risk
Financial statements
Non-financial
Maintaining health and safety as a priority
Integration:
Governance
Financial
2
KPI:
We have very strong offerings in Workwear, Facility (including Mats, Washroom and Cleanroom) and in UK Flat Linen. We believe the opportunities for volume growth and winning new contracts remain in the medium and longer term, and there are significant virgin market opportunities within our European markets.
14
Berendsen plc Report and Accounts 2013
Our performance: key performance indicators
Continued progress... We have set growth targets and assessed the key performance indicators which we use to measure progress against our objectives.
1
Delivering sustainable organic growth
Target:
Measure:
GDP +1%-2%
We believe that organic revenue growth, that is underlying growth excluding the impact of foreign currency translation and acquisitions, demonstrates that we are capturing the opportunities available to us in our existing markets.
Organic revenue growth %
Definition: Revenue excluding the impact of foreign exchange and acquisition.
3%
Performance: We increased our organic revenue growth rate to 3% for the group as a whole (2012: 2%) with the underlying revenue growth in our core growth businesses of 4% following a stronger second half.
3%
-4% 2009
Financial
2%
2011
2012
0%
Linkage:
2
2%
2010
Improving capital efficiency
Target:
Measure:
Double-digit in ROIC (post-tax)
We believe that a measure of return on invested capital that incorporates the value of goodwill and other intangible assets previously written off or amortised reflects the full use of our shareholders’ capital. This shows how efficiently and effectively we are allocating capital to our business. Key to management of our invested capital is to convert our growth to cash and therefore we believe that a cash conversion ratio expresses how effectively we are doing this.
Cash conversion of at least 100%
Return on capital Invested (post-tax) %
9.3%
Performance: We delivered strong free cash flow delivery, up 11% on last year and with a conversion rate well above our target. By delivering improved returns through organic growth and higher margins, and converting our growth to cash, we have again increased our ROIC. Since 2010 we have improved our ROIC by 1.9%. Linkage:
2013
7.1
7.4
2009
2010
7.9
2011
8.5
2012
9.3
2013
Free cash flow/year’s adjusted profit %
137% 146 115
2009
*Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised) Key:
Remuneration measure
CR measure
Linked to principal risk
Achieved
Ongoing
107
2010
137
114
2011
2012*
2013
15
Berendsen plc Report and Accounts 2013
Strategic report
3
Maintaining a sound financial position
Target:
Measure:
Within covenant level of 3.0 times
The financial covenants we have with our key banking relationships are expressed in terms of the ratio of net debt to EBITDA and EBITDA to net interest. We believe that the net debt to EBITDA best captures the sustainability and soundness of our financial position and by decreasing this ratio we reduce the financial risk to our business.
Net debt to EBITDA
Performance:
times
Definition: The ratio of net debt to earnings before interest, tax and depreciation and amortisation.
1.2 times 1.7
Our strong free cash flow generation has allowed us to reduce net debt from £463.7 million at the end of 2012 to £389 million in 2013.
1.8 1.6
1.5 1.2
Linkage:
2009
2010
2011
2012
2013
Financial
Governance
4
Improving financial returns by leveraging operational efficiency
Target:
Measure:
Progressive dividend policy
Earnings per share and dividend per share best represent both the future returns available to shareholders and the current year cash returns from the improvements we are making to our business.
Adjusted earnings per share*
Performance:
High single-digit % EPS growth
pence
+18% 59.8
We grew our adjusted earnings per share by 18% in 2013 and increased by 10% our proposed dividend per share.
48.4 39.4
Linkage:
2009
50.7
41.7
2010
2011
2012**
2013
pence
+10% 20.0
*Before amortisation of customer contracts and exceptional items **Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised)
2009
21.2
2010
23.4
2011
25.5
2012
28.0
2013
Financial statements
Dividend per share
16
Berendsen plc Report and Accounts 2013
Our performance: key performance indicators
Continuing to make good progress towards our non-financial goals.
5
Maintaining health and safety as a priority
Target:
Measure:
Zero major injuries
We have recorded and monitored our business unit, business line and group major injury rate for some years. This remains an area of significant focus throughout the group.
Major injury rate
Definition:
0.79
We use the ‘RIDDOR – Reporting of Injuries, Diseases and Dangerous Occurrence Regulatory’ legislation in the UK, to define how incidents should be classified including what are ‘major injuries’.
number
Definition: (Number of deaths and major injuries/total hours worked) x 1,000,000.
0.87
0.79 0.70
Performance:
0.57
Due to more labour-intensive operations and more manual handling we have historically seen a higher major injury rate in our Flat Linen businesses compared to other business lines.
Non-financial
Linkage:
2009
Maintaining a motivated workforce driven by an experienced management team 6
2010
2011
0.51
2012
2013
Target: Senior management retention rate of more than 90%
Measure: Stable and experienced management strongly influences our ability to motivate and engage our workforce, which in turn supports our growth strategy.
Senior management retention rate %
Definition: Percentage of managers retained in senior roles, excluding promotion and retirement.
Definition:
96%
Measurement is the percentage of leavers from senior management positions in the calendar year, not including retirement or promotions. Senior management is defined as the top 130 positions, which includes business line management teams, country management teams, group and other designated senior roles.
92
95
92
2009
2010
2011
98
96
2012
2013
Performance: The five-year trend shows that we have a strong senior management retention rate. This results in the benefit of continuity of company knowledge and expertise and reflects our continued investment in performance management and leadership development. This is complemented with the identification and development of future talent. Read more about how we motivate and engage our people: Pages 44-48 Linkage:
Key:
Remuneration measure
CR measure
Linked to principal risk
Achieved
Ongoing
17
Berendsen plc Report and Accounts 2013
Reducing our impact on the environment Measure: We record and monitor scope 1 and scope 2 CO2 emissions from all of our plants and other sites, using the Greenhouse Gas Protocol methodology. Definition:
Target: Ongoing reductions in the use of water, electricity, chemicals and fuel/oil/gas
Group CO2 emissions kg
Reporting just CO2 emissions is of limited value to our stakeholders, and so we show kg of CO2 per tonne of laundry shipped.
Non-financial
Strategic report
7
Performance:
Definition: Kg of CO2 per tonne of laundry shipped.
-2.2%
In 2013 we are reporting a 2.2% reduction in kg of CO2/tonne of laundry shipped. We continue to move in the right direction and we are committed to further improvements in the future.
434
411
402
2012
2013
Linkage:
2011
Governance
Always moving forward…
Sustainable returns Improving returns on invested capital towards double-digit is a key performance measure. By growing organically and increasing our operating margins we improve returns: by generating more cash than profit we decrease our invested capital. Since 2010 we have improved our ROIC by 190 bps.
In 2013 we maintained our focus on succession planning and talent development. The Executive Board reviewed succession plans for the top 50 Berendsen roles. In addition, succession reviews at the business line level focused on the wider talent pool beyond the top 50 list. This pool, together with the Berendsen Management Trainee scheme combine to provide the pipeline of future management talent.
Financial statements
Increasing our talent pool
18
Berendsen plc Report and Accounts 2013
Summary overview: key actions and implementation
We are moving ahead with our strategy. In 2010, following a strategic review, we identified 11 key actions (6 across the group and 5 within the business lines) on which we are focusing in order to meet our objectives.
To achieve our objectives and meet our targets we have identified the following actions… Six actions across the group: 1 Focus on sales effectiveness 2 Move to Business line structure 3 Actively manage our portfolio Develop our expansion/consolidation strategies 4 5 Improve capital efficiency 6 Promote a One-Company vision
Five actions within business lines: Core growth Workwear
Manage for value Facility
UK Flat Linen
Flat Linen (outside UK)
Clinical Solutions and Decontamination
1 Accelerate top-line growth in core business areas 2 Remuneration systems tied to strategic targets and appropriately rewarding different achievements 3 Clear examples of faster execution and delivery of results 4 More integrated group with strong interaction between constituents 5 Changed priorities in ‘manage for value’ businesses
Always moving forward…
Organic growth We increased the rate of organic growth to 3% in 2013. Our markets offered little assistance to growth through most of 2013. Most of the growth we delivered derives from the strategic initiatives we have undertaken.
Entering new markets as a specialist Moving with current customers into emerging markets enables us to gain experience in a fast growing and challenging market, which gives us a platform to broaden our geographical footprint. When one of our big pharmaceutical customers decided to set up a new production plant in Russia, they asked us provide a laundry set-up to match their high quality production. Once our set-up with this customer is fully stabilised, we will look into new possibilities in this strongly emerging market. 1
DSM Group, Russian Marketing Analysts
10%
is the yearly projected growth in the Russian pharmaceutical and healthcare industry until 2017.1
Berendsen plc Report and Accounts 2013
19
Strategic report
We carefully monitor the progress made on the implementation of these actions… kkName change kkGroup-wide capital efficiency review
Medium term
kkRealignment of organisation and management in place kkMore integrated group with strong interaction between constituents kkUnderlying EPS growth: targeting high single-digit % growth
Long term
Short term
Across the group:
kkPool of strong management across the group with identified senior succession
kkFirst business established in new developing countries Governance
Within business lines: Core growth Workwear
Manage for value Facility
UK Flat Linen
Flat Linen (outside UK)
Clinical Solutions and Decontamination
Short term
kkBuilding of sales and business development capabilities kkRemuneration systems tied to strategic targets and appropriately rewarding different achievements kkClear examples of faster execution and delivery of results kkMore integrated group with strong interaction between constituents kkChanged priorities in ‘manage for value’ businesses
Medium term Long term Key:
kkMarket leadership in core business areas in key European markets kkOrganic GDP growth of +1–2% kkROIC achieving double-digits (post tax) kkClear leader in European Textile Services with a targeted footprint outside Europe kkSales growth momentum at sustainable returns kkHigh performance sales organisation supported by strong operational base
Completed
In progress
Financial statements
kkImproved capital efficiency showing through in cash flow
20
Berendsen plc Report and Accounts 2013
Financial review
We are improving our financial returns. This financial review should be read in conjunction with the Chairman’s statement and the Chief Executive Officer’s review which sets out the comments on revenue, profits, earnings and dividends. Cash flow
Key points in this section: Targeted capital expenditure
£176.1m
invested in tangible and intangible assets. Continued focus on cash generation
£139.4m
2
free cash flow.
KPI
Efficiency programmes result in increased ROIC
9.3%
2
ROIC improved to 9.3%.
KPI
Sound debt management In 2013 we continued to operate well within our target covenant level.
KPI 4
Prudent tax management and interest rate exposure Net interest 12% lower than 2012. Effective tax rate reduced in line with underlying country rates and low risk management actions. Group key financial performance indicators are set out on: Pages 14-17
We continue to generate strong cash flow, converting as much as possible of our profits to cash. Free cash flow, as set out in note 23 of the financial statements, was £139.4 million (2012: £125.1 million) which represents 137% (146%) of our adjusted profit for the year. Cash generated by our operations was £345.2 million (£317.7 million). Interest and tax payments combined were £43.8 million, £0.9 million higher than 2012. Overall net cash generated from operating activities was £301.4 million (£274.8 million). Of this cash generation we used £169.7 million in our investing activities compared to last year when we invested £191.8 million, principally reflecting lower acquisition activity £2.7 million (£37.1 million). Capital expenditure on tangible and intangible assets was £173.2 million (£158.6 million) and disposal of assets realised £6.2 million (£3.9 million). Our investment in textiles and other rental assets was £142.1 million (£127.8 million) and at 108% of depreciation, supports the higher underlying volumes experienced during the year. Expenditure on plant and equipment was £27.5 million (£27.3 million) and we have continued to target investment towards the higher growth areas of the business such as the conversion of a further plant in UK Workwear to the best practice model we operate in Continental Europe.
Kevin Quinn Chief Financial Officer
Cash used from financing activities was £112.5 million compared to £99.4 million in 2012. Dividends paid to shareholders amounted to £44.8 million compared to £40.6 million in 2012. In 2013, we purchased Berendsen plc shares for £12.2 million (£5.4 million) for the Employee Benefit Trust. These shares will be used to satisfy the potential settlement of share incentive awards that have been or are expected to be granted in the near term.
Return on invested capital The group uses return on invested capital (ROIC) post-tax to measure its efficiency at using its capital allocations. We have increased our ROIC from 8.5% to 9.3% in 2013 as a result of the improvement in the adjusted operating profit and focused capital allocation. Increasing these returns towards double-digit remains a key part of our strategic focus.
Finance costs Net finance costs for the year were £22.6 million compared with £25.6 million in 2012 and this principally reflects the impact of strong cash flow generation.
Berendsen plc Report and Accounts 2013
21
Strategic report
Taxation
Committed funding As at 31 Dec 2013 £m
As at 31 Dec 2012 £m
447
437
$250m US private placement notes 2014–2018
€535m revolving credit facility
152
157
$259m and £25m private placement notes 2016–2021
182
185
Total
781
779
Capital expenditure on tangible assets* 2012 £m
Textile assets and washroom equipment
142.1
127.8
Plant, machinery and vehicles
28.7
24.4
1.7
5.4
172.5
157.6
Land and buildings Total
*Based on note 10 of the group financial statements and includes finance lease additions
Return on invested capital (average)*
Total equity
2013 £m
2012 restated** £m
528.4
466.3
447.4
491.0
Add back: Net debt Derivative financial instruments
7.2
( 14.1)
Retirement benefit obligations
(0.9)
26.7
Goodwill previously written off intangibles amortisation, and other Average invested capital Adjusted operating profit
Less tax at effective rates
267.9 1,237.8
158.9
142.4
(0.9) (39.5)
(0.6) (37.0)
NOPAT return
118.5
104.8
Return on invested capital
9.3%
8.5%
*Based on 12-month average **Restated for IAS 19 ‘Employee Benefits’
We manage the group on a sound financial footing with a majority of our gross borrowings at fixed interest rates using interest rate swaps to achieve this where necessary. We currently have most of our gross borrowings in Continental European currencies which act as a hedge against the net assets of our operations in Continental Europe. At the year end we had drawn down £136 million of our revolving credit facility. At year end exchange rates we have total private placement notes of £334 million with maturities between 2014, when £31 million equivalent is due for payment, and 2021.
Financial statements
Add back: Pension interest less returns on investment
297.4 1,279.5
Borrowings
Governance
2013 £m
The tax charge of £27.2 million on profit before taxation compares with £21.3 million in 2012. Our effective rate on adjusted profit before tax was 25% (26.1%). We expect the effective tax rate to remain at this level in 2014.
22
Berendsen plc Report and Accounts 2013
Financial review
Fixed borrowings totalled approximately £306 million or 65% of gross borrowings Always moving forward… with an average rate of interest of Capital allocation our debt as provided in note 15. We are disciplined in our allocation of capital in Net debt at year end was £389 million the business. We have seen excellent returns (£463.7 million). Exchange rates reduced from the investments we have made in our net debt by £2.1 million. Our ratio of net plants in 2013 where the investment has been debt to earnings before interest, tax, focused on generating operational efficiencies, depreciation and amortisation (EBITDA) reducing our energy usage and in the UK in converting our Workwear plants to a similar was 1.2 times compared to 1.5 times in platform to that we use in Continental Europe. 2012. This compares with a covenant level of not more than 3.0 times. Interest cover was 14.9 times EBITDA compared to 12.1 times in 2012 and this is well above our covenant level of not less than 3.0 times.
Exceptional items Exceptional gains, before tax, in the year amounted to £1.8 million (£nil). The gain relates to the release of a surplus onerous contract provision which was initially established within our Decontamination business in 2010. Since then, substantial progress has been made in the turnaround of these contracts with one of these contracts returning to profitability ahead of schedule in 2013. The release of the provision in 2013 reflects this achievement along with the expectation that the remaining contract will break even, in line with plan, by the end of 2014.
Pensions Actuaries to the group’s defined benefit pension schemes in the UK, Ireland, Sweden and Germany continued to advise the respective Trustees on the required funding rates. In total the group has charged £16.7 million (£15.2 million) for the year in respect of all pension arrangements for staff.
£
+4% margin improvement at Rainhill plant (UK).
The principal UK Plan had its triennial valuation in February 2013. This showed a deficit of £13 million on an ongoing basis. We contributed £5 million to the principal UK pension fund in the year and a further £5 million is planned in 2014, in line with the funding plan agreed following the 2013 triennial valuation. We ended the year with a net retirement benefit asset for the group of £7.1 million (£20.5 million liability) reflecting the increase we have seen in discount rates following the strengthening of bond yields, supplemented by improved asset performance. The main UK pension fund shows an asset of £38.2 million (£18.8 million) on an IFRS accounting basis but a deficit at the triennial valuation for funding purposes, while our overseas pension funds show a liability of £31.1 million (£40 million).
These overseas plans are largely unfunded in line with local practice. As indicated in note 27 of the financial statements, the company adopted IAS 19 – ‘Employee Benefits’, with effect from 1 January 2013 in line with required practice. As this is a change of accounting policy, the 2012 comparative figures presented have been restated with effect from 1 January 2012. The impact of the new standard is to reduce the 2012 reported profit after tax by £2.5m and to increase other comprehensive income for the year ended 2012 by the same amount. There is no impact on either the 2012 balance sheet or 2012 cash flow as a result of adopting the new standard.
Berendsen plc Report and Accounts 2013
23
Creating value
Treasury policy
Interest rates
The group uses foreign currency borrowings and financial instruments to finance its operations and to manage the interest rate and currency risks arising from those operations and sources of finance. The group’s strategy for financing its operations and managing risk is summarised below.
The interest rate exposure of the group arising from its bank borrowings has been managed by the use of derivative instruments as described above. The group’s policy is not to use derivatives for trading purposes. Transactions are only undertaken if they relate to underlying exposures and are not speculative.
Financing
Strong performance We delivered a strong performance in 2013, growing revenues 3%, improving margins 60bps and converting 137% of our profit after tax into free cash flow.
The majority of operations in the group invoice their revenues and incur their costs in the same functional currency. The group does face some currency exposure in respect of the procurement of textiles and capital equipment in nonfunctional currency by certain trading companies. These transactions are undertaken to capture purchase savings. A forward foreign exchange contract may be entered into by these companies to mitigate exchange risk and this would be dependent upon the certainty of the exposure as to timing and the exchange rate at the relevant time. Details of the group’s foreign exchange forward contracts can be found in note 16 of the financial statements. It continues to be the group’s policy not to hedge foreign currency exposures on the translation of its overseas profit to sterling. Where appropriate, borrowings are effectively arranged in currencies so as to provide a natural hedge against the investments in overseas net assets.
Financial statements
The group’s UK current accounts are subject to set-off arrangements covered by cross guarantees and there is also a cash pooling arrangement taking in the cash generated by the Berendsen businesses. All the group’s borrowings are unsecured. The group evaluates potential sources of funding on a continuous basis with a view to obtaining alternative sources when and where appropriate. The group was in compliance with its banking covenants. The main financial covenants relate to net debt to EBITDA and EBITDA to net interest.
Currency rates Governance
The group finances its operations primarily through its banking facilities, private placement notes and cash generated from its operations. In planning the maturity of debt, the group’s policy is to seek a balance between continuity of funding and flexibility. In addition the group has overdraft facilities with certain clearing banks.
Strategic report
We seek to create value by increasing our return on invested capital (ROIC). Our strategic objectives summarise how we will achieve this aim: increasing our returns by growing revenues and increasing margins; and managing our invested capital by converting our growth to cash. In 2013 we increased our ROIC from 8.5% to 9.3%.
24
Berendsen plc Report and Accounts 2013
Business line review
Workwear. The Workwear business line delivers and maintains workwear to many private and public organisations across Europe. Our service meets the needs of customers in many sectors allowing them to focus on their core business.
Market overview
The European textile maintenance market is very fragmented with only a small number of large players. The essence of our business is serving customers with a trouble-free supply of workwear for their employees. Our plants operate in focused geographical areas in order to guarantee a local approach towards our customers. For our customers, outsourcing of this service means that we take complete responsibility for all activities regarding Workwear from the start to the end of the cycle. The advantage for our customers is that they can save costs, free up time, improve image, space, personnel and capital resources. All these resources can be used by the customer to focus on their core business activities.
Drivers and trends
The core determinant of demand for workwear from our actual and potential customer base is economic activity. However, the trend towards outsourcing drives the maintenance segment of the market at a faster pace and the factors behind this conversion to rental are: Corporate image – Presenting a consistent and identifiable image to customers. Health & Safety compliance – Specialist garments to meet the regulatory requirements of different industries (EN/ISO standards). Operational efficiency – Outsourcing non-core activities including laundering and maintenance. Free-up capital – Allowing customers to invest in their own business. Economics – The scale of larger and specialist operations (purchase and maintenance) drives lower unit costs. Product specification – Technical support and tailor-made innovations. Environment – Providing more environmentally friendly solutions.
Always moving forward…
Building on strong foundations Our production concept of lean production and self-managed teams, which we brand CL2000, continues to deliver strong results. Now implemented in both Rainhill and Wakefield in the UK, this concept supports our strategic goal of reducing operating costs and improving customer focus and profitability. We now use our experience and expertise in this area for the benefit of our customers and our business. The highly- and multi-skilled teams operating in lines provide the ultimate in high quality, dependable and personalised service. The introduction has increased the quality of service, our employee satisfaction, our customer satisfaction and the retention of business.
Peter Havéus Managing Director, Workwear
Berendsen plc Report and Accounts 2013
25
Empowerment gives better service
The CL concept is highly focused on empowering employees. They become multi-skilled in order to be able to plan and take responsibility for each task, and they have direct contact with their customers.
Strategic report
100% delivery on financial targets since the implementation in our Rainhill plant.
Contracts
Performance 2013 £m Adjusted* operating profit Adjusted* operating margin
£305.8m
£288.0m
£60.5m
£51.0m
19.8%
17.7%
*Before amortisation of customer contracts and exceptional items **Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised)
Strategic priorities
kkSubstantial available market confirmed within our geographical footprint; kkImprove capabilities to define ‘go to market strategies’ for existing and new attractive market sectors; kkIncrease focus on key account sales including ‘Pan-European’ accounts; and kkContinuous leverage and harvesting in operational excellence area and enhance ‘best practice’ sharing further.
Julie Hannon Laundry Operative, Rainhill
kkDelivering on time with high quality products; kkAccess to essential information about ongoing service from us, either via our customer service or web portals; kkInnovation, product and service development; kkGarment lead times when starting up a new customer or normal replacements of garments; kkTransparency regarding total cost of ownership; and kkBuild stronger customer relationships and loyalty which underpins our growth further by determined colleagues with customer focus.
Financial statements
We plan to increase our focus on utilising the market opportunities by further strengthening our competencies in the sales, product development and marketing to improve our momentum in growth according to our strategy. At the same time we will continue leveraging and harvesting through our operational excellence by enhancing best practice sharing across the business line.
Long-term customer relationships are ‘key’ for long-term cooperations and therefore contract management is a strategic area for us to manage in a professional way to our customers’ satisfaction. To build strong relationships and loyalty it is important that we continuously strive to deliver good service and quality, in combination with proactive customer service from all our dedicated front office colleagues. By again using ‘best practice’ as the driver tool to share experience across the business line, we expect to improve our customer loyalty and by that long-term retention. The following components are ‘key’ enablers to leverage on our business model to our customers’ satisfaction:
Governance
Revenue
2012** £m
“At first I had some doubts whether this new concept would work. But today I feel much closer to my customers, I understand their individual needs and requirements and can respond to them quickly.”
26
Berendsen plc Report and Accounts 2013
Business line review
Always moving forward…
Lowering our service costs We want to deliver a more effective and cost-efficient solution to our customers than they can provide themselves. In 2013 we have worked on many projects to continue to secure this.
20%
efficiency improvement after our customer service model’s redesign.
We have re-designed our customer service model in the UK which has led to a 20% efficiency improvement overall and significant improvement in first-time resolution of customer queries. We have developed a very efficient customer contact-planning tool based on criteria such as satisfaction score, contract end date etc. With this we are proactively predicting our customers’ need for contact in advance, rather than reacting to incoming customer calls.
Operational highlights Revenue was up 6% in the period at £305.8 million (2012: £288.0 million), with adjusted operating profit 19% ahead at £60.5 million (2012: £51.0 million). Underlying constant currency growth was 3% for revenue and 15% for adjusted operating profit. The adjusted operating margin increased 210bps to 19.8%. We continue to make progress in delivering the benefits of best practice transfer and in implementing the key elements of our standard business model. Our international collection, where we have taken the best design elements from different markets, is selling well and has reduced material cost lead times further compared to locally sourced collections. Salesforce efficiency continued to improve, particularly in national accounts, through our focus on sales management and better coaching methods delivered by our Sales Academy programme. Our operational excellence programme, supported by focused improvement reviews, has delivered productivity improvements of almost 5% in aggregate across the business line. At the same time, we have delivered service and quality improvements with consistently higher customer satisfaction scores.
Our focus on textile management, based on best practices and workflow optimisation which we defined last year, delivered significant savings in textile purchases in the first year of the programme. A key element of our margin increase has been the improvement in Germany and the UK where the opportunities for best practice transfer are greatest. We delivered in aggregate a 3% increase in revenue and a 22% increase in operating profit, resulting in a margin improvement of 200bps. We have made good strides towards moving these countries towards the margin potential we see in our best practice reference countries. In the UK, we have continued to deliver significant benefits at our Rainhill plant since the conversion to the same production model we use in Continental Europe, which is based on the principles of lean production and self-managed teams, internally branded as CL2000. Productivity at the plant is up and its margin increased by almost 4% over the year. We are also taking the opportunity to consolidate production in 2014 and we are consulting on the closure of one of our smaller plants into Rainhill to drive for further productivity improvements. There is a modest cost of exit, which will be reported in the segment result in the first half of 2014.
In October 2013, we completed, on schedule, the conversion of a second plant, at Wakefield, and have already seen productivity improvement in line with our plan. In Germany, our revenue growth was almost 8% following significant new contract wins and this was a key driver of our excellent profit growth in the business, the highest for the business line. Economic activity in Denmark and Sweden was mixed and while this held back top line growth in Sweden overall, we did see a stronger second half with Denmark ending the year with growth of 5%. Our Dutch business, also a best practice reference operation, made good progress in tough local conditions, growing revenue by 3%. Despite an economic environment which is still challenging, these countries also benefited from operational improvements and in aggregate their margins increased significantly. Plans for 2014 In 2014 we will be focused on keeping the business growing and leveraging our operational excellence to deliver improved results. Specific areas of focus will be capturing best practice opportunities to close the differences in margin between countries; working to improve organic revenue growth rates; and building best-in-class customer service processes to improve our retention rate.
Berendsen plc Report and Accounts 2013
27
High level of motivation
Our employees are responding very positively to our new service model. Clear areas of responsibility and direct contact to customers, combined with their expert knowledge, has motivated our employees to offer the best possible service.
Strategic report
New iPad Workwear application
From 5% to 50% – improvement in first-time resolution of customer queries.
Governance
50% We have made the showing of our service offering and our garments easier and more involving. With a few sweeps we can show the customer a complete solution for their specific needs.
Financial statements
28
Berendsen plc Report and Accounts 2013
Business line review
Facility. Our Facility business line covers our Mats and Washroom operations, addressing the needs of a very broad customer base, and our Cleanroom operations focus on ensuring that our customers meet the highest quality standards.
Mats Market overview
The Mats business addresses a very broad customer base which includes retailers, wholesalers, restaurants, garages and all kinds of offices, industrial premises and government facilities. The average customer size is relatively small. The largest customers are typically cleaning companies and other facility companies where we are engaged in different forms of partnerships. In general the cost of Mats services is relatively low and therefore price sensitivity is more limited than in some other sectors.
Drivers and trends
A Mats service is sold rather than bought. Few customers know of the service and most have managed to operate without it. An active and efficient field sales force is the determining factor in growing the market. The key factors in marketing the concept are: Corporate image – presenting a consistent and identifiable image to customers. Health & Safety compliance – preventing accidents and maintaining a good environment for users including clean floors. Market development – up-selling of higher specification products over time. Economics – the benefits of outsourcing non-core activities.
Washroom Market overview
As every kind of business requires washroom facilities, the market has very few limits. Customers include retailers, restaurants, garages and the full range of offices, public sector organisations and industry, with the average customer size being relatively small. In general, the average cost of outsourced washroom facilities is higher. The chosen segments are all ‘away from home’ washrooms where normal hand washing/hygiene standards are required. The largest customers are typically cleaning companies or other facility service companies where we are engaged in various commercial agreements.
Drivers and trends
Serviced washroom solutions are sold rather than bought. Potential customers will invariably have an existing solution or be managing their own sourcing and supplies. The key factors in marketing the concept are: Hygiene standards – research indicates that hygiene standards in shared washrooms is an increasing concern for users. Our products and services are designed to secure ‘personal hygiene in a shared washroom’. Health & Safety compliance – almost 80% of all bacteria spreads from the washroom due to poor sanitation or lack of washroom products, and low levels of hand washing. Product innovation – washroom solutions are not only the logical hygienic choice; many of our products are also designed to combine industrial practice with exclusive design. We want to give our customers the opportunity to personalise their washrooms.
Cleanroom Market overview
Whereas ordinary Workwear relates to protecting people against the working environment, cleanroom is also about protecting the environment against people. The particles associated with humans can harm products and production processes, and the businesses of many of our customers depend on meeting the highest quality standards. Many customers need a combination of cleanroom services and regular Workwear services to meet hygiene requirements, such as those stipulated by ISO certification. A cleanroom supplier is typically a vital part of a quality management system that meets the needs of external regulation, and therefore difficult to replace. This has resulted in high profitability in this segment to provide the necessary returns for our investments in technology.
Drivers and trends The core drivers are similar to those of our Workwear business. Factors include: The international expansion of pharmaceutical and high-tech companies. Stricter regulatory requirements. Product specification – technical support and tailored innovations. Economics – larger and specialist operations (purchase and maintenance) drive lower unit costs. Corporate image – presenting a consistent and identifiable image to customers.
Berendsen plc Report and Accounts 2013
29
Always moving forward…
State-of-the-art sales tool A new iPad-based sales tool has added considerable speed to market, and a highly professional touch, to our sales process.
Strategic report
We have added all relevant data for the sales representatives into one single application. The material is centrally updated, which means that prices and marketing material are always up to date. Offers and contracts are filled out and can be signed on the spot, making us able to increase our speed to market considerably and decrease the amount of paperwork for our customer service employees. Less wasted time for internal procedures, less administrative work for customer service employees and less errors due to direct system integration.
Christian Ellegaard Managing Director, Facility “This tool makes my work life easier. It has increased my efficiency with my customers, and I spend much less time on deskwork. The ability to send them a detailed offer even before I leave the first meeting is great!”
Performance 2013 £m Revenue Adjusted* operating profit Adjusted* operating margin
2012** £m
£243.3m
£212.8m
£62.5m
£54.1m
25.7%
25.4%
*Before exceptional items and amortisation of customer contracts **Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised)
Strategic priorities
Contracts
Our strategic priorities remain unchanged. Facility offers our largest opportunity for the higher margin and return from each incremental sale. It is a sales-driven business and we continue to invest in educating our salesforce and increase the effectiveness in order to continue our market leadership.
Mats
kkExtend our market-leading positions in mats and washroom with product innovation; kkDrive performance improvement in sales in mats and washroom; kkExtend propositions to new customers in Cleanroom; and kkBest practice development in operations and distribution.
We typically supply mat services to a customer’s specific requirements based upon one-to three-year contractual agreements with provision for annual cost increases and self-renewing contracts. Billing typically reflects a low invoice value and is usually determined by the following factors: kkFrequency of service provided; kkNumber of products served; kkRange of products served; and kkLength of contract.
Financial statements
In Cleanroom, we are a leader in customer-driven solutions focused on extending existing propositions to new customers while expanding our service offering to existing customers. Underpinning our market development is our expertise in operations and distributions.
Governance
Kristian Bligaard Sales Representative, Denmark
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Berendsen plc Report and Accounts 2013
Business line review
We want our products to stand out We have a unique washroom design using colours, shown in 3D in the new sales tool. Having a coloured soap dispenser increases the number of hand washes by up to 50%.
2
weeks’ improved lead time from a signed contract to the first delivery generates a positive return on investment.
Washroom
Cleanroom
Operational highlights
We typically supply washroom services to a customer’s specific requirements based upon three- to five-year contractual agreements with provision for annual cost increases and selfrenewing contracts.
We typically supply rental Workwear to a customer’s own specification based upon three-year contractual agreements with provision for annual cost increases and residual value payments in the event of early contract termination. The billing of Workwear services is usually determined by the following factors:
Facility
Billing typically reflects: kkFrequency of service provided; kkSupply of consumables and other maintenance services; kkSome contracts are all-inclusive with full service while others charge services separately; and kkThere is a broad range of products that can be used to service the washroom.
kkSpecification of garment; kkSize of workforce/number of users; kkFrequency of cleaning/replacement; kkDelivery locations; and kkLength of contract.
Revenue was 14% ahead of last year at £243.3 million (2012: £212.8 million) and adjusted operating profit at £62.5 million (2012: £54.1 million) was up 16%. The adjusted operating profit margin was 30bps higher than last year at 25.7%. On an underlying constant currency basis excluding acquisitions, revenue grew 5% and adjusted operating profit was up 9%. We are encouraged by the increase in the organic growth rate of this segment in the second half, which was 5% for the full year and 3% at the half year. We believe that the opportunities for growth in Facility are strong as a large proportion of our existing customers are not taking a fully outsourced service in Mats and Washroom. The potential to expand or enhance the level of services to existing customers is significant.
Berendsen plc Report and Accounts 2013
We expanded our contract base in each of our Mats and Washroom businesses, with the volume of mats placements in particular increasing 6% in the period.
We delivered a good level of new sales, which were ahead of plan. This has more than offset any reduction in volume per contract and price pressure, although this eased through the second half of the year. Norway in particular delivered good growth in revenue and operating profit. In the emerging markets, where we have revenues of over £30 million, we saw double-digit revenue growth in aggregate with the newer territories of the Baltics and Czech Republic growing strongly. There was a good level of growth in Poland, our larger and more established business, and with the operating margin above 20%, this is converting well to profit. Our Baltic business is delivering improved operating margins, up 7ppt in the period to 12%, with further opportunities for improvement. Our Cleanroom business combined excellent organic growth with the contribution of the German business we acquired in April 2012, to produce revenue growth of 16% with improved margins.
One of the new contracts in 2013 included a garments solution to a site in Zagreb, from our existing plant in Germany, creating our first delivery to Croatia.
Plans for 2014 Looking ahead, Facility has good growth opportunities. Our management team will work on developing a best practice model for Washroom, optimise distribution and capture opportunities from our partnership with ISS. All these will help to extend our contract base.
70%
Governance
Growing customers in new regions
The level of new business in Germany, in particular, has been very strong, with the added focus now to improve operational leverage and move the margin closer to the average for this part of the business. In May we contracted to assist one of our major Danish pharmaceutical customers in establishing a plant in the Moscow area. We will manage its Cleanroom textile operations from within the customer plant once this is completed, which is expected to be later in 2014. While the revenue and scale of operations will initially be small, it will further develop our relationship with a key customer and build some experience of operating in the faster growing, emerging economies in line with our strategy.
Strategic report
The separation of the three operations of Mats, Washroom and Cleanroom is facilitating the development of our business models. We have been particularly encouraged in the second half by the progress we have made in Washroom offerings, adding a number of service ranges and seeing good market acceptance for our fixed billing package concepts which grew 20% in the year. Overall, our sales efficiency increased, especially in Washroom, with momentum picking up throughout the year with sales in the second half of the year well ahead of those in the first half. The number of new larger customers in Cleanroom has also been encouraging with a further increase in the average number of services sold to each customer.
31
volume increase in an acquired German laundry facility was the promising result after our solid optimisation efforts.
Promising potential
What is a cleanroom?
A cleanroom is a business production environment with a very low level of dust, microbes and particles. Our services help to ensure that the high standard is kept through supplying not only work garments but also shoes, goggles and mops.
Financial statements
We recently acquired a small German Cleanroom laundry facility, and subsequently invested in both organisation and production, boosting the overall capacity heavily. From the beginning, this new laundry facility has exceeded our expectations and been a role model for realising and managing growth. With a great ambition and a high level of motivation, this new facility realised the order take target set for 2013 in only four months, by a combination of large and small orders from new customers. One of these new customers also created an opening for our other services like garments, clogs and our cleaning system. The potential to develop the customer base from this facility is very promising.
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Berendsen plc Report and Accounts 2013
Business line review
UK Flat Linen. Our UK Flat Linen business (so called because a large part of the offering are the sheets, pillowcases, tablecloth etc. that are ironed flat) covers Hotel and Healthcare customers where we hold the market-leading position. Hotels Market overview
Large hotel groups are attractive customers, as lower unit prices are offset by the larger unit size, economies of volume and reduced seasonality. On average, a large hotel equates to the size of seven small independents, which are characterised by higher transport and service costs, greater seasonality and some in-house capabilities. Large independents also offer scale advantages.
Drivers and trends
The UK hotel market continues to grow. Closures of some small hotels in the independent sector, notably in coastal holiday areas, have been more than offset by new openings by hotel groups in London and the larger cities. Nationally, the pipeline of new hotel projects, where construction has already commenced for 2014 opening, stands at over 10,000 new rooms, of which 4,800 are in London.
Berendsen UK is the leader in hotel linen provision and serves most of the UK, although regional firms unite in associations to compete for national contracts.
Healthcare Market overview
For the NHS, purchasing of linen and laundry services has been simplified by frameworks that set core prices and run ‘mini-competitions’ for those suppliers eligible to bid for NHS contracts. This development has significantly reduced the timelines from the issue of documentation to the implementation of new contracts. Although the business is not seasonal, activity can fall during peak holiday periods due to a reduction in elective surgery and outpatient appointments.
Drivers and trends
In 2013, two NHS laundries closed. In 2014, two further closures are expected, increasing the revenue available to private sector operators by £1 million per annum. As in 2013, we do not expect significant investment in new hospital capacity in 2014. Facility management providers play an increasingly important role in the market and we expect this trend to continue in 2014.
Always moving forward…
Together we are strong In July Sunlight changed its name to Berendsen. We accompanied this with a customer communication programme to re-emphasise, but also broaden, the underlying values and commitments of the business. Informing customers about the change of name has given us an extra opportunity to tell our customers that the pace of innovation in products, services and processes will increase and introduce new initiatives to help deliver even better service. “Speaking to our employees during the re-branding process really gave me an indication of the commitment our employees are showing. It was great to see the enthusiasm with which the process was embraced, and the understanding of the benefits.”
Steve Finch Managing Director, UK Flat Linen
Berendsen plc Report and Accounts 2013
33
An exciting future
We are developing our products, our processes, our communications and many other aspects of our business. Adopting the Berendsen name throughout our company sends a strong signal to our customers that the company is changing and growing stronger.
We have been very pragmatic and cost-efficient in our re-branding process. Stationery, factory signage and business cards have been changed, while logos on trucks are being changed one by one when they need to be re-painted anyway. We also used the opportunity to launch a new website combining both the Workwear and the Flat Linen websites for the benefit of future business.
hits are received per day on our customer portal at: www.berendsen.co.uk.
Healthcare
Performance 2013 £m Revenue
Adjusted* operating margin
2012** £m
£204.6m
£196.7m
£27.3m
£25.8m
13.3%
13.1%
*Before amortisation of customer contracts and exceptional items **Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised)
Strategic priorities We plan to develop our strategic customer relationships through innovation, quality and service to further differentiate our offering. As market leader we also seek to be the supplier of choice for tenders or new outsourcing, especially in Healthcare. kkGrowing strategic relationships; kkSupplier of choice for new outsourcing; kkManaging operational excellence.
Contracts Hotels A typical initial contractual agreement lasts for two or three years. Many of our customers have been with us for well over a decade. Some larger clients have bespoke terms in their contracts.
Operational highlights Revenue was 4% ahead of last year at £204.6 million (2012: £196.7 million) and adjusted operating profit was 6% higher at £27.3 million (2012: £25.8 million). The adjusted operating margin was up 20bps at 13.3%. We are pleased with the increase in revenue growth rate to 4% (2% in the year to 31 December 2012), which has been driven by a combination of higher underlying volumes, new contract wins and price increases. The business continues to place innovation at the heart of its customer service proposition. In Hotels we are seeing clear signs of recovery in the UK economy with a 4% increase in underlying volumes in our group customers compared to the same period last year and a particularly strong end to the year. Our salesforce continues to improve its sales management processes, particularly with the introduction of a new customer relationship management (CRM) system leading to greater efficiency.
In Healthcare, we are also investing in innovation in service and product enhancements. In Healthcare, we saw little change in underlying volumes but we benefited from new contract wins, add-on sales from our innovations in product and services to the hospitals, and contractual price increases. We remain well-placed to capture further outsourcing and we are in dialogue with a number of prospects.
Plans for 2014 In 2014 our UK Flat Linen business management will focus on extending our contract base. Differentiating our products and service offerings from the competitors, enhancing efficiency within our textile management processes and developing the customer service further will be key areas of focus.
Financial statements
kkService innovation; and
NHS contracts are typically set for a period of three to five years, with occasionally the possibility of gaining extension periods of up to two years. This is longer than the contract period in the private sector, which tends to be nearer three years.
The competitive environment remains tough, however, and we did experience a higher level of contract churn in the second half, which management is focused on reversing. Although gas prices remained at a higher level than expected we were able to partially offset these through productivity gains in the second half.
Governance
Adjusted* operating profit
Strategic report
2,000
The practicalities of a re-brand
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Berendsen plc Report and Accounts 2013
Business line review
Manage for value.
Our focus in the Manage for value businesses is on maximising the opportunities of these good businesses from their existing footprint, managing capital investment, increasing cash deliveries and improving returns.
Flat Linen outside the UK Market overview
Although our Hotels and Healthcare businesses outside the UK are relatively strong in their own markets, with many operating as market leaders, we do not currently plan for them to deliver sustained significant growth or to achieve higher levels of return. End markets are more challenging but our management teams remain focused on improving their businesses.
Value drivers kk Strong businesses in their own markets kk These businesses are well-invested with a strong contract base kk Operational efficiencies and contract management to increase margins kk Cash conversion in excess of 100%
Actions kk We manage our non-UK Flat Linen businesses under a separate management structure, combining hotels in Sweden and Denmark kk We will drive for operational efficiencies and undertake restructuring to ensure competitiveness
Clinical Solutions and Decontamination Market overview
The outsourcing of integrated linen, consumables and instrument decontamination services for the sterile environment of the hospital operating theatre provides opportunities for the UK health service to meet its current challenges and objectives.
Value drivers kk Greater volume to leverage our well-established infrastructure kk Further contract wins
Actions kk We engage with our customers to deliver the returns anticipated by the two decontamination contracts kk We are tendering for new contracts and volumes in sterile consumables kk We drive for service improvements and efficiencies in our reusable linen contracts
Always moving forward…
A result of many years of dedicated service When Scandic Sweden was looking for a new supplier to their 76 hotels they engaged with us. We have a long track record of high standards of delivery to Scandic Denmark, and our strategy to unify the management of Denmark and Sweden supported our ability to also deliver high quality products and service offerings in Sweden. We were consequently chosen as their new supplier. Our logistics analysis and set-up will save Scandic Sweden approximately 15% of time spent on room cleaning. We deliver our products directly to the hotel room. We provide a linen cart with the exact amount of products needed for each floor of the hotels. By delivering this, considerable time is freed up for the room attendant, making them able to focus on their primary job.
Berendsen plc Report and Accounts 2013
Performance 2013 £m
2012** £m
Flat Linen outside UK Revenue Adjusted* operating profit
£218.0m
£18.2m
£21.0m
7.9%
9.6%
£69.3m
£69.6m
£4.5m
£2.9m
6.5%
4.2%
Clinical Solutions and Decontamination Revenue Adjusted* operating profit Adjusted* operating margin
*Before amortisation of customer contracts and exceptional items **Restated for the introduction of IAS 19 ‘Employee Benefits’ (Revised)
Operational highlights Flat Linen outside the UK
Revenue was largely unchanged at £69.3 million (2012: £69.6 million) but adjusted operating profit increased significantly to £4.5 million compared to £2.9 million last year, an increase of 55%. Weaker sales of single-use surgical drapes and gowns followed the loss of a significant customer as a result of changes in its circumstances. Although revenues were held back by this, we increased significantly our profit in the period with the completion of our turnaround plan for our sterile consumables business. We continue to improve the performance of our decontamination contracts. The key actions of our turnaround plan are largely delivered with new volume from the existing
One of the two core contracts is now operating at a small profit and we are therefore able to release £1.8 million of the provision that we made in 2010 that relates to this contract. We have separately disclosed this release as an exceptional item in the Income Statement. We retain £0.5 million of the provision to absorb future losses on the second contract where work continues to move this to a breakeven position by the end of 2014.
Plans for 2014 In 2014 our Flat Linen businesses outside the UK will be commissioning the significant volume we have won in new contracts, especially in Sweden, and defending our market position in contract tenders. Additionally, our management teams will focus on improving operational and capital efficiency. Within both Clinical Solutions and Decontamination we expect to add new contracts to our base and deliver additional sales and service into existing contracts. Additionally, we aim to achieve breakeven in our second largest decontamination contract.
Governance
Revenue in our Flat Linen businesses outside the UK was up 6% at £231.2 million (2012: £218.0 million) but adjusted operating profit was down 13% to £18.2 million (2012: £21.0 million). On an underlying constant currency basis, revenue grew 2% and adjusted operating profit was down 15%. The adjusted operating margin decreased to 7.9%.
Clinical Solutions and Decontamination
contracts and the start-up of a significant new contract contributing to a reduction in the loss for the period to £0.9 million compared to £2.2 million last year. Our service is strong and we continue to make operational improvements with an increase in underlying volumes in the second half of the year. Strategic report
Adjusted* operating margin
£231.2m
The businesses within this segment have demonstrated that they have opportunities within their markets, notwithstanding the pricing pressure in Swedish and German Healthcare, which impacted margin. Underlying revenues increased with good new contract wins in Healthcare in Germany and Austria and in Scandinavian hotels. These, in addition to a number of other significant contract wins towards the end of the year, will deliver full year benefit in 2014. The margins on this new business will grow over the next few years but there will be significant start-up costs for new business of this scale in the first year of operation.
35
Considerable savings
We have clear evidence that our knowledge has brought considerable savings to hotel chains. Our customers always know exactly what they are paying for, which supports their confidence in us.
Swedish Scandic hotel beds (76 hotels) serviced by us.
In order for our customers to derive the maximum benefit from our services, we regularly deliver benchmark calculations analysing each hotel’s usage of our linen, towels, uniforms and mats.
Financial statements
15,020
The best service possible
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Berendsen plc Report and Accounts 2013
Principal risks and uncertainties
Continuing to maintain robust risk management. The key actions identified from our strategic review in 2010 continue to drive our approach to risk management. The involvement of management and employees at all levels is critical to the success of this approach.
“The identification of the most significant risks that face the group is the responsibility of the board. Each of the group’s strategic objectives are considered in the risk identification process. The development of mitigation plans and actions to manage these risks is delegated to the executive board and other senior management. Mitigation plans and actions required are communicated to business unit management who are responsible for their implementation. Business unit management teams are responsible for the identification, evaluation and management of local risks, so that, where possible, risks are reduced to acceptable levels.”
The board Sets strategic objectives Agrees key risk appetite, identifies key risks and ensures they are appropriately managed Sets delegation of authority Approves group policy and procedures
Executive board
Risk management assistance
Audit committee
Monitors performance and changes in key risks facing the business, and provides regular reports to the board
Guidance and advice to business line and business unit management to help them with the following:
Monitors assurance and risk management arrangements
Agrees key actions to manage risks
Risk, identification procedures, quantification and mitigation plans Health and Safety Fire management Insurance
Business line and business unit management
Effectiveness of risk and control processes
Management and employees are responsible for the identification, assessment, management and reporting of local risks
Reviews of the effectiveness of key risk management and control processes through: Internal audit External audit
Maintenance of local risk registers
Group insurer property Risk surveys
Implementation of key risk mitigation plans
1
Business line and business unit management
David Lawler Company Secretary
Assurance lines of defence
2
Group support
3
Independent assurance
Berendsen plc Report and Accounts 2013
37
Strategic report
Our focus in 2013
Inherent attributes
In March 2013 an external independent review of the group’s risk management systems was performed. Findings from this review were discussed with the board on 25 April 2013 and priorities for further work were identified. Our initial focus is on enhancements to the completeness of our risk identification procedures using an activity-based approach. Following this review we have assessed the key inherent risk attributes of our business and the associated dangers that they might represent if not appropriately managed.
kkThe organisation is strongly process orientated;
Always moving forward…
The independent review of risk management that we completed in the first quarter of 2013 engaged with people throughout the organisation, including executive and non-executive directors and senior management. This concluded that in terms of the effectiveness of our risk management processes we are within the top quartile of organisations with similar risk profiles.
kkThe group operates predominantly in Western Europe, with its welldeveloped business culture; and kkWe have an open communication culture where it is normal practice to escalate issues promptly. We are highly focused on the effectiveness of our business continuity planning arrangements in order that we can provide continuous supply to our customers. A further desktop scenariobased test of our business continuity planning arrangements was carried out at a key UK location, and our first overseas test was completed in Denmark in January 2014.
Ongoing process for risk identification, evaluation and management The board is responsible for determining the nature and extent of significant risks it is willing to take in achieving its strategic objectives. At the February, June and December 2013 board meetings the board reviewed the most significant risks facing the group. Culture The group maintains an open style of communication. This is designed to identify any problems and issues early so that appropriate action is taken quickly to minimise any impact on the business. The characteristics of our group culture are supported by our group intranet, the Berendsen Universe. This provides an extensive platform for our employees to keep updated with the latest news, the key group policies and procedures and to share best practice with others. Our vision and values continue to complement and drive the characteristics of our culture.
Financial statements
Understanding risk – independent review
kkThe group is made up of a large number of plants which lowers the impact to the group should problems occur in a specific plant;
Governance
In 2013 we reviewed, updated and improved key operational group policies on health and safety (including fire management), business continuity planning and building asset management. In addition in quarter four 2013 and quarter one 2014, we have instigated an independent review of our health and safety management systems. Plants in 6 countries are being visited, to identify opportunities for further improvement.
kkThere is a relatively stable management team;
We continue to strive for improved systems and procedures to share best practice around the group. The Operational Risk Management Group meets twice each year to discuss emerging risk management issues and to identify opportunities for us to share best practice. This group comprises a number of senior management from across the group.
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Berendsen plc Report and Accounts 2013
Principal risks and uncertainties Throughout 2013 and up to the date of the approval of these financial statements, there has been an ongoing process for the identification, evaluation and management of the most significant risks faced by the group. This process has included the following: kkAppropriate delegation of authorities approved by the board that include formal authorisation procedures for all investments (as well as clear guidelines on appraisal techniques); kkClear responsibilities of line and financial management for the maintenance of strong financial controls and the production and review of detailed, accurate and timely financial management information; kkA comprehensive financial review cycle, which includes a rolling threeyear planning process, an annual budget approved by the board, review of monthly variances against budget and quarterly re‑forecasting of annual performance; kkProvision to management and the board of relevant, accurate and timely information, including key performance indicators, based on reliable management information systems which are regularly improved and updated;
Always moving forward…
Managing Business Continuity Planning Risk UK Flat Linen has recently carried out BCP desktop scenario based tests at two plants. Key lessons learned have been collected and the Operational Risk Management Group will ensure these are shared throughout the group. Further tests will be completed at a key site in each business line during 2014.
kkMonthly reports to the board from the Chief Executive Officer, Chief Financial Officer and the Managing Directors of the Workwear, Facility and UK Flat Linen business lines; kkRegular business unit management board meetings, executive board meetings and company board meetings. At these meetings existing, new and emerging operational, financial and other risks are discussed, together with appropriate actions to manage these risks being agreed and followed up; kkRegular performance reviews by the Chief Financial Officer and the Group Financial Controller with the Managing Directors of the Workwear, Facility and UK Flat Linen business lines, often attended by the Chief Executive Officer who also has one-to-one meetings with the Managing Directors; kkDiscussion of any identified significant issues or control weaknesses and, if considered necessary, their inclusion in reports to the executive board and the board;
kkMaintenance of a group risk register and schedule of key controls which is regularly updated and reviewed by the board, which sets out the most significant risks facing the group, the actions being taken in mitigation including future plans; kkMaintenance of business unit risk registers; and kkA structured and approved programme of internal audit visits with the implementation of recommendations made being monitored as part of a continuous programme of improvement.
Internal control The board also has responsibility for maintaining sound risk management and internal control systems, and at least annually reviewing the effectiveness of these systems. These internal control systems are designed to manage rather than eliminate the risk of failing to achieve a business objective. They can therefore only provide reasonable and not absolute assurance against material misstatement or loss. Read more about the board’s annual assessment of the effectiveness of internal control systems on page 78.
Berendsen plc Report and Accounts 2013
39
Risks to achieving our strategic objectives Detailed below are the principal risks and uncertainties facing the group for the next 12 months. The change in the significance of each risk is also shown. Of the 12 risks below, four are reducing; in particular in relation to the performance of the Decontamination business. Exchange rate movements provided benefit for us in 2013, but the risk that they might work against us in 2014 is slightly increased based on movements since the year end.
k
l
c
h
Major
f
Impact
g
b
d
Moderate
j
a
i
e
The table below details the risks shown in the risk map opposite.
Low
Low
Moderate
Major
As well as narrative description of the principal risks and uncertainties facing the group, we use a risk mapping technique to highlight the potential impact and likelihood/significance of management focus of each risk. These are assessed using established criteria and metrics. The board focuses their discussions on those risks regarded as potentially having the most significance, and also to identify risks where their significance is potentially increasing or decreasing.
Strategic report
High
How we see our principal risks
High
Likelihood of risk occurring/significance of management focus
Each risk is clearly linked to the strategic objective and KPIs which it is likely to affect. We also highlight our mitigation for each risk and further progress planned for 2014.
For a full description of each risk please see the tables below Governance
1
Delivering sustainable organic growth
Risk ew sales model fails to deliver the a N necessary new contract wins (volume and price levels) to drive targeted organic growth Potential impact kk Reduction in future profitability and cash flow. kk Failure to deliver targeted growth in revenue. KPI likely to be affected Revenue growth k
Further progress planned for 2014
kk Business line organisational structure in place which gives us more focus on growth areas;
kk Group-wide commission and sales scheme being implemented; and
kk Central sales directors for Workwear, Cleanroom, Mats and Washroom and UK Flat Linen (core growth areas). These ‘target’ local business line sales teams to add focus and speed of response;
kk Continuation of commercial terms and pricing education programme for managers and frontline personnel across the group, including tender training.
Change
Stable
kk Commencement of group-wide sales development work and establishment of sales director group to follow up and improve sales processes; kk Pricing network implemented with pricing managers for each business unit, business line and the group; kk Commencement of commercial terms and pricing education programme for managers and frontline personnel across the group; kk Reporting system provides monthly progress against business line budgets, including key performance indicators; and kk Monthly management accounts distributed to the board include key performance indicators on organic revenue growth, contract gains and customer losses.
Financial statements
Read more detail: Page 14
Mitigation in 2013
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Berendsen plc Report and Accounts 2013
Principal risks and uncertainties Risks to achieving our strategic objectives 2 3
Improving capital efficiency Maintaining a sound financial position
Risk
Mitigation in 2013
Further progress planned for 2014
b Further economic uncertainty
kk Long range plans for business lines to 2016 prepared;
kk Continued monitoring of lead indicators, including hotel and Workwear volumes; and
kk Tight and closely monitored controls over capital expenditure and working capital including capital efficiency review; and
kk Continued tight and closely monitored controls over capital expenditure and working capital.
Reducing
Mitigation in 2013
Further progress planned for 2014
Change
kk Borrowings in currencies to provide hedge against the cash flows of majority of overseas net assets in euro, DKK and SEK (no exposure to investments in Greece, Italy, Turkey, Spain or Portugal).
kk High level of balance sheet hedging will continue (no plans for income statement hedging at this stage).
Risk
Mitigation in 2013
Further progress planned for 2014
eturn on Invested Capital (ROIC) is d R not sufficiently greater than the group’s cost of capital
kk ROIC target set at 10% for the medium term. Reported monthly by business line to the board in group management accounts;
kk Continued focus on generation of free cash flow; and
Potential impact
kk Delegations of authority reviewed and updated in January 2014;
Potential impact kk Reduction in future profitability and cash flow; kk Adverse pressure on pricing and margins; kk Revenue growth below expectations; and
Change
kk Monitoring of various lead indicators against previous experience, including Hotel and Workwear volumes.
kk Limit to ability to complete strategy. KPIs likely to be affected kk Return on invested capital kk Free cash flow/adjusted profit for the year kk Net debt to EBITDA Read more detail: Pages 14-15
Risk ovements in exchange rates c M adversely affect the translation of our group results into UK sterling Potential impact
Slightly increased
kk Unexpected variations in group net earnings. KPI likely to be affected kk Adjusted earnings per share Read more detail: Page 15
kk Lack of funds for future investments; and kk Reduction in future profitability and cash flow. KPI likely to be affected kk Return on invested capital Read more detail: Page 14
kk Post-acquisition procedure to monitor returns on investments made, compared to those targeted; and kk Ongoing Capital Efficiency Programme to reduce levels of working capital.
kk Continuation of Capital Efficiency Programme.
Change
Slightly decreased
Berendsen plc Report and Accounts 2013
4
41
Improving financial returns by leveraging operational efficiency
Risk
Further progress planned for 2014
kk The board receives regular updates on progress from UK management. This recognises good levels of customer service, improved efficiency and interest from potential new customers;
kk Continued focus on the identification and implementation of efficiency initiatives to further reduce losses;
kk Need for further provisions for losses on contracts;
kk Efficiency initiatives put in place reducing losses – 2013 loss £900k (2012 loss £2.4 million, 2011 £4.4 million, 2010 loss £5.4 million);
kk Identification of new volumes using existing footprint.
kk Failure to deliver targeted growth in revenue; and
kk Ongoing discussions regarding future options;
kk Potential loss of management reputation and credibility.
kk No further significant investments planned; and
Potential impact kk Reduction in future profitability and cash flow;
KPI likely to be affected
kk Working with our customers to achieve a streamlining of processes; and
Change
Significantly reduced
Strategic report
Mitigation in 2013
ailure to improve the performance e F of the Decontamination business during 2014
kk Release of £1.8 million provision.
k Adjusted earnings per share/ dividend per share Read more detail: Page 15
Risk nforeseen loss of operational/ f U IT capacity Potential impact
kk Adverse impact on reputation. KPIs likely to be affected k Adjusted earnings per share k Revenue growth Read more detail: Pages 14-15
Further progress planned for 2014
kk Documented and evaluated business continuity plans including identification of alternative production locations – updated Group Business Continuity Planning Policy approved by the executive board and distributed to all businesses in April 2013;
kk Further targeted ‘desktop’ scenario-based testing of business continuity planning arrangements;
kk Fire protection/security procedures and regular audits of compliance; kk Independent surveys to assess the design and effectiveness of plant fire protection, security and business continuity arrangements, including targeted ‘desktop’ scenario-based testing; and
kk Continued monitoring of fire protection and security systems, including responding to the results of our regular independent survey programme; and
kk Comprehensive Property Damage and Business Interruption insurance.
Mitigation in 2013
Further progress planned for 2014
ne of our major textile suppliers is g O unexpectedly unable to meet our textile requirements
kk Regular risk assessment of our major textile suppliers considering social, political and economic factors;
kk Current approach to the management of this risk will continue.
Potential impact
kk Identification of alternative production sources;
KPIs likely to be affected k Adjusted earnings per share k Revenue growth Read more detail: Pages 14-15
kk Purchase of stock up to three months prior to delivery to reduce risk; and kk Secured availability of alternative stocks in the event of serious interruption to supply.
Change
Stable
Financial statements
kk Inability to service new and existing customer requirements.
Stable
kk Maintenance of appropriate Property Damage and Business Interruption insurance cover for our individual businesses.
Risk
kk Shortage of textiles; and
Change
Governance
kk Inability to service customer requirements; and
Mitigation in 2013
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Berendsen plc Report and Accounts 2013
Principal risks and uncertainties Risks to achieving our strategic objectives
5
Maintaining health and safety and other governance matters as a priority
Risk
Mitigation in 2013
Further progress planned for 2014
reach of health and safety h B regulations
kk Updated Group Health and Safety Policy approved by the executive board and distributed to all businesses in April 2013;
kk Completion of independent review of health and safety management;
Potential impact kk Damage to our reputation; and kk Loss of licence to operate. KPI likely to be affected k Major injury rate Read more detail: Page 16
kk Commencement of independent review of health and safety management; kk Local health, safety and fire management systems;
kk Further focus to target a reduction in group major injury rate; and
Change
Stable
kk Reporting to the board on major incidents and statistics to continue.
kk Regularly updated and monitored cleaning and maintenance programmes; kk Prompt incident reporting procedures to senior management with subsequent monitoring; and kk Regular board review of major incidents and statistics.
Risk on-compliance with laws and i N regulations Potential impact kk Damage to our reputation; and kk Loss of licence to operate. KPIs likely to be affected
Mitigation in 2013
Further progress planned for 2014
kk Group Policy and Guidance being developed;
kk Ongoing training programme for employees.
kk Prompt incident reporting procedures to senior management with subsequent monitoring; and
Change
New risk
kk Regular board review of major incidents and statistics.
k Adjusted earnings per share k Revenue growth Read more detail: Pages 14-15
Maintaining a motivated workforce driven by an experienced management team
6
Risk j Inadequate talent management and inability to recruit and retain sufficiently qualified and experienced senior management Potential impact kk Lack of internal succession to key management roles within the group in the event of unexpected departure; kk Short/medium-term disruption to the business; kk Loss of key personnel; and kk Shortage of appropriately skilled management. KPI likely to be affected k Senior management retention rate Read more detail: Page 16
Mitigation in 2013
Further progress planned for 2014
kk Succession plans in place with identified succession for the top 50 roles;
kk Introduction of LEAD Development Centres aimed at building further competency in the leadership framework; and
kk Wider talent pool below the top 50 identified and development planning in place; kk Executive board and business line succession reviews held twice yearly; kk ‘LEAD’ leadership framework introduced and integrated into performance management process; kk Berendsen Academy as in-house vehicle for furthering company knowledge, expertise and leadership development; kk Management Trainee scheme expanded by 50% for future building of management pipeline; kk Group recruitment policy introduced with focus on consistent and raised standards for management recruitment; and kk Short and long-term management incentive plans fully aligned with business line and group targets.
kk 50 managers will participate in LEAD Development Centres in 2014.
Change
Further reduced
7
Berendsen plc Report and Accounts 2013
43
Mitigation in 2013
Further progress planned for 2014
Change
kk Regular visits to major suppliers by experienced internal personnel and external parties to assess suppliers’ compliance with appropriate working practices; and
kk We have appointed a single assurance provider responsible for carrying out detailed audits of our major suppliers of directly sourced production;
kk Prompt incident reporting procedures to senior management and subsequent monitoring.
kk Continued assessment of our other overseas textile suppliers’ confirmations of their adoption of appropriate working practices; and
Reducing our impact on the environment
Risk extile suppliers are found not to be k T adopting appropriate employment and human rights practices
kk Loss of licence to operate, loss of goodwill and/or damage to reputation; and kk Significant stakeholder concern.
Stable
kk Continued monitoring of compliance with our anti-bribery and corruption procedures.
KPI likely to be affected
Strategic report
Potential impact
k Adjusted earnings per share Read more detail: Page 15
Risk iscovery of historic environmental l D issues at laundries Potential impact kk Emergence of unaccounted for liability; kk Adverse impact on cash flow and retained earnings; and
KPI likely to be affected k Adjusted earnings per share Read more detail: Page 15
Further progress planned for 2014
kk Established incident reporting procedures to senior management with subsequent monitoring;
kk Current approach to the management of this risk will continue.
kk Indemnities with previous owners that cover a number of acquired sites;
Change
Stable
kk The extent and coverage of these indemnities are reviewed with the relevant third-party as appropriate; and kk Defence of these indemnities continues to be vigorously prosecuted.
Governance
kk Damage to our reputation.
Mitigation in 2013
Financial statements
44
Berendsen plc Report and Accounts 2013
Our people
Investing in our people to grow the business. Our ability to look after the well-being and development of all our people has a direct impact on our overall strategic performance. By engaging our people we improve customer satisfaction and retention and ultimately Berendsen’s growth prospects.
Key points in this section: Employee engagement
69%
employee engagement level. 8pts higher than benchmark norm.
Across the group, 2013 was a year of implementation of our previously announced plans to motivate, engage, develop, reward and recognise our employees. Here we provide an update on progress against our commitments in areas which relate directly to our strategy for growth.
Leadership
Understanding our people
50
In September 2013 we conducted our first company-wide “One Berendsen” employee engagement survey. Out of 15,000 people, a total of 11,500 participated in the online survey, giving a response rate of 76%. Consisting of 25 questions, available in 23 languages, the high response rate gives us confidence in the survey category results of communication, engagement, leadership, organisation, my manager, my team, my role, performance and personal development. An overall engagement score of 69% put Berendsen 8 points higher than the global norm for the 176 other organisations who have conducted similar surveys with our chosen partner, Get Feedback.
Managers invited to attend LEAD programmes in 2014. Investment in people
£2.24m
Training spend. Values
100%
Roll out to all sites of vision and values communications. Monitoring a motivated workforce
96%
Senior management retention rate.
6
KPI
Conducting the One Berendsen survey online enabled us to easily produce detailed engagement summaries for all 140 Berendsen workplaces. Following receipt of the results, line managers have since been engaged in an open and transparent communication of the results at every location. What’s next?
Chris Thrush Group Director, Human Resources
We will continue to communicate the results in 2014, working with employee groups to identify three to four improvement actions for each site, aimed at further enhancing levels of engagement before the survey is undertaken again in 2015.
Employee engagement score
69% 61%
%
Berendsen Global norm
Areas of strength kkOur people have higher than average levels of engagement and little intention of leaving Berendsen in the next 12 months; kkOur people understand their role in relation to organisational success, know what is expected of them and feel comfortable sharing their opinions with their manager; kkOur people believe that the CEO and his team are taking Berendsen in the right direction; and kkBerendsen scores higher than the global norm scores for all the above. Areas of attention kkOur people see that leaders could increase the amount of visible presence in their area of the organisation; kkOur people say they would like to have more regular feedback, particularly when they perform well; and kkOur people believe more could be done to increase the opportunities for career development within Berendsen.
45
Berendsen plc Report and Accounts 2013
Strategic report vision.
Em po w
Le a for ds t gr he o
Bu ild in
Our vision
e rat en v iona i t l effec
Bu acusiness men
s
s ate Motivesults r for
se
am Te
Financial statements
“We take pride in doing what we’re best at, delivering unsurpassed levels of service, so our customers can do what they’re best at.”
Buildtserms ple & peo
th grow for
O
De
gic oc ate l f Strtiona ra rm ope te us
pe
1
t en m er
us oc
strategic goals...
sh puth w
stomerm e ents s cu iveial improv r D rc e m m co
in at io n
LEAD
3
leadership behaviours…
g in
76% response rate to online employee survey.
8
values…
k
4
g
In order to maximise the potential response rate in the online employee survey rolled out in 2013, it was necessary to provide a way for all employees who wanted to take part to be able to do so (including those with no regular access to a computer). Advance publicity material created awareness, but this was not enough. We appointed one or two volunteer “survey champions” at each Berendsen site. Their role was to provide support and help to anyone wanting to undertake the survey, together with ensuring dedicated and private computer access was available in normal work time. This proved so successful that in the end the response rate from our people without regular access to a computer was higher than our people working with a computer every day!
Leadership Effectiveness And Development model
lf Str de et ve chin lop g me w nt or
Engaging with our people
In 2014 we will continue to embed LEAD through the introduction of LEAD Development Centres. These are intensive and stretching one day events aimed at building competency around LEAD behaviours. They are either one to one, or group based programmes and result in each participating manager being provided with a tailored development report identifying leadership strengths and opportunities for ongoing learning and development. 50 managers, selected from the talent lists in our succession planning process, will be invited to take part in LEAD Development Centre programmes in 2014.
s
Custo me rf
Always moving forward…
What’s next?
Governance
In 2013, in addition to communicating and explaining LEAD to the whole management group, we developed tools and processes to begin embedding
In addition, a LEAD 360 feedback tool has been added to further enrich the PDR discussion, together with summary “LEAD development suggestions” for each LEAD behaviour so that learning and development action plans can be put in place for each manager wanting to accelerate their progress against the model.
Ca r
In 2012 we developed “LEAD”, our model of 8 key leadership behaviours which combine both our perceived current leadership strengths with those we believe we need to develop further for our future success. LEAD, short for Leadership Effectiveness And Development, identifies the behaviours we consider will be most effective at both plant and senior leader levels.
LEAD behaviours, e.g. including LEAD in our Performance and Development Review (PDR) process to ensure a regular dialogue between a manager and his or her manager about progress against the LEAD framework.
Externa sensingl – int (radern ar) al
Embedding leadership behaviours
46
Berendsen plc Report and Accounts 2013
Our people Developing our people Having a clear strategic approach to developing our management capabilities will shape us for continuous growth. Berendsen Academy In 2013 we continued to add to the learning and development opportunities provided through the Berendsen Academy. The Academy, first launched in 2012, is Berendsen’s in-house “corporate university” for furthering company knowledge, expertise and leadership development. In January 2013 the Academy trained over 200 managers in pricing and commercial terms to improve the profitability of our contracts and support our strategy for higher growth. In 2014 we will introduce new courses aimed at building further understanding, involvement and empowerment. The Academy also introduced new online tools for 360 feedback, recruitment skills and diversity awareness.
Management development programmes In addition to the group level leadership development programmes of the Berendsen Academy, at the country level, management development programmes, which put in place the building blocks of management skills and competency, have been implemented. A number of these took place in 2013, with over 300 managers participating in Leading through Change and Cycle of Service workshops in the UK, and managers in Denmark participating in a simulation game, “Wallbreakers”, a tool used to train implementation of organisational change. In Sweden the fifth in a series of leadership programmes with selected managers was completed, and in 2014 a management development programme for managers in Germany will be launched.
Integrated model for leadership development kk Reward strategy
kk Group recruitment guide
kk Bonus programme
kk Gender diversity policy
kk Long-term incentives
kk Management trainee scheme
kk Recognition programme
Attract management talent
Management trainee scheme The Berendsen Management Trainee scheme was enhanced and expanded further in 2013. A total of 24 trainees, 14 men and 10 women, an increase of 50% on the numbers in 2012 began or continued a two year traineeship which requires the completion of four six-month projects aimed at addressing complex organisational issues. Trainees get experience in many functional areas, are provided with a thorough grounding in the company and are expected to work internationally for at least one of their six month projects. The scheme provides a pipeline of future management talent and at the end of their two year programme trainees are typically appointed to middle management roles throughout the organisation. An example is Christoffer Johansson who graduated from the Management Trainee Scheme in 2013. Following projects undertaken in Sweden, the UK and Germany, Christoffer has been appointed Deputy Plant Manager for a Flat Linen plant in the south of Sweden reporting to the Danish Plant Manager who is based there on a part-time basis. The role will provide Christoffer with the opportunity to develop operations and people management skills and grow toward taking full responsibility for the Plant.
Increasing our talent pool Succession planning measures kkTwo identified successors for each position in Top 50 list; kkPromote from within = 70% of management appointments; and
Motivate, engage, performance manage
Reward and retain
kkSenior Leader retention >90%.
Training spend
£2.24m (2012: £1.77m)
Develop kk Succession Planning Process
kk PDR process
kk LEAD model
kk LEAD model
kk Berendsen Academy
kk ‘One Berendsen’ staff survey
–– LEAD 360 Feedback –– LEAD Development Centres –– Pricing and Commercial Terms –– Coaching and Performance –– E-Learning tools: –– Recruitment skills –– Unconscious bias
kk Group induction programme
In addition to the management and leadership development programmes described in this section, we invested in the skills development of our people in the areas of safety awareness, driving, customer service, engineering, selling, and our CL2000 methodology.
Berendsen plc Report and Accounts 2013
47
Employee communications
Reward and recognition
In 2013 we continued the embedding of our One Berendsen Vision and Values programme. We strengthened employee understanding with the help of three DVD film presentations containing success stories showing how our values are being demonstrated every day through the work our people do. A “one year on” competition held in March 2013 was aimed at finding out how well the Vision and Values programme had been communicated to date. The competition proved to be a popular event and our people in Hofors Sweden, Aalborg Denmark, Uden Netherlands, Szamtuly Poland, Glinde Germany, and Wakefield UK, provided the winning entries.
We place a high priority on employee communications. Berendsen Universe is our group intranet accessible to all employees. First installed in 2012, Universe provides a wide range of company information, news, knowledge sharing and best practice guides. There were eight editions of Berendsen’s online Newsletter in 2013 highlighting company successes in sales, product news and other developments across the whole company with each issue introduced by the CEO giving regular updates on company performance.
We reward our managers based on their performance, potential and contribution to the success of the business. We aim to provide competitive fair rates of employee pay and benefits in every country where we operate.
In September 2013 the One Berendsen Employee Survey question “Berendsen’s Vision and Values has been communicated in a way that I understand them” was answered “agree or strongly agree” by 67% of respondents.
Living our values We are driven by a strong sense of passion and belief. We push for engagement through communication of our values which actively stimulates discussion within the business, using clear explanations and concrete examples. An illustration of this is the story of Jaz Dhami, a demonstration of our caring and teamwork values. Nineteen years with the company, Jaz has worked for the last 6 years as a Transport
Supervisor in our Wednesbury Hotels plant in the UK. Having being informed by the customer service office, who had taken a call from distraught parents, Jaz and his colleagues set about rifling through 18 cages of linen recently returned from local hotels until they found a lost teddy bear. He then set off to return the much loved bear to his owner and the little girl’s astonished parents.
At Berendsen’s 2013 annual management conference 60 managers spent two busy days putting growth at the centre of the agenda and explored the ways to increase organic growth through best practice sharing, market insights and other initiatives. At the end of the Conference, Excellence Awards were given to recognise managers for their outstanding achievements in support of the overall goal of higher growth. Awards were given for Growth Excellence, Service Excellence, Cash Excellence plus further awards for Management Team of the year and Colleague of the year.
Governance
Always moving forward…
In addition, local operating companies have installed large flat screen TV’s and internet capability in canteens to communicate messages and provide access to Berendsen Universe. Use is also made of management and team briefings, letters to staff and annual kick off, or ad hoc meetings to ensure our people are well informed.
In 2013 we continued to focus on clear and transparent links between performance and reward. We incentivise managers through annual bonus programmes aligned to the key performance objectives of each business line which in turn are in support of our strategy for growth. The new Berendsen Long Term Incentive plan, first introduced in 2012, rewards approximately 100 managers for the achievement of strategic goals and encourages share ownership.
Strategic report
Communicating our values
Financial statements
48
Berendsen plc Report and Accounts 2013
Our people Focusing on diversity Our goal is a working culture that is inclusive for all. We are committed to eliminating discrimination and encouraging diversity amongst our workforce. We aim for our employees to be representative of the communities in which we operate and for each of our people to feel respected and able to give their best. In 2012 we outlined our commitment to improving gender diversity with particular emphasis on the numbers of women in management roles. In 2013 we have continued to focus on this area through a number of initiatives. Each member of the “Women in Berendsen” network, first established in 2012, took on the responsibility of mentoring another more junior woman manager to strengthen the network deeper into the company and to encourage and build confidence.
A partnership has been established externally with the EveryWoman network which provides access to excellent online learning materials and leadership development training days. In addition, an in-house Berendsen Academy training video has been produced on the subject of Unconscious Bias to increase awareness and is available online to all managers and supervisors. Our succession planning process, which includes two reviews per annum at the Executive Board and business line levels, now identifies and reviews development plans for the numbers of both men and women who make up the talent pool of future or emerging leaders. The establishment of our new Supply Chain and Procurement function in 2013 provided the opportunity to make several new appointments, including the recruitment of a senior woman manager as Director of Procurement.
Women in management
0%
Women executives, we are building a pipeline
9%
Women senior leaders
24%
Women middle managers
43%
Women employees at Berendsen
What’s next? In 2014 we will undertake a more detailed analysis of women in management positions across the company with a view to achieving a better understanding of their aspirations and career development needs.
Always moving forward…
Celebrating diversity Our second annual meeting and dinner with senior women in Berendsen was held. A total of 25 senior women leaders and their mentees met with Peter Ventress, CEO, and Chris Thrush, Group Director, Human Resources, to discuss progress made in 2013, and in particular, the success of the new mentoring programme designed to encourage confidence and ambition and strengthen the network. Several mentees described the increased confidence and selfbelief that they had derived from participating in the programme with five women informing the group of their promotions in the last year! One of these is Janni Nielsen who first joined Berendsen as a trainee in her mid 20’s in Denmark. Seven years on Janni has been appointed Plant Manager in our Workwear plant in Svendborg following earlier appointments as Production Manager, Project Leader and Product Manager in our Healthcare and Washroom businesses. Janni’s mentor in 2013 has been Lene Fredelokke, Workwear Sales Director in Denmark and a former Svendborg Plant Manager.
43% Women employees at Berendsen.
49
Berendsen plc Report and Accounts 2013
Maintaining health and safety as a priority
Major Injury Rate
Definition: (Number of deaths and major injuries/total hours worked) x 1,000,000.
Major injury rate (by Business Line)
0.79
0.51
5
Target
2012
2013
Managing our health and safety The health and safety of our people is paramount. Tragically last year we saw the death of a driver from our Fürstenwalde plant in Germany. The road accident is still being investigated. His colleagues, and all Berendsen employees, were deeply saddened by this tragic event.
We received and updated our Group Health and Safety Policy in 2013. The new policy builds on the standards previously set.
2013
Number of major injuries 2012
Business line Facility
0.89
3
–
–
Workwear
0.55
4
0.27
2
UK Flat Linen
0.80
8
1.01
10
Flat Linen outside UK
1.49
8
0.56
3
Clinical Solutions and Decontamination
–
–
–
–
0.79
23
0.51
15
Total group
As part of the process of rolling-out this new policy, we asked all businesses in the Group to complete a self assessment questionnaire to identify any gaps in compliance. To get an external perspective on how we mange health and safety we commissioned a specialist health and safety consultant to visit seven plants in six different countries. This review will be completed in Q1 2014 and the findings will be presented to the Operational Risk Management Group in April 2014. Any health and safety related incidents, across the Group, are reported through our internal reporting system. This ensures that incidents are promptly reported to senior management and that actions are taken to try and prevent incidents of a similar nature occurring again.
Due to more manual handling in our Flat Linen businesses compared to other business lines, we have historically seen a higher major injury rate there. Our Facility business line had no injuries in 2012 and three in 2013, however this is not an obvious trend development. Our Operational Risk Management Group has placed increased focus on health and safety including more accurate reporting and categorisation of incidents as they occur. If there were to be any instance of an employee becoming disabled during their employment with us, every effort would be made to make sure that their employment with us continues and that, where needed, appropriate retraining is arranged.
Governance
As we operate in many countries, local standards, both in terms of regulation and accepted best practice, do vary. Group-wide we want to achieve a much higher standard than mere compliance as the common standard.
Major Injury Rate
Strategic report
KPI
Number of major injuries
Group incident statistics continue to be regularly collected and reviewed by the board twice each year. The table above shows the major injury rate and number of major injuries for Berendsen employees in 2013 and 2012 by business line.
Financial statements
50
Berendsen plc Report and Accounts 2013
Corporate responsibility
The heart of a sustainable business. A ‘sustainable business’ requires a proactive and practical approach to corporate responsibility (CR). We recognise that this will continue to be a key driver of our success.
“Sustainability is not just important to us, but to our customers too. Our focus is on meeting the changing demands of our customers. Many of them acknowledge that we are on a journey. I think it would be fair to say that they are not looking for us to achieve everything tomorrow, but are keen that we demonstrate continuous improvement, both in terms of the sustainability initiatives that we undertake, and in the results that we achieve. In my view, corporate responsibility has become much more than just CO2 emissions – it embraces everything from addressing changing customer demands and human rights, to how we work with our employees; that’s why it’s absolutely central to our business performance.”
Opportunities Commercial opportunities
Engage and retain employees
Our customers have important sustainability commitments of their own – and we work hard to help them meet those commitments. Our drive towards sustainability helps support their drive towards sustainability.
Being a good employer and supporting our people to do their best work helps us attract and retain the high performing individuals we need to improve business performance, year on year.
Operational efficiencies
Competitive advantage
Improved sustainability performance can translate directly into operational efficiencies. We constantly evaluate how new ideas and technologies can improve how we work, reducing both our environmental impact and our operating costs.
We operate in a crowded and competitive marketplace. Seizing the opportunity to be a more responsible business helps to differentiate ourselves from our peers.
Risks Environmental risks
Regulatory environment
Failure to manage how we use water, electricity, chemicals, oil and gas would damage our reputation, increase costs and mean that customers could fail to meet their own environmental commitments.
The regulatory landscape in Europe is subject to change. New regulations, such as legislation targeted specifically at our sector or at the key resources and utilities we use, could affect our business model.
Exposure to price changes
Changing customer demands
Utilities and textiles are essential to our business. If prices change significantly, it could have a detrimental impact on our overall costs and competitiveness.
Customers are increasingly concerned with the sustainability performance of their suppliers such as Berendsen. As their demands evolve, we must ensure that our commercial approach adapts to meet their needs.
Our priorities
Peter Ventress Chief Executive Officer
Managing our environmental impact
Engaging with our stakeholders
We will strive to minimise our business’ environmental impacts with particular focus on CO2 emissions, water, chemicals and transport.
We work with all our stakeholders – including customers, employees, investors and local communities – to understand and action on their expectations.
Operational efficiency We are committed to ensuring that smarter working practices go hand-in-hand with being a more sustainable, responsible and competitive business.
Berendsen plc Report and Accounts 2013
51
Strategic report
The business case for corporate responsibility Our Vision is that “We take pride in doing what we’re best at, delivering unsurpassed levels of service, so our customers can do what they’re best at.” To achieve that, we only make investments that have commercial payback – and that includes investments in corporate responsibility (CR).
High among these is that CR issues inform almost every business conversation we have with customers or potential customers. Customer needs are changing and they are changing fast. They want to know how we are performing from a CR perspective and what we are doing to improve, because their customers are raising the same issues. When we use water more wisely, reduce the amount of fuel our trucks use or support our people in new and better ways, the more we can have a positive impact on those customers’ own CR performances. And that means increased business for us.
Working with our suppliers responsibly We use the services of an external specialist organisation to provide us with assurance that our overseas textile suppliers are adopting appropriate ethical and working practices. During 2013 they completed eight audits at supplier locations in Cambodia, China, Pakistan and Vietnam. They made a number of recommendations to further improve the high standards that our suppliers adopt. We have been working with our external specialist and our suppliers to ensure that actions are complete, or are in progress, to address all of the recommendations made.
In addition, our business success is inextricably linked to the quality of our people. We depend on their skills, dedication and can-do attitude to provide the best possible service to our customers – and they deserve our unqualified support. So we continue to invest in and develop our people, creating an environment where they can do their best work. Again, this is an investment that is not just the ‘right thing to do’ but one that is also commercially rewarding.
Managing our environmental impact Water, energy, chemicals, and oil and gas (WECO) are everyday resources to our business. All our business lines depend on wash regimes to varying degrees, which is why WECO forms the core of our commitment to environmental management.
We work hard to reduce the quantities of WECO we use across our operations. At the same time, we also aim to be more efficient – in effect, using fewer resources more wisely in order to drive down our environmental impact. Such an outcome is good for our business and our customers – because it reduces risks and costs – and also good for the environment and the communities where we operate. Ultimately, improved WECO management will help us fulfil our environmental commitments and those of our customers – and that means we will win and retain more contracts.
Financial statements
Secondly, we operate in an increasingly regulated business sector. Our stakeholders need the reassurance of knowing that we meet all regulations and surpass and anticipate them when possible. Tenders and other procurement processes ask tough questions about efficiency and compliance – and when we are able to answer affirmatively, customers have the confidence to work with us.
Governance
Most companies recognise the many ‘soft’ reasons why CR matters. But in our experience, there are also compelling and indisputable ‘hard’ reasons why CR is not just desirable, but fundamental to long-term success of our business.
Always moving forward…
52
Berendsen plc Report and Accounts 2013
Corporate responsibility CO2 emissions
Certification in the UK
Last year, for the first time, we reported CO2 emissions for each of our business lines using the Greenhouse Gas (GHG) Protocol methodology. This year, by being able to compare two consecutive 12-month periods, we can demonstrate that we continue to move in the right direction.
We value the role of the Carbon Trust Standard in helping companies reduce emissions and our UK business is proud of its existing certification which we will actively be looking to renew after the end of 2014. The standard is only awarded to those organisations that measure, manage and reduce their carbon footprint, which is a key priority for Berendsen.
As the table on the right shows, Kg of CO2 per tonne of laundry shipped has fallen from 411Kg in 2012 to 402Kg in 2013, a reduction of 2.2%, although our tonnes shipped in 2013 has risen by 3.1% compared to 2012. We are compliant with all relevant national legislations – and in the UK that includes the requirements that from October 2013, we should report the annual tonnage of CO2 from: kkCombustion of fuel and operation of any facility (Scope 1); and kkPurchase of electricity, heat, steam or cooling by us for our own use (Scope 2). Scope 3 emissions are not included in this year’s report. This is partly due to the complexity of assessing those, notably in terms of emissions linked to our procurement activities. Scopes 1 and 2 emissions are shown in the table on the right: Methodologies used As stated above, we use the Greenhouse Gas Protocol methodology and conversion factors to assess our carbon footprint. However, we only update these once each year (from 1 January). The Greenhouse Gas Protocol has recently updated its conversion factors, but we will only implement those from 1 January 2014 to ensure we have consistent and comparable data till then.
Our UK business also achieved the Carbon Trust Water Standard certification in 2012 and is currently going through the application process to be awarded this again. To be re-awarded this unique accreditation our UK business must demonstrate a 2.6% reduction in water usage from 2011 to 2013. What’s next? Article 8 of the EU Energy Efficiency Directive came into force towards the end of 2012 and requires that Member States introduce a programme of regular energy audits for ‘large enterprises’. The first audit must be completed by the end of 2015, with further audits on a four-yearly basis. In the UK, the Government is now consulting on the implementation of Article 8, with early suggestions indicating that the audits will include:
Our total CO2 emissions Kg of CO2 per tonne of laundry shipped 2013
2012
Workwear
522
521
Facility
269
280
UK Flat Linen
387
398
Flat Linen outside UK
391
393
Clinical Solutions and Decontamination
1,146
1,230
Group reduction in 2013 of 2.2%
402
411
247,851
246,228
Group (total tonnes of CO2 emissions)
Breakdown of our scope 1 and 2 emissions 2012 19.9%
80.1%
2013 20.5%
kkA review of the total energy use and energy efficiency of the organisation; and kkClear information on potential savings, which identify and quantify costeffective energy saving opportunities. We are considering how we can best facilitate the audit process and are identifying an approved assessor to support us. In addition, we believe that our involvement with the Carbon Trust will be of help in the UK. During 2014, we will work to identify what the audit process will require in our other operating countries.
79.5%
Scope 1 Scope 2
53
Berendsen plc Report and Accounts 2013
Operational efficiency Water use and recovery
Across the group, most operations now have water recovery systems in place. Typically, these lead to a reduction in water consumption of 20%-25% and also have a positive knock-on effect on energy usage – when we use less water, it requires less energy to heat it.
Managing our environmental impacts In the UK we have introduced new systems to reduce rinse water volumes and recover the effluent to a quality that is suitable for washing and rinsing our products. The award in water management efficiency at the Sustainability Leaders Awards held in London was given to us due to the savings and efficiencies achieved of up to 75%. The Sustainability Leaders Awards remain one of the few environmental awards schemes recognised by the European Commission.
up to
75%
Recent initiatives include the trialling of membrane water filtration technology that recovers our waste water for re-use. This technology also recovers the heat energy in the waste water which leads to further reductions in our energy consumption. Because the recovered water is already at a high temperature, we need less energy to bring it up to the correct temperature for washing. This means we use less water and less energy.
What’s next? We will continue to focus on initiatives that will reduce our use of water and increase our recovery rate, as long as they also make commercial sense in reducing our cost base to the benefit of us and our customers.
of the effluent is recovered for re-use.
Chemical suppliers We also work alongside our suppliers to validate our water use and recovery processes. Chemical suppliers analyse our performance and identify areas for improvement, while our boiler water treatment suppliers check boiler operation and provide reports on efficiency. An efficient boiler is the mark of good energy management, and we check performance by monitoring the quality of the water. We also use flue gas thermometers, steam trap surveys and check on hot well temperatures to help us identify efficiency issues. Transport and logistics Our customers depend on regular and reliable deliveries, so transport accounts for a significant amount of our environmental impact.
For example, our Flat Linen fleet in the UK uses a vehicle management system to monitor fuel usage and driver behaviour. The aim is to reduce fuel consumption by minimising harsh acceleration, braking, and excessive idling. Across the business, we monitor and regularly review vehicle routes to improve fuel efficiency and, wherever possible, use fewer large vehicles instead of more of the smaller ones. Large vehicles have the advantage of being able to carry greater volumes per mile driven, which enables us to reduce the overall number of vehicles on the roads at any one time.
Financial statements
In order to maintain tight control on our operations, we own and operate most of our fleets ourselves. All vehicles conform to the requirements of low emission zones and we always specify the latest and most efficient engines for new vehicles. We also constantly review fuel costs and usage.
We have a range of initiatives and programmes in place to help us reduce this impact.
Governance
Water-related concerns also drive product innovation. For example, in the UK, we moved from 100% cotton to 100% poly cotton products, as we realised this was driving significant energy and water use reductions, and that it extended our products’ lifespan.
Strategic report
Water plays an inevitably significant role in our washing processes – and its effective use and recovery has an important impact on our overall environmental and operational performance.
Always moving forward…
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Berendsen plc Report and Accounts 2013
Corporate responsibility Engaging with our stakeholders Our approach is to engage with all stakeholders on a regular basis in order to build solid relationships that will stand the test of time. Our key stakeholders are: kkEmployees; kkCustomers; kkSuppliers; kkLocal communities; and kkInvestors. While each group has different interests and issues, we recognise the importance of all in helping us build a sustainable business. We listen carefully to their concerns and needs, and work with them to make sure that the way we run Berendsen delivers the optimum outcomes for all stakeholders. Engaging with our employees Berendsen is a ‘people business’. We engage with our employees through a number of internal communications initiatives and platforms, promoting our Vision and Values and helping to build a sense of real teamwork and belonging across the group. You will find more details on how we support employees and on our Vision and Values in the Our People section of this report, on page 44. Engaging with customers As we explained earlier, we work hard to meet the many and diverse needs of our customers, engaging with them via both informal and formal channels.
Always moving forward…
Supporting our customers During 2013 our Polish business won the contract to provide garments to one of the country’s largest pharmacy networks, with over 600 locations and nearly 2,800 users. Pharmacists work in pristine white coats, so the customer initially requested that we deliver each clean garment wrapped in plastic. We proposed using re-usable textile covers which do the same job – this initiative removed the need for the customer to dispose of over 200,000 plastic bags each year and reduced their impact on the environment.
At Berendsen, our purpose – and so one of our core drivers is to help our customers perform better, and we do that by providing a range of high quality, innovative and cost-effective services. However, CR issues are also increasingly important factors in winning new customers and retaining existing contracts. We are proud to be the trusted suppliers of the NHS (covering about 60% of their daily needs in the UK), and of the hospitality industry (covering about 30% of the industry’s needs in the UK). Those customers drive us to increase our own standards and to be innovative, and to deliver safe and efficient products and services. Our sustainability management and performance are frequently of real interest to customers, not only in formal procurement requests for information and questionnaires, but also during meetings and conversations between our customer relationship managers and their customers. How are we doing? Where have we improved recently? Can we help customers meet some specific environmental target that will support their business or CR objectives? We share knowledge and information with customers wherever possible, both on an ad hoc basis and also through formal communications such as this Annual Report. At all times, we stress the fact that sustainability is integral to the way we run our business. It improves our efficiency and reduces our costs – both of which translate into improved value for our customers. In short, our focus on CR helps customers run better and more efficient businesses.
Engaging with partners and the wider industry As Europe’s leading textile services business, we are keen to play a significant role in how our industry develops. We are members of the European Textile Services Association (ETSA), and invest time and resources to help it fulfil its mission of promoting greater understanding of the key issues that the industry faces. We are being recognised for our work in this area by outside bodies. We have been shortlisted for the 2013 PLC Awards “Achievement in Sustainability Award”, the winner of which will be announced in March 2014. Engaging with suppliers The main suppliers we use are in Europe and also in Pakistan, Cambodia, Vietnam and China. We work hard to make sure that not only do our supplier arrangements ensure high quality products, but also the high environmental and social standards that we expect all suppliers to achieve. Our policy is to award relatively large contracts to a small number of preferred suppliers. We do this: to access economies of scale; to ensure standardisation; and also because a larger contract gives us greater status and influence – notably on CR issues – as a key customer. We regularly visit suppliers and have appointed a single assurance provider to carry out independent audits of these suppliers to ensure that our ethical standards are being correctly observed, including those relating to human rights and working conditions. This approach provides us with a standard audit process and reporting mechanism, highlighting each supplier’s level of compliance, flagging any actions required for improvement. For added assurance, we have a supplier whistleblowing scheme which enables suppliers to flag up any issues or areas of concern. We also continue to be committed to the UK government’s request that all businesses in the FTSE 350 sign up to the Prompt Payment Code. Under the code, we undertake to pay suppliers on time, give clear guidance to suppliers on issues such as payment procedures and complaints, and encourage them to implement best practice in their own supply chains.
Berendsen plc Report and Accounts 2013
Engaging with local communities
If local residents raise concerns about any aspects of our operations, we take them very seriously and respond accordingly. During 2013, we received two complaints from local residents about employee vehicles. At Grangemouth, a neighbour was concerned about parking in front of his house, while at Shrewsbury, a resident expressed concerns about how employees were leaving our premises at night. We investigated both incidents, and engaged with the employees concerned. Also in Shrewsbury, a local ambulance station complained of fumes from our wiper processing plant. We have since changed the wash processes and no further complaints have been received.
How we manage CR We believe that CR is everybody’s responsibility, from the boardroom and the fleet bay to the wiper washing facilities. However, we do also have core CR governance processes in place to ensure consistency and assurance across the group. Governance It is the responsibility of the board to set group CR policies. The board also receives regular updates on compliance and other CR issues and reviews any actions being taken. In addition, the board reviews twice each year CRrelated KPIs and data – for example, data relating to health and safety and CO2 emissions.
This includes our annual Communication on Progress to the United Nations Global Compact, which was reviewed by all members of the executive board and published in April 2013. The next communication will be in April 2014. The business lines are responsible for implementing the group’s CR policies in each business unit. They also keep group management informed of any CR-related issues. Furthermore, country managers and shared service finance directors are required to provide a certification of compliance with group CR policies twice each year (March and September), with details of any known or suspected breaches. Data management While we operate in many countries, often with a different mix of business lines in each country, we face broadly similar material issues across the group. For consistency purposes, data relating to health and safety, WECO and CO2 emissions are collected by each site, and then reported by each business unit and business line in each country.
Systems and policies Our approach Key policies guide our approach to CR. These are: kkEthics; kkHealth and Safety; kkEnvironment; and
In addition, we are making good progress with reviewing and updating the Group Ethics Policy. Procurement, bribery and corruption We have zero tolerance of bribery and corruption and rolled-out our minimum requirements across the group in 2011. The audit process for new suppliers includes compliance with these requirements, a process that is overseen by our group procurement function. Each year, each business unit must complete an anti-bribery and corruption risk assessment, and bribery awareness is frequently an agenda item for management meetings. Business continuity We take our business continuity procedures very seriously. How effective these are directly impacts on the assurance that we can provide to customers that they will be serviced in all circumstances. Understandably, all our customers want to know what our business continuity procedures are. We regularly review these and refine them to take into account their changing requirements, changes in how we operate and the products and services that we provide.
Governance
Managing and monitoring CR
The Group Risk Manager also collates and reviews KPIs, helps with the completion of CR-related survey requests and handles other external communication.
We review these policies on a regular basis, and a revised and updated Group Health and Safety Policy was distributed throughout the business in April 2013 (see Our people section on page 49 for further information on Health and Safety). Strategic report
We understand the important role that local communities play in our business and strive to maintain strong relationships with them. Many of our employees come from these communities so our reputation as a responsible and fair employer is very important.
The Group Risk Manager is responsible for updating the board on any CRrelated incidents and other issues.
55
Accordingly we reviewed and updated our Group Business Continuity Planning Policy in 2013. Scenario-based testing of our business continuity planning arrangements has previously been done in the UK and this is now extended to overseas.
kkCommunity.
For more information on our policies regarding human resources and our employees, see Our people section on pages 44 to 49.
Financial statements
Our CR policies recognise our responsibilities to our people, the environment and communities in which we operate.
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Berendsen plc Report and Accounts 2013
Always moving forward…
Few limits in the market The market for washroom product and services have significant opportunities to grow as the needs served are universal for every kind of business and institution, regardless of size and industry. There is also a general worldwide trend towards higher hygiene standards and research indicates that standards in shared washrooms are an increasing concern for users. Combined with a potential of £600 revenue/year for every single washroom being serviced, we have high expectations for this business line.
By adding new services and products, the market is constantly growing in potential. Additions include hand sanitisers and vending machines.
Our Berendsen Line washroom products are also marketed widely across the US through a licensing agreement.
90% customer retention within our washroom customers.
Berendsen plc Report and Accounts 2013
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Strategic report
58 Chairman’s address 60 Board of directors 62 Corporate governance statement 80 Report on directors’ remuneration
80 Annual statement by chair of the remuneration committee
82 Directors’ remuneration policy
88 Annual report on remuneration
100 Directors’ report 105 Directors’ responsibilities for the financial statements
Governance. Financial statements
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Berendsen plc Report and Accounts 2013
Chairman’s address
We are delivering sustainable value. An effective board must have an open, honest and transparent working relationship between directors and management, which allows an appropriate level of interaction, support and challenge.
Key points in this section: What governance means to us Our governance approach is a vital component of our long-term growth plans. An insight into our board Our diverse and effective board has the necessary skills to lead us as we grow.
Corporate governance is about running the business in the right way in order to create long-term sustainable value for the benefit of all of our stakeholders. I have been a director of Berendsen for over three years and after my first year as Chairman, I can confirm that Berendsen has a strong commitment to corporate governance and our culture of strong delivery and transparency remains one of the company’s key strengths. Hopefully by reading our governance reports you will gain a better understanding of the Berendsen culture and why our board is effective.
Board evaluation and progress We share the outcome of our latest evaluation and an update on committed actions to date. Engaging with our shareholders An overview of our investor relations activities over the year.
Committee members and reports A report on the activities of our committees and their future plans.
What good governance means to Berendsen At Berendsen, we do not view corporate governance as an isolated exercise in compliance but as a core and vital discipline that complements our desire to continually improve upon the long-term growth and success of the group on behalf of shareholders. Good governance is an evolving process and our aim is to consistently be at the forefront of corporate governance best practice in order to deliver effectively on the company’s strategic objectives. At Berendsen, we believe that effective governance is realised through leadership and collaboration, resulting in consistently focused and sensible business decisions.
An experienced board As Chairman, my primary responsibility is to ensure that the board has the right mix of skills, knowledge and experience so that it works effectively as a team, supporting management to formulate and execute the corporate strategy, whilst encouraging the non-executive directors to bring fresh perspectives to the table and, where appropriate, Iain Ferguson Chairman
to hold management to account. In this way the Berendsen board comprises a team of experienced individuals with the complementary skills and talents to carry out their duties to the best of their abilities, which we believe engenders the trust and respect of all stakeholders. I am pleased that on 1 March 2014, we will welcome Maarit Aarni-Sirviö to the Berendsen board. Maarit is currently non-executive director of Wärtsilä and Secretary General of the Directors’ Institute of Finland and will provide the board with additional knowledge and experience of the Scandinavian markets. Further details on Maarit’s recruitment can be found on page 73.
Board achievements during 2013 During our board evaluation discussions in 2012, the board highlighted the following areas of focus for 2013: strategic oversight, talent management and succession planning and dialogue with shareholders. I would like to report on how we have approached these focus areas and which will remain as continuing priorities for 2014.
Strategic oversight I have had regular meetings with our Chief Executive Officer, Peter Ventress. I am very pleased with the leadership and direction being provided to the group and I am confident that we are performing well against our strategic objectives. My regular meetings with Peter will continue in 2014. In September, I organised a strategy meeting to give the board the opportunity to challenge the Executive Board on the implementation of the group’s strategy and to identify how the group can develop further.
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Berendsen plc Report and Accounts 2013
Strategic oversight
Always moving forward…
How the board spent its time in 2013
Stakeholder engagement On 28 November, the Chairman hosted a dinner where major shareholders had the opportunity to meet and raise issues directly with non-executive directors without the executive directors being present. All of our top 20 shareholders were invited to attend and shareholders representing approximately 36% of the group’s issued share capital were able to attend. We received positive feedback from shareholders who found the event very informative.
5
2
1 Strategy formulation, implementation and monitoring
20%
2 Performance monitoring
20%
3 Governance and risk
20%
4 Meeting country management/site visits
25%
5 Shareholder engagement
10%
6 Other
5%
The board also met the management teams of UK Flat Linen and German Healthcare. This involved the board meeting 18 senior managers and travelling to our facilities in Basingstoke (UK) and Fürstenwalde (Germany). This provided the board with an excellent insight into the challenges and opportunities facing these businesses.
Priorities for 2014
Dialogue with shareholders
kkSupporting the further development of the talent development and succession process with particular reference to key business-line succession;
The board will continue to support and constructively challenge management in the execution of the group’s strategic plan. Further details on the board’s priorities for 2014 are detailed below. kkSupporting the CEO and management team in finalising and then seamlessly executing the strategic plan;
kkReview strategy with the Executive Board in Q3 2014; and kkThe successful induction of Maarit and her establishment on the board. If you would like to discuss any aspect of our group’s governance with me, please feel free to email me at
[email protected].
Financial statements
As Chairman, I am responsible for ensuring that there is ongoing and effective communication between the board and its key shareholders. In November, I arranged a dinner where nine of our major shareholders, representing approximately 36% of our shares in issue, had the opportunity to meet the non-executive directors. This is the third time that Berendsen has held this type of event and once again the feedback received from shareholders was positive. We plan to arrange a similar event in 2014.
Governance
The board received regular updates from the Group Director, Human Resources, on the progress being made throughout the group on succession planning and talent management. We were provided updates on the work conducted through the Berendsen Academy and our Leadership framework (LEAD). Further information can be found in ‘Our people’ section on page 45.
1
3
shareholders that attended the stakeholder engagement dinner.
Talent management and succession planning
6
4
36%
The board received presentations from the Executive Board on how they have implemented the focus areas agreed at the last strategy meeting in September 2012. The board was pleased with the assurance received on the group’s strategic direction and performance and agreed with the Executive Board the next steps needed to continue the development of strategy in 2014.
Strategic report
In 2012 the board identified that a key priority was to understand more about the challenges and opportunities facing the Manage for Value businesses. On 25 September 2013, the board went to Fürstenwalde in Germany to meet with the management team of the German Healthcare business. This gave the board an excellent insight into the issues facing the German Healthcare business and the management’s growth strategies.
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Berendsen plc Report and Accounts 2013
Board of directors
We have the relevant skills and experience for our growth plans. Diversity of experience is crucial to effective oversight and leadership. Having the right balance of high calibre individuals from a range of backgrounds ensures that fresh ideas and different perspectives are brought to decision-making.
Diversity of experience
100%
100%
of our board have worked in international businesses.
N
Chairman
R
Member
have business-to-business (B2B) experience.
71%
Peter Ventress (53) Chief Executive Officer
Date appointed to board: March 2010 Independent: No
Date appointed to board: January 2010 Independent: No
Key strengths: kk CEO experience with an international plc kk Strong international strategic skills and experience of B2B and B2C businesses
N
Member
E
Member
Key strengths: kk Broad international chief executive experience across Europe, North America and Australia kk Experienced B2B leader
kk Significant M&A experience in Europe, USA and Asia
kk Strong leadership skills developed across different cultures and industries
kk Broadly based NED experience across the private and public sectors
kk Well-developed strategic and commercial skills Current external commitments: Non-executive director of Premier Farnell plc Previous roles: Ten years in senior management positions in Europe and Canada in the office products distribution industry with Corporate Express N.V., becoming Chief Executive in 2007. In 2008 appointed head of the activities of Staples Inc outside the United States and Canada
Current external commitments: Chairman of Stobart Group Limited and a nonexecutive director of Balfour Beatty plc and Greggs plc. Chairman of Wilton Park (Foreign Office Agency) and non-executive director of Defra (Government Department) Previous roles: Chief Executive of Tate and Lyle plc, having also worked for Unilever and held a number of senior positions including Chief Executive Officer of Birds Eye Walls A
Audit Committee
of our directors are female.
Iain Ferguson CBE (58) Non-executive Chairman
kk Strong commercial skills
Key:
29%
are former or current CEOs.
N
Nomination Committee
R
Remuneration Committee
E
Executive Board
S
Senior Independent Director
Berendsen plc Report and Accounts 2013
Member
N
Member
R
Member
Lucy Dimes (47) Non-executive director
Date appointed to board: March 2014 Independent: Yes
Date appointed to board: June 2012 Independent: Yes
Key strengths: kk In-depth knowledge of Scandinavian markets kk Detailed operational expertise kk Proven experience of restructuring, acquisitions and integrations
A
Member
N
Member
R
Member
kk Extensive international experience
kk Strong marketing, portfolio development and commercial skills
Current external commitments: Non-executive director of Wärtsilä, Senior Adviser at Eera Oyj, Board Member of ecoDa and Secretary General of the Directors’ Institute of Finland Previous roles: VP of Borealis, non-executive director of Vattenfall Ab (in Sweden) and of Ponsse Oyj and Rautaruukki Oyj and President & CEO of Mint of Finland
Member
R
Chairman
S
kk Well-developed leadership and global team management skills Current external commitments: Trustee for the Safer London Foundation Previous roles: CEO UK & Ireland of Alcatel-Lucent and has held various senior roles at BT Plc, including Managing Director of Group and Openreach Service Operations
David Lowden (56) Non-executive director
Kevin Quinn (53) Chief Financial Officer
Date appointed to board: March 2010 Independent: Yes
Date appointed to board: May 2005 Independent: No
Key strengths: kk Extensive experience in both general management and financial management
E
Member
kk Significant experience of financing and capital raising
kk Strong strategic understanding
kk Extensive experience of international companies
kk Knowledge of B2B service related industry requirements
kk Experience of outsourcing and the support services sector
kk Proven ability for delivering shareholder value
kk A strong network of finance professionals
kk Strong financial, marketing and commercial skills
kk Driven our successful Capital Efficiency project to increase cash deliveries
N
Member
R
Member
Current external commitments: None Previous roles: Senior finance positions within Amersham plc and was with PricewaterhouseCoopers, latterly as a partner in its Prague office, having also worked in the USA and France
Andrew Wood (62) Non-executive director
David Lawler (50) Company Secretary
Date appointed to board: March 2010 Independent: Yes
Date appointed: May 2005 Independent: No
Key strengths: kk Previously CFO of FTSE 250 plcs for 15 years kk Strong strategic and commercial understanding kk Extensive experience of acquisition and disposal of businesses in international markets kk Good commercial grasp kk Detailed knowledge of risk assessment and management systems Current external commitments: Non-executive director of Lavendon Group plc, Air Partner plc and Stobart Group Limited Previous roles: Group Finance Director of BBA Aviation plc and also Group Finance Director of Racal Electronics PLC
E
Member
Key strengths: kk Detailed knowledge of the group kk Good understanding of international business having worked extensively outside the UK kk Extensive knowledge of corporate governance and risk management kk Strong financial skills kk Significant experience in the acquisition and disposal of businesses in both the UK and Europe Current external commitments: None Previous roles: Senior finance positions with Thorn EMI plc and KPMG
Financial statements
Chairman
kk More than eight years in the group with a detailed knowledge of operations
kk Many years of operating within international businesses with cultural diversity
Current external commitments: Non-executive director of William Hill PLC and Michael Page International plc Previous roles: Chief Executive of Taylor Nelson Sofres PLC, having also held the positions of Chief Operating Officer and Group Finance Director
A
Key strengths:
Governance
N
kk Track record in international sales and customer relationship management
kk Operational and complex contractual experience
kk Experienced non-executive in several sectors
Member
kk Extensive experience of B2B, outsourcing and complex managed services contracts
kk Significant experience in alliances, ventures and partnerships
kk A strong track record of growing businesses
A
Key strengths:
Strategic report
A
Maarit Aarni-Sirviö (60) Non-executive director
61
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Berendsen plc Report and Accounts 2013
Corporate governance statement
We are committed to the highest standards of corporate governance. We continue to strengthen our governance framework through regular reviews and stakeholder engagement.
Compliance with the UK Corporate Governance Code The revised UK Corporate Governance Code 2012 (‘the Code’) became applicable to Berendsen with effect from 1 January 2013. We are pleased to confirm that, for the year under review, the company has complied fully with the principles and provisions of the Code. Further disclosure about how we have applied the Code can be found in the remuneration report on page 80 and in the following corporate governance statement which has been structured around the five sections of the Code: Leadership, Effectiveness, Accountability, Remuneration and Relations with Shareholders.
Our group intranet “Berendsen Universe” provides a platform for employees to be kept fully informed of the latest group news as well as to disseminate best practice and developments around key policies. Vision and Values success stories are posted to highlight and celebrate noteworthy achievements and examples of good governance throughout the group. A monthly corporate newsletter is available to employees and focuses on core themes such as growth, governance and leadership. The newsletter provides case study information on different areas of the business including key projects, achievements and personal success stories.
Further information on the Code can be found on the Financial Reporting Council’s website at www.frc.org.uk.
Leadership The board is responsible for setting and monitoring the group’s governance framework. Implementation of governance throughout the group is the responsibility of the Executive Board. Regular updates are provided to the board and its committees by the Chief Executive Officer and Chief Financial Officer. The board regularly meets management to establish how the business is progressing and to ensure that the governance framework is fully embedded within the group. Governance throughout the group is rooted in the Berendsen culture and is communicated through its Vision and Values. Further information on our Vision and Values can be found on page 47. Governance is supported by a number of key policies including; the Matters Reserved for the Board, Risk Management Guidelines, the group’s Ethics Policy, the group’s Finance Manual and group corporate responsibility and health and safety policies.
Role of the board The key responsibilities of the board are to set strategy, monitor what management are doing, hold them accountable for performance against agreed targets and to provide appropriate challenge to ensure that management remains focused on achieving our strategic aims and objectives for delivering value to shareholders and other stakeholders. The board sets the parameters by which the group seeks to promote and deepen the interests of its shareholders and monitors the performance of the executives to whom it delegates the management of the business. Although not involved in day‑to‑day management activities, the board does have a formal schedule of matters reserved to it. These matters, which were last reviewed in December 2013, include:
Our governance framework
Strategy and direction Read more: Pages 6-13
Executive Board
People, vision and values
Governance and risk Read more: Pages 36-43, 62-79
Board of Directors
Read more: Pages 44-49
Performance monitoring Read more: Pages 14-17
Shareholder engagement Read more: Page 70
Berendsen plc Report and Accounts 2013
63
Always moving forward…
Effective board
kkGroup strategy, business objectives, long‑range plans and annual budgets; kkAnnual and interim results and interim management statements; kkMaterial acquisitions, disposals and contracts; kkMajor changes to the group’s internal controls or to its risk management or financial reporting policies and procedures; kkDetermining the nature and extent of the risks the group is willing to accept to achieve its strategic objectives;
kkSuccession planning for the board and senior management. Matters which are outside the scope of the reserved matters are decided by the executive management. Board composition
The composition of the board is reviewed annually to ensure that there is an effective balance of skills, experience and knowledge.
appointed by the board during the year will also stand for appointment by shareholders at the following Annual General Meeting.
The non-executive directors also have industry experience from a wide range of backgrounds including finance, FMCG, logistics, telecommunications and business services. All of the directors have held senior executive positions within listed companies. In respect of the executive directors, Peter Ventress is an experienced leader having been for many years an international Chief Executive Officer and Kevin Quinn has been Chief Financial Officer of the group for over eight years. Further biographical information can be found on pages 60 and 61.
Chairman and Chief Executive Officer The roles of the Chairman and the Chief Executive Officer are separately held and the division of their responsibilities is clearly established, set out in writing and regularly reviewed by the board. Between board meetings there is regular interaction, discussion and collaboration between the Chief Executive Officer and the Chairman and, where required, with other board members.
Appointments to the board The nomination committee (assisted where appropriate by external search consultants) ensures that there is a formal, rigorous and transparent procedure for the appointment of new directors. All appointments are preceded by a detailed evaluation of the current composition of the board taking into account the balance of skills, experience, knowledge and diversity (including gender). The committee then prepares a candidate specification for approval by the board. Further details on the recruitment process and the work undertaken by the committee during 2013 are detailed on page 72. Our remuneration policy for new directors is outlined on page 87. Under the company’s Articles of Association, all directors are subject to re‑election to the board every three years. However, the board has decided, in accordance with the Code, that all directors wishing to continue will retire and offer themselves for annual re-election by the shareholders at the Annual General Meeting. Any director
Division of responsibilities
Chairman kkResponsible for the leadership of the board, ensuring its effectiveness by creating and managing a constructive relationship between the executive and non‑executive directors; kkPromotes a culture of challenge, debate, openness and support, ensuring that there is adequate time available for discussion; kkEnsures there is ongoing and effective communication between the board and its key shareholders; kkResponsible for ensuring the board receives accurate and clear information in a timely manner in advance of board meetings; and kkResponsible for ensuring that all non‑executive directors receive ongoing training and development so that they can appropriately perform their duties.
Financial statements
During 2013, the board comprised the Chairman, two executive directors (the Chief Executive Officer and the Chief Financial Officer) and three independent non‑executive directors: David Lowden, Andrew Wood and Lucy Dimes. With effect from 25 April 2013, Per Utnegaard stepped down as a nonexecutive director. On 1 March 2014, we will welcome Maarit Aarni-Sirviö to the board as an independent non-executive director. Following Maarit’s appointment, four of the seven board members will be independent non-executive directors.
The board is satisfied that each director has attained a level of experience that taken together provides a suitable breadth of strategic and financial management insight. All directors have significant international backgrounds.
Governance
kkMajor changes to the group’s capital, corporate or management structure; and
Strategic report
The board has a three-year cycle for the annual performance evaluation of the directors, board and its committees. This year the Senior Independent Director, David Lowden, conducted the evaluation which included meeting with all board members individually. David presented his initial findings to the board at the 11 December meeting. The board agreed a number of actions arising from this review which will be addressed in 2014. Our second external board evaluation will be conducted in the last quarter of 2014.
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Berendsen plc Report and Accounts 2013
Corporate governance statement Chief Executive Officer kkResponsible for leading and managing the business within the authorities delegated by the board; kkDevelops the group’s objectives and strategy and, following board approval, the successful execution of strategy; kkEnsures that a sound system of internal controls is in place; kkManages the group’s risk profile, including the maintenance of appropriate health, safety and environmental policies; kkResponsible for the effective and ongoing communication with shareholders; and kkEnsures that the board is fully informed of all key matters. Non-executive directors The non-executive directors provide a valuable breadth of experience and independent judgement to board discussions. The board considers that during 2013, the non‑executive directors were integral to providing a solid foundation for good corporate governance for the group, ensuring that no individual or group of individuals dominated the board’s decision‑making and that this will continue in 2014. Details of the non‑executive directors are set out on page 61 and the board considers that their biographies reflect suitable breadth and depth of strategic, management and international experience.
Senior Independent Director David Lowden, our Senior Independent Director, plays an important role on the board. He is an experienced and trusted sounding board for the Chairman and Chief Executive Officer and meets them regularly to discuss key issues whilst, if necessary, also acting as a conduit between the Chairman, the nonexecutive directors and shareholders. David additionally assists with the annual evaluation of the Chairman alongside the Chief Executive Officer, Peter Ventress. David strengthens his understanding of our major shareholders’ key interests by receiving reports from the company’s brokers on investor relations and, where appropriate, shareholder meetings. David is highly suited to the role of Senior Independent Director through his extensive knowledge of the Berendsen group combined with his wealth of commercial experience as a previous Chief Executive of Taylor Nelson Sofres plc in addition to being a non-executive director of William Hill PLC and Michael Page International plc which provides key insights into the requirements of both institutional and private investors.
The Executive Board The Executive Board sits at the apex of management decision‑making. It is chaired by the Chief Executive Officer, Peter Ventress. The other members are: the Chief Financial Officer, Kevin Quinn; the three business line Managing Directors, Christian Ellegaard, Peter Havéus and Steve Finch; Chris Thrush the Group Director, Human Resources; and the Company Secretary, David Lawler. In addition to regular communications between its members, the Executive Board formally met 11 times during 2013. The members of the Executive Board have collective responsibility for the day‑to‑day running of the group’s business and their functions including: kkDeveloping the group’s strategy and budget for board approval; kkMonitoring the financial, operational and service performance of the group and reviewing the group risk register; kkAllocating resources across the group within parameters agreed by the board; kkPlanning and initiating major cross‑business programmes; and kkDeveloping leadership and future talent programmes and securing strong succession planning for the group.
The Executive Board Peter Ventress Chief Executive Officer
Kevin Quinn Chief Financial Officer
See biography: Page 60
See biography: Page 61
David Lawler Company Secretary See biography: Page 61
Christian Ellegaard Managing Director, Facility
Steve Finch Managing Director, UK Flat Linen
Peter Havéus Managing Director, Workwear
Chris Thrush Group Director, Human Resources
Christian joined the group in 1993 and was appointed Managing Director of the Nordic Region in 2007, having held a number of senior posts, including Managing Director in Denmark. Christian holds a BSc in Economics and Business Administration from the Copenhagen Business School and an MBA from Monterey Institute of International Studies. On 1 January 2012 he was appointed Managing Director, Facility.
Steve joined the group in 1996 through the acquisition of Spring Grove Services where he held the position of Commercial Director and was appointed Managing Director of the Sunlight Service Group in 2001. Prior to joining Spring Grove in 1995, Steve spent 25 years in the telecommunications industry, latterly as Sales Director in Hutchison Telecom (now Orange). Steve holds an MBA from Bath University. On 1 January 2012 he was appointed Managing Director, UK Flat Linen.
Peter joined the group in 1985 and was appointed Managing Director for the Continent region in 2007. He has held a number of senior posts, including Managing Director Sweden, Managing Director Denmark and Chief Operating Officer, mainland Europe, having started his career in the textile rental industry in Sweden in 1983. Peter holds a degree in Economics. On 1 January 2012 he was appointed Managing Director, Workwear.
Chris was appointed Group Director, Human Resources in May 2011. He has previously held HR Director roles with Corporate Express N.V., DePuy (a Johnson and Johnson company), Gestetner and the University of Lancaster in the UK. He has lived and worked extensively outside the UK in Europe, the USA and Asia. He holds an MBA and is a Fellow of the Chartered Institute of Personnel and Development.
Berendsen plc Report and Accounts 2013
In addition to the Executive Board’s collective responsibilities, members of the Executive Board have been assigned areas of specific responsibility including; operations (Peter Havéus), procurement and supply chain (Steve Finch) and sales and marketing (Christian Ellegaard).
The board reviews non-executive director independence on an annual basis taking into account such factors as their contribution to unbiased and independent debate during meetings. The board considers that in 2013 all three non‑executive directors remained independent from executive management and free from any business or other relationship that could materially interfere with the exercise of their judgement. During 2013, Andrew Wood and Iain Ferguson were appointed to the board of Stobart Group Limited. The board does not believe that these appointments will affect their independence or commitment to the Berendsen board.
The independence of the directors is further supported by the work of the Company Secretary whose appointment and removal is the responsibility of the board as a whole. The Company Secretary (who is also secretary to the audit, nomination and remuneration committees) ensures that board procedures are complied with and provides advice on regulatory compliance matters and corporate governance. All directors have unrestricted access to the advice and services of the Company Secretary. There is also an agreed procedure by which directors can, for the purposes of discharging their duties, obtain independent professional advice at the company’s expense. No director made use of this facility during 2013.
The board has put procedures in place to resolve situations where a director has a conflict of interest. As part of these procedures, the board: kkConsiders each conflict situation separately based on its particular facts and in conjunction with all other directors’ duties and obligations under the Companies Act 2006; kkKeeps records and board minutes of authorisations granted by directors and the scope of any approvals given; and kkRegularly reviews conflict of interest authorisations. The board has complied with these procedures during the year and each director has confirmed there have been no conflicts of interest arising during 2013.
Governance
The independence of the non-executive directors is fundamental to the board’s decision-making and discussion. Any director who has concerns about the running of the group or a proposed course of action is encouraged to express those concerns which are then minuted. No such concerns were raised during 2013.
To strengthen the independence of the non‑executive directors and to enable them to discuss more freely the performance of the group’s executive management, the Chairman meets formally with the non‑executive directors at least once each year without the executive directors being present. In 2013, this meeting was held on 28 November.
Conflicts of interest
Strategic report
Board independence
To safeguard their independence, a director is not entitled to vote on any matter in which they have a material personal interest unless the board unanimously decides otherwise. Where necessary, directors are required to absent themselves from a meeting of the board while such matters are being discussed.
65
Board attendance in 2013 Executive directors
Independent
Board meetings
Attendance*
Peter Ventress
No
100%
Kevin Quinn
No
100%
Lucy Dimes
Yes
100%
Iain Ferguson
No
100%
David Lowden
Yes
100%
Per Utnegaard**
Yes
100%
Andrew Wood
Yes
100%
Non‑executive directors Financial statements
*% based on the meetings entitled to attend **Per Utnegaard stepped down from the board on 25 April 2013
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Berendsen plc Report and Accounts 2013
Corporate governance statement
The main areas of focus for the board during 2013 were: Strategy and direction
kk Received regular updates from the Chief Executive Officer about the ongoing execution of the 2010 strategy review kk Received in-depth briefings from each business line management team on the implementation of strategic initiatives kk Received updates from the Group Director, Human Resources on management development and succession planning in May and September kk Received presentations from the group’s Tax and Treasury Director on the group’s tax compliance and structure kk Held separate meetings with the Chief Executive Officer to discuss key strategic issues and succession planning kk Participated in briefing external consultants commissioned to support strategy development kk Met the Executive Board in September to discuss the group’s strategy kk Received regular updates on the group’s competitors and markets kk Approved the group’s budget for 2014 and its medium‑term plan to 2016 kk Reviewed analyst reports and forecasts
Performance monitoring
kk Reviewed monthly reports from the Chief Executive Officer and the business line Managing Directors on the key issues affecting the business kk Reviewed monthly reports from the Chief Financial Officer on performance against budget and forecast. For more information on our financial performance, see page 20 kk Reviewed reports from the Chief Financial Officer on the financial position of the group including treasury management kk Reviewed regular reports from the chairmen of the audit, remuneration and nomination committees on matters discussed at committee meetings kk Approved the full year and half year results for the group kk Reviewed reports on peer group comparison of results and received regular market updates and recent competitor activity reports kk Made recommendations regarding the 2012 final dividend and approved the 2013 interim dividend kk Reviewed the group’s return on invested capital (ROIC) and compared it to the group’s average cost of capital (WACC) kk Received presentations from the three business line management teams: Workwear, Facility and UK Flat Linen in May and September
Governance and risk
kk Reviewed reports on governance issues, including changes arising from the introduction of the new UK Corporate Governance Code 2012 and amendments to the Companies Act 2006 regarding the Strategic report and Directors’ report kk Performed regular reviews of the significant risks affecting the group. For more information on our risk management framework and processes, see page 36 kk Reviewed and updated the Executive Committee terms of reference kk Reviewed and approved the Berendsen share dealing policy kk Regularly reviewed the action list from the internal board evaluation performed by Iain Ferguson in 2012 kk Reviewed regular reports and key performance indicators on health and safety and corporate social responsibility issues. For more information on our corporate responsibility and health and safety policies and procedures, see page 50 kk Received internal audit reports and monitored the implementation of internal audit recommendations kk Reviewed the conflicts of interest register and confirmed there were no existing conflicts kk Reviewed and discussed the findings from the 2013 internal board evaluation conducted by David Lowden kk Received a presentation from AuditR on the results of the 2013 risk management review and discussed the key recommendations for further enhancement of the risk management processes throughout the group. For further information on the risk review, see page 37
People, Vision & Values
kk Attended meetings with the Executive Board in May and September including: Meeting the UK Flat Linen management team on 23 May 2013 Meeting the German Healthcare management team on 25 September 2013 Visiting the Basingstoke Shared Service centre and German Healthcare, Fürstenwalde plant kk Individual visits were made to our businesses in Copenhagen (Denmark) and Rainhill (UK) as well as attendance at a Management Trainee dinner in London and a finance conference in Hamburg (Germany)
Shareholder engagement
kk Reviewed the 2013 AGM proxy voting figures. For more information on the 2013 and 2014 AGM visit our website; www.berendsen.com kk Reviewed reports from brokers on shareholder feedback from meetings with the Chief Executive Officer and Chief Financial Officer kk Hosted a non‑executive directors’ dinner with institutional investors on 28 November 2013 kk Made preparations in respect of the 2014 Annual General Meeting
Other
kk Reviewed and agreed the role specification for the appointment of a new non-executive director kk Approved the 2013 Annual Report and Accounts kk Received and reviewed monthly shareholder analysis
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Berendsen plc Report and Accounts 2013
Effectiveness Board attendance
During the year, all the directors confirmed that they have been able to allocate sufficient time to discharge their responsibilities effectively. Directors are required to notify the Chairman and the board of any alterations to their external commitments that arise during the year with an indication of the time commitment involved. Induction
Training and development In order to ensure that our non-executive directors discharge their duties to the best extent possible, the Chairman is responsible for ensuring that all non‑executive directors receive ongoing training and development. Training and development needs were also discussed at the non‑executive directors’ meeting on 28 November 2013, and where required, training plans were agreed. Each non‑executive director currently serving on the board has confirmed that in 2013 they have kept themselves properly briefed on and informed about current issues.
Strategic report
The board requires that all directors devote sufficient time to discharge their duties effectively and to use their best endeavours to attend meetings. During 2013, the board met nine times and maximum attendance was achieved for all meetings. The main areas of focus during 2013 are detailed on page 59. In addition, the non‑executive directors met without the executive directors on 28 November 2013.
Lucy Dimes has assisted in the development of the induction programme for Maarit by providing feedback on her induction in 2012. The induction programme is delivered through a variety of channels and attempts to limit the quantity of information supplied as just reading material; this is achieved through meetings with executives to discuss key topics, site visits and discussions with management and fellow nonexecutive directors. Maarit will have an opportunity to meet shareholders at the 2014 AGM and will meet with the Senior Independent Director and Chairman, in advance, to discuss any shareholder concerns.
Board meeting attendance
All new non-executive directors joining the Berendsen board undertake a formal and personalised induction programme.
Following her appointment on 1 March 2014, Maarit Aarni-Sirviö will begin her induction programme in the second quarter of 2014. Following a discussion with Maarit, the Chairman alongside the Company Secretary will draw up a comprehensive induction programme focusing on current strengths and required focus areas.
Governance
The induction programme covers, for example: the operation and activities of the group (including site visits and meeting members of the senior management teams); the group’s principal risks and uncertainties; the role of the board and the decision-making matters reserved to it; the responsibilities of the board committees; and the strategic challenges and opportunities facing the group.
100%
Board meeting attendance in 2011.
95.4%
Board meeting attendance in 2012.
Chairman agrees the meeting agenda
Action list prepared and monitored regularly
Board papers are circulated in advance of meetings
Board meeting (six times annually)
Financial statements
Lucy Dimes Non-executive director
Board meeting attendance in 2013.
Information flow at board meetings
Key actions achieved “My induction was very comprehensive and enabled a good degree of breadth and depth of insight into the company operations, and the opportunity to meet a wide variety of people in the business in a relatively short period of time. This was invaluable during the early stages of joining the board.”
100%
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Berendsen plc Report and Accounts 2013
Corporate governance statement During 2013, all of our UK‑based non‑executive directors joined and were active members of the Deloitte Academy, which provides regular updates on key financial and business issues. The board regularly receives reports from the Company Secretary on current or pressing legal, regulatory and governance issues and any key or upcoming changes. A number of board briefing sessions were also held where external advisers provided updates on remuneration reporting guidelines, accounting and auditing standards and an economist gave his thoughts about the economic outlook in 2014 and 2015.
actions are completed as agreed by the board. Briefing packs are also circulated at times when board meetings are not scheduled. These briefing packs ensure that the non‑executive directors are kept informed of the latest issues affecting the group. The board uses an electronic board paper system so that directors can access all board papers and briefing packs quickly and securely.
Information flow at board meetings
The Chief Executive Officer and the Chief Financial Officer ensure that the board is kept fully aware on a timely basis of business issues and prospects throughout the group. Both are members of the Executive Board and are directors of Berendsen UK Limited, the holding company of our UK trading businesses, and of Berendsen A/S, the management company of our European businesses. In addition, during 2013 they periodically attended individual business line board meetings, meeting the management teams of each operation. The key issues raised at these meetings were then brought to the attention of the board.
Formal board meetings are held six times each year. Prior to each board meeting the directors receive an agenda item with supporting papers to ensure that they have all the latest relevant information. Included in these papers are detailed monthly accounts together with reports from the Chief Executive Officer, Chief Financial Officer and the business line Managing Directors. The quality of the papers and reports supplied on a monthly basis were commended by directors during the 2013 board evaluation and it was noted that the quality of information had been consistently improving and provided sufficient depth for board debates.
This system also provides online and offline access to a “Resource Centre” which contains comprehensive reference materials such as board governance documents, competitor profiles, group policies and previous board papers.
After each board meeting, the Company Secretary operates a comprehensive follow‑up procedure to ensure that
In 2013 the board met with the management teams of the UK Hotels and German Healthcare businesses to review and discuss their business line strategies. This involved meetings in May and September and included site visits to Basingstoke (UK) and Fürstenwalde (west of Berlin, Germany). These comprehensive visits gave board members detailed insights into the operations of our businesses, their challenges and opportunities. These visits and subsequently agreed follow‑up actions demonstrate the free flow of information and communication between the board and the senior management teams within the group. In 2014 the board will meet the management teams from our UK ‘Manage for Value’ businesses and the Swedish Facility businesses. In consultation with the Chairman and Chief Executive Officer, the Company Secretary manages the provision of information to the board for their formal board meetings and at other appropriate times. The Chairman and Chief Executive Officer also maintain regular informal contact with all directors. Performance evaluation A comprehensive evaluation of the performance of the board, its committees and each of its directors is carried out annually, a process led by the Chairman and supported by the Company Secretary. The board has implemented a threeyear cycle for the annual performance evaluation with an externally facilitated evaluation occurring at least triennially.
The Berendsen three-year approach
Year 3
Year 1
Internal board evaluation led by the Senior Independent Director
External board evaluation
Year 2
Internal board evaluation led by the Chairman
The last external evaluation was conducted in 2011 by Dr Tracy Long of Boardroom Review (who provides no other service to the company). The board found the review provided invaluable insight and helped to establish a benchmark for measuring future progress.
Berendsen plc Report and Accounts 2013
David Lowden met each director and the Company Secretary individually during November and December 2013. Among other things the review investigated a variety of aspects associated with board effectiveness, specifically: kkThe way in which the board defines its role and approaches its work (strategy, risk and control, performance management and communication); kkThe balance of skills, diversity and experience; kkKnowledge about the group; and
In addition, a review of the Chairman’s performance is led by David Lowden, the Senior Independent Director, who has confidential discussions with the non-executive directors whilst taking into account the views of executive directors. The executive directors are evaluated by reference to their executive duties through a separate process whereby the Chairman and the non‑executive directors assess the Chief Executive Officer and the Chief Executive Officer assesses the Chief Financial Officer and other members of the Executive Board.
Accountability
In March 2013, an external independent review of the group’s risk management systems was performed. Findings were discussed by the board on 25 April 2013. Further information on this review can be found on page 37 of the Risk report.
Financial and business reporting
Financial reporting
On pages 6 and 7 we provide an explanation of the basis on which the group generates value over the long‑term and how we intend to deliver on our strategic objectives.
In addition to the general internal controls and risk management processes, the group also has specific internal controls and risk management systems to govern the financial reporting process and preparation of the annual financial statements. These systems include clear policies and procedures for ensuring that the group’s financial reporting processes and the preparation of its consolidated accounts comply with all relevant regulatory reporting requirements. These are comprehensively detailed in the group Finance Manual, which is used by the businesses in the preparation of their results. Financial control requirements are also set out in the ‘Group Finance Manual – Minimum Control Framework’. Management representations covering compliance with relevant policies and the accuracy of financial information are collated on a biannual basis.
Risk management and internal control Pages 36 to 43 outline how the board oversees risk management and internal control. Annual assessment of the effectiveness of internal control systems The board and audit committee requested, received and reviewed reports from senior management, its advisers, group internal audit and our external auditors to help with their annual assessment of the effectiveness of the group’s internal control systems. Through the ongoing processes outlined on pages 37 and 38, areas for improvement of internal controls are continuously identified and action plans devised. Progress towards completion of actions is regularly monitored by management and the board. The board considers that none of the areas for improvement identified constitute a significant failing or weakness.
Detailed accounts for each reporting entity are prepared monthly, comprising an income statement, cash flow statement and balance sheet in a manner very similar to the year end and half yearly reporting processes. These are subject to management review and analysis in the financial review cycle as set out above. Anti-bribery and corruption All businesses within the group are tasked with adopting a risk-based approach to managing any potential issues relating to bribery and corruption. Risk assessments are required to be completed at least annually, or upon any significant changes to the business. The audit committee is regularly updated on compliance.
Financial statements
Further information on how the board has addressed the key focus areas arising from the 2012 performance review can be found within the Chairman’s address on page 58. For 2014, the board has set itself a number of key focus areas which are detailed on page 59.
The board considers that the information that it receives is sufficient to enable it to review the effectiveness of the group’s internal controls in accordance with the internal control guidance for directors issued by the Turnbull Review Group.
Governance
kkThe way in which the board works together (culture and dynamics), and optimises its use of time and its contribution to the company.
The full results of the board evaluation were discussed at the board meeting on 11 December 2013. The board concluded that the board and its committees operate effectively and that each director was contributing to the overall effectiveness and success of the group. Nevertheless, in light of the evaluation, the board identified a number of areas that could be improved during 2014.
Strategic report
In accordance with the three-year cycle of evaluation, Iain Ferguson (Chairman of the board), conducted the internal evaluation in 2012, followed by David Lowden (the Senior Independent Director) in 2013. The internal evaluations were based on the themes arising from the 2011 external evaluation and recommendations from the 2012 internal evaluation. The board has agreed that the next external evaluation will occur in the last quarter of 2014.
69
70
Berendsen plc Report and Accounts 2013
Corporate governance statement Whistleblowing The group has established a whistleblowing procedure through which staff can raise concerns about possible financial reporting wrongdoing and other matters. During 2013, the procedure was operated in 27 languages and 16 countries with group systems in place to ensure that any concerns were addressed confidentially, promptly and thoroughly. The Company Secretary is required to report to the audit committee biannually (February and August) about any new incidents as well as to provide updates on the integrity of the whistleblowing procedures and the state of any ongoing investigations and the conclusions reached. During 2013, group employees used the procedure to raise concerns on seven separate issues, all of which were reported to the audit committee and responded to appropriately (2012: nine separate issues).
Investor relation activities in 2013 Key Financial Reporting Dates February
Annual Results Webcast & analyst presentation
March April
AGM, IMS
Relations with shareholders Shareholder engagement Shareholders play an important and valuable role in safeguarding the group’s governance policies through, for example, the election of directors, monitoring and rewarding their performance through engagement and constructive dialogue with the board. The Chairman is responsible for ensuring that there is ongoing and effective communication with shareholders and that all directors are made aware of any major shareholders’ issues or concerns. On 28 November 2013, the Chairman hosted a dinner where major shareholders had the opportunity to meet and raise issues directly with the non‑executive directors without the executives being present. This was attended by nine major shareholders representing approximately 36% of the group’s issued share capital.
Conference call
May June
Wakefield & Rainhill site visit
July August
Interim results Webcast & analyst presentation
September October
IMS
Conference call
November December
Trading update
Meetings by country 3
Meetings by month
4
8
9 1
7 2
Remuneration Details of the directors’ remuneration can be found on pages 80 to 99. This sets out the remuneration strategy for all directors (both executive and non-executive), the key elements of remuneration and how the remuneration committee ensures that executive director pay is focused on delivering the group’s strategic plans and priorities.
Presentations
January
2 3
1 6
1 UK
102
1 March
5
4
42
2 USA and Canada
25
2 April
1
3 Rest of Europe
19
3 May
8
2
4 June
17
4 Rest of world
3
5 August
99.9%
6 September
35
7 October
28
8 November
3
9 December
11
% of shareholders voted in favour of our 2012 Annual Report and Accounts.
All the directors at the time of the 2013 Annual General Meeting attended that meeting and it is expected that all board members will attend the Annual General Meeting on 24 April 2014 and be available to meet shareholders. This provides an excellent opportunity, particularly for our private shareholders, to meet board members and discuss any areas of concern with them. To facilitate easier voting for those shareholders who hold their shares in certificated form, we have put in place systems to allow voting to be conducted electronically through our Registrar’s website (www.sharevote.co.uk).
The company is committed to increasing shareholder value and communicates its achievements and prospects to shareholders in an accurate and timely manner. Apart from the Annual General Meeting, the company communicates with shareholders by way of the Annual Report and Accounts, interim results announcement in August and interim management statements in April and October. The Chief Executive Officer and Chief Financial Officer host presentations to research analysts and institutional investors following the release of the interim management statements (IMS), which include a question and answer session. These presentations are broadcast live from our website.
Berendsen plc Report and Accounts 2013
Significant matters relating to the trading or development of the business are disseminated to the market by way of Stock Exchange announcements which also appear on the company’s website (www.berendsen.com).
The group’s shareholders are mainly institutional investors, holding 98% of our issued share capital. Our shareholder engagement strategy is therefore predominantly focused on these investors. The Chief Executive Officer and Chief Financial Officer offer meetings, through our brokers, to a wide range of institutional investors with the objective of meeting major shareholders at least twice each year.
Annual General Meeting The Annual General Meeting takes place in London. The 2014 meeting will be held on 24 April at the Royal Aeronautical Society, 4 Hamilton Place, London, W1J 7BQ. Formal notification will be sent to shareholders approximately five weeks in advance and in any event at least 21 days before the meeting. Other general meetings may also be convened from time to time on at least 21 days’ notice or where certain requirements are met, including prior approval by shareholders, by way of special resolution, on 14 days’ notice. The Annual General Meeting gives shareholders an opportunity to hear about the general development of the business and to ask questions of the Chairman and, through him, the chairmen of the various committees as well as committee members. Details of the meeting and the resolutions to be proposed (together with explanatory notes) are set out in the shareholder Notice of Meeting and are available on our website to download from Friday 14 March (www.berendsen.com).
These committees have been established to assist in the effective operation of the board. A summary of the role of each committee is set out below. The terms of reference of each committee are available on our website. Nomination committee kkReviews the structure, size and composition of the board; kkLeads the recruitment process and makes recommendations for new appointments to the board and its committees; and kkMonitors succession and development planning for the board of directors and the Executive Board. Audit committee kkMonitors the financial and internal reporting processes including the integrity and clarity of the financial statements; kkReviews the system of internal controls and the identification and management of risks; kkMonitors the internal audit processes; kkConducts an annual review of the external auditor independence and quality of work; kkRecommends the appointment of external auditors and their remuneration; and kkDevelop and implement policy on the engagement of the external auditors to supply non-audit services. Remuneration committee kkReviews and recommends to the board the overall executive remuneration policy; kkRecommends appropriate fees for the Chairman; kkReviews the terms of service and remuneration of the executive directors and other members of the Executive Board; and kkSets levels of remuneration that are appropriate for recruiting and retaining talented executives with the right experience and skills.
Financial statements
Any shareholder attending the Annual General Meeting has the right to ask questions. Any question relating to the business will be dealt with at the meeting, unless, for example, it is undesirable to do so, whether in the interests of the company (such as the disclosure of confidential information) or for the good order of the meeting. Shareholders attending the meeting are informed of the number of proxy votes lodged for each resolution.
The three principal committees of the board are the nomination committee, the audit committee and the remuneration committee.
Governance
If shareholders have any concerns, which the normal channels of communication to the Chief Executive Officer, the Chief Financial Officer or the Chairman have failed to resolve or for which contact is inappropriate, then the Senior Independent Director is available to address them. To that end, both the Chairman and the Senior Independent Director make themselves available, when requested, for meetings with shareholders on issues relating to the group’s governance and strategy. During the year, the Chairman of the board and the committee chairmen received regular guidance and letters from shareholders, which were then reviewed by the board and committees at their respective next meeting.
Where significant views were expressed, either during or following the meeting via our brokers, these were recorded and circulated to all directors.
Board committees
Strategic report
The website contains a dedicated ‘investor’ section for our shareholders to access our Annual Reports and Accounts, results presentations, share price information, and financial and dividend calendars. The website also contains a direct link to Shareview, an online service provided by our registrars, allowing shareholders to view and manage their shareholding online.
During 2013, 148 separate meetings and conference calls were held with existing and potential shareholders. These meetings were attended by either the Chief Executive Officer or the Chief Financial Officer or sometimes both. These focused primarily on the group’s trading operations and the implementation of the group’s strategy.
71
72
Berendsen plc Report and Accounts 2013
Corporate governance statement
Nomination committee report Iain Ferguson Chairman
“We have focused on the recruitment of a new independent NED thereby ensuring that the board continues to have the right balance of skills, experience and diversity.” 2013 Key achievements kk Ensured further development of the management succession and development plans for the Executive Board and senior executives; kk Monitored the diversity of employees throughout the group; kk Reviewed external search consultants and appointed Ridgeway Partners following a tender process; and kk The recruitment of a new non-executive director, Maarit Aarni-Sirviö.
Members in 2013 Iain Ferguson – Chairman Lucy Dimes David Lowden Per Utnegaard (to 25 April 2013) Peter Ventress Andrew Wood Management attendees – (by invitation)
Areas of focus in 2014 kk Reviewing the group’s first Employee Satisfaction Survey; kk Continuing to focus on succession planning and talent management development; and kk Overseeing the successful induction of Maarit Aarni-Sirviö onto the board and committees.
Committee membership
Function
The committee met three times during 2013 (April, September and December) and received two presentations from the Group Director, Human Resources (May and September). As at 31 December 2013, four of the five members of the committee were considered by the board to be independent. At the request of the committee chairman, other individuals and external advisers may be invited to attend all or part of any meeting, as and when appropriate. The Chief Executive Officer’s role on the committee is to provide a better understanding of the strategic issues facing the company and the current skills and experience of the Executive Board.
The committee is responsible for regularly reviewing the composition of the board, taking into account the benefits of diversity and the breadth of experience and skills required. The committee also makes recommendations with regard to any changes to board and senior executive succession planning and provides recommendations to the board as to the appointment and reappointment of all directors. The terms of reference of the committee were reviewed and approved by the board in December 2013 and are available on the company’s website or upon request from the Company Secretary.
Induction and experience Upon appointment to the committee, non-executive directors are provided with details about the current composition of the board, the company’s succession planning procedures and how the board and committees annual performance reviews are conducted. Induction to the committee includes detailed discussions with the Chairman and Chief Executive Officer in order to understand the issues at board and Executive Board level. The board requires the nomination committee members to have an understanding of: kkThe strategic issues and commercial changes affecting the company and the market in which it operates and how they affect succession planning and board composition; kkThe leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the group to compete effectively; kkThe importance and benefits of diversity (including gender); and kkThe requirements under the Code and best practice guidance on effective board and committee composition.
Following Per Utnegaard stepping down from the board on 25 April 2013, the committee led the process of recruiting Maarit Aarni-Sirviö to the board.
Board composition At Berendsen each new board appointment must complement the rest of the board in terms of independence, skills, knowledge and experience and therefore we will always appoint on merit, as judged against objective criteria taking into account diversity considerations. The committee regularly reviews the composition of the board to ensure it has the right balance of perspectives, skills and experience to function effectively. For further information on the composition of the board, see page 63 of the corporate governance statement.
Diversity The board strongly supports the need for diversity and inclusion at all levels of our business and has made this a major objective of our talent management programme. Our Gender Diversity Policy ensures that each time a member of senior management or a director is recruited at Berendsen at least one of the shortlisted candidates is female. Further information on our companywide diversity policy can be found on page 48.
Berendsen plc Report and Accounts 2013
The board has decided that the minimum target for board gender diversity is 25% female directors. It is pleasing to note that following the appointment of Maarit, the composition of the board exceeds this target. The diagram below shows how the board has progressed towards and exceeded its target. Although gender diversity is a key area of focus throughout the group, the board considers all diversity issues in the broadest sense including, but not limited to, nationality and ethnicity. As a multinational business, it is crucial that the board considers all diversity practices that could affect its efficiency and leadership.
Recruitment process Following Per Utnegaard’s decision to step down from the board on 25 April 2013, the committee led the selection and appointment process for a new independent non-executive director. The committee’s first task was to review the appointed external search consultants. Following the tender process, Ridgeway Partners were appointed to assist in the search for a new non-executive director. Ridgeway Partners are signatories to the voluntary code of conduct on gender diversity for external search consultants. During 2013, Ridgeway Partners provided no other services to the company.
Board gender diversity
A thorough due diligence and formal referencing procedure was undertaken to ensure that the proposed appointee, Maarit Aarni-Sirviö, was fully able to commit to the role and could provide the required time to carry out her duties. Details of Maarit’s other commitments are detailed on page 61. The committee also satisfied itself that Maarit fully met the independence criteria set out in the Code and understood her duty to disclose any potential conflicts both before and after her appointment as a nonexecutive director. The committee recommended Maarit for the position of non-executive director at the 26 February 2014 board meeting. For further information on Letters of Appointment for non-executive directors, see page 86 of the Directors’ remuneration report.
2014
Governance
The committee conducted a comprehensive review of the skills, experience and diversity of the board and concluded that candidates should have operated within a complex multinational business with significant senior management experience obtained in Continental Europe. The committee considered the time commitment of a non-executive director to be up to 25 days per annum including attendance at ten meetings (two of which may be outside of the UK), recognising the need for availability in the event of exceptional circumstances.
Taking into account these requirements, a detailed candidate specification was prepared by the committee and approved by the board. Ridgeway Partners conducted an initial search and provided a shortlist for the committee’s review, which included three female and two male candidates. Initial interviews were carried out by Iain Ferguson (Chairman of the board) and Peter Ventress (Chief Executive Officer). Further meetings were then conducted with the remaining committee members.
Strategic report
Gender diversity awareness has been a key focus area throughout the year with various presentations and initiatives occurring across the group. The committee is pleased with the level of awareness across the business and strongly supports all diversity initiatives including the ‘Women in Berendsen’ network (further details can be found on page 48).
73
The main areas of focus for the committee during 2013 were: 29%
2013 14%
Succession planning:
The committee received presentations in May and September from Chris Thrush, Group Director, Human Resources. The presentations provided details of the succession planning and development programmes throughout the group for senior management. The committee was satisfied that adequate succession planning was in place for the Executive Board and senior executives.
Diversity:
The committee received presentations on the diversity programmes and initiatives throughout the group. The committee also reviewed the composition of the board and set measurable long-term objectives on gender diversity.
Recruitment of search consultants:
The committee conducted a review of several search consultants before appointing Ridgeway Partners to assist with the search for a new independent non-executive director.
Recruitment of Maarit to the board:
Following Per Utnegaard stepping down from the board on 25 April 2013, the committee led the process of recruiting Maarit Aarni-Sirviö to the board.
Committee members
2012 0%
Independent
Committee meetings
Attendance*
Iain Ferguson
No
100%
Lucy Dimes
Yes
100%
David Lowden
Yes
100%
Per Utnegaard**
Yes
100%
Andrew Wood
Yes
100%
Peter Ventress
No
100%
*% based on the meetings entitled to attend **Per Utnegaard stepped down from the board on 25 April 2013
Financial statements
Committee attendance in 2013
74
Berendsen plc Report and Accounts 2013
Corporate governance statement
Audit committee report Andrew Wood Chairman
Dear Shareholder I would like to give you an overview of the operation and scope of the committee and report on our work over the past year. The committee currently comprises three independent non-executive directors. It met three times during the year and details of its activities can be found on page 75 of this report.
“During 2013 the audit committee commissioned an independent review of our risk management systems.” 2013 Key achievements kk Reviewed the significant financial judgements made during the year; kk Commissioned an independent risk management review and agreed a risk management plan for 2013 and 2014 incorporating initiatives for improvement; kk At the request of the board, conducted a review of the 2013 Annual Report and after careful consideration the committee was satisfied that it was fair, balanced and capable of being understood by shareholders; and kk Conducted a review of the external auditor’s work throughout the year and made a final recommendation to the board to reappoint PricewaterhouseCoopers LLP for the year ending 31 December 2014.
Members in 2013 Andrew Wood – Chairman Lucy Dimes David Lowden Per Utnegaard (to 25 April 2013) Management attendees – (by invitation)
Areas of focus in 2014 kk Reviewing the significant judgements applied in the preparation of the Annual Report and Accounts; kk Ensuring that the key risks identified by the board are effectively managed; kk Reviewing the independence and effectiveness of the external auditors; and kk Ensuring that there is a comprehensive internal audit programme with a focus on core financial controls.
The committee has a vital role in providing assurance that the financial statements provide a true and fair view of the group’s financial affairs. As part of this assurance, the committee conducts a review of any significant financial judgements made during the year and any key financial reporting issues. During 2013, it considered the potential for fraud in revenue recognition and management override of controls. In addition it considered three key reporting judgements: kkGoodwill impairment; kkThe adequacy of a provision for Onerous Government Contracts (IHSS); and kkA potential exposure to an environmental liability in Sweden and Holland. The committee concluded that it was comfortable with the judgements being made on all of these issues. More details can be found on page 79 of this report. During 2013, the board asked the committee to conduct a review of the Annual Report to ensure it was fair, balanced and capable of being understood by shareholders and that it contained all the necessary information to allow shareholders to assess Berendsen’s performance, business model and strategy. Following its comprehensive review, the committee concluded that the Annual Report was fair, balanced and capable of being understood. For further information on this review, please see page 78 of this report.
The committee received regular updates on the work of the internal auditors. The primary focus of the Internal Audit Programme for 2013 was to ensure there was an appropriate framework of governance and controls in place for the implementation of the group strategic plan together with providing comprehensive assurance around core controls. The committee was satisfied with the work of the internal auditors, who conducted 40 reviews throughout the year. The committee has a rigorous follow-up procedure to ensure that all of the recommendations made by Internal Audit are implemented in a timely manner. The group has a strong culture of transparency and comprehensive risk management systems. In order to further strengthen these processes, an external risk management review was conducted during 2013. The committee drew some satisfaction from the conclusions that Berendsen are within the top quartile for risk management in comparison with other companies of our size. However, improvements can be made and the committee has ensured, alongside the Group Risk Manager, that recommendations from this review are implemented into the risk management plan for 2013 and 2014. Further information on this review can be found on page 37 of the Risk report. Following a review of the external auditor’s independence and effectiveness, the committee has made a recommendation to the board that the external auditors are reappointed for the year ending 31 December 2014. Further information on this review and our policy on non-audit fees can be found on page 77 of this report. I am pleased to welcome Maarit Aarni-Sirviö who will be joining the committee from 1 March 2014 following Per Utnegaard’s decision to step down on 25 April 2013. If you would like to discuss any aspect of the committee’s activities with me, please feel free to email me at
[email protected]. Andrew Wood Chairman of the Audit Committee 27 February 2014
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Berendsen plc Report and Accounts 2013
Committee attendance in 2013 Committee members
Independent
Committee meetings
Attendance
Lucy Dimes
Yes
100%
David Lowden
Yes
100%
Per Utnegaard*
Yes
100%
Andrew Wood
Yes
100%
Committee membership
Functions
Activities in 2013
The committee met three times during 2013 (February, August and December). All members of the committee are non‑executive directors and all are considered by the board to be independent. Other individuals and external advisers may attend each meeting at the request of the committee chairman.
The committee’s principal function is to enable the board to monitor the integrity of the group’s financial reports and to manage the board’s relationship with the group’s external auditors. Its other functions include: reviewing and monitoring the financial reporting process; the annual audit; the effectiveness of the group’s internal controls; the group’s internal audit and risk management systems and the independence of the external auditor and the provision of non-audit services. The committee is required to report its findings to the board, identifying any matters on which it considers that action or improvement is needed and to make recommendations on the steps to be taken.
The diagram below shows the areas the committee monitored and reviewed throughout the year:
Induction and experience
The group provides an induction programme for new committee members and, where required, provides ongoing training to enable all the committee members to carry out their duties. The board requires the audit committee members to have an understanding of: kkThe principles and content of, and developments in, financial reporting including the applicable accounting standards and statements of recommended practice;
kkMatters that influence or distort the presentation of accounts and key figures; and kkThe role of internal and external auditing and risk management.
5
6 1
4
3
2
1 The integrity of the financial statements and announcements
25%
2 Internal audit function
25%
3 External audit
20%
4 Internal control and risk management systems
15%
5 Training and committee performance
10%
6 Corporate governance and best practice
5%
The committee’s terms of reference were reviewed and approved by the board in December 2013. They include all relevant matters required by Section 7.1.3 of the Disclosure and Transparency Rules and the Code and are available on the company’s website or on request from the Company Secretary.
Financial statements
kkKey aspects of the group’s operations including corporate policies, group financing and systems of internal control;
At least once a year, the committee meets with the external auditors and the Head of Group Internal Audit without executive management present. The committee chairman also regularly meets with the Head of Group Internal Audit and the external auditors, again without any other member of management being present.
Activities in 2013
Governance
The board considers that Andrew Wood has sufficient recent and relevant financial experience to discharge his duties as chairman of the committee. Andrew Wood is a Chartered Management Accountant and has over 15 years’ experience as a Group Finance Director (at two FTSE 250 listed companies). Andrew is also chairman of the audit committee at Air Partner plc and Lavendon Group plc.
Strategic report
*Per Utnegaard attended all meetings until he stepped down from the board on 25 April 2013
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Berendsen plc Report and Accounts 2013
Corporate governance statement
The main areas the audit committee focused on during 2013 were: Committee meeting date
21 February 2013
Key items kk Received an update from the Chief Financial Officer on the key accounting judgement areas for the 2012 year end accounts
kk Reviewed a biannual update on the group whistleblowing procedure
kk Reviewed the schedule of key controls which documents how the most significant risks facing the group are kk Reviewed the significant issues in relation to the financial statements of goodwill impairment, provision for future managed losses on UK decontamination contracts, exceptional items kk Met with the PwC Audit Partner and the Head of Group and changes in pension accounting Internal Audit without management being present kk Reviewed the report from external auditors on their key kk Reviewed the committee’s performance findings from the 2012 year end audit kk Reviewed an FRC consultation paper on implementing kk Reviewed the preliminary results and draft announcement Sharman recommendations on ‘Going Concern’ kk Received update reports from the Head of Group Internal Audit and the Group Risk Manager
16 August 2013
kk Reviewed the effectiveness of the group’s internal controls, kk Received an update from the Chief Financial Officer in particular in relation to safeguarding the company’s on the key accounting judgement areas for the six months assets from fraud together with related disclosures made to 30 June 2013 in the Annual Report and financial statements kk Reviewed a biannual update on group whistleblowing kk Reviewed the significant issues in relation to the financial system statements kk Received update reports from the Head of Group Internal Audit and Group Risk Manager kk Reviewed the schedule of key controls which documents how the most significant risks facing the group kk Approved the 2013 Risk Management Plan for 2013 are managed and 2014 kk Reviewed the report from external auditors on their key kk Reviewed guidance on the Strategic report findings from their review of the interim announcement kk Reviewed and approved the committee’s terms of kk Reviewed the half year announcement (trading update) reference kk Discussed the external auditors strategy, scope and fees kk Reviewed the 2013 external auditor’s fees for 2013 kk Received a PwC Training Session on reporting developments and audit reporting regulations
11 December 2013
kk Agreed the 2014 programme of work for the internal audit function
kk Monitored and reviewed the effectiveness of the group’s internal audit function
kk Received a final 2013 report from the Head of Group Internal Audit on the work undertaken and management responses to proposals made in the audit reports issued during the year
kk Received a risk management update on the progress made throughout 2013 from the Group Risk Manager
kk Undertook an assessment of the qualifications, expertise, resources and independence of the external auditor including the effectiveness of the audit process
kk Received management reviews on the current and future development of the finance function under the new business line structure kk Reviewed the external auditor’s non-audit fees
kk Reviewed the draft audit committee report for the 2013 Annual Report kk Reviewed the group delegated authorities
24 February 2014
kk Received an update from the Chief Financial Officer on the key accounting judgement areas for 2013 year end accounts kk Reviewed the significant issues in relation to the financial statements of goodwill impairment, provision for future losses on UK decontamination contracts, contingent liabilities and the potential for fraud in revenue recognition and management override of controls kk Reviewed the report from external auditors on their key findings from the 2013 year end audit kk Reviewed the preliminary results and draft announcement kk Received update reports from the Head of Group Internal Audit and the Group Risk Manager kk Conducted a review of the 2013 Annual Report to ensure it was fair, balanced and capable of being understood by shareholders
kk Reviewed a biannual update on the group whistleblowing system kk Reviewed the schedule of key controls which documents how the most significant risks facing the group are managed kk Met with the PwC Audit Partner and the Head of Group Internal Audit without management being present kk Reviewed the committee’s performance kk Reviewed and confirmed the independence of the external auditors
Berendsen plc Report and Accounts 2013
External audit
The committee, as part of its annual evaluation, reviews and considers the effectiveness of the external audit process. This evaluation includes an assessment of the external auditor’s qualifications, expertise, resources and independence. The committee’s assessment is informed by senior management providing feedback on the external audit process and any comments provided by the Chief Financial Officer, the Head of Group Internal Audit and the Company Secretary. If any issues regarding the external audit process are raised throughout the year in committee meetings, these are re‑evaluated.
Following the evaluation, feedback was provided by the committee chairman to the audit partner at PricewaterhouseCoopers LLP and a formal recommendation was made to the board, for approval by shareholders, that the external auditors are reappointed and their remuneration for the 2014 audit is authorised.
The new legislation will also restrict the non-audit services that can be provided by the auditor of a public interest entity; the restrictions will begin to apply within two years of the legislation coming into force – likely to be around May 2016. During 2014 when the legislation has been introduced, the committee will review and agree the timing of the next external audit tender.
Non-audit services The group follows a pre‑approval policy for the provision of non‑audit services by the external auditor. Other accounting firms were used for larger, non‑audit services, including taxation and consultancy advice. Details of services provided by the auditor and its associates are included in note 3 on page 128.
kkIn most instances, the individual threshold for the pre‑approval of any non‑audit services is £50,000; kkThe external auditor cannot be engaged to perform any assignment where the output is then subject to their review as external auditor; kkAll services provided by the external auditor (other than the audit itself) are regarded as non-audit services (no matter how directly related to or consequential upon the audit they may be); and kkThe approval of the committee or chairman of the committee (should an emergency situation occur and urgent advice be needed) is required in advance of any new engagement with the external auditors to provide non-audit services in excess of £50,000. Permitted non-audit services kkAdvice and assurance on financial reporting, interpretation and implementation of accounting standards, tax and governance regulations; kkAdvice and assurance in respect of direct and indirect tax matters including tax compliance, tax planning advice, tax consultancy services and employee tax services; and kk Project assurance and advice. pecifically prohibited S non-audit services kkAppraisal or valuation services, fairness opinions or contribution‑in‑kind reports;
m
kkDesign and implementation of financial information systems;
Audit services Non-audit services
kkInternal audit outsourcing services;
1.0 0.9
0.9
kkLegal and other services unrelated to the audit; or 0.4
0.3 2012
0.2
2013
kkManagement functions including human resources.
Financial statements
kkBroker or dealer, investment adviser or investment banking services; kkBookkeeping services related to accounting records or financial statements;
Services provided by the external auditors
2011
kkThe objective of maintaining a policy on non‑audit services is to ensure that the provision of such services does not impair the external auditor’s independence or objectivity;
Governance
The committee has completed its evaluation of the external auditors for the year ending 31 December 2013 and is satisfied with their level of qualification, expertise and resources and remains confident that they continue to be independent and capable of conducting the external audit objectively and professionally. Any non-audit activities conducted by the external auditors have been reviewed and are not considered to have affected the auditor’s independence.
The committee is aware that the European Commission, Parliament and Council of Ministers has reached agreement on draft legislation to reform the audit market within the EU. A number of approvals remain outstanding, however it is likely that the new legislation will be introduced from 2014. Under the proposals, all EU public interest entities will be required to rotate their auditors every ten years. If Member States choose to allow it, this period can be extended to 20 years if a competitive tender is performed at the ten year point.
Policy on non-audit services
Strategic report
The committee manages the relationship with the external auditor (PricewaterhouseCoopers LLP) on behalf of the board. This includes conducting annual evaluations of the external auditor and providing final recommendations to the board on their reappointment, remuneration and other terms of engagement.
The last competitive audit tender was in 2006, when PricewaterhouseCoopers LLP was appointed by the board on the recommendation of the audit committee. Prior to this date and from the formation of The Davis Service Group Plc (now Berendsen plc) on 18 February 1980, the external audit was performed by PricewaterhouseCoopers LLP (previously Coopers and Lybrand) and BDO Stoy Hayward. There are no contractual obligations that restrict the audit committee’s capacity to recommend a particular firm for appointment as auditor.
77
78
Berendsen plc Report and Accounts 2013
Corporate governance statement Internal audit
Risk
The group internal audit function is appropriately resourced with the skills and experience relevant to operations of the group. This is supported by specialist resources where required. The Head of Group Internal Audit is accountable to the committee and has access to the committee or its chairman at any time during the year. The Head of Group Internal Audit meets independently with the chairman of the committee throughout the year.
As part of its responsibilities for monitoring internal control processes, the committee oversees the risk management framework by receiving regular reports from the Group Risk Manager and biannually assessing the schedule of key controls to ensure that they are appropriate for managing the risks identified. The committee is satisfied that throughout the group there are established procedures for the identification and management of risks. Further details of the principal risks and uncertainties facing the group and risk management processes can be found on page 39 to 43 of the Risk report.
Assurance is provided in the key areas of risk to the business, as well as in the areas of core financial and IT internal control, and where there are regulatory or legal requirements. A key focus of internal audit activity in 2013 has been on the control and governance environment for the continued implementation of our strategic initiatives. The committee receives regular reports on internal audit activity and monitors the status of internal audit recommendations. The committee reviews annually the adequacy, qualifications and experience of the group’s internal audit resources and the nature and scope of internal audit activity in the context of the group’s risk management system as set out on page 36.
Always moving forward…
Connecting with our people The board understands the benefit of meeting and engaging with management and employees throughout the group. During 2013 each member of the board has visited at least one of the group’s operations on their own
External independent risk management review At the request of the committee chairman, an external risk management review was conducted during 2013. Following the board’s review of the key findings and recommendations, the committee discussed and approved with the Group Risk Manager the risk management plan for 2013 and 2014. For more information on the risk management review, see page 37 of the Risk report.
to meet with management to understand the issues and opportunities facing their business. During 2013, visits were made to our businesses in Hamburg (Germany), Copenhagen (Denmark) and Rainhill (UK) as well as attendance at a Management Trainee dinner in London.
Review of the 2013 Annual Report At the request of the board, the committee was asked to consider whether the 2013 Annual Report was fair, balanced and capable of being understood by shareholders. In order to arrive at a position where the committee were satisfied with the overall fairness, balance and clarity of the Annual Report, the following steps were taken: kkThe committee received detailed briefings on the new reporting requirements and the key areas that should be considered when performing the review; kkA timetable was agreed that allowed sufficient time for a comprehensive review of early drafts to enable input and involvement from the committee; kkThe committee took into account the external auditor’s review of the Annual Report and Accounts and held discussions with management to provide feedback; and kkThe committee received the final draft of the Annual Report and conducted a thorough review before reporting to the board on its conclusions. After careful review, the committee was satisfied that, taken as a whole, the Annual Report was fair, balanced and capable of being understood by shareholders.
Berendsen plc Report and Accounts 2013
Significant financial judgements in 2013 kkGoodwill impairment The committee assessed the carrying value of goodwill based on the future cash flow projections of the business.
The committee reviewed the level of headroom provided by the business cash flows and discount rate utilised and challenged the basis of these as appropriate. It concluded that significant headroom exists and that the application of reasonable sensitivities to the cash flows would not impact the carrying value of goodwill.
kkUK decontamination onerous contract provision The committee reviewed the performance and forecasts for the North West London and Kent decontamination contracts to assess the appropriateness of the provision for future losses.
In 2013, one of the contracts delivered a small profit and the budget for 2014 supported the release of £1.8 million of provision for future losses. The committee reviewed the future loss projections on the second contract and confirmed that £0.5 million was appropriate.
kkContingent liabilities The committee reviewed the strength of the claim on the warranties received for environmental damage when it acquired laundry sites in Sweden and Holland.
The claim on these warranties, which were given in a clear and unequivocal manner, was confirmed following a review by the company’s lawyers.
kkPotential for fraud in revenue recognition and management override of controls The committee considered the presumed risks of fraud in revenue recognition and management override of controls as defined by auditing standards and the threat to risk.
The committee considered its risk processes and controls and confirmed that these risks are appropriately managed.
Financial reporting and significant financial judgements The key reporting judgements considered by the committee and discussed with the external auditors during the year are provided opposite. In addition, on page 109, we set out the key areas of uncertainty which have been considered in the preparation of the financial statements.
Remuneration committee report Full details of the committee’s composition, role and activities are set out in the Annual Report (Part B) on pages 88 to 99. Full details of the company’s remuneration policy can be found within the Policy Report (Part A) on pages 82 to 87. The Annual Report (Part B) will be subject to an advisory vote at the 2014 AGM whilst the Policy Report (Part A) will be subject to a binding vote.
Other information required by the FCA’s corporate governance rules Certain information required by the FCA’s corporate governance rules set out or referred to in this corporate governance statement is contained in the Directors’ report, on pages 100 to 104, under the headings: ‘Securities carrying special rights’; ‘Restrictions on transfer of securities in the company’; ‘Amendment of Articles of Association’; ‘Appointment and replacement of directors’; ‘Powers of the directors’; and ‘Substantial shareholdings’.
Governance
Judgements
Strategic report
Issues
79
By order of the board David Lawler Company Secretary 27 February 2014
Financial statements
80
Berendsen plc Report and Accounts 2013
Report on directors’ remuneration
We have an effective remuneration strategy. Our remuneration strategy is driving business performance. Since we implemented our new strategy in January 2011, our total shareholder return has increased by 143%.
This remuneration report is structured as follows: 84 Part A: Policy Report Remuneration policy Future policy table Performance measures and target setting Remuneration scenarios Employee remuneration and engagement Service contracts and loss of office Takeover Appointment of new directors 90 Part B: Annual Report The remuneration committee – Purpose and membership – Committee activity during 2013 – Advisers to the committee – Shareholder voting and engagement Total remuneration in 2013 – executive directors Importance of spend on pay CEO pay for performance comparison over the last five years Fixed pay in 2013 Annual bonus outcomes in 2013 LTIPs: outcomes in 2013 LTIPs: target setting in 2013 Outside appointments for executive directors Total remuneration in 2013 – Chairman and non-executive directors’
Dear Shareholder I am pleased to present our Directors’ remuneration report for 2013 which has been prepared in accordance with the new reporting and voting regulations governing the disclosure of executive remuneration that have recently come into force. I hope that you find this report even more helpful and informative about how we remunerate and incentivise our directors and that the new structure makes clear just how much thought and effort goes into developing and formulating a remuneration policy that is supportive of and aligned to, the company’s strategic aims and objectives. Berendsen’s strategy is to focus on organic revenue growth, improving operating margin through cost and operational efficiencies and converting this growth to cash. In this way we seek to improve returns and deliver sustainable shareholder value. In 2013, the company delivered excellent results and remains committed to these strategic objectives in 2014. Since the inception of the strategic review in 2010, our share price has risen from 436.6p (market cap of £745.5m) on 31 December 2010 to 936.5p (market cap of £1,615.5m) on 31 December 2013 and dividend payments have increased by 31.5%.
In 2013, the year under review, the group increased adjusted earnings per share (EPS) by 18% and delivered £139.4 million of free cash flow (cash conversion of 137% of adjusted profit after tax). We believe that our remuneration policy has played a key and vital role in helping us to achieve our corporate goals and that shareholders have appreciated and benefited from our clarity of purpose both in explaining and then executing, our strategic vision. Looking to 2014 and beyond, a remuneration policy that is adaptive, focused and supportive of what the company wants to achieve will be fundamental to incentivising the future creation of shareholder value. During the year under review, there have been no substantial changes to the company’s remuneration policy and none are anticipated in 2014. Operationally key decisions taken by the committee include: kkDetermined that salaries for Peter Ventress (Chief Executive Officer) and Kevin Quinn (Chief Financial Officer) should be increased by approximately 1% (which is below the average increase throughout the group) reflecting the committee’s commitment to balancing fixed remuneration and performance related incentives;
Implementation of policy in 2014 98 Schedules to Part B Directors’ interests Share retention policy Long term incentive plans Managing shareholder dilution Directors’ service agreements
David Lowden Chairman of the Remuneration Committee
Berendsen plc Report and Accounts 2013
81
Strategic report
Always moving forward…
Rewarding performance The board recognises the importance of ensuring senior management are sufficiently motivated to implement the group strategic plan. Management incentives are aligned to shareholder interests through the group. Since the introduction of our strategic plan in January 2011, our total shareholder return has increased by 143% compared to our benchmark of the FTSE 250 excluding investments trusts of 56%. During this period, the valuation of Berendsen to its shareholders has increased by £870 million.
increase in total shareholder return since January 2011.
Increasing transparency The committee understands the importance of providing information to shareholders that is both informative and transparent. Feedback from our 2012 remuneration report has been very positive with support from 98.7% of shareholders at our 2013 AGM. We were also nominated for the best FTSE 250 Annual Report from the ICSA Transparency in Governance Awards 2013.
kkReviewed the extent to which the performance targets attached to 2011 grants had been achieved as at 31 December 2013. Awards made under the company’s long-term incentive plans in 2011 are due to vest in March 2014 based upon the three-year performance period ending 31 December 2013. Vesting is dependent upon EPS, with stretch performance set at 57.5 pence, and upon final year return on invested capital (ROIC), with stretch performance set at 10.5%. Based upon actual EPS of 59.8 pence and ROIC of 9.3%, 77.5% of awards will vest. Our other activities are explained in greater detail on page 89 and include: kkThe committee believes it is appropriate to review their appointed independent remuneration advisers on a regular basis. Following a rigorous tender process, Towers Watson were appointed with effect from 1 May 2013;
kkAgreed the financial targets for awards granted in 2014 under the PSP and CIP and the financial and personal targets for the Executive Board annual bonus.
Under the new voting regime, two resolutions are being put to shareholders at the Annual General Meeting on 24 April 2014. One resolution will be seeking approval for the Policy Report (Part A) that explains the company’s remuneration policy for executive directors effective from the 2014 AGM. The other is seeking approval for the rest of this report (Annual Report, Part B). I hope that you will be supportive of both resolutions. Details of the voting at last year’s AGM (based on a single resolution) are given on page 89, the committee was delighted to receive positive support on our remuneration strategy from 98.7% of shareholders who voted. We remain committed to ongoing engagement with our shareholders and take an active interest in your views and voting on this remuneration report. If you would like to discuss any aspect of our remuneration strategy with me, please feel free to email me at
[email protected]. David Lowden Chairman of the Remuneration Committee 27 February 2014
Financial statements
kkReviewed letters from shareholders in respect of the new remuneration reporting regulations and guidance on the 2013 Directors’ remuneration report; and
On 28 November, I had the opportunity to meet nine of our largest shareholders at our annual shareholder dinner. This provided an excellent opportunity for me to discuss with our shareholders and receive feedback on both the group’s strategy and our remuneration policy.
Governance
+143%
kkApproved annual bonus payments of 113.1% of salary, representing performance in excess of stretch under the free cash flow measure and between target and stretch under the EPS and revenue measure. Although financial performance has been stronger in 2013, bonus payments are broadly consistent with reward in 2012; and
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Berendsen plc Report and Accounts 2013
Report on directors’ remuneration Part A: Policy Report Remuneration policy With effect from its approval at the 2014 AGM, this Policy Report sets out the framework that will inform how the company’s remuneration strategy will be executed during 2014 and (it is anticipated) over the next three years, thereby ensuring that the structure and levels of executive remuneration continue to remain appropriate for the company. This is to be achieved by having a remuneration policy that: kkProvides an appropriate mix of rewards, incentives and benefits that are balanced between: –– Fixed and variable pay, with at least half variable at target performance; and –– Short and long-term performance. kkEnsures that remuneration levels for the company’s senior executives take into account their skills and experience, the nature and complexity of their responsibilities, relevant comparative market data (typically executive pay is benchmarked against companies of a similar size to Berendsen selected primarily on the basis of market capitalisation but with consideration also given to revenue, sector and number of employees) and any unforeseen factors that may arise from time to time; and kkRecognises and rewards stretching performance and appropriate risk-reward behaviours. The committee is satisfied that these policy objectives remain appropriate and that there continues to be a sensible balance between fixed and variable elements of remuneration as set out in the ‘Future policy table’ below. No changes to the remuneration policy will be made in 2014. The committee is aware that the Performance Share Plan (PSP) will expire in April 2016 and accordingly will review that plan in advance of this date. As a component of this review, the committee will consider the introduction of a formal clawback and/or malus policy. Remuneration for executive directors will consist of the following elements: Future policy table Purpose and link to strategy
Operation and performance conditions (if applicable)
Maximum potential value
Reviewed annually, with any change having effect from 1 January and taking into account:
The base salaries of executive directors effective from 1 January 2014 (prior to this policy taking effect) are as follows:
Fixed remuneration Salary To recognise the responsibilities of the role and the experience, skills and performance of the individual and to attract and retain the highest calibre of Chief Executive Officer and executive directors.
kk Group and individual performance; kk Pay levels and salary increases throughout the company and the group; and kk Macro-economic factors. Salary increases are not automatic and would broadly be consistent with average increases across the group. Increases in excess of general operation may be sanctioned for example in order to recognise: kk An executive director assuming additional responsibilities in relation to the role they perform; and
Peter Ventress – £551,000 Kevin Quinn – £340,000 The maximum increase to be applied on an annual basis to the salaries effective 1 January 2014 or from appointment is inflation plus 5% per annum. At the discretion of the committee larger increases may be awarded in the circumstances described in the operation column.
kk Where an executive director’s salary has fallen significantly below market competitive levels. Pension and benefits To be market competitive for the purposes of recruitment, ensuring retention and to reward continuing service.
Pensions Company contributions not exceeding a percentage of base salary are made to the executive director’s personal pension scheme or the contributions are taken as a cash pension supplement. Benefits Company car (or cash allowance), life assurance cover equal to four times base salary, permanent health up to 75% of base salary and medical insurance. The committee retains the discretion to provide additional benefits as may be reasonably required to reflect changed circumstances (e.g. in relation to existing or new directors). These may include, but are not limited to: relocation costs, tax equalisation arrangements and cost of living allowances.
25% of base salary. The maximum value of the benefits is determined by the nature of each benefit itself and so can be adjusted in line with the relevant purchase cost.
Berendsen plc Report and Accounts 2013
83
Future policy table Purpose and link to strategy
Operation and performance conditions (if applicable)
Maximum potential value
Annual bonus (cash and share-based) To drive and reward the achievement of challenging annual targets based upon financial and non-financial performance measures that support the company’s shortto medium‑term strategy.
Performance conditions and targets are reviewed at the start of each financial year as are the threshold levels of performance for each of the financial performance conditions. Performance is measured over the relevant financial year.
The overall maximum bonus opportunity is 130% of salary.
The annual bonus is intended to reinforce the company’s shortto medium-term objective of delivering organic revenue growth of GDP+1-2%, high single-digit EPS growth and cash conversion of at least 100%, as well as to recognise individual contribution during the year.
kk Revenue (25%).
Variable remuneration
Strategic report
Three financial performance measures determine bonus payments worth up to 100% of salary: kk Adjusted earnings per share (50%); kk The generation of free cash flow (25%); and Bonus payments will only be made provided that the earnings per share threshold is achieved. The amounts payable in relation to the financial performance measures are: kk Threshold: 20% of salary. kk Target: 60% of salary. kk Maximum: 100% of salary. Payments can be increased or decreased through the application of a multiplier depending on personal performance against measures linked to the individual’s areas of responsibility and the overall strategy of the group. Personal measures are specific to the performance of each executive. Depending upon the extent to which the personal measures have been achieved, a performance multiplier then operates (at the discretion of the committee) whereby the above amounts can be increased or decreased by up to 30%. The committee retains the discretion to adjust annually the financial measures such that no financial measure accounts for more than 50% of the bonus outcome. This is to ensure that they remain appropriate and aligned with the company’s strategy, subject to the overall maximum.
Governance
If changes to the performance measures/targets are contemplated, the committee will consider whether it is appropriate to consult with the company’s main shareholders and their representative bodies (depending on the extent of the change). A quarter of any bonus paid is compulsorily deferred into an award over shares under the company’s Deferred Bonus Share Plan (DBSP), that vest after three years subject to continued employment and with the benefit of any dividends paid over the deferral period (in the form of share-based dividend equivalents). Long-term incentive plans (primarily shares but with a cash alternative) To drive and reward delivery of sustained shareholder returns through the satisfaction of challenging performance conditions and targets linked to the company’s current strategic objectives.
Participation in the plans is intended to encourage executive share ownership, to support greater alignment with shareholders and to act as a retention mechanism.
Awards are normally granted shortly after the announcement of results but can be granted at other times in exceptional circumstances. To the extent that PSP and CIP awards vest, participants will receive the benefit of any dividends paid over the vesting period in the form of share‑based dividend equivalents. PSP and CIP awards vest at the end of a three-year measurement period subject to the performance of two equally weighted independent performance measures: kk Adjusted earnings per share (EPS); and kk The weighted average post-tax return on invested capital (ROIC). 25% of the award will vest if the threshold performance condition is achieved and 100% of the award will vest for the achievement of the stretch target. If changes to the performance measures/targets are contemplated, the committee will consider whether it is appropriate to consult with the company’s main shareholders and their representative bodies (depending on the extent of the change). Legacy awards made under the PSP and CIP prior to 1 January 2014, which may be subject to different performance criteria from those described above, will be permitted to vest in accordance with the terms agreed and disclosed at the time.
PSP: up to 100% of base salary each year (200% in exceptional circumstances such as recruitment or retention). CIP: matching awards can be granted on a maximum matching ratio of two for one (gross of tax) to ‘match’ the number of shares the participant has invested in the plan. For the purposes of CIP, and reflecting the international profile and tax residence of the participants, the committee applies a fixed 50% tax rate when granting CIP awards. This means that the maximum CIP award is 140% of salary provided that the participant makes the maximum investment. Financial statements
Specifically, the performance targets are linked to our long-term objective of achieving high singledigit underlying EPS growth and approaching double-digit posttax ROIC.
The 2006 Performance Share Plan (PSP) is the company’s primary long-term incentive vehicle. The 2009 Co-Investment Plan (CIP) is the company’s secondary long-term incentive vehicle under which participants can invest up to 35% of their salary annually in shares, which is then matched on a gross basis with an award of shares granted by the company.
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Report on directors’ remuneration
Future policy table Purpose and link to strategy
Operation and performance conditions (if applicable)
Maximum potential value
All-Employee Share Plans (UK Sharesave)
Executive directors can save a fixed monthly amount from their net salaries for terms of three or five years. At the end of which, the accumulated savings can be used to purchase shares at an option price set on the date of grant (being a 20% reduction on the average share price at grant).
The statutory maximum monthly savings amount.
The operation of the UK Sharesave Plan is consistent with HMRC practice and policy. Other aspects Share retention policy To encourage long-term investment by the directors thereby supporting greater alignment with shareholders.
Executive directors and senior management are required to work towards building a stake in the company. To achieve this senior management are not permitted to sell any vested shares under the PSP or the CIP (other than to satisfy tax liabilities) until this requirement is satisfied.
Shareholding equivalent to 100% of base salary although this can be increased if the committee decided it is appropriate to do so.
Shares owned outright by executive directors and their partners count towards the retention requirement. Awards that are unvested or not transferred are not counted. Chairman and non-executive director fees To attract and retain the highest calibre of Chairman and non-executive director.
Fees paid to the Chairman are determined by the committee whilst the fees paid to the non-executive directors are determined by the board. The Chairman’s fees are determined by reference to time commitment and previous experience.
The maximum aggregate value of fees payable to the Chairman and nonexecutive directors will be £500,000, as set out in the Articles of Association.
The board determines fees for non-executive directors’ under a policy that seeks to recognise time commitment, responsibility and the technical skills required to make a valuable contribution to the board. Additional fees may be paid in respect of Chairmanship and membership of a board committee or for additional duties, such as serving as the Senior Independent Director. Participation in any of the company pension schemes is not permitted. Travel and subsistence for non-executive directors based outside of the UK for company-related business will be reimbursed by the company. Subject to board approval and ensuring that there are no conflicts of interest, executive directors can hold one non-executive directorship for which they retain their fees.
Performance measures and target setting As noted in the ‘Future policy table’ above, performance measures are determined annually to ensure continued alignment with Berendsen’s corporate strategy, in order to both reward and incentivise its delivery. The 2014 annual bonus financial measures (adjusted EPS, free cash flow generation and revenue), were chosen in light of the stated strategic objectives to deliver organic revenue growth of GDP+1-2%, high single-digit EPS growth and cash conversion of at least 100%. Individual performance measures are chosen based on the areas that the committee wants to see improvement and/or progress on during the financial year in light of the overall strategic priorities for the company. This process of identifying and selecting performance measures does not change on an annual basis. The 2014 long-term incentive measures (of absolute EPS and ROIC) were chosen as the committee considers them to be the most accurate measures of long-term company performance, balancing growth and investor returns whilst providing good line of sight for executives. In setting performance targets the committee takes account of internal and external forecasts and prevailing economic conditions. Remuneration performance measures and how these relate to our strategic objectives Key measures
Elements of 2014 remuneration
Adjusted EPS
Annual bonus Long-term incentive plans
Free cash flow
Annual bonus
Revenue
Annual bonus
ROIC
Long-term incentive plans
Link to strategic objectives Improving financial returns by leveraging operational efficiency 4
For more information: Pages 12–13
2
Improving capital efficiency
Delivering sustainable organic growth
1
2
Improving capital efficiency
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Berendsen plc Report and Accounts 2013
Remuneration scenarios Peter Ventress
Kevin Quinn
£000
£000 £2,754
£1,714
48%
24%
100%
24%
Minimum
Fixed elements
£864
26%
26%
24% £439
24%
52%
26%
100%
52%
26%
In line with expectation
Maximum
Minimum
In line with expectation
Maximum
Annual variable elements
Strategic report
£1,377 £716
48%
Long-term variable elements
The potential reward opportunities illustrated above are calculated using base salaries effective from 1 January 2014. For the annual bonus, the amounts illustrated are those potentially receivable in respect of performance for 2014. For the CIP, the award opportunities assume the full voluntary investment in Berendsen shares. It should be noted that any awards granted under the PSP and CIP in a year do not normally vest until the third anniversary of the date of grant. The projected values of PSP and CIP amounts exclude the impact of share price growth and dividend accrual. Illustrations are intended to provide further information to shareholders regarding the pay for performance relationship. However, actual pay delivered will be influenced by changes in share price and the vesting period of awards. The assumptions set out below have been made in compiling the above charts: Minimum
In line with expectations
Maximum
Fixed pay
Salary and pension provisions effective 1 January 2014. Benefit levels are assumed to be the same as the last financial year.
Salary and pension provisions effective 1 January 2014. Benefit levels are assumed to be the same as the last financial year.
Salary and pension provisions effective 1 January 2014. Benefit levels are assumed to be the same as the last financial year.
Annual bonus
No annual bonus payable.
On target annual bonus of 60% of salary.
Maximum annual bonus of 130% of salary.
PSP
Threshold not achieved (zero vesting).
Share award of 100% of salary. One-quarter vesting (25% of award).
Share award of 100% of salary. Full vesting (100% of award).
CIP
Threshold not achieved (no match).
Matching award worth 140% of salary. One-quarter vesting (25% of award).
Matching award worth 140% of salary. Full vesting (100% of award).
*Pension contributions are 25% and 20% of base salary for Peter Ventress and Kevin Quinn, respectively. The UK Sharesave Plan is excluded from the scenarios as the values are diminutive
Governance
Assumptions
Employee remuneration and engagement When reviewing and setting executive remuneration, the committee takes into account the pay and employment conditions of all employees of the company and group. Specifically, the level of any company-wide pay review is a key determinant when setting the level of any salary increase for the executive directors and will be disclosed in the Annual Report each year. The company’s approach to reward and remuneration is broadly consistent across the group however; executive remuneration is more heavily weighted towards variable elements of remuneration which are conditional upon the executive directors achieving performance targets linked to the successful delivery of strategy. This aims to create a clear link between the value created for shareholders and remuneration received by the executive directors. Managers across the group who participate in an annual bonus scheme have similar metrics to those used for executive directors. These are typically dependent upon the achievement of local business unit performance targets which can be a mixture of financial or personal objectives and are linked to the implementation of our strategic objectives. Other employees may also participate in a performance-led annual bonus plan.
All permanent UK employees are invited to participate in the UK Sharesave Plan, which is explained within the ‘Future policy table’. Although the company has not carried out a formal employee consultation regarding board remuneration, it does comply with local regulations and practices regarding employee consultation more broadly. The Group Director, Human Resources ensures that the committee is made aware of any relevant employee feedback regarding the company’s remuneration policy. Further information about our engagement with employees across the group is provided in the ‘Our people’ section on page 47.
Financial statements
Senior managers are eligible to participate in the BLTIP (Berendsen Long-Term Incentive Plan) which rewards approximately 100 managers for the achievement of strategic goals and encourages share ownership. Two or three-year stretching performance targets, which are business unit specific, are set and managers received regular performance updates to ensure they are informed about their progress toward the achievement of targets.
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Report on directors’ remuneration Service contracts and loss of office The following table summarises the key terms of the current executive directors’ service contracts. It also represents the committee’s policy in this area. The executives’ service contracts are available for inspection at the company’s registered office. Service contracts for executive directors Provision
Terms
Notice period
12 months’ notice terminable by either the company or the director.
Remuneration and other benefits
As described in the ‘Future policy table’.
Expenses
Reimbursement of reasonably incurred costs in accordance with a director’s duties.
Restrictive covenants
Non-compete and non-solicitation provisions.
Termination payments
As summarised in the loss of office table below. No additional compensation would be paid as a result of a change of control of the company. Wherever appropriate the committee has discretion to vary the treatment of bonuses and awards depending on the individual circumstances, thereby ensuring a fair outcome for both the participant and shareholders.
Letters of appointment for the Chairman and non-executive directors Notice period
Chairman: six months’ notice terminable by either the company or the director. Other non-executives: one-month notice terminable by either the company or the director.
Remuneration and other benefits
As described in the ‘Future policy table’.
Expenses
Reimbursement of reasonably incurred costs in accordance with a director’s duties.
Termination payments
Non-executive directors are not entitled to any compensation for loss of office other than their notice period.
The table below summarises the key provisions from the relevant remuneration documents (such as service contracts and plan rules) as they relate to possible payments made for loss of office. It also represents the committee’s policy in this area. Loss of office Element
Default position
Committee discretion
Salary and pension
In specified scenarios as set out in the director’s service contract (e.g. incapacitation, insolvency, prohibition by law from being a director, serious misconduct or breach of obligations) no payments are due.
None.
Otherwise up to 12 months’ salary and pension contributions subject to the duty of mitigation. Other benefits
Non-cash benefits will continue to be provided during the notice period.
None.
The committee may take account of, and pay, in respect of accrued but unused holiday allowance. Annual (and deferred) bonus
There is no absolute entitlement to payment of an annual bonus and any unvested deferred bonuses would normally lapse on cessation. If classed as a good leaver (death, ill health, redundancy, retirement etc), the executive could be awarded a bonus or deferred bonus awards might vest.
Matching awards granted under the CIP and awards granted under the PSP
If the executive director is a good leaver (e.g. ill health, redundancy, retirement etc) awards vest subject to performance at the normal vesting date (measured at the end of the performance period) subject to time pro rating. If an award takes the form of an option, a six-month exercise period will apply (subject to the overall term of the option). In the case of death, awards vest in full.
To determine the extent to which good leaver status should apply in relation to bonuses (including the applicability of time pro rating) and unvested deferred bonus awards. To determine the extent to which good leaver status applies. To permit vesting at the point of cessation, rather than at the normal vesting date.
In all other leaver situations, awards will lapse.
To determine the extent to which the performance conditions are satisfied and the applicability of the time pro rating rule.
CIP: investment shares
Shares cease to be subject to a pledge requirement.
None.
One-off awards (for example linked to buy-outs or recruitment)
No default position.
To determine the termination provisions prior to the award being made. If such an award were made, full details would be disclosed following the award being granted.
Fees and benefits for the Chairman No compensation payable in the event of early termination apart from and non-executive directors notice period.
None.
The committee reserves the right to make additional exit payments where such payments are made in good faith: In discharge of an existing legal obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise of any claim arising in connection with the termination of a director’s office or employment.
Berendsen plc Report and Accounts 2013
87
Takeover In the event of a takeover or other major corporate event (but excluding an internal reorganisation of the company), all outstanding awards granted under the company’s discretion incentive plans (PSP and CIP) would vest subject to the achievement of any performance conditions and taking into account any pro rata reduction to reflect the unexpired part of the vesting period. The committee has discretion to disapply time pro rating if it considers it appropriate to do so. In the event of an internal reorganisation, the committee may determine, with the agreement of the acquiring company, that outstanding awards would be exchanged for equivalent awards in another company.
Appointment of new directors
Strategic report
Awards granted under the company’s all-employee share plans would vest in accordance with the prescribed legislation. Payment of any bonuses will not be accelerated unless the committee determines otherwise, taking into account a variety of factors including the extent to which any performance conditions have been satisfied. Deferred bonus awards may vest in full.
The policy for the appointment of new executive directors (both internal and external) is as follows. The new director’s base salary will be set taking into account a range of factors including market levels, experience, internal relativities and cost. If base salary has been set at a level below the desired market level contingent on individual performance, the committee retains a discretion to realign the base salary over a phased period of one to three years following the appointment, which may result in an exceptional rate of annualised increase in excess of that set out in the ‘Future policy table’ on page 83. Other elements of annual remuneration will be consistent with the ‘Future policy table’ save that conduct conditions (allowing the company to recover unvested awards) may apply. The following exceptions to this approach will apply: kkIf an internal appointment is made, the committee retains the discretion to continue with any existing contractual remuneration provisions; and kkThe committee retains the discretion to make awards on recruitment under the PSP and CIP and/or an individual award agreement on similar terms, to provide an immediate interest with company performance. The committee will determine the level of the award, the performance conditions and time-horizon that would apply to such awards at the time of grant, taking into account the strategy and business circumstances at Berendsen. The maximum value of variable remuneration that may be granted is consistent with the ‘Future policy table’, namely: 130% of salary bonus opportunity, a 35% of salary investment under the CIP and a 200% of salary award under the PSP (reducing to 100% on an ongoing basis).
Service contracts will be entered into on terms similar to those for the existing executive directors, summarised in our service contract policy opposite. The committee can also consider buying-out incentive awards that the individual has had to forfeit by accepting the appointment. This would be done either through the company’s existing reward structures (as set out in the ‘Future policy table’) or in accordance with and reliance upon any relevant provisions and procedures contained within the Listing Rules. Any awards or payments made in respect of forfeited remuneration would, as far as is possible or practicable, take into account the expected value, timing, form of delivery and the terms of, the forfeited remuneration. Wherever possible, any new arrangements would be linked to the achievement of Group targets. The committee may also require the individual to purchase company shares up to a pre-agreed level prior to vesting.
Governance
kkThe same principles shall apply if it is necessary for the Chairman or any non-executive director to assume executive function on a temporary basis.
With respect to the appointment of a new Chairman or non-executive director, contractual terms will be consistent with those currently adopted. Variable pay will not be considered and as such no maximum applies (nil). In order to secure the appointment of a new Chairman not based in the UK, payments relating to relocation or repatriation (including house costs) can be considered. An appropriate announcement of the director’s appointment and the incumbent’s remuneration will be made through a regulatory information service and posted on the company’s website.
Unforeseen circumstances and change of law
In addition to the various operational discretions that the committee can exercise in the performance of its duties (including those discretions set out in the company’s share plans), the committee reserves the right to make either minor or administrative amendments to the policy, if required, to benefit its operation or to make more material amendments in order to comply with substantially new laws and regulations.
Financial statements
The committee retains the discretion to make emergency payments outside of the policy described in exceptional and genuinely unforeseen circumstances. This discretion would extend to cover where the committee believes that this is in the best interest of the company and when it would be disproportionate to seek approval from a general meeting. Any payments or commitments to make such payments in such circumstances will be disclosed on a timely basis.
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Berendsen plc Report and Accounts 2013
Report on directors’ remuneration The financial information in this part of the Report has been audited where indicated.
Part B: Annual Report This part of the report explains how the remuneration policy (contained in Part A) has been applied for the year under review.
The remuneration committee Purpose and membership The role of the committee is to determine and recommend to the board, a fair and responsible remuneration framework for ensuring that the company’s most senior executives are appropriately rewarded and incentivised for their contribution to company performance. The committee’s primary purpose is to ensure that there is a clear link between reward and performance and that the policy, structure and levels of remuneration for both the executive directors and throughout the group: kkAre capable of securing, retaining and motivating high calibre individuals to deliver results for shareholders, customers and employees alike; kkReinforce the strategic aims and objectives of the business, whilst mitigating any risk factors; kkAre aligned to maximising shareholder value on a sustainable basis; kkAre market competitive, rewarding individuals in line with genuine group performance; and kkEncourage and promote appropriate behaviours and outcomes consistent with the culture of the group. The committee’s composition, responsibilities and operation comply with the principles of good governance (as set out in the UK Corporate Governance Code), with the Listing Rules (of the Financial Conduct Authority) and with the Companies Act 2006. The full terms of reference for the committee can be found on the company’s website at www.berendsen.com. Appointed to the Committee
End of tenure on Committee
David Lowden
March 2010
–
Lucy Dimes
June 2013
–
Iain Ferguson
March 2010
–
Per Utnegaard
January 2005
April 2013
Andrew Wood
March 2010
–
Committee membership in 2013 Chairman Committee
Management attendees (by invitation) Chief Executive Officer
Peter Ventress
Group Director, Human Resources
Chris Thrush
Company Secretary
David Lawler
Committee attendance in 2013 Independent
Committee meetings
Attendance*
David Lowden
Yes
100%
Lucy Dimes
Yes
100%
Iain Ferguson
No
100%
Per Utnegaard**
Yes
100%
Andrew Wood
Yes
100%
*% based on the meetings entitled to attend **Per Utnegaard stepped down from the board on 25 April 2013
All members of the committee are considered independent non-executive directors and no member (or attendee) was present when their own remuneration was considered.
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Berendsen plc Report and Accounts 2013
Committee activity during 2013 Committee meeting date 27 February
Regular items
Other items
Approved and provided feedback on the 2012 Directors’ remuneration report
Agreed to perform a review of the appointed independent remuneration advisers
Approved the 2013 grant of PSP, CIP and DBSP awards
Received an update on government plans in respect of remuneration Strategic report
Reviewed the achievement of performance targets for the year ending 31 December 2012 and approved the vesting of PSP, CIP and DBSP awards granted in 2010 Reviewed the results of the 2012 committee evaluation and established key priorities for 2013. Discussed key topics arising from the evaluation Reviewed the achievement of performance and personal targets for the year ending 31 December 2012 and approved the payment of the 2012 Executive Board annual bonus 25 April
21 August
Received presentations from four independent remuneration consultants and appointed Towers Watson with effect from 1 May 2013 Reviewed the directors’ expenses policy
Received an update on government plans in respect of remuneration
Reviewed the committee’s terms of reference Reviewed group policies on board appointment, resignation and termination 31 October
Reviewed and agreed the structure of the 2014 Executive Board annual bonus
Reviewed letters from shareholders in respect of the new remuneration reporting regulations and guidance on the 2013 Directors’ remuneration report
Reviewed reports by Towers Watson on investor reactions to the 2013 AGM resolutions Reviewed the results of a risk assessment on the remuneration strategy Governance
Received a progress update in respect of the Executive Board’s personal targets Reviewed the first draft of the 2013 Directors’ remuneration report 11 December
Agreed the financial targets for awards granted in 2014 under the PSP and CIP and the Executive Board annual bonus
Received an update on 2014 remuneration guidance from ABI, ISS and RREV & NAPF
Agreed salaries for the executive directors and Chairman effective from 1 January 2014 Reviewed the final draft of the 2013 Directors’ remuneration report Approved the 2014 personal objectives for executive directors Received a progress update in respect of Executive Board’s personal targets
Advisers to the committee
Shareholder voting and engagement At last year’s AGM, the Remuneration report received the following votes from shareholders:
Resolution 2) Approval of Remuneration report
Votes For (m) 137.7
% For
Votes Against (m)
98.7%
0.7
% Against
Total Votes Cast (m)
Votes Withheld (m)
0.50%
139.5
1.1
The committee was very pleased with the level of shareholder support at the 2013 AGM, with a 98.7% vote in favour of the Remuneration report (2012 AGM: 91%) The committee will continue to listen to and engage (including consult) with shareholders with regard to all aspects of the company’s remuneration policy and take appropriate action when required.
Financial statements
The committee has authority to obtain the advice of external independent remuneration consultants and is solely responsible for their appointment, retention and termination. On 25 April 2013, following a rigorous tender process, the committee appointed Towers Watson (one of the leading remuneration consultancies) as its principal external remuneration adviser. Towers Watson, who provided no other services to the company (thereby, in the committee’s opinion, validating its credentials for providing appropriate, objective and independent advice), received quarterly retainer fees of £8,000 which covered attendance at a set number of committee meetings, general advice, benchmarking exercises and updates on remuneration developments. Additional ad hoc work is carried out at an agreed hourly rate. The total fee invoiced by Towers Watson during the year ending 31 December 2013 was £24,250. Kepler Associates, who were the remuneration advisers for the period 1 January 2013 to 25 April 2013 received a total fee of £9,000.
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Berendsen plc Report and Accounts 2013
Report on directors’ remuneration Total remuneration in 2013 – executive directors (audited) Executive directors Peter Ventress 2013
2012
545
Kevin Quinn 2013
2012
Fixed (£000) 528
336
326
27
26
31
30
136
132
67
65
708
686
434
421
616
623
380
375
Performance LTIPs (ii)
1,660
1,143
1,110
729
Subtotal
2,276
1,766
1,490
1,104
Dividend equivalents on DBSP (iii)
–
–
11
–
Non-performance LTIPs (iv)
–
186
–
115
Base salary Taxable benefits Pension contributions Subtotal
Pay for performance (£000) Annual bonus (i)
Other items in the nature of remuneration (£000)
Subtotal Total remuneration (£000)
–
186
11
115
2,984
2,638
1,935
1,640
From 1 January 2012 to 31 December 2013, our total shareholder return has increased by 133% and improved Berendsen’s market capitalisation by 116%. Notes (i) Including 25% of annual bonus which is deferred for three years under the DBSP. Further details about annual bonuses can be found on page 92. (ii) 2013: Included within ‘Performance LTIPs’ are PSP 2011 and CIP 2011 awards (excluding guaranteed match awards which are not subject to performance conditions) including dividend equivalents, which will vest on 3 March 2014 and 14 April 2014, respectively based on performance for the year ended 31 December 2013 as set out in this Annual Report. These awards have been valued using the 2013 Q4 average share price being 929 pence and will be restated with the actual vesting values in the 2014 Annual Report. Further details about the PSP and CIP outcome can be found on page 93. 2012: Included within ‘Performance LTIPs’ are awards under the PSP 2010 and CIP 2010 (excluding guaranteed match awards which are not subject to performance conditions) including dividend equivalents, which vested on 4 March 2013 and 15 April 2013, respectively. These awards have been valued using the actual share price on the date of vesting. (iii) 2013: Dividend equivalents arising from the vesting of the 2010 DBSP grant on 4 March 2013. (iv) 2012: ‘Non-Performance LTIPs’ are guaranteed match awards under the CIP 2012 which were granted on 10 April 2012 and are not subject to performance conditions. These awards have been valued using the share price on the date of grant (520 pence). (v) The share award granted to Peter Ventress pursuant to Listing Rule 9.4.2(2) was exercised on 8 April 2013. This award was not subject to performance conditions and has been accounted for in the year of grant being 2009. Further information on the vesting of this award can be found on page 98 (vi) Written confirmation has been received from both directors that they have not received any other items in the nature of remuneration from the company.
Importance of spend on pay In order to give shareholders an understanding of how: a) total expenditure on remuneration compares to certain core financial dispersals of the company; and b) how the percentage change in remuneration for Peter Ventress (between 2012 and 2013) compares to the group’s workforce, the tables below and opposite demonstrate the relative importance of the company’s spend on employee and CEO pay. Expenditure Total group employee costs (including directors) Dividend payments (pence)
2013 £m
2012 £m
Percentage change
408.1
383.7
6%
28.0
25.5
10%
1,054.2
985.1
7%
Relativities* Revenue Free cash flow Adjusted earnings per share (EPS) (pence)
139.4
125.1
11%
59.8
50.7
18%
*Revenue, free cash flow and adjusted EPS were chosen because they are considered to be key indicators of the stated strategic objectives. These numbers are as reported in the financial statements
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Berendsen plc Report and Accounts 2013
Change in CEO and employee pay 2012–2013
CEO Comparator group*
Percentage change in annual bonus
3.2%
3.9%
(1.1%)
2.1%
No material change**
(0.3%) Strategic report
Percentage change in salary
Percentage change in taxable benefits
*The comparator group consists of all employees within Berendsen excluding the CEO **There has been no material change to the benefit policy during 2013. Further details on employee remuneration and engagement is on page 85
CEO pay for performance comparison over the last five years The graph below shows the total shareholder return (TSR) of the company compared with the index over the five-year period to 31 December 2013. Since December 2008, the company’s average TSR has outperformed the FTSE 250 (excluding investment trusts). The committee believes that, due to the size of the company, the FTSE Mid 250 Index (excluding Investment Trusts) is the most appropriate index against which to compare the historic TSR of the company. Share price graph – total shareholder return TSR vs. FTSE 250 Index
Berendsen plc FTSE 250 (excluding Investment Trust)
500 400 300 200 100 0
Dec 08
Financial year ending Total remuneration (single figure) (£000) Annual variable pay (% of maximum)
Roger Dye
Dec 10
Dec 11
Dec 12
Dec 13
31/12/2009
31/12/2010
31/12/2011
31/12/2012
31/12/2013
Peter Ventress
Peter Ventress
Peter Ventress
Peter Ventress
Peter Ventress
1,261
1,277
1,297
1,299
2,638
2,984
80.0%
100.0%
84.0%
70.7%
90.8%
87%
–
–
100%
100%
100%
–
Long-term variable pay (% of maximum) CIP (non-performance awards) CIP (performance awards) PSP awards Recruitment award
–
–
–
–
62.5%
77.5%
64.1%
–
–
–
62.5%
77.5%
–
100%
–
–
–
–
Governance
CEO
Dec 09
Notes (i) The CIP guaranteed match (25% of the granted award) is not related to any performance conditions and therefore all guaranteed match awards are achieved at 100% of the potential maximum. The CIP grants awarded in 2010, 2011 and 2012 all contained a guaranteed match element. The 2013 CIP grant did not contain a guaranteed match and all awards are performance related. (ii) Peter Ventress joined Berendsen on 1 November 2009 and was appointed to the board as Chief Executive on 1 January 2010. Peter was awarded a share award pursuant to Listing Rule 9.4.2(2) of 130,446 shares (non-performance) which were exercised on 8 April 2013 (share price upon vesting was 782.8 pence). Upon joining Berendsen, Peter was awarded a cash bonus of £200,000 which was paid in March 2010 on the condition that he acquired company shares worth at least £200,000. (iii) On 5 March 2012, Roger Dye received 53,385 awards (including dividend equivalents) under the PSP 2009 grant. The market price on the day of vesting was 512 pence. There are no further outstanding LTIP awards due to Roger Dye.
Fixed pay in 2013 (audited) The committee took into account the company’s financial results, the satisfaction of challenging personal objectives and the overall economic environment when setting base salary for 2013. Executive director
2013 Base salary (£000)
2012 Base salary (£000)
% Change
Peter Ventress
545
528
3.2
Kevin Quinn
336
326
3.1
Financial statements
Base salary
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Berendsen plc Report and Accounts 2013
Report on directors’ remuneration Benefits Executive directors are entitled to a fully expensed car (or cash allowance), life assurance, permanent health and medical insurance. Further details of the taxable benefits paid in 2013, can be found in the table below. Car allowance (or cash allowance) (£000)
Life assurance (£000)
Peter Ventress
15
Kevin Quinn
22
Executive Director
Permanent health insurance (£000)
Medical insurance (£000)
Total 2013 taxable benefits (£000)
Total 2012 taxable benefits (£000)
3
8
1
27
26
2
6
1
31
30
Notes (i) Included within their car allowance, Peter Ventress and Kevin Quinn received a cash benefit of £3,600 (2012: £3,600) in respect of their fuel allowance.
Pension During 2013, pension contributions were 25% and 20% of base salary for Peter Ventress and Kevin Quinn, respectively. 2013 base salary (£000)
Peter Ventress
545
Kevin Quinn
336
Executive director
%
2013 pension contributions (£000)
2012 pension contributions (£000)
25%
136
132
20%
67
65
Annual bonus outcomes in 2013 (audited) As can be seen from the table below, the annual bonus opportunity (core award plus performance multiplier) for executive directors in 2013 was 130% of salary and was determined by reference to the following financial performance metrics: (a) EPS; (b) the generation of free cash flow (FCF); and (c) revenue, with any bonus payments being conditional upon the threshold EPS target having first been achieved. In 2013, the group increased adjusted EPS by 18% and delivered £139.4 million of free cash flow (cash conversion of 137% of adjusted profit after tax). For executive directors in 2013, 25% of any bonus earned was paid in the form of deferred shares under the company’s Deferred Bonus Share Plan. Achievement of annual bonus targets in 2013
% of base salary Threshold % of bonus
Target
Required performance
% of bonus
Maximum
Required performance
% of bonus
Required performance
Actual achieved
Peter Ventress
Kevin Quinn
EPS
10
53.5p
30
55.5p
50
58.0p
57.6p
47.0
47.0
FCF
5
£115m
15
£120m
25
£125m
£133.0m
25.0
25.0
Revenue
5
£995m
15
£1,015m
25
£1,030m
£1,020m
Subtotal
20
Effect of personal performance multiplier
60
18.5
18.5
100
90.5
90.5
+/-30%
+22.6
+22.6
Total
113.1%
113.1%
Total bonus paid (000s)
616
380
Bonus paid in cash (£000s)
462
285
Bonus paid in shares (£000s)
154
95
*Targets have been calculated and assessed on the exchange rates set in the 2013 budget. At target, the effect of exchange rates on EPS is 2.2 pence, free cash flow £5.2 million and revenue is £34.0 million
The personal performance multiplier operated to increase the core award by 22.6% as a result of the achievement of personal performance criteria. Each executive director has three personal performance measures linked to areas that the committee has identified for the year. The committee reviews the progress in each area then makes an assessment of what the executive has delivered relative to expectations. Peter Ventress Personal performance measure (summary)
Actual performance
Review the management structure with particular emphasis on the Manage for value businesses.
Change in management: clear plans for the Manage for value businesses have been developed and all are now on an improved path with settled and stable management. The company as a whole is benefiting strongly from the implementation of the full business line structure in 2012.
Continue to establish throughout the business the talent management and diversity programmes.
Several succession planning reviews have taken place at board and Executive Board level. Management development programmes are now in place for all senior and high potential leaders. A management trainee programme has benefited from wider exposure and a more thorough group-wide approach.
Start laying the foundations for further cycles of the strategy review.
The board have been involved in a series of strategy updates and discussions led by the Chief Executive Officer. These have not only reviewed the implementation of the existing plan but have commenced the process of developing models and analysis for the next cycle.
Outcome Below expectations
Met expectations
Exceed expectations
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Berendsen plc Report and Accounts 2013
Kevin Quinn Outcome
Personal performance measure (summary)
Actual performance
Conduct a thorough review of the finance function with a view to exploiting best practice both internal and external. Construct a model to improve efficiency, capabilities and maintain excellent control.
Several reviews were held during the year involving members from the finance community and external advisers. Plans are now in place to change processes and structures where appropriate and to drive higher efficiency and performance. Good work was done to define the model for finance to meet future challenges.
Improve the tax efficiency of the group and ensure appropriate risk controls are in place.
Thorough reviews of the company tax policies and structures were completed. The group effective tax rate has been reduced using approved and low risk policies.
Develop a financing plan for the group to support the group’s strategic objectives.
Several reviews have taken place with external advisers and the board. Despite there being no immediate need to take action, the various options for the group have been evaluated and future actions are subject to ongoing review against agreed criteria.
Below expectations
Met expectations
Exceed expectations
Strategic report
LTIPs: outcomes in 2013 Performance conditions for the PSP and CIP (performance awards) As shown in the table below, the 2011 performance related awards will vest at 77.5%. During the three-year period under review, EPS has increased by 49% (adjusted for IAS 19 ‘Employee Benefits’) and ROIC by 190bps. Achievement of PSP performance targets
Performance period
Weighting
Threshold (25%)
Stretch (100%)
Achieved
% of award
Final year EPS*
3 years ending 31/12/13
50%
51.5 pence
57.5 pence
59.8 pence
50.0%
Final year ROIC
3 years ending 31/12/13
50%
8.5%
10.5%
9.3%
27.5%
Total
77.5%
*The above EPS targets have been adjusted to reflect the changes required by IAS 19 ‘Employee Benefits’ which became effective from 1 January 2013
Summary of LTIP outcomes 2013
2012 PSP 2010
CIP 2010
Total performance LTIPs
PSP 2011
CIP 2011
Peter Ventress
856
804
Kevin Quinn
528
582
1,660
613
530
1,143
1,110
368
361
729
Governance
(£000)
Total performance LTIPs
*The total performance LTIPs are shown in the table on Total remuneration in 2013 on page 90
Performance Share Plan – outcomes The PSP awards granted on 3 March 2011 will vest on 3 March 2014 and are dependent upon the achievement of performance targets set for the three years ending 31 December 2013. The performance targets, weightings and actual results achieved are detailed in the table above. Awards granted
Dividend equivalent
Maximum available awards
Vesting awards (77.5%)
Peter Ventress
105,511
13,336
118,847
92,106
929
856
Kevin Quinn
65,150
8,233
73,383
56,871
929
528
Share price* (pence)
Value of awards (£000)
Co-Investment Plan – outcomes The CIP awards granted on 12 April 2011, had performance and non-performance related awards. According to best practice guidelines, these have been reported in different years. The non-performance awards are accounted for within the year they are granted and are valued on the share price at grant. The performance related awards and dividend equivalents are reported in the year ending 31 December 2013 (the year the performance period ends). Dividend equivalents
Total
Peter Ventress
73,265
13,245
86,510
929
804
Kevin Quinn
53,017
9,583
62,600
929
582
Executive directors
Share price* (pence)
Value of awards (£000)
Performance awards
Financial statements
Peter Ventress and Kevin Quinn will therefore receive 92,106 and 56,871 shares, respectively (both inclusive of dividend equivalents in the form of shares). These awards have been valued in the table above, using the average share price in the three months ending 31 December 2013 being 929 pence. These awards will be restated in the 2014 Annual Report using the share price upon vesting. Further details of awards granted and vested are detailed on page 97.
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Berendsen plc Report and Accounts 2013
Report on directors’ remuneration The performance awards and dividend equivalents have been valued on the average share price in the three months ending 31 December 2013 being 929 pence. These awards will be restated in the 2014 Annual Report using the share price upon vesting. Full details of the 2011 grant awards that will vest on 14 April 2014, can be found in the table below. At grant
Executive directors
Performance related awards
Nonperformance related awards
At vesting
Maximum dividend equivalents
Performance awards vested (77.5%)
Dividend equivalents
Nonperformance related awards
Total vested awards
Peter Ventress
94,536
31,512
15,933
73,265
13,245
31,512
118,022
Kevin Quinn
68,409
22,803
11,528
53,017
9,583
22,803
85,403
Notes (i) Dividend equivalents are accumulated on both performance and non-performance awards. (ii) Non-performance awards were accounted for in the year of grant being 2011.
LTIPs: target setting in 2013 Performance conditions for the PSP and CIP EPS performance targets to be satisfied in 2015
Awards vesting
Less than 60p
0% of award vests
60p
25% of award vests
66p
100% of award vests
Between 60p and 66p
Straight-line basis
Weighted average ROIC for the 12-month period to 31 December 2015 Less than 9%
0% of award vests
9%
25% of award vests
11%
100% of award vests
Between 9% and 11%
Straight-line basis
*The above EPS targets have been adjusted to reflect the changes required by IAS 19 ‘Employee Benefits’ which became effective from 1 January 2013
The 2012 performance (being the base year performance for these grants) was 50.7 pence for adjusted EPS and 8.5% for ROIC. The EPS targets above (60p to 66p) equate to growth of approximately 18% to 30% over the three-year period. Details of grant The PSP remains the primary long-term incentive plan for senior executives. Awards were granted to executive directors equal to 100% of base salary which equals 76,509 awards (£544,999) for Peter Ventress and 47,168 awards (£335,993) for Kevin Quinn. Vesting of these awards is subject to two performance conditions that operate independently of each other. Half of an award was based upon a performance condition relating to adjusted EPS and the other half was based upon weighted average posttax ROIC. Both performance conditions are measured over a three-year performance period. To the extent that awards vest, the directors would receive the benefit of any dividends paid over the vesting period in the form of share-based dividend equivalents. In return for ‘investment shares’ (which can be worth up to a maximum of 35% of base salary per annum) being invested into the CIP, the director was granted a ‘matching’ award over company shares that matches the number of investment shares on a 2:1 pre-tax basis. Matching awards were subject to the same performance conditions and with the same right to receive a dividend equivalent, as PSP awards. Peter Ventress and Kevin Quinn invested shares amounting to 35% of base salary and were granted 107,112 and 66,036 awards, respectively.
Outside appointments for executive directors Subject to board approval, the company encourages its executive directors to hold one non-executive position outside of the group, thereby broadening their experience and knowledge. Any fees may be retained by the director. Peter Ventress was appointed as a non-executive director of Premier Farnell plc, with effect from 1 October 2013, for which he received fees of £12,500 during 2013.
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Berendsen plc Report and Accounts 2013
Total remuneration in 2013 – Chairman and non-executive directors Policy fees effective 1 January 2013
Non-executive director Lucy Dimes
Base fee (£000)
Chairman of committee (£000)
Senior Independent Director (£000)
Actual fees paid in 2013 Total Fee 2013 (£000)
Total Fee 2012 (£000)
45
–
–
45
148
–
–
148
David Lowden
45
10
5
60
Per Utnegaard
45*
–
–
15*
43
Andrew Wood
45
10
–
55
53
–
–
–
Iain Ferguson
Total remuneration £000
57
–
48
323
338
Strategic report
Christopher Kemball***
25 112**
*Per Utnegaard stepped down from the board at the 2013 AGM, his fees were pro rated for service from 1 January 2013 to 25 April 2013 **Iain Ferguson was appointed non-executive Chairman on 1 May 2012 ***Christopher Kemball retired from the board on 30 April 2012
Implementation of policy in 2014 The remuneration policy is set out in Part A of this report. Below we detail how this policy will apply in 2014. Base salary and fees Effective from 1 January 2014, the base salary of executive directors will be increased by approximately 1%, being £551,000 for Peter Ventress and £340,000 for Kevin Quinn. Non-executive directors’ fees were increased by 4.6%, further details of the fees effective from 1 January 2014 are detailed below: Changes to Policy effective 1 January 2014
Base fee
£155,000
£46,500
£10,750
Senior Independent Director £5,350
The committee does not anticipate any changes to the implementation of the policy in the following year. Performance targets and variable remuneration will be granted on a similar basis as the current financial year. Annual bonus: target setting for 2014
Governance
Non-executive Chairman fee
Chairman of committee
The annual bonus targets for 2014 will be in accordance with our policy, namely: kk Adjusted earnings per share (50%); kk The generation of free cash flow (25%); and kk Revenue (25%). The committee will set calibrated targets for each of these three measures and intends to disclose actual performance against these targets in next year’s directors’ remuneration report. As a matter of commercial sensitivity, the committee has decided not to disclose performance targets in advance. LTIP: target setting for 2014 Awards will be granted in accordance with our policy, namely: up to 100% of base salary for PSP awards and up to 140% of base salary for CIP awards. For awards granted under the CIP and PSP in 2014, the committee has approved the following targets: Awards vesting
Less than 67p
0% of award vests
67p
25% of award vests
77p
100% of award vests
Between 67p and 77p
Straight-line basis
Weighted average ROIC to be satisfied for the 12-month period to 31 December 2016 Less than 10%
0% of award vests
10%
25% of award vests
11%
100% of award vests
Between 10% and 11%
Straight-line basis
These targets are based on actual 2013 performance (performance for the financial year ending immediately prior to the date of grant) being 59.8 pence for adjusted EPS and 9.3% for ROIC. The EPS targets above (67 pence to 77 pence) maximise with a growth of 29% over the three-year period.
Financial statements
EPS performance targets to be satisfied in 2016
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Berendsen plc Report and Accounts 2013
Report on directors’ remuneration Schedules to Part B (unaudited unless otherwise indicated) Directors’ interests (audited) The interests (all being beneficial) of the directors and their families in the share capital of the company are shown below: Number at 31 December 2013 30 pence ordinary shares
Share Deferred awards shares
Share options
Sharesave scheme
Number at 31 December 2012
30 pence ordinary Total shares
Share Deferred awards awards
Share options
Sharesave scheme
Total
Peter Ventress (note ii)
167,804
659,794
66,200
–
4,322
898,120
77,196
854,395
44,335
–
4,322
980,248
Kevin Quinn (note iii)
139,620
420,608
39,551
–
2,593
602,372
120,969
466,405
37,839
50,000
2,593
677,806
Iain Ferguson
110,000
–
–
–
–
110,000
110,000
–
–
–
–
110,000
David Lowden
32,500
–
–
–
–
32,500
32,500
–
–
–
–
32,500
Andrew Wood
25,000
–
–
–
–
25,000
25,000
–
–
–
–
25,000
Lucy Dimes
10,000
–
–
–
–
10,000
10,000
–
–
–
–
10,000
There have been no changes to the above interests between 31 December 2013 and 28 February 2014. Notes (i) As potential beneficiaries under the company’s employee benefit trust, Peter Ventress and Kevin Quinn are deemed to have an interest in the company’s ordinary shares held by the trust. As at 31 December 2013, the trust held 2,837,594 shares. (ii) Peter Ventress acquired 87,270 shares (inclusive of dividend equivalents in the form of shares) from the PSP 2010 grant which vested on 4 March 2013, 45,381 shares were sold to settle PAYE/NICs in respect of these shares at a price of 702.2 pence. Under the share award granted under the Listing Rule 9.4.2(2), Peter Ventress acquired 130,446 shares on 8 April 2013 (61,310 shares were sold to settle PAYE/NICs in respect of these shares at a price of 782.8 pence). Following the vesting of the CIP 2010 grant on 15 April 2013, Peter Ventress acquired 102,988 shares (inclusive of dividend equivalents in the form of shares), 48,405 shares were sold to settle PAYE/NICs in respect of these shares at a price of 739.3 pence. On 24 and 29 May 2013, Peter Ventress sold 47,218 and 27,782 shares at an average price of 774.4 and 766.2 pence, respectively. (iii) Kevin Quinn acquired 52,360 shares (inclusive of dividend equivalents in the form of shares) from the PSP 2010 grant which vested on 4 March 2013, 27,227 shares were sold to settle PAYE/NICs in respect of these shares at a price of 702.2 pence. Under the DBSP 2010 grant, Kevin Quinn acquired 13,068 shares on 4 March 2013 inclusive of dividend equivalents in the form of 1,619 shares (6,796 shares were sold to settle PAYE/NICs in respect of these shares at a price of 702.2 pence). Following the vesting of the CIP 2010 grant on 15 April 2013, Kevin Quinn acquired 70,276 shares (inclusive of dividend equivalents in the form of shares), 33,030 shares were sold to settle PAYE/NICs in respect of these shares at a price of 739.3 pence. On 20 September, Kevin Quinn sold 25,000 shares at an average share price of 920 pence. On 2 October, Kevin Quinn exercised and immediately sold 50,000 options and 25,000 shares at an average share price of 908 pence.
The table below provides further analysis of the interests of executive directors and their families in the issued shares of the company and rights under the company’s share-based remuneration plans on 31 December 2013: Total number of shares/options
Peter Ventress
Kevin Quinn
Owned outright
Subject to deferral
Subject to performance
167,804
97,712
94,536
Nil cost options
–
35,673
498,073
Market value options
–
4,322
–
167,804
137,707
592,609
139,620
62,354
68,409
Nil cost options
–
22,027
307,369
Market value options
–
2,593
–
139,620
86,974
375,778
Shares
Shares
Total
898,120
602,372
(i) There are no awards subject to deferral or performance conditions for the Chairman or non-executive directors.
Share retention policy The committee recognises the importance and value of having executive directors and other senior employees working towards holding shares with a value equivalent to 100% of their base salary. To achieve this senior management are not permitted to sell any vested shares under the PSP or the CIP (other than to satisfy tax liabilities) until these guidelines are satisfied. The current shareholdings as a percentage of base salary, for Peter Ventress and Kevin Quinn are 288% and 389% respectively based on the closing mid-market share price of 936.5 pence on 31 December 2013.
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Berendsen plc Report and Accounts 2013
Long-Term Incentive Plans (audited) Performance Share Plan and Co-Investment Plan During the year 31 December 2013 Number
Market price at date of grant Pence
04/03/10
04/03/13
Granted Number
Vested Number
Lapsed Number
122,309
–
87,270
35,039
–
408.8
105,511
–
–
–
105,511
488.1
03/03/11
03/03/14
101,922
–
–
–
101,922
517.9
07/03/12
07/03/15– 07/03/19
–
76,509
–
–
76,509
712.3
Note (iii)
07/03/13
07/03/16– 07/03/20
329,742
76,509
87,270
35,039
283,942
73,385
–
52,360
21,025
–
408.8
Note (ii)
04/03/10
04/03/13
65,150
–
–
–
65,150
488.1
03/03/11
03/03/14
62,934
–
–
–
62,934
517.9
07/03/12
07/03/15– 07/03/19
–
47,168
–
–
47,168
712.3
Note (iii)
07/03/13
07/03/16– 07/03/20
201,469
47,168
52,360
21,025
175,252
Note (iv)
Value vested Performance £000 conditions
Performance Share Plan Peter Ventress
Kevin Quinn
612.8
367.7
Note (ii)
Strategic report
Date of award
Exercise period/ Vesting date
1 January 2013 Number
Co-Investment Plan Peter Ventress
Total of awards vested in 2013
–
102,988
22,479
–
420.6
15/04/10
15/04/13
–
–
–
126,048
492.0
761.4
12/04/11
12/04/14
142,692
–
–
–
142,692
520.0
10/04/12
10/04/15– 10/04/19
–
107,112
–
–
107,112
766.2
Note (v)
09/04/13
09/04/16– 09/04/20
394,207
107,112
102,988
22,479
375,852
85,616
–
70,276
15,340
–
420.6
Note (iv)
15/04/10
15/04/13
91,212
–
–
–
91,212
492.0
12/04/11
12/04/14
88,108
–
–
–
88,108
520.0
10/04/12
10/04/15– 10/04/19
–
66,036
–
–
66,036
766.2
09/04/13
09/04/16– 09/04/20
264,936
66,036
70,276
15,340
245,356
519.6
Note (v)
Governance
Kevin Quinn
125,467 126,048
2,261.5
Notes (i) The closing mid-market price of the ordinary shares at 31 December 2013 was 936.5 pence and during the year ranged from 607.5 pence to 980.0 pence. (ii) PSP awards granted in March 2010 were subject to both EPS and post-tax ROIC performance targets. Following the vesting of awards on 4 March 2013 (which vested at a level of 62.5%), 87,270 and 52,360 shares were transferred to Peter Ventress and Kevin Quinn, respectively (inclusive of dividend equivalents in the form of shares). The market price on the day of vesting was 702.2 pence.
(iv) CIP matching awards granted in April 2010 were subject to both EPS and post-tax ROIC performance targets. Following the vesting of awards on 15 April 2013 (which vested at a level of 71.9%), 102,988 and 70,276 shares were transferred to Peter Ventress and Kevin Quinn, respectively (inclusive of dividend equivalents in the form of shares). The market price on the day of vesting was 739.3 pence. (v) CIP awards granted in April 2013 were subject to the same performance conditions as the PSP 2013 awards (see note (iii)).
Financial statements
(iii) PSP awards granted in March 2013 were subject to both EPS and post-tax ROIC performance targets. The EPS target (applying to half of an award) requires EPS of 60 pence in 2015 for 25% to vest rising to full vesting for EPS of 66 pence or higher. The ROIC target (applying to the other half of an award) requires average ROIC of 9.5% for the 12 months ending 31 December 2015 for 25% to vest rising to full vesting for average ROIC of 11% or higher. These EPS targets have been reduced by 1.5 pence to reflect the changes required by IAS 19 ‘Employee Benefits’ effective from 1 January 2013. No adjustment to ROIC targets was necessary.
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Berendsen plc Report and Accounts 2013
Report on directors’ remuneration Deferred Bonus Share Plan Awards over deferred shares are granted under the Deferred Bonus Share Plan. Awards relate to 25% of the annual bonus that is compulsorily deferred into shares and vest after three years. Deferred shares at 31 December 2013 During the year
Deferred Bonus Share Plan Peter Ventress
Kevin Quinn
1 January 2013 Number
Granted Number
Vested Number
Lapsed Number
31 December 2013 Number
Market price at date of grant Pence
Value vested Performance £000 conditions Note (i)
Date of award
Exercise period/ Vesting date
21,512
–
–
–
21,512
488.1
03/03/11
03/03/14
22,823
–
–
–
22,823
517.9
07/03/12
07/03/15
712.3
07/03/13
07/03/16
–
21,865
–
–
21,865
44,335
21,865
–
–
66,200
11,449
–
11,449
–
–
408.8
04/03/10
04/03/13
12,652
–
–
–
12,652
488.1
03/03/11
03/03/14
13,738
–
–
–
13,738
517.9
07/03/12
07/03/15
–
13,161
–
–
13,161
712.3
07/03/13
07/03/16
37,839
13,161
11,449
–
39,551
Total of awards vested in 2013
91.8
Note (i)
91.8
Notes (i) DBSP awards granted in 2010 vested on 4 March 2013 with Kevin Quinn receiving 13,068 shares (inclusive of dividend equivalents in the form of shares). The market price on the day of vesting was 702.2 pence. Awards granted in 2011 will vest on 3 March 2014.
One-off award for Peter Ventress As part of his recruitment as Chief Executive Officer in 2009, a one-off award structured as a nil cost option, was granted to Peter Ventress pursuant to Listing Rule 9.4.2(2). The award vested in full on 31 March 2012 and Peter Ventress exercised the award on 8 April 2013 and 130,446 shares were transferred to him. The market value on the day of exercise was 782.8 pence. One-off award at 31 December 2013 During the year Share award granted pursuant to Listing Rule 9.4.2(2) Peter Ventress
1 January 2013 Number
Granted Number
Vested Number
130,446
–
130,446
Lapsed Number
31 December 2013 Number
Market price at date of grant Pence
–
–
383.3
Value vested Performance £000 conditions 1,021
Note (i)
Date of award 17/12/09
Exercise period/ Vesting date 31/03/12– 17/12/19
Notes (i) The award was not subject to any performance conditions as it was compensating Peter Ventress for the loss of non-performance related share-based awards granted to him by his previous employer.
UK Sharesave Plan The UK Sharesave Plan is open to all eligible employees including the executive directors. As is the case with all savings-related shares option schemes, there are no performance conditions. Sharesave options at 31 December 2013 During the year
Peter Ventress
Lapsed Number
31 December 2013 Number
Exercise price Pence
Market price at date of grant (pence)
–
–
4,322
347.0
433.20
–
–
2,593
347.0
433.20
1 January 2013 Number
Granted Number
Exercised Number
4,322
–
2,593
–
Kevin Quinn
Value vested £000
Exercise period 01/12/16– 31/05/17 01/12/14– 31/05/15
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Berendsen plc Report and Accounts 2013
Closed incentive plans The performance conditions in respect of these options were achieved in June 2008 and no further options will be granted under the plan. Executive share options at 31 December 2013 During the year
Granted Number
Exercised Number
50,000
–
50,000
Lapsed Number
31 December 2013 Number
Exercise price Pence
Market price at date of grant Pence
Value vested £000
–
–
445.75
445.75
454
Exercise period 02/06/08– 01/06/15
Notes (i) Kevin Quinn exercised his outstanding options under this plan on 2 October 2013 at an average share price of 908 pence.
Strategic report
Kevin Quinn
1 January 2013 Number
Managing shareholder dilution The table below sets out the available dilution capacity for the company’s employee share plans based on the limits set out in the rules of those plans that relate to issuing new shares. 2013 Total issued share capital as at 31 December 2013
172.5m
ABI share limits (in any consecutive ten-year period): Current dilution for all share plans
3.3%
Headroom relative to 10% limit
7.0%
5% for executive plans – current dilution for discretionary (executive) plans
2.4%
Headroom relative to 5% limit
3.1%
Awards granted under the Sharesave Plan will be satisfied by the issue of new shares at the date of vesting, while awards granted under all other share-based plans will be satisfied by shares purchased in the market and held in the company’s Employee Benefit Trust.
The table below provides details of the directors’ service contracts and unexpired term, as at the date of the 2014 AGM. Director Peter Ventress
Date of last contract
Unexpired term as at 24 April 2014
Notice period (months)
31 July 2009
n/a
12
Kevin Quinn
15 February 2010
n/a
12
Iain Ferguson
8 December 2011
1 year
6
1 June 2012
1 year and 1 month
1
David Lowden
21 February 2013
1 year and 10 months
1
Andrew Wood
21 February 2013
1 year and 10 months
1
Lucy Dimes
Governance
Directors’ service agreements
Financial statements
100
Berendsen plc Report and Accounts 2013
Directors’ report The Directors’ report of the group for the year ended 31 December 2013 is set out on pages 100 to 104 inclusive and includes the sections of the Annual Report referred to in these pages. The Directors’ report has been drawn up and presented in accordance with, and in reliance upon, applicable United Kingdom company law and the liabilities of the directors in connection with that report shall be subject to the limitations and restrictions provided by such law. The directors present their Annual Report and audited financial statements for the year ended 31 December 2013. This Annual Report contains forward‑looking statements. These forward-looking statements are not guarantees of future performance. Rather they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results to differ from any future results or developments expressed or implied from the forward‑looking statements. Each forward-looking statement speaks only as of the date of the particular statement.
Strategic report The UK Companies Act 2006 requires the company to present a fair review of the business of the group during the financial year ended 31 December 2013 including a description of the principal risks and uncertainties facing the group and an analysis of the position of the group’s business at the end of the financial year. The Strategic report can be found on pages 4 to 55.
Branches outside the United Kingdom The group has branches in Sweden and China.
Results and dividends The financial statements set out the results of the group for the year ended 31 December 2013 and are shown on page 112. The directors recommend a final dividend of 19.2 pence per ordinary share which, together with the interim dividend of 8.8 pence per ordinary share paid in October 2013, makes a total dividend for the year of 28 pence (2012: 25.5 pence) per ordinary share. Subject to approval by shareholders of the recommended final dividend, the dividend award to shareholders for 2013 will total £47.7 million. If approved, the company will pay the final dividend on 2 May 2014 to shareholders on the register at 11 April 2014.
Changes in composition of the group The group acquired two textile maintenance businesses during the year in Sweden and Ireland. The total consideration including net financial liabilities assumed and deferred consideration payable for the acquisitions was £1.1 million (2012: £38.8 million). Details of the fair value of net assets acquired and consideration paid are set out in note 25 to the financial statements.
Directors The current directors of the company, including their biographical details, are set out on pages 60 and 61. Each served throughout the year ended 31 December 2013 except Maarit Aarni-Sirviö who will be appointed to the board on 1 March 2014. Per Utnegaard stepped down from the board on 25 April 2013. In accordance with The UK Corporate Governance Code all directors will retire at the 2014 Annual General Meeting and, being eligible, offer themselves for re-election. Maarit has been appointed to the board as a director since the last Annual General Meeting and will offer herself for election by the shareholders.
Details of the number of board and committee meetings held during the year and attendance by individual directors are included in the corporate governance statement on pages 65, 73 and 75 and the Directors’ remuneration report on page 88. Details of the directors’ remuneration and service contracts and their interests in the shares of the company are included in the Directors’ remuneration report which is set out on pages 80 to 99.
Directors’ indemnity Article 133 of the company’s Articles of Association (‘the Articles’) provides, among other things that, insofar as permitted by law, every director of the company or any associated company may be indemnified by the company against any liability. On 30 June 2006 and 30 April 2007, the company executed deed polls for each of the then and all future Chairmen, executive and non-executive directors of the company and its wholly-owned subsidiaries respectively. The indemnities granted under these deed polls constitute qualifying third party indemnity provisions (as defined by Section 234 of the Companies Act 2006) and were in force during the financial year and remained so at the date of the approval of the financial statements. The board believes that it is in the best interests of the group to provide these indemnities to its directors to ensure that it attracts and retains high calibre directors through competitive terms of employment in line with the market. In addition, the company has arranged appropriate insurance cover in respect of legal action against its directors and officers.
Berendsen plc Report and Accounts 2013
101
Variation of rights
Purchase of own shares
Pursuant to Section 992 of the Companies Act 2006, which implements the EU Takeovers Directive, the company is required to disclose certain additional information. Such disclosures, to the extent not covered elsewhere in the Directors’ report (in particular, the Sections stated to form the business review above), include the information set out in the paragraphs below.
Subject to the Companies Acts, rights attached to any class of shares may be varied with the written consent of the holders of not less than three-fourths in nominal value of the issued shares of that class (calculated excluding any shares held as treasury shares), or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every such separate general meeting (except an adjourned meeting) the quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of the class (calculated as excluding any shares held as treasury shares). At an adjourned meeting, the quorum shall be one person entitled to vote and who holds shares of the class, or his or her proxy.
In certain circumstances, it may be advantageous for the company to purchase its own shares. A special resolution (number 15) will be proposed at the Annual General Meeting on 24 April 2014 to seek authority from shareholders to do so, such authority to expire on the date of the next following Annual General Meeting or a date 15 months from the date of the resolution, whichever is the earlier.
Share capital As at 27 February 2014, the company’s issued share capital consisted of £51,755,566 divided into 172,518,555 ordinary shares of 30 pence each (no shares are held in treasury). During the 12 months to 31 December 2013, 205,410 ordinary shares of 30 pence each in the company were issued in satisfaction of the exercise of employee share options under the terms of the Davis Service Group 1998 Share Option Plan, the Davis Service Group Savings Related Share Option Scheme and the Berendsen Sharesave Plan 2006 for a total consideration of £880,009.
Details of the movements in the year are set out in note 20 to the financial statements.
Rights and obligations attaching to shares
No person holds securities in the company carrying special rights with regard to control of the company.
Authority to allot shares A resolution will be proposed to authorise the directors to allot shares up to approximately two-thirds of the company’s issued ordinary share capital (in accordance with guidelines issued by the ABI on 31 December 2012). The additional one-third authority, above the one-third authority which can be used for general purposes, may only be used for rights issues. The relevant resolution (number 14) is set out in full in the notice of Annual General Meeting. No issue will be made which would effectively alter the control of the company without the prior approval of shareholders in general meeting. The directors have no present intention of exercising this authority.
This would allow the company to dispose of or transfer the shares held in treasury quickly and cost-effectively and would provide the company with additional flexibility in the management of its capital base. The share price on 31 December 2013 was 936.5 pence; the company currently holds no shares in treasury. The board is committed to managing the company’s capital effectively and the directors keep under review the option of buying back the company’s shares. Other investment opportunities, appropriate gearing levels and the overall position of the company will be taken into account before deciding upon this course of action. The directors will only purchase the company’s shares on the market if they believe it is in the best interests of shareholders generally.
Financial statements
Subject to applicable statutes (in this Section the ‘Companies Acts’), any resolution passed by the company under the Companies Acts and other shareholders’ rights, shares may be issued with such rights and restrictions as the company may by ordinary resolution decide, or (if there is no such resolution or so far as it does not make specific provision) as the board may decide. Subject to the Articles, the Companies Acts and other shareholders’ rights, unissued shares are at the disposal of the board.
Securities carrying special rights
If the company were to purchase any of its own shares, it may consider holding them as treasury shares as an alternative to cancelling them, subject to the authority allowed by resolution number 15, provided that the total number of treasury shares does not at any one time exceed 10% of the company’s issued share capital. Companies are permitted to hold shares purchased on the market in treasury with a view to possible disposal or transfer at a future date, as an alternative to cancelling them.
Governance
As at 31 December 2013, the authority granted to the company for the purchase of up to 17,232,018 ordinary shares in the company remained in force and unused.
The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.
The resolution specifies the maximum number of shares which may be acquired (being 10% of the company’s issued share capital), and the maximum and minimum prices at which they may be purchased.
Strategic report
Share capital and control
102
Berendsen plc Report and Accounts 2013
Directors’ report Restrictions on transfer of securities in the company There are no restrictions on the transfer of securities in the company, except: kkThat certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws); and kkPursuant to the Listing Rules of the Financial Services Authority (or the Financial Conduct Authority, as applicable) whereby certain employees of the company require the approval of the company to deal in the company’s ordinary shares. The company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities.
Voting Every member and every duly appointed proxy present at a general meeting or class meeting has, upon a show of hands, one vote and every member present in person or by proxy has, upon a poll, one vote for every share held by him or her. In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holder(s) and, for this purpose, seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.
31 December 2013 Direct/ indirect
No. of shares (m)
%
Silchester International Investors Limited
Direct
18.96
Prudential plc
Direct
16.41
Sanderson Asset Management Limited
Direct
10.69
No. of shares (m)
%
10.99
Direct
17.20
9.97
9.51
Direct
16.41
9.51
6.20
Direct
10.69
6.20
Dividends and other distributions
Rights under the employee share scheme
The company may by ordinary resolution from time to time declare dividends not exceeding the amount recommended by the board. Subject to the Companies Acts, the board may pay interim dividends, and also any fixed rate dividend, whenever the financial position of the company, in the opinion of the board, justifies its payment. If the directors act in good faith, they will not be liable for any loss that any shareholders may suffer because a lawful dividend has been paid on other shares which rank equally with or behind their shares.
As at 31 December 2013, Appleby Trust (Jersey) Limited, as trustee of the Berendsen Employee Benefit Trust, held 2,837,594 shares in trust for the benefit of the executive directors and employees of the group. A dividend waiver is in place in respect of Appleby’s shareholding and Appleby currently abstains from voting the shares but it may, upon the recommendation of the company, accept or reject any offer relating to the shares in any way it sees fit, without incurring any liability and without being required to give reasons for its decision. In exercising its trustee powers, Appleby may take all or any of the following matters into account:
The board may withhold payment of all or any part of any dividends or other moneys payable in respect of the company’s shares from a person with at least a 0.25% interest (as defined in the Articles) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the company with information concerning interests in those shares required to be provided under the Companies Acts.
Restrictions on voting
Substantial shareholdings
No member shall be entitled to vote at any general meeting or class meeting in respect of any share held by him or her if any call or other sum then payable by him or her in respect of that share remains unpaid or if a member has been served with a restriction notice (as defined in the Articles) after failure to provide the company with information concerning interests in those shares required to be provided under the Companies Acts.
The table above shows the holdings in the company’s issued share capital which had been notified to the company pursuant to the Financial Services Authority’s (or, as applicable, the Financial Conduct Authority’s) Disclosure and Transparency Rules:
The company is not aware of any agreements between holders of securities that may result in restrictions on voting rights.
27 February 2014 Direct/ Indirect
kkThe long-term interests of beneficiaries; kkThe interests of beneficiaries other than financial interests; kkThe interests of beneficiaries in their capacity as employees or former employees or their dependants; kkThe interests of persons (whether or not identified) who may become beneficiaries in the future; and kkConsiderations of a local, moral, ethical, environmental or social nature.
Amendment of Articles of Association Unless expressly specified to the contrary in the Articles, the Articles may be amended by a special resolution of the company’s shareholders.
Berendsen plc Report and Accounts 2013
Appointment and replacement of directors The directors shall be not less than two and there shall be a maximum of 12 directors.
Powers of the directors Subject to the Articles, the Companies Acts and any directions given by the company by special resolution, the business of the company will be managed by the board who may exercise all the powers of the company, whether relating to the management of the business of the company or not. In particular, the board may exercise all the powers of the company to borrow money, to mortgage or charge any of its undertakings, property, assets (present and future) and uncalled capital and to issue debentures and other securities and to give security for any debt, liability or obligation of the company or of any third party.
There are procedures in place to deal with directors’ conflicts of interest arising under Section 175 Companies Act 2006 and such procedures have operated effectively during the year. Further details on these procedures are included in the corporate governance statement on page 65 which is deemed, in its entirety, to be included in this Directors’ report.
Significant agreements There are a number of agreements that take effect, alter or terminate upon a change of control of the company, such as commercial contracts, bank loan agreements, property lease arrangements, and employees’ share plans. None of these are deemed to be significant in terms of their potential impact on the business of the group as a whole except for the US$250 million US Private Placement Note Purchase Agreement dated 25 May 2006, the US$259 million and £25 million US Private Placement Note Purchase Agreement dated 24 November 2009 and the €535 million Multicurrency Revolving Credit Facility agreed on 15 July 2011. These agreements contain change of control provisions which, if triggered, could limit future utilisations, require the repayment of existing utilisations or lead to a renegotiation of terms.
Governance
At every Annual General Meeting of the company any of the directors who have been appointed by the board since the last Annual General Meeting shall retire from office and may offer themselves for reappointment by the members. In addition, under the Articles, any of the directors who held office at the time of the two preceding Annual General Meetings and who did not retire at either of them, or who have held office with the company, other than employment or executive office, for a continuous period of nine years or more at the date of the meeting, shall retire from office and may offer themselves for reappointment by the members. However, the board has agreed, in accordance with the UK Corporate Governance Code, that all of the directors wishing to continue will retire and offer themselves for re‑election by the shareholders at the 2014 Annual General Meeting.
Directors’ conflicts of interest
Strategic report
The company may by ordinary resolution vary the minimum and/ or maximum number of directors. Under the Articles, a director shall not be required to hold any shares in the company. Directors may be appointed by the company by ordinary resolution or by the board. A director appointed by the board holds office only until the next following Annual General Meeting of the company and is then eligible for reappointment. The board or any committee authorised by the board may from time to time appoint one or more directors to hold any employment or executive office for such period and on such terms as they may determine and may also revoke or terminate any such appointment.
The company may by special resolution remove any director before the expiration of that director’s period of office. The office of a director shall be vacated if: (i) that director resigns or offers to resign and the board resolve to accept such offer; (ii) that director’s resignation is requested by all of the other directors and all of the other directors are not less than three in number; (iii) that director is or has been suffering from mental ill-health and the board resolves that such director’s office be vacated; (iv) that director is absent without the permission of the board from meetings of the board (whether or not an alternate director appointed by him attends) for six consecutive months and the board resolves that such director’s office is vacated; (v) that director becomes bankrupt or compounds with his or her creditors generally; (vi) that director is prohibited by a law from being a director; (vii) that director ceases to be a director by virtue of the Companies Acts; or (viii) that director is removed from office pursuant to the company’s Articles.
103
Copies of executive directors’ service contracts are available to shareholders for inspection at the company’s registered office and at the Annual General Meeting. Further details on directors’ service contracts are included in the report on directors’ remuneration which is set out on pages 80 to 99.
Financial statements
104
Berendsen plc Report and Accounts 2013
Directors’ report Greenhouse gas emissions
Going concern
Directors’ responsibilities
Disclosures concerning the group’s greenhouse gas emissions are contained within the Corporate responsibility report which forms part of the Strategic report on pages 50 to 55.
The group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report on pages 4 to 55. The financial position of the group, its cash flows, liquidity position and borrowing facilities are described in the Financial review on pages 20 to 23. In addition, note 17 to the financial statements includes the group’s objectives, policies and processes for managing its capital; its financial risk management objectives and policies; details of its financial instruments and hedging activities; and its exposures to price, credit, liquidity and cash flow risk.
The directors’ responsibilities for the financial statements contained within this Annual Report and the directors’ confirmations required under the FSA Disclosure and Transparency Rules (DTR 4.1.12) are set out on page 105 but are deemed to be included in this Directors’ report.
Political donations There were no political donations during the year (2012: nil).
Auditors and disclosure of information to auditors The company’s auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution that they may be reappointed will be proposed at the Annual General Meeting. As far as each director is aware, there is no relevant audit information of which the company’s auditors are unaware. Each director has taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the company’s auditors are aware of that information.
The group has considerable financial resources together with long-term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the directors believe that the group is well placed to manage its business risks successfully. After reviewing the above and making enquiries, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report.
Annual General Meeting The notice of the Annual General Meeting to be held at 11.00 am on Thursday 24 April 2014 is being sent separately to shareholders with this report. The venue for the meeting is the Royal Aeronautical Society, 4 Hamilton Place, London W1J 7BQ. By order of the board David Lawler Company Secretary 27 February 2014
Berendsen plc Report and Accounts 2013
105
Directors’ responsibilities for the financial statements The directors are responsible for preparing the Report and Accounts and the financial statements in accordance with applicable law and regulations.
A copy of the Annual Report and the financial statements of the company are on the company’s website at www.berendsen.com. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website, and the work carried out by the auditors does not involve consideration of these matters. Accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were placed on the website. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
i) The financial statements of the group, prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the financial statements of the company, prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and ii) The management report, which is incorporated into the directors’ report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face. In accordance with the provisions of the UK Corporate Governance Code, the directors confirm that, to the best of their knowledge, the report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the performance, business model and strategy of the company and the group.
Governance
The financial statements on pages 108 to 179 have been prepared on a going concern basis, suitable accounting policies have been used and applied consistently, reasonable and prudent judgements and estimates have been made and applicable accounting standards have been followed.
This statement, which should be read in conjunction with the auditors’ report, is made with a view to distinguishing for members the respective responsibilities of the directors and the auditors in relation to the financial statements.
In accordance with DTR 4.1.12, each of the directors confirms that, to the best of their knowledge:
Strategic report
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The group and parent company financial statements are required by law to give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the company and group for that period.
The directors are responsible for ensuring that the company keeps accounting records which show and explain the company’s and the group’s transactions, disclose with reasonable accuracy, at any time, the financial position of the group and the company which enable them to ensure that the financial statements and the report on directors’ remuneration comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation and the parent company financial statements comply with the Companies Act 2006. The directors have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and company and to prevent and detect fraud and other irregularities.
The current directors and their functions are listed on pages 60 and 61. By order of the board David Lawler Company Secretary 27 February 2014
Financial statements
106
Berendsen plc Report and Accounts 2013
Always moving forward…
Significant growth ahead The UK hotel market is growing through new hotel openings by both existing groups and new entrants. The key drivers are budget hotel brands and, especially in London, groups opening hotels of four-star quality and above. As the UK’s leading supplier to hotel groups, we are well positioned to take advantage of the significant growth in the UK hotel market.
29,941 new hotel rooms expected to be built in London alone in the next five years.
On average, a standard size 200 bedroom hotel will require around 450,000 textile items to be handled in the course of a year.
We have been selected by the leading budget hotel operators to service over 30 new build hotels in 2013.
Berendsen plc Report and Accounts 2013
107
Strategic report Governance
108 Independent auditors’ report 112 Consolidated income statement 113 Consolidated statement of comprehensive income 114 Consolidated balance sheet 115 Consolidated cash flow statement
118 Accounting policies to the consolidated financial statements
171 Accounting policies to the parent company financial statements
125 Notes to the consolidated financial statements
174 Notes to the parent company financial statements
169 Independent auditors’ report to the members of Berendsen plc 170 Parent company financial statements
116 Consolidated statement of changes in equity
Financial statements.
179 Five year record 180 Shareholder information and calendar
108
Berendsen plc Report and Accounts 2013
Independent auditor’s report to the members of Berendsen plc Report on the group financial statements Our opinion In our opinion the group financial statements, defined below:
, give a true and fair view of the state of the group’s affairs as at 31 December 2013 and of the Group’s profit and cash flows for the year then ended;
, have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and
, have been prepared in accordance
with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the remainder of this report. What we have audited The group financial statements, which are prepared by Berendsen plc, comprise:
, the group balance sheet as at 31 December 2013;
, the group income statement and
statement of comprehensive income for the year then ended;
, the group statement of changes in
equity and statement of cash flows for the year then ended; and
, the notes to the group financial
statements, which include a summary of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in their preparation comprises applicable law and IFRSs as adopted by the European Union. What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ‘ISAs (UK & Ireland)’. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
, whether the accounting policies are appropriate to the group’s circumstances and have been
consistently applied and adequately disclosed;
, the reasonableness of significant
accounting estimates made by the directors; and
, the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Berendsen Report and Accounts (“Annual Report”) to identify material inconsistencies with the audited group financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Overview of our audit approach Materiality We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.
engagement team, or component auditors within PwC UK and from other PwC network firms operating under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the group financial statements as a whole. Accordingly, of the group's 23 operating reporting units, we identified eight across all five business lines which, in our view, required an audit of their complete financial information, either due to their size or their risk characteristics. These eight reporting units represented over 88% of both group revenue and group adjusted profit before tax. In addition, specific audit procedures on certain balances and transactions were performed at a further reporting unit. This, together with additional procedures performed at the group level on goodwill, share based payments and financial instruments, gave us the evidence we needed for our opinion on the group financial statements as a whole.
Based on our professional judgement, we determined materiality for the group financial statements as a whole to be £6.25million. This was derived from profit before tax, adjusted for exceptional items and amortisation of the intangible asset relating to customer contracts (“adjusted profit before tax”).We have used adjusted profit before tax because it is a principal and consistent measure of financial performance used by the group in the financial statements.
Areas of particular audit focus
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £300,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
Overview of the scope of our audit The group is structured along five business lines, being Workwear, Facilities, UK Flat Linen, Flat Linen outside the UK and Clinical Solutions and Decontamination. The Group financial statements are a consolidation of 23 operating reporting units and the group’s centralised functions. In establishing the overall approach to the group audit, we determined the type of work that needed to be performed at the reporting units by us, as the group
In preparing the financial statements, the directors made a number of subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.
We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identified by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered to be significant issues in relation to the financial statements is set out on page 74.
Berendsen plc Report and Accounts 2013
Area of focus
109
How the scope of our audit addressed the area of focus
Goodwill impairment We focused on this area because the determination of whether or not impairment charges for goodwill were necessary involved significant judgements by the directors about the future results of the business. (Refer also to note 8 of the financial statements)
Strategic report
We evaluated the directors’ future cash flow forecasts, and the process by which they were drawn up, including comparing them to the latest Board approved budgets, and testing the underlying calculations. We challenged: – the directors’ key assumptions for long term growth rates in the forecasts by comparing them to historical results and economic forecasts; and – the discount rate by assessing the cost of capital for the company and comparable organisations. We also performed sensitivity analysis around the key drivers of the cash flow forecasts. Having ascertained the extent of change in those assumptions that either individually or collectively would be required for the goodwill to be impaired, we considered the likelihood of such a movement in those key assumptions arising.
Onerous contracts and asset impairment risk The group makes provisions for estimated future losses on onerous contracts based on discounted cash flow models. We assessed whether adequate provision had been made against all relevant exposures. There is also an impairment risk in relation to the assets associated with loss-making contracts. (Refer also to note 18 to the financial statements.)
Contingent liabilities The group operates from laundries across Europe and historic environmental liabilities may exist. Though the group has indemnities from third parties and expects to have its warranties confirmed in full with no significant loss, it is defending legal claims in respect of certain sites acquired in Sweden. We carried out procedures to assess the group’s net exposure in respect of these matters. (Refer also to note 30 to the financial statements.)
We examined the group’s latest assessment of the status of the legal claims and obtained confirmation from the external legal advisors of the likelihood of the group successfully defending its position. We evaluated managements’ assessment of material losses arising, together with the associated accounting and disclosure as a contingent liability in the group financial statements.
Governance
We evaluated the processes by which the group identifies contracts as being onerous. We challenged the reasonableness of the discounted cash flow forecasts prepared by management to support the provisions made and the carrying value of the associated assets. We specifically considered the onerous decontamination contract provisions and the associated asset carrying values. We compared the forecasts to the latest Board approved plans and performed procedures to check the operation of the discounted cash flow models. We challenged management on the assumptions made in the forecasts and the disclosures made in the financial statements around the judgemental nature of the accounting.
Fraud in revenue recognition We performed substantive testing on the revenue balances at a local country level and critically evaluated central revenue adjustments to address this risk. We read extracts of the relevant customer agreements and our work included evaluating customer acceptance of the services provided and any on-going disputes. We also performed revenue cut-off testing at each reporting unit where an audit of their complete financial information was required.
Risk of management override of internal controls ISAs (UK & Ireland) stipulate that management override of controls is always a significant risk. Berendsen is a large organisation with many subsidiaries and some complexity in its reporting process so we considered misstatement through the financial reporting process to be the principal area of risk.
We assessed the overall control environment of the group, including the arrangements for staff to “whistle-blow” inappropriate actions, and interviewed senior management and the group’s internal audit function. We examined the significant accounting estimates and judgements relevant to the financial statements for evidence of bias by the directors that may represent a risk of material misstatement due to fraud. We also tested key reconciliations and manual journal entries and in each of the components where an audit of the complete financial information was required, we agreed the group reporting packs to underlying ledgers.
Financial statements statments
ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition because of the pressure management may feel to achieve the planned results. We also identified a risk that revenue may not have occurred or may be inappropriately recognised in the reporting period due to the variety of customer contracts and range of services performed. (Refer also to note 1 to the financial statements.)
110
Berendsen plc Report and Accounts 2013
Independent auditor’s report to the members of Berendsen plc Going Concern Under the Listing Rules we are required to review the directors’ statement, set out on page 104, in relation to going concern. We have nothing to report having performed our review. As noted in the directors’ statement, the directors have concluded that it is appropriate to prepare the group’s financial statements using the going concern basis of accounting. The going concern basis presumes that the group has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the group’s ability to continue as a going concern.
Opinions on matters prescribed by the Companies Act 2006 In our opinion:
, the information given in the Strategic
Report and the Directors’ Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements; and
the information given in the Corporate Governance Statement set out on pages 62 to 79 in the Annual Report with respect to internal control and risk management systems and about share capital structures is consistent with the financial statements.
Other matters on which we are required to report by exception Adequacy of information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report if, in our opinion, certain disclosures of directors’ remuneration specified by law have not been made, and under the Listing Rules we are required to review certain elements of the report to shareholders by the Board on directors’ remuneration. We have no exceptions to report arising from these responsibilities. Corporate Governance Statement Under the Companies Act 2006, we are required to report to you if, in our opinion a corporate governance statement has not been prepared by the Parent Company. We have no exceptions to report arising from this responsibility. Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company’s compliance with nine provisions of the UK Corporate Governance Code (‘the Code’). We have nothing to report having performed our review.
On page 78 of the Annual Report, as required by the Code Provision C.1.1, the directors state that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the group’s performance, business model and strategy. On page 74, as required by C.3.8 of the Code, the Audit Committee has set out the significant issues that it considered in relation to the financial statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
, the statement given by the directors
is materially inconsistent with our knowledge of the group acquired in the course of performing our audit; or
, the section of the Annual Report
describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.
We have no exceptions to report arising from this responsibility.
Other information in the Annual Report Under ISAs (UK & Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:
, materially inconsistent with the
information in the audited Group financial statements; or
, apparently materially incorrect based
on, or materially inconsistent with, our knowledge of the group acquired in the course of performing our audit; or
, is otherwise misleading. We have no exceptions to report arising from this responsibility.
Berendsen plc Report and Accounts 2013
Responsibilities for the financial statements and the audit Our responsibilities and those of the directors
Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
We have reported separately on the parent company financial statements of Berendsen plc for the year ended 31 December 2013 and on the information in the Directors’ Remuneration Report that is described as having been audited. Christopher Burns Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 27 February 2014
Notes: (a) The maintenance and integrity of the Berendsen plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Governance
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other matter
Strategic report
As explained more fully in the Directors’ Responsibilities Statement set out on page 105, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view.
111
Financial statements statments
112
Berendsen plc Report and Accounts 2013
Consolidated income statement
For the year ended 31 December 2013
Notes
Year to 31 December 2013 £m
Year to 31 December 2012 Restated £m
1
1,054.2
985.1
Revenue Cost of sales
(523.1)
(498.2)
Gross profit
531.1
486.9
Other income
3.3
1.5
Distribution costs
(195.8)
(180.2)
Administrative expenses
(174.6)
(160.5)
Other operating expenses
(29.0)
(30.4)
1
135.0
117.3
1
158.9
142.4
Exceptional items
4
1.8
–
Amortisation of customer contracts
9
Operating profit Analysed as: Operating profit before exceptional items and amortisation of customer contracts
(25.7)
(25.1)
Operating profit
1
135.0
117.3
Finance costs
2
(25.0)
(27.8)
Finance income
2
2.4
2.2
Profit before taxation
3
112.4
91.7
Taxation
5
(27.2)
(21.3)
85.2
70.4
Profit for the year Analysed as: Profit attributable to non-controlling interest Profit attributable to owners of parent company
0.5
0.5
84.7
69.9
Earnings per share expressed in pence per share – Basic
7
49.8
41.3
– Diluted
7
49.6
41.2
The notes on pages 118 to 168 are an integral part of these consolidated financial statements.
113
Berendsen plc Report and Accounts 2013
Consolidated statement of comprehensive income
For the year ended 31 December 2013
Notes
Profit for the year
Year to 31 December 2013 £m
Year to 31 December 2012 Restated £m
85.2
70.4
Other comprehensive income: Items that may be subsequently reclassified into profit or loss: Gain/(loss) on cash flow hedges
16
(15.3)
2.3
2.3
(0.3)
(13.0)
2.0
16.7
0.9
3.7
2.9
88.9
73.3
Items that cannot be subsequently reclassified into profit or loss: Actuarial gains Other comprehensive income for the year, net of tax Total comprehensive income for the year
Strategic report
Currency translation differences
Attributable to: Non-controlling interest Owners of parent company
0.7
0.4
88.2
72.9
Items in the statement above are disclosed net of tax. The tax relating to each component of other comprehensive income is disclosed in note 5.
Governance Financial statements statments
114
Berendsen plc Report and Accounts 2013
Consolidated balance sheet
As at 31 December 2013
Notes
As at 31 December 2013 £m
As at 31 December 2012 £m
8
423.4
424.0
Assets Intangible assets: – Goodwill – Other intangible assets
9
50.5
77.0
Property, plant and equipment
10
508.0
513.7
Deferred tax assets
19
13.6
8.6
Derivative financial instruments
16
21.1
38.4
Pension scheme surplus
27
Total non-current assets Assets classified as held for sale Inventories
11
Income tax receivable
38.2
19.5
1,054.8
1,081.2
2.5
2.1
34.7
35.4
3.3
2.7
Derivative financial instruments
16
1.8
–
Trade and other receivables
12
165.6
164.4
Cash and cash equivalents
13
89.2
73.7
297.1
278.3
Total current assets Liabilities Borrowings
15
(32.7)
(2.7)
Derivative financial instruments
16
(6.9)
(2.1)
(12.7)
(9.4)
Trade and other payables
14
(195.8)
(185.7)
Provisions
18
(2.9)
(4.2)
(251.0)
(204.1)
Income tax payable
Total current liabilities Net current assets
46.1
74.2
Borrowings
15
(445.5)
(534.7)
Derivative financial instruments
16
(33.2)
(34.7)
Pension scheme deficits
27
(31.1)
(40.0)
Deferred tax liabilities
19
(55.6)
(46.9)
Trade and other payables
14
(1.5)
(1.9)
Provisions
18
(2.5)
(3.3)
(569.4)
(661.5)
531.5
493.9
51.8
51.7
99.2
98.4
Total non-current liabilities Net assets Equity Share capital
20
Share premium Other reserves
2.5
0.2
Capital redemption reserve
150.9
150.9
Retained earnings
221.8
188.0
Total shareholders’ equity
526.2
489.2
Non-controlling interest Total equity The financial statements on pages 112 to 168 were approved by the board and signed on its behalf. Peter Ventress Chief Executive Officer 27 February 2014 Berendsen plc Registered no. 1480047
Kevin Quinn Chief Financial Officer
5.3
4.7
531.5
493.9
115
Berendsen plc Report and Accounts 2013
Consolidated cash flow statement
For the year ended 31 December 2013
Notes
Year to 31 December 2013 £m
Year to 31 December 2012 £m
23
345.2
317.7
(24.4)
(27.4)
Cash flows from operating activities Cash generated from operations Interest paid
2.4
2.2
Income tax paid
(21.8)
(17.7)
Net cash generated from operating activities
301.4
274.8
Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired
25
(2.7)
(37.1)
Purchases of property, plant and equipment
10
(169.6)
(155.1)
Proceeds from the sale of property, plant and equipment
23
6.2
3.9
9
(3.6)
(3.5)
(169.7)
(191.8)
Purchases of intangible assets Net cash used in investing activities
Strategic report
Interest received
Cash flows from financing activities Net proceeds from issue of ordinary share capital Purchase of own shares by the Employee Benefit Trust
0.9
1.8
(12.2)
(5.4)
Drawdown of borrowings
25.0
10.6
Repayment of borrowings
(77.9)
(62.4)
(3.4)
(3.3)
(44.8)
(40.6)
Repayment of finance leases/hire purchase liabilities Dividends paid to company’s shareholders
6
Dividends paid to non-controlling interest
(0.1) (99.4)
24
19.2
(16.4)
13
73.7
91.9
Cash and cash equivalents at end of year
13
89.2
73.7
Free cash flow
23
139.4
125.1
Net increase/(decrease) in cash Cash and cash equivalents at beginning of year Exchange losses on cash
(3.7)
Governance
(0.1) (112.5)
Net cash used from financing activities
(1.8)
Financial statements statments
116
Berendsen plc Report and Accounts 2013
Consolidated statement of changes in equity Attributable to shareholders of the company Share capital £m
Share premium £m
Other reserves £m
Capital redemption reserve £m
Retained earnings £m
51.5
96.8
0.5
150.9
–
–
–
Actuarial gains (note 27)
–
–
Cash flow hedges
–
–
Currency translation
–
–
At 1 January 2012
Total £m
Noncontrolling interest £m
Total equity £m
154.4
454.1
4.4
458.5
–
69.9
69.9
0.5
70.4
1.4
–
1.4
(0.4)
–
(0.4)
(0.1)
(0.1)
Comprehensive income: Profit for the year Other comprehensive income: – (0.4) –
–
1.4
–
–
–
–
–
Tax on items taken to equity (note 5)
–
–
0.1
–
1.9
2.0
–
2.0
Total other comprehensive income
–
–
(0.3)
–
3.3
3.0
(0.1)
2.9
Total comprehensive income
–
–
(0.3)
–
73.2
72.9
0.4
73.3
Issue of share capital in respect of share option schemes
0.2
1.6
–
–
–
1.8
–
1.8
Purchase of own shares by the Employee Benefit Trust
–
–
–
–
(5.4)
(5.4)
Dividends (note 6)
–
–
–
–
(40.6)
(40.6)
(0.1)
(40.7)
Value of employee service in respect of share option schemes and share awards (note 21)
–
–
–
–
6.4
6.4
–
6.4
Total transactions with owners
0.2
1.6
–
–
(39.6)
(37.8)
(0.1)
(37.9)
At 31 December 2012
51.7
98.4
0.2
150.9
Transactions with owners:
2012 has been restated in line with the requirements of IAS19 Employee Benefits.
188.0
489.2
–
4.7
(5.4)
493.9
117
Berendsen plc Report and Accounts 2013
Attributable to shareholders of the company Share capital £m
Share premium £m
Other reserves £m
Capital redemption reserve £m
Retained earnings £m
51.7
98.4
0.2
150.9
–
–
–
Actuarial gains (note 27)
–
–
Cash flow hedges
–
–
Currency translation
–
–
–
–
(19.8)
(19.8)
Tax on items taken to equity (note 5)
–
–
(0.6)
–
0.1
(0.5)
Total other comprehensive income
–
–
2.3
–
1.2
3.5
0.2
3.7
Total comprehensive income
–
–
2.3
–
85.9
88.2
0.7
88.9
0.1
0.8
–
–
–
0.9
–
0.9
Purchase of own shares by the Employee Benefit Trust
–
–
–
–
(12.2)
(12.2)
–
(12.2)
Dividends (note 6)
–
–
–
–
(44.8)
(44.8)
(0.1)
(44.9)
Value of employee service in respect of share option schemes and share awards (note 21)
–
–
–
–
4.9
4.9
–
4.9
0.1
0.8
–
–
(52.1)
(51.2)
(0.1)
(51.3)
51.8
99.2
2.5
150.9
5.3
531.5
At 1 January 2013
Total £m
Noncontrolling interest £m
Total equity £m
188.0
489.2
4.7
493.9
–
84.7
84.7
0.5
85.2
–
–
20.9
20.9
–
20.9
2.9
–
–
2.9
–
2.9
Comprehensive income: Profit for the year
0.2
(19.6)
–
(0.5)
Strategic report
Other comprehensive income:
Transactions with owners: Issue of share capital in respect of share option schemes
At 31 December 2013
221.8
526.2
The group has an Employee Benefit Trust to administer share plans and to acquire company shares, using funds contributed by the group, to meet commitments to group employees. At 31 December 2013, the Trust held 2,798,134 (2012: 2,882,275) shares.
Governance
Total transactions with owners
Included within retained earnings is an amount of £18.8 million (2012: £38.6 million) which relates to currency translation.
Financial statements statments
118
Berendsen plc Report and Accounts 2013
Accounting policies to the consolidated financial statements Basis of preparation The consolidated financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivative instruments) at fair value through the profit and loss account. These policies have been consistently applied to all the years presented. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed on page 124.
Going concern The group meets its day-to-day working capital requirements through its bank facilities. The current economic conditions continue to create uncertainty particularly over (a) the level of demand for the group’s products; and (b) the availability of bank finance for the foreseeable future. The group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. The group therefore continues to adopt the going concern basis in preparing its consolidated financial statements. Further information on the group’s borrowings is given in note 15. The following standards have been adopted by the group for the first time for the financial year beginning on or after 1 January 2013 and have a material impact on the group:
Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). IAS 19, ‘Employee benefits’ was mandatory with effect from 1 January 2013. The changes on the group’s accounting policies has been as follows: to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). As this is a change in accounting policy the 2012 accounts have been restated with effect from 1 January 2012. The impact of this change is to reduce the reported profit after tax for the year ended 31 December 2012 by £2.5m. The impact on the statement of changes in equity and the statement of comprehensive income is to increase other comprehensive income by £2.5m for the year ended 31 December 2012. There is no impact on either the balance sheet or cash flow statement for the same period as a result of adopting the new standard. IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the group, except the following set out below:
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The group is yet to assess IFRS 9’s full impact and the group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board.
Consolidation The group financial statements consolidate the financial statements of the company and all its subsidiaries. Subsidiaries are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group and are de-consolidated from the date on which control ceases. All intra-group transactions are eliminated as part of the consolidation process. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
Berendsen plc Report and Accounts 2013
Business combinations
Current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair values less costs to sell. Current assets (and disposal groups) are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Berendsen plc executive board.
Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in sterling, which is the company’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the income statement within operating expenses. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on nonmonetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on nonmonetary financial assets such as equities classified as available for sale are included in other reserves.
, assets and liabilities for each balance
sheet presented are translated at the closing rate at the date of that balance sheet;
, income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
, all resulting exchange differences are
recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Pre-contract/bid costs Pre-contract costs are expensed as incurred until the group is appointed preferred bidder. Preferred bidder status provides sufficient confidence that the conclusion of the contract is probable, the outcome can be reliably measured and is expected to generate sufficient net cash inflows to enable recovery. Pre-contract costs incurred subsequent to appointment as preferred bidder are capitalised onto the balance sheet under prepayments and accrued income. The prepayment is expensed to the income statement over the period of the contract. Costs, which have been expensed, are not subsequently reinstated when a contract award is achieved.
Financial statements statments
Segment reporting
(a) Functional and presentation currency
The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
Governance
Current assets held for sale
Foreign currency translation
(c) Group companies
Strategic report
The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisitionrelated costs are expensed as incurred and disclosed as exceptional items where significant. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred, the amount of any noncontrolling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the consolidated income statement.
The Berendsen plc executive board manages the business under the business lines of Workwear, Facility, UK Flat Linen, Flat Linen outside the UK, and Clinical Solutions and Decontamination. The group’s internal reporting structure is aligned on the same basis and segmental information is presented on a basis consistent with this reporting structure.
119
120
Berendsen plc Report and Accounts 2013
Accounting policies to the consolidated financial statements Property, plant and equipment Land and buildings comprise mainly factories and offices. All property, plant and equipment are shown at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the items. Textile assets such as garments and linen and washroom equipment which are owned by the group entities where substantially all the risks and rewards of ownership of such equipment is retained by group entities are capitalised as noncurrent assets and depreciated over their estimated useful lives. Depreciation of assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows: (a) Land and buildings Depreciated at a rate of 2% per annum on an estimate of the buildings value of freehold properties and leasehold properties with 50 or more years unexpired at the balance sheet date. This rate has been determined having regard to the group’s practice to maintain these assets in a continual state of sound repair and to extend and make improvements from time to time. Freehold land is not depreciated. Short leasehold land and buildings are depreciated by equal instalments over the period of the lease. Major renovations are depreciated over the remaining useful life of the related asset or to the scheduled date of the next major renovation, whichever is sooner. (b) Plant and machinery Depreciated at rates of 10% to 50% per annum, depending on the class of the asset. (c) Textile assets and washroom equipment Depreciated at rates of 20% to 40%, depending on class of asset, and augmented where necessary by amounts to cover wastage, obsolescence and loss.
Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill net of amortisation prior to 1 January 2005 in respect of business combinations made since 1 January 1998 is included within intangible assets. Goodwill in respect of business combinations made on or before 31 December 1997 remains eliminated against reserves.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed five years.
Goodwill has an indefinite useful life.
(c) Customer contracts
Goodwill is tested annually for impairment or if there is an indication of impairment. Goodwill is allocated to groups of cash-generating units for the purpose of impairment testing. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold except for goodwill eliminated against reserves.
Intangible assets arising either from legal or contractual rights which have been purchased are required to be separately identified from goodwill and are stated at historical cost, or in the case of intangible assets acquired as part of a business combination, at fair value. The fair value attributable to the customer contracts is determined by discounting the expected future cash flows to be generated from that asset at the risk adjusted weighted average cost of capital for the entity. This amount is amortised over the period in which the company is expected to benefit from the contracts acquired, over periods ranging from two to five years.
(b) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (not exceeding three years). Costs associated with maintaining computer software programs are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met:
, it is technically feasible to complete
the software product so that it will be available for use;
, management intends to complete the software product and use or sell it;
, there is an ability to use or sell the software product;
, it can be demonstrated how the
software product will generate probable future economic benefits;
When properties, plant or equipment are sold, the difference between the sales proceeds and net book value is included in the income statement.
, adequate technical, financial and
Residual values and useful lives of assets are reviewed annually and amended where necessary.
, the expenditure attributable to the
other resources to complete the development and to use or sell the software product are available; and software product during its development can be reliably measured.
Impairment of non-financial assets Assets that have an indefinite useful life – for example, goodwill – are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
Berendsen plc Report and Accounts 2013
(a) Fair value hedge
The group classifies its non-derivative financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Changes in the fair value of the derivatives that are fully designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
The group has one fair value hedge in respect of a cross currency fixed to floating interest rate swap. If the hedge no longer meets the criteria for hedge accounting, the exchange component of the derivative will continue to be taken to the income statement as part of operating expenses along with the exchange on the related borrowings. The interest component of the derivative item will be amortised to the income statement over the period to maturity.
Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value at each balance sheet date. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
The group documents at the inception of the transaction the relationship between hedging instruments and hedged items and its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in the hedging transactions are highly effective in offsetting changes in fair values of hedged items. The fair values of various derivative instruments used for hedging purposes are shown in note 16. Movements on the hedging reserve are shown within the statement of changes in equity as part of other reserves. The group holds no trading derivatives.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised directly against reserves. The gain or loss relating to any ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold. (c) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated to qualify as cash flow hedges are recognised in equity. The group’s cash flow hedges which are in respect of cross-currency interest rate swaps, interest rate swaps and forward foreign exchange contracts result in recognition in either the currency translation component of equity or in the hedging reserve which forms part of other reserves.
(e) Energy contracts and textile procurement The group occasionally takes out energy contracts in relation to the supply of gas and electricity. In addition, from time to time, the group may enter into forward contracts to buy cotton based textiles at a future date. Such contracts are not recognised as derivative financial instruments as they are held with the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements.
Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first in, first out (FIFO) method. The cost of finished goods comprises of raw materials, direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Full provision is made for obsolete, defective and slow moving stock.
Trade and other receivables Trade receivables are recognised initially at fair value less provision for impairment. They are subsequently held at amortised cost less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the change in provision is recognised in the income statement. Financial statements statments
When a hedging instrument expires or is sold, or when the hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity at that time remains in equity and is recognised when the forecast transaction ultimately occurs. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity will be transferred to the income statement.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.
Governance
The group designates certain derivatives as either (i) hedges of the fair value of recognised assets or liabilities (fair value hedge); or (ii) hedges of a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction (cash flow hedge); or (iii) hedges of net investments in foreign operations (net investment hedge).
(b) Net investment hedge
(d) Derivatives that do not qualify for hedge accounting
Strategic report
Financial assets
121
122
Berendsen plc Report and Accounts 2013
Accounting policies to the consolidated financial statements Cash and cash equivalents Cash and cash equivalents are stated net of bank overdrafts, where the group has a legal right of set off and includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Share capital Ordinary shares are classified as equity and are recorded at par value of proceeds received, net of direct issue costs. Where shares are issued above par value, the proceeds in excess of par value are recorded in the share premium account. Where any group company purchases the company’s equity share capital, the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the company’s shareholders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental costs, is included in equity attributable to the company’s shareholders.
Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Any difference between the amount initially recognised (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) are capitalised as part of the cost of that asset, until such time as the assets are ready for their intended use or sale.
Commitment and borrowing fees are capitalised as part of the loan and amortised over the life of the relevant agreement. All other borrowing costs are recognised in the income statement in the period in which they are incurred. Borrowings are classified as non-current liabilities where the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Current and deferred income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the group’s subsidiaries operate and generate taxable income. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for, if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Employee benefits (a) Pension obligations The group operates various pension schemes. The schemes are funded through payments to insurance companies or a trustee administered fund, determined by periodic actuarial calculations. The group has both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The net asset recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. The group recognises the surplus arising on its deferred benefit schemes to the extent that it has a legal right to do so under the scheme rules. Current and past service costs, to the extent they have vested, are recognised in operating costs in the income statement together with interest costs on plan liabilities and the expected return on plan assets.
Berendsen plc Report and Accounts 2013
Cumulative actuarial gains and losses arising from experience adjustments and change in actuarial assumptions are credited or charged to the statement of comprehensive income and expense net of deferred tax.
(b) Share-based payment plans
The proceeds received are credited to share capital (nominal value) and share premium when the options are exercised. (c) Termination benefits
(d) Holiday pay Paid holidays are regarded as an employee benefit and as such are charged to the income statement as the benefits are earned. An accrual is made at the balance sheet date to reflect the fair value of holidays earned but not yet taken.
Revenue recognition Group revenue comprises the fair value for the rendering of services, net of value added tax and other similar sales based taxes, rebates and discounts and after eliminating sales within the group. Revenue is recognised as follows: (a) Service income Income received or receivable in respect of service income is credited to revenue as and when services are rendered in respect of mats, linen, washroom and decontamination services. Revenue is recognised on a per item basis for delivery of laundered textiles to hotels and hospitals. Revenue for supply and laundering of workwear is recognised on a regular, periodic basis in accordance with the terms of the contract. (b) Sale of goods revenue For non-contract based business, revenue represents the value of goods delivered. Accrued income comprises revenue contractually earned for services performed that are invoiced to the customer primarily in the following month.
Leases Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding lease obligations, net of finance charges, are included in other long-term payables.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
Dividend distribution Final dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the company’s shareholders. Interim dividends are recognised when paid.
Income statement presentation (a) Exceptional items Items that are material in size or non-operating in nature are presented as exceptional items in the income statement. The directors are of the opinion that separate recording of exceptional items provides helpful information about the group’s underlying business performance. Examples of events, which may give rise to the classification of items as exceptional include, inter alia, restructuring of businesses, gains and losses on disposal of properties, acquisition costs, impairment of goodwill and non-recurring income. (b) Amortisation of customer contracts These are presented separately in the income statement as they arise from acquisitions. (c) Other operating expenses These comprise the group’s intangible asset amortisation and exceptional items.
Financial statements statments
Termination benefits are payable when an employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits when it is shown to be committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.
A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.
Governance
The group’s management awards employees share options, from time to time, both on a discretionary and nondiscretionary basis which are subject to vesting conditions. The economic cost of awarding the share options to its employees is recognised as an employee benefit expense in the income statement equivalent to the fair value of the benefit awarded. The fair value is determined by reference to the Black-Scholes option pricing model. The charge is recognised in the income statement over the vesting period of the award.
Provisions for vacant properties, restructuring costs and legal claims are recognised when the group has a present legal or constructive obligation as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.
The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term.
Strategic report
For defined contribution plans, the group pays contributions to publicly or privately administered pension insurance or trustee administered plans on a mandatory, contractual or voluntary basis. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Provisions
123
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Berendsen plc Report and Accounts 2013
Accounting policies to the consolidated financial statements Key assumptions and sources of estimation uncertainty
(b) Pensions and other postemployment benefits
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based on historical experience and other relevant factors. This approach forms the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The group operates a number of defined benefit schemes within the UK and Europe (note 27). As at 31 December 2013 the present value of the group’s defined benefit obligation for funded plans was a surplus of £36.5 million and a deficit of £29.4 million for unfunded plans. The calculations of the recognised assets and liabilities from such plans are based upon statistical and actuarial calculations. In particular the present value of the defined benefit obligation is impacted by assumptions on discount rates used to arrive at the present value of future pension liabilities, and assumptions on future increases in salaries and benefits. Furthermore, the group’s independent actuaries use statistically based assumptions covering areas such as future withdrawals of participants from the plan and estimates on life expectancy. The actuarial assumptions used may differ materially from actual results due to changes in market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants and other changes in the factors being assessed. These differences could impact the assets or liabilities recognised in the balance sheet in future periods. The last triennial valuation of the main UK pension scheme took place in February 2013.
The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information. Such changes are recognised in the period in which the estimate is revised. The key assumptions about the future and key sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying value of assets and liabilities within the next 12 months are described below. (a) Property, plant and equipment and intangible assets, including goodwill The group has property, plant and equipment with a carrying value of £508.0 million (note 10), goodwill with a carrying value of £423.4 million (note 8) and intangible assets with a carrying value of £50.5 million (note 9). These assets are reviewed annually for impairment as described above. A value in use model is used. To assess if any impairment exists, estimates are made of the future cash flows expected to result from the use of the assets and their eventual disposal. Actual outcomes could vary from such estimates of discounted future cash flows. Factors such as changes in the planned use of buildings, machinery or equipment, or closure of facilities, the presence of competition, or lower than anticipated sales could result in shortened useful lives or impairment.
(c) Income taxes At 31 December 2013, the net liability for current income taxes is £9.4 million and the net liability for deferred income taxes is £42.0 million (note 19). Estimates may be required in determining the level of current and deferred income tax assets and liabilities, which management believes are reasonable and adequately recognises any income tax related uncertainties. Various factors may have favourable or unfavourable effects on the income tax assets and liabilities. These include changes in tax laws in the jurisdiction we operate in, tax rates, interpretations of existing tax laws, future levels of spending and in overall levels of future earnings.
(d) Share-based payments The economic cost of awarding shares and share options to employees is reflected by recording a charge in the income statement equivalent to the fair value of the benefit awarded over the vesting period. The fair values of the awards are determined by use of the Black-Scholes model. (e) Provisions Provisions for vacant properties, restructuring costs and legal claims are recognised when the group has a present legal or constructive obligation as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. (f) Clinical Solutions and Decontamination business The Clinical Solutions and Decontamination business is separated into individual Cash Generating Units (CGU) as there are separate assets and cash flows for each CGU. As a result of ongoing losses on the two decontamination contracts, a provision for £9.9 million was recognised in 2010. The key assumption used in determining the onerous contract provision is the period over which mitigating actions are planned to achieve a financially sustainable position. This period was assessed in 2010 as being four years, with the losses being principally incurred in the first two years. £0.9 million of the provision was utilised in 2013. As set out in note 4 of the financial statements the group has re-assessed the level of provision required at the end of 2013 to reflect the progress that has been made in turning around the two decontamination contracts. As a consequence of this reassessment an exceptional release of £1.8m has been made to the income statement in 2013.
125
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 1 Segmental information The results for the year ended 31 December 2013 under the business line structure are as follows: Core Growth
Facility £m
Total segment revenue
332.2
243.9
204.6
Inter-segment revenue
(26.4)
Revenue from external customers Operating profit before exceptional items and amortisation of customer contracts Exceptional items Amortisation of customer contracts
(0.6)
–
Total Core Growth £m
Flat Linen outside UK £m
780.7
233.4
71.9
(27.0)
(2.2)
(2.6)
Total Manage for Value £m
Unallocated £m
Group £m
305.3
–
1,086.0
(4.8)
305.8
243.3
204.6
753.7
231.2
69.3
300.5
60.5
62.5
27.3
150.3
18.2
4.5
22.7
–
–
–
–
–
1.8
1.8
(0.1)
(25.1)
(14.1)
1,054.2
158.9
–
1.8
(0.3)
(0.4)
(0.2)
(25.7)
27.2
125.2
18.1
6.0
24.1
(14.3)
135.0
Net finance costs
–
–
–
–
–
–
–
–
(22.6)
Profit before taxation
–
–
–
–
–
–
–
–
112.4
Taxation
–
–
–
–
–
–
–
–
(27.2)
Profit for the year
–
–
–
–
–
–
–
–
85.2
Profit attributable to non-controlling interest
–
–
–
–
–
–
–
–
0.5
Profit attributable to owners of parent company
–
–
–
–
–
–
–
–
84.7
60.2
31.6
40.3
132.1
40.6
3.6
44.2
0.5
176.8
Depreciation (note 10)
61.7
30.0
36.2
127.9
40.5
4.2
44.7
0.5
173.1
Amortisation (note 9)
4.7
22.7
1.7
29.1
0.8
0.7
1.5
0.2
30.8
Governance
(0.1)
40.6
Capital expenditure
(21.9)
–
(31.8)
57.4
Segment result
(3.1)
–
Strategic report
Workwear £m
UK Flat Linen £m
Manage for Value Clinical Solutions and Decontamination £m
Unallocated costs includes group marketing and communication functions. Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations, Sales between operating segments are carried out at arm’s length. The company is domiciled in the UK.
Financial statements statments
126
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 1 Segmental information (continued) The results for the year ended 31 December 2012 under the business line structure are as follows: Core Growth
Workwear £m
Facility £m
UK Flat Linen £m
Total segment revenue
313.1
213.6
196.7
Inter-segment revenue
(25.1)
(0.8)
–
Manage for Value
Total Core Growth £m
Flat Linen outside UK £m
Clinical Solutions and Decontamination £m
723.4
219.3
71.7
(25.9)
(1.3)
(2.1)
Total Manage for Value £m
Unallocated £m
Group £m
291.0
–
1,014.4
(3.4)
Revenue from external customers
288.0
212.8
196.7
697.5
218.0
69.6
287.6
Operating profit before exceptional items and amortisation of customer contracts
51.0
54.1
25.8
130.9
21.0
2.9
23.9
Amortisation of customer contracts
(7.0)
(17.4)
(0.2)
(24.6)
Segment result
(0.1)
(0.4)
(0.5)
–
(29.3)
–
985.1
(12.4)
142.4
–
(25.1)
44.0
36.7
25.6
106.3
20.9
2.5
23.4
Net finance costs
–
–
–
–
–
–
–
(12.4) –
(25.6)
117.3
Profit before taxation
–
–
–
–
–
–
–
–
91.7
Taxation
–
–
–
–
–
–
–
–
(21.3)
Profit for the year
–
–
–
–
–
–
–
–
70.4
Profit attributable to non-controlling interest
–
–
–
–
–
–
–
–
0.5
Profit attributable to owners of parent company
–
–
–
–
–
–
–
–
69.9
Capital expenditure
61.4
61.7
33.1
156.2
33.9
2.7
36.6
0.6
193.4
Depreciation (note 10)
58.9
28.1
32.9
119.9
37.6
4.5
42.1
0.3
162.3
Amortisation (note 9)
8.6
18.1
1.9
28.6
0.8
0.7
1.5
0.3
30.4
The 2012 operating profit before exceptional items and amortisation of customer contacts has been restated for the impact of IAS19 Employee Benefits. The segment assets and liabilities at 31 December 2013 under the business line structure are as follows: Core Growth
Operating assets Operating liabilities
Workwear £m
Facility £m
UK Flat Linen £m
382.6
353.1
153.5
(63.5)
(39.4)
(37.1)
Total Core Growth £m
889.2
Manage for Value Clinical Solutions Flat Linen and outside UK Decontamination £m £m
230.6
(140.0)
(37.1)
Total Manage for Value £m
Unallocated £m
Group £m
61.1
291.7
1.3
1,182.2
(15.3)
(52.4)
(10.3)
(202.7)
The business line split of operating assets and liabilities as at 31 December 2012 is as follows: Core Growth Total Core Growth £m
Manage for Value Clinical Solutions Flat Linen and outside UK Decontamination £m £m
Workwear £m
Facility £m
UK Flat Linen £m
Operating assets
390.2
381.5
147.1
918.8
232.5
61.9
Operating liabilities
(60.3)
(39.7)
(35.1)
(135.1)
(35.3)
(17.7)
Total Manage for Value £m
Unallocated £m
Group £m
294.4
1.3
1,214.5
(53.0)
(7.0)
(195.1)
Business line operating assets consist primarily of property, plant and equipment, intangible assets, inventories and trade and other receivables. Business line operating liabilities consist primarily of trade and other payables and provisions. Unallocated assets include operating assets relating to corporate segments. Unallocated liabilities include operating liabilities for corporate segments.
127
Berendsen plc Report and Accounts 2013
1 Segmental information (continued) Year to 31 December 2013 £m
Year to 31 December 2012 £m
42.2
42.9
1,012.0
942.2
1,054.2
985.1
UK
389.4
380.0
Sweden
163.0
149.9
Germany
140.5
126.9
Denmark
136.3
128.9
Holland
88.1
73.4
Norway
62.0
59.0
Analysis of external revenue by category: Sale of goods
Analysis of external revenue by country:
Other
74.9
67.0
1,054.2
985.1
Strategic report
Provision of services
Analysis of non-current assets other than financial instruments, deferred tax assets and retirement benefit assets by country are: UK
219.1
218.5
Sweden
140.7
144.0
Germany
162.2
114.8
Denmark
104.1
78.3
47.2
51.4
Norway
35.8
48.2
272.8
359.5
981.9
1,014.7
Year to 31 December 2013 £m
Year to 31 December 2012 £m
Other
Governance
Holland
2 Net finance costs
Interest payable on bank borrowings
(23.1)
(25.4)
Interest payable on finance leases
(0.1)
(0.2)
Interest payable on other borrowings
(0.7)
(1.0)
Amortisation of issue costs of bank loans (note i)
(1.1)
(1.2)
Fair value loss on interest rate swaps (fair value hedge)
(1.5)
(1.2)
Fair value adjustment of bank borrowings attributable to interest rate risk
1.5
1.2
Finance income Net finance costs (i)
(25.0)
(27.8)
2.4
2.2
(22.6)
(25.6)
This relates to loan issue costs arising on the 2011 €535 million Revolving Credit Facility and on the 2006 $250 million, 2009 $259 million and £25 million US Private Placements. The costs have been capitalised and are being amortised over the shortest period of the loans being four years, eight years and seven years respectively.
Financial statements statments
Finance costs
128
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 3 Expenses by nature Year to 31 December 2013 £m
Year to 31 December 2012 Restated £m
The following items have been included in arriving at operating profit: Staff costs (note 26)
408.1
383.7*
170.1
159.1
3.0
3.2
25.7
25.1
Depreciation of property, plant and equipment (note 10): – Owned assets – Under finance leases Amortisation of intangible assets (included within other operating expenses) (note 9): – Customer contracts – Computer software
5.1
5.3
Profit on sale of property, plant and equipment
(2.0)
(1.2)
Cost of inventory recognised as an expense in ‘cost of sales’
8.4
8.4
Cost of inventory written (back)/off
(0.1)
0.4
12.5
11.0
– Property
7.7
7.6
Release of onerous contract provision (note 4)
(1.8)
Other operating lease rentals payable: – Plant and machinery
–
Services provided by the company’s auditors and its associates Fees payable to the company’s auditor for the audit of the parent company and consolidated financial statements
0.2
0.2
– The audit of the company’s subsidiaries
0.7
0.7
– Tax advisory services
0.2
0.1
– Tax compliance services
0.2
0.1
–
–
1.3
1.1
Year to 31 December 2013 £m
Year to 31 December 2012 £m
Release of onerous contract provision
1.8
–
Total
1.8
–
Fees payable to the company’s auditor and its associates for other services:
– Other services Total services *2012 staff costs restated for the impact of IAS19 Employee Benefits.
4 Exceptional items Included within operating profit is the following item which the group considers to be exceptional:
Exceptional gain in the year, before tax, amounted to £1.8 million (2012: £nil). The gain relates to the release of surplus onerous contract provision which was initially established within our Decontamination business in 2010. Since then substantial progress has been made in the turnaround of these contracts, with one of them returning to profitability in 2013. The release of the provision in 2013 reflects this achievement along with the expectation that the remaining contract will break even, in line with plan, by the end of 2014. The tax charge on this was £0.4 million.
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Berendsen plc Report and Accounts 2013
5 Taxation Year to 31 December 2013 £m
Year to 31 December 2012 Restated £m
22.6
17.9
Analysis of tax charge for the year Current tax: Adjustments in respect of previous years
2.5
(0.6)
25.1
17.3
3.6
4.2
Deferred tax (note 19): Origination and reversal of temporary differences Changes in statutory tax rates
(0.9)
Strategic report
Tax on profits for the current year
(0.3)
Credit due to previously unrecognised, temporary differences
–
(0.3)
Change due to review of recoverability of deferred tax assets
–
0.4
Adjustments in respect of previous years
(0.6)
–
2.1
4.0
Total tax charge
27.2
21.3
The 2012 tax charge has been restated for the impact of IAS19 Employee Benefits. The amount of overseas tax included in the total tax charge is £22.0 million (2012: £18.2 million). The tax charge for the year is different from the effective UK statutory rate of 23.25% (2012: 24.5%). The difference is explained below: Year to 31 December 2012 Restated £m
112.4
91.7
26.1
22.5
Items not deductible for tax purposes
0.9
1.1
Non-taxable income
(0.7)
0.1
Overseas tax rate differences
0.4
0.3
Changes in statutory tax rates
Profit before taxation Multiplied by the effective rate of corporation tax in the UK of 23.25% (2012: 24.5%)
Governance
Year to 31 December 2013 £m
Effects of:
(0.9)
(2.9)
Unrecognised tax gains/(losses)
0.1
(0.1)
Other
0.7
0.3
Adjustment in respect of prior years
0.6
–
Total tax charge
27.2
21.3
The main rate of corporation tax as at 31 December 2013 was 23%. Legislation to reduce the main rate of corporation tax to 21% was substantively enacted on 2 July 2013 and will be effective from 1 April 2014. A further rate reduction to 20% from 1 April 2015 was also enacted on 2 July 2013. Financial statements statments
130
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 5 Taxation (continued) The tax credit/(charge) relating to components of other comprehensive income and equity is as follows: Year to 31 December 2013 £m
Year to 31 December 2012 £m
Currency translation differences
4.3
2.4
Actuarial gains
(4.2)
(0.5)
Cash flow hedges
(0.6)
0.1
Total (charged)/credited to comprehensive income
(0.5)
2.0
Tax (charged)/credit relating to share-based payments
(0.6)
1.7
(1.1)
3.7
Total (charged)/credited to equity Analysed as: Current tax
0.2
0.1
Deferred tax (note 19)
(1.3)
3.6
(1.1)
3.7
6 Dividends Year to 31 December 2013 £m
Year to 31 December 2012 £m
Equity dividends paid during the year Final dividend for the year ended 31 December 2012 of 17.5 pence per share (2011: 16.0 pence)
29.8
27.1
Interim dividend for the year ended 31 December 2013 of 8.8 pence per share (2012: 8.0 pence)
15.0
13.5
44.8
40.6
32.8
29.6
Proposed final equity dividend for approval at the AGM Proposed final dividend for the year ended 31 December 2013 of 19.2 pence per share (2012: 17.5 pence)
The directors recommend a final dividend for the financial year ended 31 December 2013 of 19.2 pence per ordinary share to be paid on 2 May 2014 to shareholders who are on the register at 11 April 2014. This dividend is not reflected in these financial statements as it does not represent a liability at 31 December 2013.
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Berendsen plc Report and Accounts 2013
7 Earnings per share Basic earnings per ordinary share are based on the group profit for the year and a weighted average of 170,063,960 (2012: 169,124,166) ordinary shares in issue during the year. Diluted earnings per share are based on the group profit for the year and a weighted average of ordinary shares in issue during the year calculated as follows:
Dilutive potential ordinary shares arising from unexercised share options
31 December 2012 Number of shares
170,063,960
169,124,166
690,404
599,023
170,754,364
169,723,189
Strategic report
In issue
31 December 2013 Number of shares
An adjusted earnings per ordinary share figure has been presented to eliminate the effects of exceptional items, amortisation of customer contracts and non-recurring tax items. This presentation shows the trend in earnings per ordinary share that is attributable to the underlying trading activities of the total group. The reconciliation between the basic and adjusted figures for the group is as follows:
Profit attributable to owners of parent company for basic earnings per share calculation
Year to 31 December 2013
Year to 31 December 2012 Restated
£m
Earnings per share pence
£m
Earnings per share pence
84.7
49.8
69.9
41.3
–
–
18.4
10.9
Onerous contract provision release (after taxation)
(1.4)
Amortisation of customer contracts (after taxation)
19.3
(0.8) 11.3
(0.9)
(0.5)
(2.6)
Adjusted earnings
101.7
59.8
85.7
(1.5)
Diluted basic earnings
–
49.6
41.2
Diluted adjusted earnings
–
59.6
50.5
50.7
Governance
Impact of tax rate reductions: UK, Finland and Denmark
2012 has been restated for the impact of IAS19 Employee Benefits reducing EPS by 1.5 pence.
Financial statements statments
132
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 8 Goodwill 2013 £m
2012 £m
496.8
493.2
0.4
5.8
Cost At 1 January Acquisitions (note 25) Currency translation At 31 December
(0.8)
(2.2)
496.4
496.8
72.8
73.3
Accumulated amortisation and impairment At 1 January Currency translation At 31 December Net book amount at 31 December
0.2
(0.5)
73.0
72.8
423.4
424.0
Composition of CGUs With effect from 1 January 2012, we reorganised the group’s structure into Business Lines, resulting in a change in operating segments and the composition of the cash generating units (CGUs). These Business Lines are managed and controlled at the operating segment level and each of the operating segments has their own dedicated management team. The internal group reporting reflects this Business Line structure. Management monitor goodwill at operating segment level and goodwill has been allocated on this basis. Goodwill that is specific to a particular operating segment has been included in the operating segment directly. All other goodwill has been reallocated to the appropriate operating segments prospectively using the three-year average forecast operating cash flow of the time of the change of composition of CGUs in 2012. Under the new business line structure, we have 23 CGUs which represents the smallest identifiable group of assets that generates independent cash flow from other groups of assets. For the purpose of a goodwill impairment review, acquired goodwill has been allocated to nine groups of CGUs being the operating segments. The operating segments are Workwear, Facilities, UK Flat Linen, Scandinavian Flat Linen, Germany & Austria Healthcare, Ireland, Direct Sales, Clinical Solutions and Decontamination.
133
Berendsen plc Report and Accounts 2013
8 Goodwill (continued) For reporting purposes, the goodwill has been allocated to the operating segments as outlined below.
Impairment charge £m
2013
2012
Net book amount of goodwill £m
Net book amount of goodwill £m
Impairment charge £m
Workwear
–
157.7
–
157.5
Facilities
–
175.9
–
176.3
UK Flat Linen
–
19.9
–
19.9
Scandinavian Flat Linen
–
41.3
–
41.6
Germany and Austria Healthcare
–
7.8
–
8.0
Ireland
–
2.3
–
2.2
Direct Sales
–
4.5
–
4.5
Clinical Solutions
–
14.0
–
14.0
Decontamination
–
–
–
–
–
423.4
–
424.0
Manage for Value:
Total
Strategic report
Core Growth:
Impairment testing of goodwill
Governance
The group reviews at each reporting date whether there is an indication that any of the CGU that contains the operating assets may be impaired in accordance with IAS 36 ‘Impairment of assets’. An annual goodwill impairment test is then carried out by comparing the carrying amount of the group of CGUs to which the goodwill relates to its recoverable amount. The recoverable amount of each operating segment is based on value-in-use calculations which management develop from forecast cash flows based on past performance, market data and its expectation of future market development. These calculations require the use of estimates and the pre-tax cash flow projections are based on the group’s current three-year strategic plan. Cash flows beyond the three-year period have been extrapolated using an estimated growth rate of 2% (2012: 2%) and are appropriate because these are long-term businesses. The growth rate of 2% (2012: 2%) does not exceed long-term GDP estimates for countries that the group operates within. The main assumptions on which forecast cash flows have been based are revenue, operating margin and cash growth. Projected cash flows have been discounted using pre-tax discount rates of 11% (2012: 11%). The discount rates reflect market assumptions for the Risk Free-rates and Equity Risk Premiums and also take into account the net cost of debt. No reasonably foreseeable change in these assumptions would cause an impairment. The annual impairment testing carried out in the current year showed that the recoverable amount for all groups of CGUs to which goodwill is allocated exceeded the carrying amount of the groups of CGUs.
Financial statements statments
134
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 9 Other intangible assets Computer software £m
Intellectual property rights £m
Customer contracts £m
Total £m
40.6
1.4
191.5
233.5
–
–
1.0
1.0
Additions at cost
3.6
–
–
3.6
Disposals
(4.1)
–
–
(4.1)
Currency translation
0.2
–
40.3
1.4
189.0
230.7
29.1
1.4
126.0
156.5
5.1
–
25.7
30.8
(4.1)
–
–
Cost At 1 January 2013 Acquisitions (note 25)
At 31 December 2013
(3.5)
(3.3)
Accumulated depreciation At 1 January 2013 Charge for the year Disposals Currency translation
0.1
–
30.2
1.4
148.6
180.2
Net book amount at 31 December 2013
10.1
–
40.4
50.5
Net book amount at 31 December 2012
11.5
–
65.5
77.0
Computer software £m
Intellectual property rights £m
Customer contracts £m
Total £m
39.8
1.4
163.3
204.5
–
–
27.4
27.4
Additions
3.3
–
0.2
3.5
Disposals
(2.1)
–
–
(0.4)
–
0.6
0.2
40.6
1.4
191.5
233.5
26.2
1.4
100.8
128.4
Charge for the year
5.3
–
25.1
30.4
Disposals
(2.1)
–
–
At 31 December 2013
(3.1)
(4.1) (3.0)
Cost At 1 January 2012 Acquisitions
Currency translation At 31 December 2012
(2.1)
Aggregate amortisation At 1 January 2012
(2.1)
Currency translation
(0.3)
–
0.1
At 31 December 2012
29.1
1.4
126.0
156.5
Net book amount at 31 December 2012
11.5
–
65.5
77.0
Net book amount at 31 December 2011
13.6
–
62.5
76.1
All amortisation charges have been charged through other operating expenses.
(0.2)
135
Berendsen plc Report and Accounts 2013
10 Property, plant and equipment Land and buildings £m
Plant and machinery £m
Textile assets and washroom equipment £m
At 1 January 2013
249.0
500.7
626.7
1,376.4
Additions at cost
1.7
28.7
142.1
172.5
Total £m
Cost
(0.4)*
Disposals
(1.2)
Reclassified to assets held for sale
(1.2)
Currency translation At 31 December 2013
0.1 (48.0)
– (111.8)
(0.3) (161.0)
–
–
(1.2)
1.2
0.6
3.8
5.6
249.1
482.1
660.8
1,392.0
97.9
353.5
411.3
862.7
7.9
34.1
131.1
173.1
(0.4)
(47.1)
(109.3)
(156.8)
Strategic report
Acquisitions (note 25)
Accumulated depreciation At 1 January 2013 Charge for the year Disposals Reclassified to assets held for sale
(0.1)
–
Currency translation
(0.1)
0.6
1.0
3.5
5.1
At 31 December 2013
105.9
341.5
436.6
884.0
Net book amount at 31 December 2013
143.2
140.6
224.2
508.0
Net book amount at 31 December 2012
151.1
147.2
215.4
513.7
2013 £m
2012 £m
Assets held under finance leases
6.4
6.9
Finance lease additions
2.9
2.5
(170.1)
(159.1)
Plant and machinery net book value includes:
Governance
–
Split of depreciation: Owned assets Leased assets
(3.0)
(3.2)
(173.1)
(162.3)
*During the year a revision to the fair value of land and buildings acquired as a result of acquisitions made in 2012 resulted in a reduction in the value of assets acquired by £0.4 million and a related increase in the value of goodwill arising on acquisition. See note 8 and note 25.
Financial statements statments
136
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 10 Property, plant and equipment (continued) Land and buildings £m
Plant and machinery £m
Textile assets and washroom equipment £m
At 1 January 2012
247.6
490.8
582.6
1,321.0
Additions at cost
5.4
24.4
127.8
157.6
Total £m
Cost
Acquisitions Disposals Reclassified to assets held for sale Currency translation At 31 December 2012
1.2
2.0
1.7
4.9
(0.7)
(13.4)
(80.1)
(94.2)
(2.1)
–
(2.4)
(3.1)
– (5.3)
(2.1) (10.8)
249.0
500.7
626.7
1,376.4
92.0
334.0
374.2
800.2
7.6
34.9
119.8
162.3
(12.7)
(78.5)
(91.5)
Accumulated depreciation At 1 January 2012 Charge for the year Disposals
(0.3)
Reclassified to assets held for sale
(0.2)
–
(1.2)
(2.7)
Currency translation At 31 December 2012
97.9
353.5
– (4.2) 411.3
(0.2) (8.1) 862.7
Net book amount at 31 December 2012
151.1
147.2
215.4
513.7
Net book amount at 31 December 2011
155.6
156.8
208.4
520.8
As at 31 December 2013 £m
As at 31 December 2012 £m
11.7
11.4
23.0
24.0
34.7
35.4
11 Inventories
Raw materials Finished goods
The cost of inventories recognised as an expense in ‘cost of sales’ during the year amounted to £8.4 million (2012: £8.4 million). During the year £0.1 million of inventory was written back (2012: £0.4 million written off).
137
Berendsen plc Report and Accounts 2013
12 Trade and other receivables As at 31 December 2013 £m
As at 31 December 2012 £m
129.0
131.2
Current: Trade receivables
Other receivables Prepayments and accrued income
(4.2)
(5.0)
124.8
126.2
6.5
8.0
34.3
30.2
165.6
164.4
Strategic report
Less: Provision for impairment of receivables
Trade receivables are non-interest bearing and generally have a 30-day term. Due to their short maturities, the fair value of trade and other receivables approximate to their book value. All other receivables are recorded at amortised cost. The carrying amounts of trade and other receivables for financial assets are denominated in the following currencies, which in most instances are the functional currencies of the respective subsidiaries. We do not have any significant exposure to currency risk on these amounts. As at 31 December 2012 £m
31.7
32.2
Euro
40.2
38.5
Swedish krona
29.4
33.2
Danish krone
16.4
15.9
Other
13.6
14.4
131.3
134.2
As at 31 December 2013 £m
As at 31 December 2012 £m
At 1 January
5.0
5.1
Charge for the year
0.7
1.8
Uncollectable amounts written off, net of recoveries
(1.5)
(1.9)
At 31 December
4.2
5.0
Sterling
Provision for impairment of receivables
Governance
As at 31 December 2013 £m
The charge for the year is recognised as an expense in administrative expenses.
Financial statements statments
138
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 12 Trade and other receivables (continued) As at 31 December 2013, trade receivables of £47.8 million (2012: £56.0 million) were past due but not impaired. The ageing analysis of these trade receivables is as follows: As at 31 December 2013 £m
As at 31 December 2012 £m
Up to one month
37.1
44.4
One to three months
7.5
8.3
Over three months
3.2
3.3
47.8
56.0
As at 31 December 2013 £m
As at 31 December 2012 £m
89.2
73.5
The other classes within trade and other receivables do not contain impaired assets.
13 Cash and cash equivalents
Cash at bank and in hand Short-term bank deposits
–
0.2
89.2
73.7
As at 31 December 2013 £m
As at 31 December 2012 £m
1.5
1.9
1.5
1.9
Trade payables
57.8
55.8
Other tax and social security payable
30.8
27.5
Other payables
9.9
9.8
Deferred consideration payable on acquisitions
0.5
2.3
Cash at bank and in hand earns interest at floating rates based on bank deposit rates.
14 Trade and other payables
Non-current: Accruals and deferred income
Current:
Accruals and deferred income
96.8
90.3
195.8
185.7
139
Berendsen plc Report and Accounts 2013
15 Borrowings As at 31 December 2012 £m
30.8
0.2
1.9
2.5
32.7
2.7
As at 31 December 2013 £m
As at 31 December 2012 £m
Private Placement notes – unsecured
334.2
341.8
Bank loans – unsecured
106.5
187.9
440.7
529.7
Current Bank loans – unsecured Finance lease obligations
Non-current
Finance lease obligations
4.8
5.0
445.5
534.7
Strategic report
As at 31 December 2013 £m
Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the currency in which the borrowing is incurred together with a margin as appropriate. The effective interest rates (EIR) for the group’s bank borrowings (including interest rate swaps) by currency at the balance sheet date were as follows: As at 31 December 2013 £m
As at 31 December 2012
EIR %
£m
EIR %
Borrowings under the revolving credit facilities –
–
50.0
1.50
Euro
30.0
1.19
50.7
1.11
Danish krone
44.8
1.16
43.8
5.15
61.3
2.05
43.2
4.50
136.1
1.57
187.7
2.94
Euro
62.6
4.52
61.3
4.52
Danish krone
49.0
1.95
49.4
2.01
Swedish krona
65.9
4.49
67.0
4.49
Currency translation
(25.4)
Swedish krona
Governance
Sterling
Borrowings under the private placement (2006)
152.1
–
(21.1)
3.80
156.6
– 3.81
Borrowings under the private placement (2009) Sterling Euro Currency translation
5.74
25.0
5.74
5.22
141.3
5.22
12.8
–
18.9
–
182.1
5.30
185.2
5.30
(1.8)
–
(3.0)
–
Other bank borrowings Danish krone
0.5
3.45
0.6
3.45
Euro
2.5
5.38
2.8
5.37
471.5
3.70
529.9
3.97
In July 2011, the group refinanced its two existing revolving credit facilities, for £420 million and €200 million to a new revolving credit facility for €535 million. This facility expires on 15 July 2016. In December 2009, the group issued private placement notes of US$259 million and £25 million. The US$259 million was immediately swapped into euros.
Financial statements statments
Unamortised loan costs
25.0 144.3
140
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 15 Borrowings (continued) In May 2006, the group issued private placement notes of US$250 million which were immediately swapped into a basket of Danish krone, Swedish krona and euros. For further details of the group’s derivative financial instruments against its borrowings see note 16. The private placement amounts in the table above are stated at the year end exchange rates. As underlying currencies have been swapped from US dollars via derivative contracts, the group has a loss on financial instruments (see note 16) which is offset by the currency translation gain on the underlying borrowing noted above. The borrowing under the US private placements of £334.2 million reflects the £25 million, the US$509 million translated at the year end sterling to dollar rate and the impact of fair value hedge movement. Fair value of financial assets and liabilities As at 31 December 2013 Book value £m
Long-term borrowings
Fair value £m
As at 31 December 2012 Book value £m
Fair value £m
(445.5)
(475.9)
(534.7)
(586.7)
Short-term borrowings
(32.7)
(32.7)
(2.7)
(2.7)
Trade and other payables (note 14)
(68.2)
(68.2)
(68.0)
(68.0)
Trade and other receivables (note 12)
131.3
131.3
134.2
134.2
Fair value of other financial assets and liabilities
Short-term bank deposits (note 13)
–
–
0.2
0.2
Cash at bank and in hand (note 13)
89.2
89.2
73.5
73.5
The fair value of the group’s fixed rate loans are based on available market information at the balance sheet date and are calculated by discounting expected future cash flows using the appropriate yield curve. The book values of floating rate borrowings approximate their fair value. Maturity of financial liabilities As at 31 December 2013
As at 31 December 2012
Borrowings £m
Finance leases £m
Total £m
Borrowings £m
Finance leases £m
Total £m
30.8
1.9
32.7
0.2
2.5
2.7
Within one year In more than one year but not more
2.8
1.8
4.6
32.8
2.3
35.1
Over two years but not more than
274.0
3.0
277.0
268.4
2.7
271.1
Over five years
163.9
–
163.9
228.5
–
228.5
471.5
6.7
478.2
529.9
7.5
537.4
Borrowing facilities The group has the following undrawn committed borrowing facilities available at 31 December and on which it incurs commitment fees at market rates: As at 31 December 2013 £m
As at 31 December 2012 £m
310.5
249.5
310.5
249.5
As at 31 December 2013 £m
As at 31 December 2012 £m
Not later than one year
2.0
2.6
Later than one year but not more than five
4.9
5.1
6.9
7.7
(0.2)
(0.2)
6.7
7.5
Expiring in more than two years
The minimum lease payments under finance leases fall due as follows:
Future finance charges on finance leases Present value of finance lease liabilities
141
Berendsen plc Report and Accounts 2013
16 Derivative financial instruments The derivatives we have used qualify for one or more hedge type designations under IAS 39. The fair values of the group’s derivatives have been determined based on available market information at the balance sheet date and the following methodologies:
, The fair value of forward foreign exchange contracts are calculated by discounting the contracted forward values and translating at the balance sheet rates; and
, The fair value of both interest rate swaps and cross-currency interest rate swaps are calculated by discounting expected Strategic report
future principle and interest cash flows derived from appropriate yield curves.
The fair value measurements of the derivatives are classified as Level 2 in the fair value hierarchy as defined by ‘Amendments to IFRS 13 Financial Instruments: Disclosure’. The fair value and the notional amounts by designated hedge type are as follows: As at 31 December 2013
As at 31 December 2012
Notional £m
Assets fair value £m
Liabilities fair value £m
Notional £m
–
30.3
4.2
–
30.9
2.1
–
–
4.2
–
–
–
–
–
(1.3)
72.4
Assets fair value £m
Liabilities fair value £m
2.1
Fair value hedges Cross-currency interest rate swaps Cash flow hedges Interest rate swaps Cross-currency interest rate swaps
11.8
(2.6)
278.3
14.5
(1.7)
283.9
–
(0.4)
5.3
–
(0.2)
4.0
11.8
(3.0)
–
14.5
(3.2)
9.0
(37.1)
309.6
19.7
(33.6)
9.0
(37.1)
–
19.7
(33.6)
22.9
(40.1)
–
38.4
(36.8)
Forward foreign exchange contracts Net investment hedges
Total
315.8
Governance
Cross-currency interest rate swaps
The ineffective portion arising from fair value hedges was a profit of £156,526 (2012: profit of £171,629). The maturity of all derivative financial instruments is as follows (excluding break clauses): As at 31 December 2013
As at 31 December 2012
4–5 years
Over 5 years
In one year or less
1–2 years
2–3 years
3–4 years
4–5 years
Over 5 years
–
–
–
–
4.2
–
–
–
–
5.0
–
6.3
0.5
–
–
–
6.5
–
8.0
0.1
–
–
(2.7)
(1.5)
–
–
0.2
–
(1.9)
–
1.4
–
–
7.9
–
(15.4)
–
(15.2)
1.8
–
6.4
–
6.3
8.4
(6.9)
–
(15.3)
–
(15.2)
(2.7)
In one year or less
1–2 years
2–3 years
3–4 years
2.1
–
–
–
–
(0.4)
–
Asset
(0.3)
Liability
(6.5)
Fair value hedges Asset Cash flow hedges Asset Liability Net investment hedges –
(0.3)
–
2.1
–
17.9
(5.0)
–
(14.8)
–
(13.2)
–
3.9
–
8.6
–
25.9
(2.1)
(5.0)
–
(14.6)
–
(0.6)
Total Asset Liability
(15.1)
Financial statements statments
–
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Notes to the consolidated financial statements 16 Derivative financial instruments (continued) Background The group has in issue US$509 million and £25 million long-term senior guarantee notes under private placements in the US. In May 2006 the group placed US$250 million at fixed rates for periods between eight and twelve years and in December 2009 the group undertook a further placement of US$259 million and £25 million at fixed rates for periods between seven and twelve years. In both placements the foreign currency amounts were immediately swapped into other currencies: Danish krone, Swedish krona and euros. This is to offset the foreign exchange rate exposure arising on the group’s foreign currency assets. The conversion from US dollars into currency was achieved in two stages. In the first stage swaps were taken out to convert US dollars to sterling. All of these swaps have been designated as cash flow hedges, with the exception of one swap from the 2006 placement, which has been designated as a fair value hedge. In the second stage further swaps were taken out to convert sterling to the required currencies. These have been designated as hedges of net investment in foreign subsidiaries. The fixed interest rate cross-currency contracts entered into have options exercisable by either party to terminate after five years and ten years if relevant. The value of the swap at the time would then be cash settled. During the year in accordance with group policy, the group entered into several forward foreign exchange contracts for the purchase of US dollars in the future at fixed rates. These forward contracts reduce the foreign exchange exposure on the procurement of textiles and capital equipment from Far East suppliers. Cash flow hedges The derivative asset recognised on five of these fifteen instruments is £11.8 million, of which the currency component is a loss of £2.4 million and a loss of £0.2 million taken to the hedging reserve. The derivative liability on the ten remaining instruments is £2.6 million, of which the currency component is a loss of £3.1 million and a gain of £2.2 million taken to the hedging reserve. The total exchange component of the cash flow hedge derivatives movement has been accounted for as a component part of currency translation (£5.5 million loss). Of this movement £2.0 million loss has been taken to the hedging reserve and will be continuously released to the income statement until the repayment of the private placement. The forward foreign exchange contracts have resulted in the recognition of a derivative liability of £0.4 million (2012: asset of £0.2 million). During the year a loss of £0.5 million (2012: loss of £0.3 million) was recognised in equity. This equity transfer will then be recognised in the income statement in line with the hedged transaction. Net investment hedges The second stage of the US private placement swaps results in sterling being exchanged into Danish krone, Swedish krona and euros. At 31 December 2013 the fixed rate borrowings vary between rates of 4.45% and 5.57% on the fixed European swaps. The floating Danish krone swap varies against CIBOR. These swaps are accounted for as hedges of the group’s assets in the relevant countries. The movement on the derivative liability arising has been accounted for as a component part of currency translation (£14.1 million loss). The group’s borrowings under its revolving credit facilities are designated as a hedge of its European operations. The carrying value of the borrowings as at 31 December 2013 was £136.1 million (2012: £187.7 million). The foreign exchange loss of £0.9 million on translation is taken to reserves as a component part of currency translation. Fair value hedges US$50 million of the 2006 US private placement was swapped into a floating Danish krone 309.1 million, via a sterling swap. The sterling swap is dealt with as a fair value hedge. The ineffective portion of the fair value hedge resulted in a profit of £156,526 (2012: profit £171,629). The fair value hedge has resulted in the recognition of a £2.1 million derivative asset (2012: £4.2 million).
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17 Financial risk management 17.1 Financial risk factors The group’s activities expose it to a variety of financial risks: market risk (including currency risk; fair value interest rate risk; cash flow interest rate risk and price risk); credit risk and liquidity risk. The group’s overall risk management programmes focus on the unpredictability of financial markets and seek to minimise potential adverse effects on the group’s financial performance. The group uses derivative financial instruments to hedge certain risk exposures. Strategic report
Risk management is carried out by the group finance team under the supervision of the Chief Financial Officer under policies approved by the board of directors. The Chief Financial Officer identifies, evaluates and hedges financial risks in close cooperation with the group’s operating units. The board approves written principles for foreign exchange risk, interest rate risk and credit risk, and the use of derivative financial instruments and non-derivative financial instruments, and receives regular reports on such matters.
a) Market risk i) Foreign exchange risk The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the euro, Swedish krona and Danish krone. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The majority of operations in the group bill their revenues and incur their costs in the same functional currency. The group faces some currency exposure in respect of the procurement of textiles and capital equipment from Far East suppliers. The group policy is to enter forward contracts to purchase US dollars based upon the expected purchases. These derivatives are classified as cash flow hedges. The group’s policy is not to hedge foreign currency exposures on the translation of its overseas profit to sterling. Where appropriate, borrowings are effectively arranged in currencies so as to provide a natural hedge against the investment in overseas net assets. During 2013 and 2012, derivative financial instruments were used to manage foreign currency risk as follows: As at 31 December 2013 Euro £m
US dollar £m
Danish krone £m
Swedish krona £m
Other £m
Total £m
24.0
59.9
–
48.7
75.4
32.3
240.3
Bank overdrafts
(132.4)
(17.4)
–
–
–
Net cash and cash equivalents (note 13)
(108.4)
42.5
–
48.7
75.4
Borrowings, excluding finance lease liabilities (note 15)
(23.2)
(32.5)
(45.3)
(61.3)
(1.4)
(0.2)
Cash and cash equivalents
Finance lease liabilities (note 15) Pre-derivative position Derivative effect (note 16) Post-derivative position
(133.0)
9.8
(309.2) –
–
(1.3) 31.0 –
(151.1)
Governance
Sterling £m
89.2 (471.5)
(4.7)
(0.4)
(309.2)
3.4
9.4
30.6
(389.0)
(6.7)
(0.4)
(212.9)
309.2
(48.2)
(64.9)
–
(17.2)
(133.4)
(203.1)
–
(44.8)
(55.5)
30.6
(406.2)
As at 31 December 2012 Sterling £m
Cash and cash equivalents
Euro £m
US dollar £m
Danish krone £m
Swedish krona £m
Other £m
15.9
46.1
–
34.4
43.6
(64.2)
(27.4)
–
–
–
Net cash and cash equivalents (note 13)
(37.2)
18.7
–
34.4
43.6
Borrowings, excluding finance lease liabilities (note 15)
(72.0)
(53.5)
(44.4)
(43.2)
Finance lease liabilities (note 15)
(2.8)
Pre-derivative position Derivative effect (note 16) Post-derivative position
–
(316.8) –
–
(1.7) 14.2 –
(4.1)
(0.6)
(112.0)
(34.8)
(316.8)
(10.0)
(3.7)
13.6
(0.2)
(202.7)
316.8
(47.1)
(65.2)
–
(112.2)
(237.5)
–
(57.1)
(68.9)
13.6
167.0 (93.3) 73.7 (529.9) (7.5) (463.7) 1.6 (462.1)
The exposure to euro, Swedish krona and Danish krone largely relate to our net investment hedge activities as described and shown in note 16.
Financial statements statments
27.0
Bank overdrafts
Total £m
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Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 17.1 Financial risk factors (continued) ii) Price risk The group is not exposed to any equity securities price risk. The group may from time to time be exposed to changes in the price of cotton. To mitigate against this risk the group may enter into forward contracts to buy cotton based textiles at a future date. Such contracts are not recognised as derivative financial instruments as they are held with the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements. iii) Cash flow and fair value interest rate risk The group’s interest bearing assets include cash and cash equivalents which earn interest at floating rates. The group’s income and operating cash flows are substantially independent of changes in market interest rates. The group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the group to cash flow interest rate risk. Borrowings issued at fixed rates expose the group to fair value interest rate risk. Group policy is to maintain a majority of its borrowings at fixed rate using interest rate swaps to achieve this when necessary. During 2013 and 2012, the group’s borrowings at variable rate were denominated in sterling, euro, Swedish krona and Danish krone. The following table sets out the carrying amount, by contractual repricing date (or maturity where there is no repricing), of fixed rate borrowings that are exposed to interest rate risk before taking into account interest rate swaps: As at 31 December 2013 £m
As at 31 December 2012 £m
32.7
2.7
In more than one year, but not more than two years
4.6
35.1
In more than two years but not more than five years
140.9
83.4
In more than five years
163.9
228.5
342.1
349.7
136.1
187.7
478.2
537.4
Fixed interest rate borrowings In one year or less
Floating interest rate borrowings Total borrowings
During 2013 and 2012, net debt was managed using derivative instruments to hedge interest rate risk as follows: As at 31 December 2013
Cash and cash equivalents
As at 31 December 2012
Fixed-rate £m
Floating-rate £m
Total £m
Fixed-rate £m
Floating-rate £m
Total £m
–
89.2
89.2
–
73.7
73.7
Borrowings
(342.1)
(136.1)
(478.2)
(349.7)
(187.7)
(537.4)
Pre-derivative net debt position
(342.1)
(46.9)
(389.0)
(349.7)
(114.0)
(463.7)
11.4
(28.2)
(16.8)
(43.9)
45.7
(75.1)
(405.8)
(393.6)
(68.3)
Derivative effect (note i) Post-derivative net debt position (i)
(330.7)
1.8 (461.9)
Excludes the forward foreign exchange contract derivatives.
b) Credit risk Credit risk is managed on a group or local basis as appropriate. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. Trade receivables consist of a large number of customers spread across geographical areas. If there is no independent rating, management assesses the credit quality of the customer taking into account, its financial position, past experience and other factors. Individual risk limits are set based on internal ratings. Management monitors the utilisation of credit limits regularly. Management believes there is no further credit risk provision required in excess of the normal provision for doubtful debts. Treasury related credit risk Counterparty risk arises from the investment of surplus funds and from use of derivative instruments. As at 31 December 2013 and 31 December 2012, we had a number of exposures to individual counterparties. In accordance with our treasury policies and exposure management practices, counterparty credit exposure limits are continually monitored and no individual exposure is considered significant in the ordinary course of treasury management activity. Management does not expect any significant losses from non-performance by these counterparties.
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17.1 Financial risk factors (continued) The counterparty exposure under all financial assets including trade and other receivables, cash and cash equivalents and derivative financial contracts were £243.4 million (2012: £245.8 million). The group does not hold any collateral as security.
c) Liquidity risk
The table below analyses the group’s financial liabilities which will be settled on a net basis into relative maturity groupings based on the remaining period at the balance sheet to the contract maturity date. The amounts disclosed in the table are contractual undiscounted cash flows using spot interest and foreign exchange rates at 31 December 2013. Balances due within 12 months equal their carrying balances as the impact of the discount is not significant.
Strategic report
Cash flow forecasting is performed in the operating entities of the group and is aggregated by group finance. Group finance monitors rolling forecasts of the group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (note 15) at all times so that the group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the group’s debt financing plans, covenant compliance, and compliance with internal balance sheet ratio targets.
As at 31 December 2013 Due within one year £m
Due between one and two years £m
Due between two and five years £m
Due five years and beyond £m
Total £m
30.8
2.8
274.0
163.9
471.5
Interest payments on borrowings
3.6
3.6
5.5
1.4
14.1
Finance lease liabilities
2.0
1.8
3.1
–
6.9
163.9
–
–
–
163.9
Non-derivative financial liabilities Borrowings, excluding finance lease liabilities
Other non-interest bearing liabilities Derivative financial liabilities Derivative contracts – payments
14.1
14.0
29.9
12.6
70.6
214.4
22.2
312.5
177.9
727.0
As at 31 December 2012 Due within one year £m
Due between one and two years £m
Due between two and five years £m
Due five years and beyond £m
Total £m
Borrowings, excluding finance lease liabilities
0.2
32.8
268.4
228.5
529.9
Interest payments on borrowings
4.4
4.4
8.9
2.8
20.5
Finance lease liabilities
2.6
2.3
2.8
–
7.7
155.3
–
–
–
155.3
Governance
Total at 31 December 2013
Non-derivative financial liabilities
Other non-interest bearing liabilities Derivative financial liabilities Derivative contracts – payments Total at 31 December 2012
14.7
13.9
39.4
29.9
97.9
177.2
53.4
319.5
261.2
811.3
d) Sensitivity analysis
This analysis excludes the impact of movements in market variables on the carrying value of pension and other post-retirement obligations, provisions and on the non-financial assets and liabilities of overseas subsidiaries. The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives portfolio and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at 31 December 2013 and 31 December 2012. As a consequence, this sensitivity analysis relates to the positions at those dates and is not representative of the years then ended, as all of these varied.
Financial statements statments
Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The following analysis is intended to illustrate the sensitivity to changes in market variables, being UK, euro, Swedish krona and Danish krone interest rates and sterling exchange rate on our financial instruments. We have excluded from this analysis the impact of movements in market variables on the carrying values of trade receivables and payables, since these are not exposed to risk from the market variables.
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Notes to the consolidated financial statements 17.1 Financial risk factors (continued) The following assumptions were made in calculating the sensitivity analysis:
, financial derivatives in net investment hedging relationship will not influence interest or foreign exchange sensitivity analysis; , the sensitivity of accrued interest to movements in interest rates is calculated on net floating rate exposures on debt, deposits and derivative instruments;
, the sensitivity of accrued interest to movements in interest rates is recorded fully within the income statement; and , changes in the carrying value of financial instruments from movements in exchange rates are recorded fully within equity. The following table shows the group’s exposure to foreign exchange risk as at 31 December 2013 and 31 December 2012, which is a result of increase/decrease of 10% movement in foreign exchange gains/losses on translation of foreign currency denominated borrowings. The foreign exchange risk is naturally hedged against the net assets of our operations in Continental Europe. All foreign exchange on both the borrowings and net assets is taken to reserves where it will offset. As at 31 December 2013 Equity £m
As at 31 December 2012 Equity £m
Euro exchange rate + 10%
18.5
19.6
Euro exchange rate –10%
(22.6)
(24.0)
Danish krone exchange rate +10%
4.1
7.3
Danish krone exchange rate –10%
(5.0)
(9.0)
Swedish krona exchange rate +10%
5.0
8.4
Swedish krona exchange rate –10%
(6.2)
(10.2)
The table below shows the sensitivity of post-tax profit to interest rates as at 31 December 2013 and 31 December 2012, due to an increase/decrease in interest rates of 100 basis points (bp) with all other variables held constant. Post-tax profit for the year would have been mainly affected through interest expense on floating rate cash and cash equivalents and borrowings. As at 31 December 2013 Income statement £m
As at 31 December 2012 Income statement £m
UK interest rates +100bp
(1.1)
(0.9)
UK interest rates –100bp
1.1
0.9
Euro interest rates +100bp
0.1
(0.3)
Euro interest rates –100bp
(0.1)
0.3
Danish krone interest rates +100bp
(0.3)
–
Danish krone interest rates –100bp
0.3
–
Swedish krona interest rates +100bp
0.1
0.3
Swedish krona interest rates –100bp
(0.1)
(0.3)
17.2 Capital management The group’s objectives when managing its capital structure are to safeguard the group’s ability to continue as a going concern, to provide appropriate returns for shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or take other steps to increase share capital or reduce debt. The group manages its capital structure using a number of measures and taking into account its future strategic plans. Such measures include its net interest cover and leverage ratios, which are included in its banking covenants. The group continues to remain compliant with all its banking covenants.
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17.2 Capital management (continued) Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated balance sheet) less cash and cash equivalents. As at 31 December 2012 £m
Total borrowings
478.2
537.4
Less cash and cash equivalents
(89.2)
(73.7)
Net debt
389.0
463.7
Total equity
531.9
493.9
Total capital
920.9
957.6
Strategic report
As at 31 December 2013 £m
17.3 Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). The following table presents the group’s financial assets and liabilities that are measured at fair value at 31 December 2013. Level 1
Level 2
Level 3
Total
Assets Cross-currency interest rate swaps
–
22.9
–
22.9
Total assets
–
22.9
–
22.9
Level 1
Level 2
Level 3
Total
Governance
Derivatives used for hedging
Liabilities Derivatives used for hedging Cross-currency interest rate swaps
–
(39.7)
–
(39.7)
Forward foreign exchange contracts
–
(0.4)
–
(0.4)
Total liabilities
–
(40.1)
–
(40.1)
Financial statements statments
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Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 17.3 Fair value estimation (continued) The following table presents the group’s assets and liabilities that are measured at fair value at 31 December 2012. Level 1
Level 2
Level 3
Total
Cross-currency interest rate swaps
–
38.4
–
38.4
Total assets
–
38.4
–
38.4
Assets Derivatives used for hedging
Liabilities Derivatives used for hedging Interest rate swaps
–
(1.3)
–
(1.3)
Cross-currency interest rate swaps
–
(35.3)
–
(35.3)
Forward foreign exchange contracts
–
(0.2)
–
(0.2)
Total liabilities
–
(36.8)
–
(36.8)
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Specific techniques used to value financial instruments include:
, quoted market prices or dealer quotes for similar instruments; , the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves;
, the fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value;
, other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.
17.4 Offsetting financial assets and financial liabilities (a) Financial assets The following financial assets are subject to offsetting, enforceable master netting arrangements and similar agreements: Related amounts not set off in the balance sheet
Gross amounts of recognised financial assets
Gross amounts of recognised financial liabilities set off in the balance sheet
Net amounts of financial assets presented in the balance sheet
Financial instruments
Cash collateral received
Net amount
–
–
–
–
–
–
At 31 December 2013 Derivative financial assets Cash and cash equivalents
240.3
(151.1)
89.2
–
–
89.2
Total
240.3
(151.1)
89.2
–
–
89.2
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Berendsen plc Report and Accounts 2013
17.4 Offsetting financial assets and financial liabilities (continued) Related amounts not set off in the balance sheet
Gross amounts of recognised financial assets
Gross amounts of recognised financial liabilities set off in the balance sheet
Net amounts of financial assets presented in the balance sheet
Financial instruments
Cash collateral received
Net amount
Derivative financial assets
–
–
–
–
–
–
Cash and cash equivalents
167.0
(93.3)
73.7
–
–
73.7
Total
167.0
(93.3)
73.7
–
–
73.7
Strategic report
At 31 December 2012
(b) Financial liabilities IFRS7p13c – The following financial liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements. Related amounts not set off in the balance sheet Gross amounts of recognised financial liabilities
Gross amounts of recognised financial assets set off in the balance sheet
Net amounts of financial liabilities presented in the balance sheet
Financial instruments
Cash collateral received
Net amount
–
–
–
–
–
–
At 31 December 2013 Derivative financial liabilities Bank overdrafts
(151.1)
(151.1)
–
–
–
–
Total
(151.1)
(151.1)
–
–
–
– Governance
Related amounts not set off in the balance sheet Gross amounts of recognised financial liabilities
Gross amounts of recognised financial assets set off in the balance sheet
Net amounts of financial liabilities presented in the balance sheet
Financial instruments
Cash collateral received
Net amount
–
–
–
–
–
–
At 31 December 2012 Derivative financial liabilities Bank overdrafts
(93.3)
(93.3)
–
–
–
–
Total
(93.3)
(93.3)
–
–
–
–
Financial statements statments
For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each agreement between the group and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis. In the absence of such an election, financial assets and liabilities will be settled on a gross basis, however, each party to the master netting agreement or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the other party. Per the terms of each agreement, an event of default includes failure by a party to make payment when due; failure by a party to perform any obligation required by the agreement (other than payment) if such failure is not remedied within period of 30 to 60 days after notice of such failure is given to the party; or bankruptcy.
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Notes to the consolidated financial statements 18 Provisions Restructuring £m
Property disposals £m
Onerous contract provision £m
Other £m
Total £m
At 1 January 2013
1.6
2.5
3.3
0.1
7.5
Charged/(released) in the year
1.2
–
(1.8)
0.6
–
(1.0)
–
(1.0)
(0.1)
(2.1)
Utilised in the year Currency translation
–
–
–
–
–
At 31 December 2013
1.8
2.5
0.5
0.6
5.4
–
2.5
–
–
2.5
1.8
–
0.5
0.6
2.9
Represented by: Non-current Current
Other Other includes vacant property provisions £nil (2012: £0.1 million) and legal provisions arising through legislation £0.6 million (2012: £nil). Vacant property provisions are made in respect of vacant and partly sub-let leasehold properties to the extent that the future rental payments are expected to exceed future rental income. It is further assumed, where reasonable, that the properties will be able to be sub-let beyond the present sub-let lease agreements. Restructuring Restructuring provisions comprise largely of employee termination payments and are not recognised for future operating losses. Property disposals The group has outstanding warranties, indemnities and guarantees given previously on a number of properties operated by businesses which have been disposed. The majority of these expire in 2017 with the remaining expiring by 2022. Onerous contract provision The group has a provision for future losses on two decontamination contracts which are considered to be onerous. The utilisation and release of the provision is shown within administrative expenses and exceptional items within the income statement.
19 Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using the tax rate applicable to the territory in which the difference arises. (a) The movement on the net deferred tax account is as shown below:
At 1 January Acquisitions (note 25) (Charged) to income (note 5)
2013 £m
2012 £m
(38.3)
(34.7)
–
(4.1)
(2.1)
(3.3)
Other movements
0.1
(Charged)/taken to equity (note 5)
(1.3)
3.6
(0.4)
0.2
(42.0)
(38.3)
Currency translation At 31 December
–
The balance sheet presentation shown below is after the offsetting of deferred tax balances within the same tax jurisdiction. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.
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Berendsen plc Report and Accounts 2013
19 Deferred tax (continued) Balance sheet presentation
Deferred tax assets
– due after more than one year
As at 31 December 2012 £m
13.6
8.6
(55.6)
(46.9)
(42.0)
(38.3)
Deferred tax liabilities
– due after more than one year
(b) The individual movements in deferred tax assets and deferred tax liabilities, before the offsetting of balances within the same jurisdiction, are shown below:
Strategic report
As at 31 December 2013 £m
Deferred tax liabilities Accelerated tax depreciation £m
At 1 January 2013
(54.7)
Pensions £m
Derivatives £m
–
(0.6) (0.7)
–
Total £m
(8.5)
(68.9)
–
(0.1)
(0.7)
–
0.2
(1.1)
(1.1)
–
–
(1.1)
(0.1)
0.1
–
–
–
Currency translation
(0.6)
(0.2)
–
0.6
(0.2)
At 31 December 2013
(56.0)
(8.2)
–
(7.8)
(72.0)
Transfer (to) assets
(5.7)
Other £m
–
Credited/(charged) to income
(0.6)
(Charged) to equity Reclassification of asset
Provisions £m
At 1 January 2013 Transfer from liabilities Credited/(charged) to income
Pensions £m
Tax losses £m
Derivatives £m
Other £m
Total £m
2.1
5.7
9.2
1.1
12.5
30.6
–
0.6
0.1
–
–
0.7
(0.7)
(0.3)
–
0.8
(1.0)
(0.6)
(0.2)
(0.8)
Credited/(charged) to equity
–
(3.1)
–
Other movements
–
–
–
0.1
0.1
Currency translation
–
(0.1)
(0.4)
0.1
0.2
(0.2)
At 31 December 2013
1.3
2.4
8.6
4.7
13.0
–
3.5
Governance
Deferred tax assets
30.0
Deferred tax assets have been recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets where it is considered probable that these assets will be recovered. Deferred tax assets have not been recognised as follows: As at 31 December 2012 £m
2.0
2.2
Included in unused tax losses is an amount of £0.9 million (2012: £1.1 million) which will expire between 2014 and 2018 if the relevant losses are not used. No deferred tax is recognised on unremitted earnings from overseas subsidiaries.
Financial statements statments
Unused tax losses
As at 31 December 2013 £m
152
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 20 Share capital Ordinary shares millions
Ordinary shares £m
172.3
51.7
0.2
0.1
172.5
51.8
Allotted and fully paid At 1 January 2013 Allotted in respect of share option schemes At 31 December 2013 Fully paid ordinary shares have a par value of 30 pence. Potential issues of ordinary shares Share options Certain senior executives hold options to subscribe for shares in the company at prices ranging from £3.23 to £4.4575 under approved and unapproved share option schemes. Options on 205,410 shares were exercised in 2013 (20,000 at an exercise price of £3.67, 162,698 at an exercise price of £4.4575, 6,039 at an exercise price of £4.45, 13,942 at an exercise price of £3.23 and 2,731 at an exercise price of £3.47). For arrangements granted since October 2002, which were exercised in the year, the weighted average market price of at the time of exercise was £8.08. The number of shares subject to options is given below: Not exercised at 31 December 2013
Not exercised at 31 December 2012
Price per share pence
–
23,000
367.00
–
162,698
445.75
–
6,039
445.00
29 October 2009
230,793
249,623
323.00
1 December 2011
373,821
409,046
347.00
24 October 2013
321,542
–
726.00
9,810
12,410
323.00
935,966
862,816
The Davis 1998 Share Option Scheme Date of grant 10 October 2003 2 June 2005 Berendsen Sharesave Plan 2006 Date of grant 31 October 2007
Berendsen Irish SAYE Scheme 2009 Date of grant 29 October 2009
153
Berendsen plc Report and Accounts 2013
20 Share capital (continued) Share awards As at 31 December 2013, the following conditional share awards granted to directors and staff remain outstanding: 31 December 2013
31 December 2012
–
516,433
3 March 2011
435,097
435,097
7 March 2012
450,639
450,639
7 March 2013
319,494
–
–
71,599
3 March 2011
81,179
81,179
7 March 2012
84,208
84,208
7 March 2013
92,726
–
–
887,169
736,891
771,468
–
130,446
Performance Share Plan Strategic report
Date of grant 4 March 2010
Deferred Bonus Share Plan 4 March 2010
Executive Incentive Plan Date of grant 4 March 2010 4 March 2011 Share award pursuant to Listing Rule 9.4.2(2)1 Date of grant 17 December 2009 Co-Investment Plan Date of grant 15 April 2010
729,603
677,912
677,912
10 April 2012
707,572
707,572
9 April 2013
447,292
–
19,730
19,730
Date of grant 7 March 2012
186,356
186,356
7 March 2013
143,894
–
Date of grant 7 March 2012
396,848
412,331
7 March 2013
324,383
–
5,104,221
6,161,742
Year to 31 December 2013 £m
Year to 31 December 2012 £m
One-off Share award Date of grant 2 April 2012
Governance
–
12 April 2011
Berendsen Long-term Incentive Plan (3 years)
Berendsen Long-term Incentive Plan (2 years)
1
For further details refer to the directors’ remuneration report on page 98.
21 Share-based payments
Performance share plans
1.6
1.0
Executive incentive plan
(0.6)
0.3
2.7
2.0
Co-Investment plan Berendsen Long-term Incentive Plans Executive and Sharesave option schemes
1.6
1.2
0.2
0.2
5.5
4.7
Financial statements statments
The following share-based expenses charged in the year are included within administration expenses:
154
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 21 Share-based payments (continued) Share options During the year the group had 11 share-based payment arrangements granted since October 2002, outstanding with employees to grant share options. The schemes are equity settled. The details of the arrangements are set out below: Number of options originally granted
Contractual life
Exercise price (pence)
Share price at date of grant
Number of employees at grant
401,500
10 years
367.0
367.0
460,000
10 years
445.8
Date of grant 31 October 2007
163,090
3.5 years
29 October 2009
364,364
29 October 2009
Risk free rate
Expected dividend yield
Fair value per option (pence)
0 years
4.2%
3.5%
59.86
25%
1.5 years
4.2%
3.5%
72.71
152
22%
0 years
5.0%
4.0%
147.8
402.6
407
30%
0 years
2.0%
4.8%
65.32
323.0
402.6
152
27%
1.5 years
2.0%
4.8%
65.32
3.5 years
347.0
433.2
458
29%
1.5 years
0.6%
4.2%
75.26
5.5 years
347.0
433.2
92
27% 3.5 years
1.2%
4.2%
74.02
225,323
3.5 years
726.0
907.0
585
23% 3.5 years
0.8%
4.3%
1.70
98,475
5.5 years
726.0
907.0
140
25% 5.5 years
1.5%
4.3%
1.89
Date of grant 29 October 2009
31,844
3.5 years
323.0
418.0
24
30%
0 years
2.0%
4.8%
65.32
29 October 2009
20,639
5.5 years
323.0
418.0
11
27%
1.5 years
2.0%
4.8%
65.32
Expected volatility
Expected remaining life
60
25%
445.8
12
445.0
556.3
3.5 years
323.0
301,044
5.5 years
27 October 2011
360,278
27 October 2011
118,964
24 October 2013 24 October 2013
The Davis 1998 Share Option Scheme Date of grant 10 October 2003 2 June 2005 Berendsen Sharesave Plan 2006
Berendsen Irish SAYE Scheme 2009
The group has used the Black-Scholes model to value its share option awards. The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the length of the option period. The options granted under the Sharesave Plan are available to all UK employees. The options granted under the Irish scheme are available to all Republic of Ireland employees. The exercise price of the granted options is equal to the average market price of the shares less 20% at the date of invitation. Options are conditional on the employee completing three or five years service (the vesting period). There are no other conditions. The options are exercisable for a period of six months after vesting.
155
Berendsen plc Report and Accounts 2013
21 Share-based payments (continued) A reconciliation of movements in the number of share options for the group can be summarised as follows: The Davis 1998 Share Option Scheme Number of shares Granted
10 October 2003
23,000
2 June 2005
31 December 2013
Exercise price (pence)
Exercise period
–
367.00
Oct 2006 – Oct 2013
–
445.75
Jun 2008 – Jun 2015
31 December 2012
Exercise price (pence)
Exercise period
–
23,000
367.00
Oct 2006 – Oct 2013
–
162,698
445.75
Jun 2008 – Jun 2015
Lapsed
31 December 2013
Exercise price (pence)
Exercise period
–
–
445.00
Dec 2012 – May 2013
–
323.00
Dec 2012 – May 2013
(4,240)
230,793
323.00
Dec 2014 – May 2015
(29,125)
274,907
347.00
Dec 2014 – May 2015
Exercised
Lapsed
–
(20,000)
(3,000)
162,698
–
(162,698)
1 January 2012
Granted
Exercised
10 October 2003
70,000
–
(47,000)
2 June 2005
282,872
–
(120,174)
1 January 2013
Granted
Exercised
31 October 2007
6,039
–
(6,039)
29 October 2009
12,862
–
(11,066)
(1,796)
29 October 2009
236,761
–
(1,728)
27 October 2011
306,763
–
(2,731)
27 October 2011
–
Number of shares Lapsed
Strategic report
1 January 2013
Berendsen Sharesave Plan 2006 Number of shares
–
–
(3,369)
98,914
347.00
Dec 2016 – May 2017
–
225,323
–
(2,256)
223,067
726.00
Dec 2016 – May 2017
24 October 2013
–
98,475
–
98,475
726.00
Dec 2018 – May 2019
1 January 2012
Granted
Exercised
31 December 2012
Exercise price (pence)
Exercise period
66,468
–
(50,086)
6,039
445.00
Dec 2012 – May 2013
29 October 2009
277,603
–
(224,886)
(39,855)
12,862
323.00
Dec 2012 – May 2013
29 October 2009
270,936
–
(5,331)
(28,844)
236,761
323.00
Dec 2014 – May 2015
27 October 2011
358,880
–
(807)
(51,310)
306,763
347.00
Dec 2014 – May 2015
27 October 2011
116,803
–
–
(14,520)
102,283
347.00
Dec 2016 – May 2017
1 January 2013
Granted
Exercised
31 December 2013
Exercise price (pence)
Exercise period
29 October 2009
2,600
–
29 October 2009
9,810
–
–
1 January 2012
Granted
Exercised
29 October 2009
22,453
–
29 October 2009
9,810
–
–
Number of shares
31 October 2007
Lapsed
(10,343)
Governance
102,283
24 October 2013
Berendsen Irish SAYE Scheme 2009 Number of shares
(1,148)
Lapsed
(1,452) –
(16,111) –
Lapsed
(3,742) –
323.00
Dec 2012 – May 2013
323.00
Dec 2014 – May 2015
31 December 2012
Exercise price (pence)
Exercise period
2,600
323.00
Dec 2012 – May 2013
9,810
323.00
Dec 2014 – May 2015
Financial statements statments
Number of shares
– 9,810
156
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 21 Share-based payments (continued) Share awards During the year the group had 20 conditional share awards granted to directors and staff. The schemes are equity settled. The details of the arrangements are set out below: Number of options originally granted
Contractual life
Share price at date of grant
Number of employees at grant
Expected volatility
Average correlation
Expected life
Risk free rate
Expected dividend yield
4 March 2010 3 March 2011
516,433
3 years
408.8
6
30%
n/a
3 years
1.9%
4.8%
353.97
435,097
3 years
488.1
6
29%
n/a
3 years
1.9%
4.2%
430.05
7 March 2012
450,639
3 years
517.9
7
29%
n/a
3 years
0.6%
7.3%
416.56
7 March 2013
319,494
3 years
712.0
7
24%
n/a
3 years
0.4%
5.8%
598.16
Date of grant 4 March 2010
71,599
3 years
408.8
5
30%
n/a
3 years
1.9%
4.8%
56.24
3 March 2011
81,179
3 years
488.1
6
25%
n/a
3 years
1.4%
4.2%
52.53
7 March 2012
84,208
3 years
517.9
7
26%
n/a
3 years
0.6%
7.3%
44.01
7 March 2013
92,726
3 years
712.0
7
24%
n/q
3 years
0.4%
5.8%
60.91
1,051,540
3 years
408.8
94
30%
n/a
3 years
1.9%
4.8%
353.97
917,367
3 years
488.1
92
29%
n/a
3 years
1.9%
4.2%
430.05
130,446
2-3 years
383.3
1
30%
n/a
3 years
1.9%
4.8%
339.96
729,603
3 years
420.6
9
30%
n/a
3 years
1.9%
4.8%
353.97
12 April 2011
677,912
3 years
488.1
8
29%
n/a
3 years
1.8%
4.2%
430.05
10 April 2012
707,572
3 years
518.0
11
25%
n/a
3 years
0.5%
7.3%
416.54
9 April 2013
447,292
3 years
768.0
7
24%
n/a
3 years
0.3%
5.4%
653.45
19,730
3 years
523.0
1
25%
n/a
3 years
0.6%
7.3%
421.53
Date of grant 7 March 2012
209,624
3 years
517.9
11
26%
n/a
3 years
0.6%
7.3%
416.56
7 March 2012
427,399
2 years
517.9
83
26%
n/a
2 years
0.4%
7.3%
447.92
7 March 2013
143,894
3 years
712.0
11
24%
n/a
3 years
0.4%
5.8%
598.16
7 March 2013
324,383
2 years
712.0
83
24%
n/a
2 years
0.2%
5.8%
633.92
Fair value per option (pence)
Performance Share Plan
Deferred Bonus Share Plan
Executive Incentive Plan Date of grant 4 March 2010 4 March 2011 Share award pursuant to Listing Rule 9.4.2(2) Date of grant 17 December 2009 Co-Investment Plan Date of grant 15 April 2010
One-off Share Award Date of grant 2 April 2012 Berendsen Longterm Incentive Plan
157
Berendsen plc Report and Accounts 2013
21 Share-based payments (continued) The Performance Share Plan (PSP) provides for the grant of awards in the form of conditional free shares or nil costs options. Shares in relation to the award will be released to participants at the end of a three-year performance period, dependent upon the extent to which the performance conditions (adjusted EPS and ROIC) have been satisfied.
The Deferred Bonus Share Plan (DBSP) provides for the grant of awards that equal a quarter of an Executive Directors annual bonus. Awards are conditional free shares which are dependent on the employee completing three years’ service from the date of the grant.
Strategic report
The Co-Investment Plan (CIP) provides for the grant of awards in the form of nil cost options. Under this scheme, certain senior executives can invest up to 35% of their salary in shares annually, which is then matched on a gross basis with a granted award. The awards will be released to participants at the end of a three-year performance period, dependent upon the extent to which the performance conditions (adjusted EPS and ROIC) have been satisfied. Awards granted before 2013 had a guaranteed match, where a proportion of the awards granted were not dependent upon performance conditions.
The Berendsen Long-Term Incentive Plan (BLTIP) provides for the grant of awards in the form of nil cost options which are conditional on the employee achieving relevant, stretching three or two-year performance targets which are business unit specific. This scheme replaces the Executive Incentive Plan. The Executive Incentive Plan (EIP) awards are conditional on the employee achieving relevant, stretching three-year performance targets. Awards are no longer granted under this scheme. The remuneration committee approved the grant of a one-off share award to Peter Ventress, who joined as Chief Executive from 1 January 2010. The share award pursuant to Listing Rule 9.4.2(2) is an award over the company’s shares that, at the time of grant, had the market value of £500,000 and was structured so as to broadly replicate the terms of the incentive awards he forfeited when he resigned from his former employer. The award is not performance related (reflecting the terms of the forfeited award). This award vested in full on 31 March 2012 and could be exercised at any time up to 17 December 2019 being the tenth anniversary of the grant date. Peter Ventress exercised this award on 8 April 2013. A one-off share award was granted on 2 April 2012 following the purchase of the Decontam business in Germany. The award is not performance related and will vest on 2 April 2015. If, however, prior to the vesting of the award, the individual ceases to be an employee of the company by reason of notice of termination of his employment (whether given or received), the award will lapse. The group has used the Black-Scholes model to value its share awards.
A reconciliation of movements in the number of share awards for the group can be summarised as follows:
Governance
The volatility at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the length of the award period.
Performance Share Plan Number of shares
1 January 2013
Granted
4 March 2010
516,433
–
Vesting period/date
–
4 March 2013
3 March 2011
435,097
–
–
–
435,097
3 March 2014
7 March 2012
450,639
–
–
–
450,639
7 March 2015 – 7 March 2019
7 March 2013
–
319,494
–
–
319,494
7 March 2016 – 7 March 2020
31 December 2012
Vesting period/date
–
4 March 2012
516,433
4 March 2013
435,097
3 March 2014
450,639
7 March 2015 – 7 March 2019
(322,770)
Lapsed
(193,663)
Number of shares
1 January 2012
Granted
5 March 2009
858,320
–
4 March 2010
516,433
–
–
3 March 2011
435,097
–
–
7 March 2012
–
450,639
–
Vested
(498,169)
Lapsed
(360,151) – –
Financial statements statments
31 December 2013
Vested
158
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 21 Share-based payments (continued) Deferred Bonus Share Plan Number of shares
1 January 2013
Granted
Lapsed
31 December 2013
Vesting date
4 March 2010
71,599
–
–
–
4 March 2013
3 March 2011
81,179
–
–
–
81,179
3 March 2014
7 March 2012
84,208
7 March 2013
–
–
–
–
84,208
7 March 2015
92,726
–
–
92,726
7 March 2016
1 January 2012
Granted
Vested
Lapsed
31 December 2012
Vesting date
4 March 2010
71,599
–
–
–
71,599
4 March 2013
3 March 2011
81,179
–
–
–
81,179
3 March 2014
7 March 2012
–
84,208
–
–
84,208
7 March 2015
Vested
(71,599)
Number of shares
Executive Incentive Plan Number of shares 1 January 2013
Granted
4 March 2010
887,169
–
4 March 2011
771,468
–
Vested
(397,815) –
31 December 2013
Vesting date
(489,354)
–
4 March 2013
(34,577)
736,891
4 March 2014
31 December 2012
Vesting date
–
30 September 2012
Lapsed
Number of shares 1 January 2012
Granted
30 September 2009
829,832
–
4 March 2010
906,482
–
–
(19,313)
887,169
4 March 2013
4 March 2011
818,050
–
–
(46,582)
771,468
4 March 2014
1 January 2013
Granted
Vested
Lapsed
31 December 2013
Vesting period
130,446
–
–
–
31 Mar 2012 – 17 Dec 2019
1 January 2012
Granted
Vested
Lapsed
31 December 2012
Vesting period
130,446
–
–
–
130,446
31 Mar 2012 – 17 Dec 2019
Vested
(480,152)
Lapsed
(349,680)
Share award pursuant to Listing Rule 9.4.2(2)
17 December 2009
17 December 2009
Number of shares
(130,446)
Number of shares
Berendsen plc Report and Accounts 2013
159
21 Share-based payments (continued) Co-Investment Plan Number of shares Granted
15 April 2010
729,603
–
12 April 2011
677,912
–
–
10 April 2012
707,572
–
–
447,292
9 April 2013
31 December 2013
Vesting period/date
–
15 April 2013
–
677,912
12 April 2014
–
–
707,572
10 April 2015 – 10 April 2019
–
–
447,292
10 April 2016 – 10 April 2020
Vested
(518,430)
Lapsed
(211,173)
Number of shares
1 January 2012
Granted
Vested
Lapsed
31 December 2012
Vesting date
15 April 2010
729,603
–
–
–
729,603
15 April 2013
12 April 2011
677,912
–
–
–
677,912
12 April 2014
–
707,572
–
–
707,572
10 April 2015 – 10 April 2019
1 January 2013
Granted
Vested
Lapsed
31 December 2013
Vesting date
19,730
–
–
–
19,730
1 April 2015
1 January 2013
Granted
Vested
Lapsed
31 December 2013
Vesting date
7 March 2012
186,356
–
–
–
186,356
7 March 2015
7 March 2012
412,331
–
–
396,848
7 March 2014
7 March 2013
–
143,894
–
143,894
7 March 2016
7 March 2013
–
331,383
–
324,383
7 March 2015
10 April 2012
Strategic report
1 January 2013
One-off Share Award
2 April 2013
Number of shares
Berendsen Long-term Incentive Plan
(15,483) – (7,000)
Governance
Number of shares
Financial statements statments
160
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 22 Principal subsidiary undertakings Company
Class of shares held
Country of incorporation
Berendsen UK Limited (1)(2)
Ordinary
England
Spring Grove Services Limited
Ordinary
Republic of Ireland
UK and Ireland
Central Laundries Limited
Ordinary
Northern Ireland
IH Decontamination Services (Cardiff) Limited
Ordinary
England
IH Sterile Services Limited
Ordinary
England
Ordinary
England
Ordinary
Denmark
Berendsen Textil Service A/S
Ordinary
Denmark
Berendsen Textil Service AB
Ordinary
Sweden
(1)(3)
Berendsen Finance Limited Continental Europe Berendsen A/S(3)
(1)
Berendsen Sourcing AB
Ordinary
Sweden
Berendsen Textil Service AB – Filial I Finland
Ordinary
Sweden
Berendsen Tekstil Service AS
Ordinary
Norway
Ordinary
Latvia
AS “Berendsen Tekstila Serviss”
(4)
“Berendsen Textile Service”, UAB
(5)
Ordinary
Lithuania
Berendsen Beteiligungs GmbH
Ordinary
Germany
Berendsen GmbH
Ordinary
Austria
Berendsen Textiel Service BV
Ordinary
Holland
Groene Team B.V.
Ordinary
Holland
Berendsen Textile Service Sp.z.o.o.
Ordinary
Poland
Berendsen Textile Servis s.r.o.
Ordinary
Czech Republic
Berendsen Textile Service A/S
Ordinary
Estonia
AS Svarmil
Ordinary
Estonia
(1) (2) (3) (4) (5)
Owned directly by Berendsen plc. All principal subsidiary undertakings are 100% owned and consolidated. On 5 July 2013, the company changed its name to Berendsen UK Limited from The Sunlight Service Group Limited. The principal activity of these companies is that of a holding company. The principal activity of all other companies is that of textile maintenance. On 1 October 2013, the company changed its name to AS “Berendsen Tekstila Serviss” from AS Emblému Pakláju Serviss. On 31 December 2013, the company changed its name to “Berendsen Textile Service”, UAB from UAB Tebúnie Švara.
Under section 410 Companies Act 2006 the directors have taken the exemption for only the principal subsidiary undertakings to be disclosed. The full information will be annexed to the company’s next annual return.
161
Berendsen plc Report and Accounts 2013
23 Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities: Year to 31 December 2012 Restated £m
85.2
70.4
Taxation
27.2
21.3
Amortisation of intangible assets
30.8
30.4
Depreciation of property, plant and equipment
173.1
162.3
Profit on sale of property, plant and equipment
(2.0)
(1.2)
Finance income
(2.4)
(2.2)
Cash generated from operations Profit for the year Adjustments for:
Finance costs
25.0
27.8
Special pension contribution payments (note 27)
(5.0)
(5.0)
3.8
0.2
–
3.2
Inventories
0.8
3.9
Trade and other receivables
(1.4)
(0.1)
Trade and other payables
12.2
Other movements Impact of IAS 19 Employee Benefits
Strategic report
Year to 31 December 2013 £m
Changes in working capital (excluding effect of acquisitions, disposals and exchange differences on consolidation):
Provisions Cash generated from operations
7.6
(2.1)
(0.9)
345.2
317.7
In the cash flow statement, proceeds from sale of property (including assets held for sale), plant and equipment comprise: Year to 31 December 2013 £m
Year to 31 December 2012 £m
Net book amount
4.2
2.7
Profit on sale of property, plant and equipment
2.0
1.2
Proceeds from sale of property, plant and equipment
6.2
3.9
Year to 31 December 2013 £m
Year to 31 December 2012 £m
139.4
125.1
301.4
274.8
5.0
5.0
Free cash flow
Governance
2012 cash flow statement has been restated for the impact of IAS19 Employee Benefits (revised). Overall this has had no impact on the net increase or decrease in cash.
Analysis of free cash flow Add back special pension contribution payments Purchases of property, plant and equipment Proceeds from the sale of property, plant and equipment Purchases of intangible assets Free cash flow
(169.6)
(155.1)
6.2
3.9
(3.6)
(3.5)
139.4
125.1
Financial statements statments
Net cash generated from operating activities
162
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 24 Reconciliation of net cash flow to movement in net debt Year to 31 December 2013 £m
Increase/(decrease) in cash
Year to 31 December 2012 £m
19.2
(16.4)
Cash outflow from movement in debt and lease financing
56.3
55.1
Decrease in net debt resulting from cash flows
75.5
38.7
New finance leases
(2.9)
Bank loans and lease obligations acquired with subsidiaries Currency translation Decrease in net debt during the year
(2.5)
–
(0.8)
2.1
14.5
74.7
49.9
Net debt at beginning of year
(463.7)
(513.6)
Net debt at end of year
(389.0)
(463.7)
25 Acquisitions and disposals Acquisitions During the year the group acquired the trade and assets of two textile maintenance businesses in Sweden and Ireland. Details of the provisional fair values of the assets and liabilities are set out below: Total Provisional fair values £m
Intangible assets (note 9) Property, plant and equipment (note 10)
1.0 (0.3)
Trade and other receivables
0.2
Cash and cash equivalents
0.2
Net assets acquired Goodwill (note 8) Consideration
1.1 0.4 1.5
Consideration satisfied by: Cash Deferred consideration
1.2 0.3 1.5
Acquisition related costs of £nil (2012: £0.5 million) are included in the income statement. Shown below are the revenues and profit for the year after tax as if the above acquisitions had been made at the beginning of the period. The information is not indicative of the results of operations that would have occurred had the purchase been made at the beginning of the period presented or the future results of the combined operations. 2013 £m
Revenue Profit after tax
1.4 0.4
163
Berendsen plc Report and Accounts 2013
25 Acquisitions and disposals (continued) From the date of acquisition to 31 December 2013, the above acquisitions contributed £0.2 million to revenue and £0.1 million to profit after tax for the year. During the year the group paid deferred consideration on previous acquisitions. A reconciliation of the total net cash paid for acquisitions is provided: £m
1.0
Deferred consideration paid for previous acquisitions
1.7 2.7
During the year a revision to the fair value of assets acquired as a result of acquisitions made in 2012 resulted in a debit of £0.4 million to goodwill.
Strategic report
Cash consideration, net of cash acquired
26 Employees and directors Staff costs for the group during the year: Year to 31 December 2013 £m
Year to 31 December 2012 Restated £m
Wages and salaries
339.3
320.3
Social security costs
46.6
43.5
Other pension costs
16.7
15.2*
Share-based payment charges (note 21)
5.5
4.7
408.1
383.7
2013 Number
2012 Number
Workwear
3,775
3,732
Facility
1,924
1,680
*Other pension costs restated for the impact of IAS19 Employee Benefits Governance
Average monthly number of people (including directors) employed
By business line
UK Flat Linen
4,501
4,719
10,200
10,131
Clinical Solutions and Decontamination
1,202
1,290
Flat Linen outside UK
3,249
3,178
Total Manage for Value
4,451
4,468
362
389
15,013
14,988
Year to 31 December 2013 £m
Year to 31 December 2012 £m
Salaries and short-term employee benefit
5.4
5.4
Post-employment benefit contributions
0.5
0.5
Share-based payments
3.8
2.8
9.7
8.7
Total Core
Central Group Key management compensation
Financial statements statments
The key management compensation above includes seven (2012: seven) Berendsen plc directors and five (2012: five) executive board members who are not Berendsen plc directors.
164
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 26 Employees and directors (continued) Directors Year to 31 December 2013 £m
Year to 31 December 2012 £m
Salaries and short-term employee benefits
2.3
2.2
Post-employment benefit contributions
0.2
0.2
1.5
1.1
4.0
3.5
Share-based payments
As at 31 December 2013, two (2012: two) directors were accruing retirement benefits under money purchase schemes, in respect of their services to the company. Further details of the directors’ emoluments, including benefits received by the highest paid director, are disclosed in the Remuneration report on page 91.
27 Pension commitments Defined contribution schemes Pension costs for defined contribution schemes are as follows:
Defined contribution schemes (note i) (i)
Year to 31 December 2013 £m
Year to 31 December 2012 £m
15.5
13.2
Total included within staff costs (note 26).
Defined benefit plans As set out in Accounting Policies, on 1 January IAS 19 Employee Benefits became mandatory for the first time and the pensions information contained in this note has been prepared under this basis. Consequently, prior year information, as applicable, has been restated to reflect the impact of this change. The Group operates a number of defined benefit schemes and unfunded schemes. Of these, the principal schemes are the defined benefit plans in the UK and the unfunded scheme in Sweden. Within the United Kingdom, the group now operates only the one registered defined benefit pension scheme (Berendsen DB (UK) Retirement Benefits Scheme (formerly known as the Davis Service Group Retirement Benefits Scheme)), following a merger with the one other smaller scheme on 1 February 2013. The triennial valuation of the newly merged scheme at that date requires that, as well as the employer contributions for the 110 active members of the scheme, Berendsen will continue contributions to cover the past service deficit, arising under the technical provisions, of £1.25m per quarter until August 2015. The level of benefits provided depends on each member’s length of scheme membership and salary in the final years leading up to retirement. In the UK plan, the pensions in payment are generally increased by 5% in respect of pre-1 February 1999 membership, and by the retail price index for membership from that date. Benefit payments are made from trustee administered funds. Plan assets are governed by regulations in the UK, as is the nature of the relationship between the group and the trustees and their composition. Responsibility for governance of the plan, including investment decisions and contribution schedules, lies jointly with the company and the trustees. The trustees must comprise of representatives of the company and plan members in accordance with legislation. Overseas, there is a comparatively small defined benefit scheme operated in Ireland. Along with the scheme in Sweden further unfunded schemes exist within Germany and Norway. Under all unfunded schemes the group discharges its pension obligations through schemes administered by insurance companies or government agencies. The overall surplus on the plans is £7.1 million (of which £38.2 million surplus is in respect of the UK plan). There is a deficit of £31.1 million on other funded and unfunded plans, of which £25.2 million relates to Sweden. Where a defined benefit scheme is administered by an insurance company with a collective of other companies and the insurance company is unable to assess the share of the group’s pension obligation, the pension scheme has been accounted for as a defined contribution pension scheme. At the last valuation date the present value of the defined benefit obligation was comprised of 588 active employees, 2,516 deferred members and 1,561 members in retirement. Expected contributions, including special contributions, to post employment benefit schemes for the year ended 31 December 2014 are £7m (2013:£7.7m). The weighted average duration of the defined benefit obligation across all schemes is 18.2 years.
165
Berendsen plc Report and Accounts 2013
27 Pension commitments (continued) The actuarial valuations of the UK scheme, together with the other defined benefit schemes operated by the group have been updated as at 31 December 2013 by qualified actuaries using revised assumptions that are consistent with the requirements of IAS19. The principal assumptions made by the actuaries were:2012 %
2013 %
Rate of increase in pensionable salaries
2.8
3.0
2.9
Discount rate
4.5
4.2
Inflation rate – RPI
2.9
2.9
Inflation rate – CPI
2.3
2.3
Strategic report
3.1
Rate of increase in pensions in payment and deferred pensions
Mortality rate Assumptions regarding future mortality experience are set based on advice, published statistics and experience in each territory. The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date, is as follows: 2013
2012
Male
23.2
21.9
Female
24.1
23.1
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, is as follows: 2012
23.5
23.4
Female
26.0
24.8
As at 31 December 2013 £m
As at 31 December 2012 £m
Governance
2013
Male
The amounts recognised in the balance sheet are determined as follows: Present value of obligations
(302.2)
(302.7)
Fair value of plan assets
309.3
282.2
Net asset/(liability) recognised in balance sheet
7.1
(20.5)
Analysed as: Pension scheme surplus Pension scheme deficit and unfunded schemes
38.2
19.5
(31.1)
(40.0)
7.1
(20.5)
The major categories of plan assets as a percentage of total plan assets are as follows: 2012 %
25
22
North American equities
9
9
Asia Pacific equities
8
8
40
44
3
4
European equities
European bonds European gilts Cash
–
–
Other
15
13
100
100
Other assets consist principally of investments in a managed dynamic asset allocation fund. In the case of the funded plans, the group ensures that the investment positions are managed within a framework that has been developed to achieve long-term investments that are in line with the obligations of the pension schemes. Within this framework, the group’s objective is to work towards matching the pension obligations by investing principally in long term corporate bonds
Financial statements statments
2013 %
166
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 27 Pension commitments (continued) with maturities that match the benefit payments as they fall due. The group believes that its current strategy is best suited to the particular scheme. The group has not changed the processes used to manage risks from previous periods. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A large portion of assets in 2013 consists of equities and bonds, although the group also invests in diversified growth funds and a small amount of cash. The majority of equities (which constitute 42% of the overall portfolio) are invested in a globally diversified portfolio of international blue chip entities with a target of 50% UK and 50% Overseas. The other growth assets are the diversified growth funds which have a target of 25% of the overall portfolio. The group has agreed that it will aim to eliminate the deficit on a technical provisions basis by the end of 2015 and deficit contributions of £1.25m per quarter are being made to achieve this. Funding levels are monitored on a quarterly basis and the current agreed contribution rate in respect of active members is 29.5% of pensionable salaries. These contribution rates have been set following the completion of the latest triennial valuation of the scheme as at 1 February 2013. The group considers that the contribution rates set at this valuation is sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs, will not increase significantly. Year to 31 December 2013 £m
Year to 31 December 2012 Restated £m
2.2
2.2
The amounts recognised in the income statement are as follows: Current service cost Past service cost – amendment from RPI to CPI
–
(0.4)
Interest cost
12.6
12.1
Return on plan assets
(12.6)
(11.9)
Curtailment gain Total included within staff costs (note 26)
(1.0)
–
1.2
2.0
2013 £m
2012 £m
302.7
279.3
2.2
2.2
Changes in the present value of the defined benefit obligation are as follows: Present value of obligation as at 1 January Current service cost Interest cost
12.6
12.1
Past service cost
–
Curtailment loss
(1.0)
–
Actuarial (loss)/gain
(5.5)
19.3
Benefits paid
(9.1)
(9.8)
Contributions by members
0.2
0.1
Currency translation
0.1
(0.1)
Present value of obligations as at 31 December
(0.4)
302.2
302.7
2013 £m
2012 Restated £m
282.2
251.1
Return on plan assets
12.6
11.9
Employer special contributions
5.0
5.0
Changes in the fair value of the plan assets are as follows: Fair value of plan assets as at 1 January
Contributions – employee and employer
2.0
2.7
Benefits paid
(8.3)
(8.9)
Actuarial gain
15.4
20.7
Currency translation
0.4
(0.3)
Fair value of plan assets as at 31 December
309.3
282.2
167
Berendsen plc Report and Accounts 2013
27 Pension commitments (continued) Actuarial gains and losses in the period may be further analysed as follows: 2013 £m
2012 Restated £m
Return on plan assets
14.6
16.2
Loss from charges in demographic assumptions
(6.0)
Experience gain/(loss) Net actuarial gain recognised in the year
6.1
(14.2)
6.2
(0.6)
20.9
1.4
2013 £m
2012 £m
(125.6)
(127.0)
Cumulative actuarial gains and losses recognised in equity
1 January Net actuarial gain recognised in the year
20.9
31 December
Strategic report
Gain/(loss) changes in financial assumptions
–
1.4
(104.7)
(125.6)
The actual return on plan assets was a gain of £28.0 million (2012: gain of £32.6 million). The pension surplus is recognised in the balance sheet as the company has the right to any surplus after settlement of all liabilities under the terms of the trust deed. Sensitivities The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is set out below for the defined benefit schemes and unfunded schemes Defined benefit schemes Increase in assumption
Decrease in assumption
Discount rate
0.5%
Decrease by 9%
Increase by 10%
Salary growth rate
0.5%
No change
No change
Pension growth rate
0.5%
Increase by 4%
Decrease by 3%
Change by 1 year
Increase by 3%
Decrease by 3%
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
0.5%
Decrease by 8%
Increase by 9%
Salary growth rate
0.5%
Increase by 5%
Decrease by 4%
Life expectancy
Governance
Change in assumption
Unfunded schemes
Pension growth rate Life expectancy
0.5%
Increase by 7%
Decrease by 6%
Change by 1 year
Increase by 4%
Decrease by 4%
Financial statements statments
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit to significant actuarial assumptions the same method has been applied when calculating the pension liability recognised within the statement of financial position.
168
Berendsen plc Report and Accounts 2013
Notes to the consolidated financial statements 28 Operating lease commitments – minimum lease payments The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2013
2012
Property £m
Vehicles, plant and equipment £m
Property £m
Vehicles, plant and equipment £m
Within one year
6.6
9.3
6.6
7.6
Later than one year and less than five years
15.8
18.9
14.8
15.8
After five years
12.6
0.4
15.1
0.6
35.0
28.6
36.5
24.0
The group leases various offices and warehouses under non-cancellable operating lease agreements. The leases have various terms, escalation clauses and renewal rights.
29 Capital commitments As at 31 December 2013 £m
As at 31 December 2012 £m
16.0
8.8
Contracts placed for future capital expenditure not provided in the financial statements: Property, plant and equipment
30 Contingent liabilities The group operates from a number of laundries across Europe. Some of the sites have operated as laundry sites for many years, and historic environmental liabilities may exist, although the group has indemnities from third parties in respect of a number of sites. The extent of these liabilities and the cover provided by the indemnities are reviewed where appropriate with the relevant third party. The company is currently defending a legal claim to the warranties received for any environmental damage that might have existed when it purchased laundry sites in Sweden and Holland. The company expects to have its warranties, which were contractually received in a clear and unequivocal manner, to be confirmed in full. The company does not expect to incur any significant loss in respect of these or any other sites.
31 Related parties There have been no significant related party transactions in the year ended 31 December 2013 (2012: nil).
Berendsen plc Report and Accounts 2013
169
Independent auditor’s report to the members of Berendsen plc
Respective responsibilities of directors and auditors As explained more fully in the Directors’ responsibilities statement on page 85, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements In our opinion the parent company financial statements:
, give a true and fair view of the state of the company’s affairs as at 31 December 2013;
, have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice; and
, have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006 In our opinion:
, the part of the Report on directors’
, the information given in the Directors’ report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
, adequate accounting records have
not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
, the parent company financial
statements and the part of the Report on directors’ remuneration to be audited are not in agreement with the accounting records and returns; or
, certain disclosures of directors’
remuneration specified by law are not made; or
, we have not received all the
information and explanations we require for our audit.
Other matters We have reported separately on the group financial statements of Berendsen plc for the year ended 31 December 2013. The maintenance and integrity of the Berendsen plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Information published on the internet is accessible in many countries which may have different legal requirements relating to the preparation and dissemination of financial statements. Christopher Burns Senior Statutory Auditor for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 27 February 2014
Financial statements statments
remuneration to be audited has been properly prepared in accordance with the Companies Act 2006; and
Matters on which we are required to report by exception
Governance
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
Strategic report
We have audited the parent company financial statements of Berendsen plc for the year ended 31 December 2013 which comprise the Company balance sheet, the Accounting policies to the parent company financial statements and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
170
Berendsen plc Report and Accounts 2013
Parent company financial statements The following parent company statements are prepared under UK GAAP and relate to the company and not to the group. The statement of accounting policies which have applied to these accounts can be found on pages 171 to 173 and a separate independent auditors’ report on page 169.
Company balance sheet at 31 December 2013
Notes
As at 31 December 2013 £m
As at 31 December 2012 Restated £m
Tangible assets
2
0.5
0.7
Investments
3
Fixed assets 845.8
705.8
846.3
706.5
4
30.1
43.0
1.8
–
4
223.8
270.0
21.0
38.4
0.1
17.4
276.8
368.8
Current assets Debtors: amounts falling due within one year Derivative financial instruments falling due within one year Debtors: amounts falling due after more than one year Derivative financial instruments falling due after more than one year Cash at bank and in hand Creditors: amounts falling due within one year
5
Derivative financial instruments falling due within one year Net current assets
(113.9)
(92.8)
(6.9)
(2.1)
156.0
Total assets less current liabilities
1,002.3
Creditors: amounts falling due after more than one year
6
Derivative financial instruments falling due after more than one year Provisions for liabilities
7
Net assets
273.9 980.4
(548.1)
(604.5)
(33.2)
(34.7)
(3.4)
(2.8)
417.6
338.4
Capital and reserves Called up share capital
8
51.8
51.7
Share premium account
9
99.2
98.4
Other reserves
9
18.4
16.1
Capital redemption reserve
9
150.9
150.9
Profit and loss account
9
97.3
21.3
10
417.6
338.4
Total shareholders’ funds
The financial statements on pages 170 to 178 were approved by the board and signed on its behalf. Peter Ventress Chief Executive Officer 27 February 2014 Berendsen plc Registered no. 1480047
Kevin Quinn Chief Financial Officer
Berendsen plc Report and Accounts 2013
171
Accounting policies to the parent company financial statements Basis of preparation These financial statements for the parent company are prepared on the going concern basis, under the historical cost convention, as modified by the revaluation of fixed asset investments, financial assets and financial liabilities (including derivative instruments) through profit and loss and in accordance with the Companies Act 2006 and applicable accounting standards in the United Kingdom. The principal accounting policies, which have been applied consistently, are set out below.
Tangible fixed assets Tangible fixed assets are shown at cost less depreciation. Costs include the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.
Strategic report
The prior year balance sheet has been restated to reduce the pension asset of £18.8 million to nil to cap the recognition of asset at the level of future service costs. Accordingly the profit and loss reserve has been restated by the corresponding amount. The impact on profit and loss in 2012 as a result of this restatement was an increase in the pension charge by £2.3 million with a corresponding offset within actuarial gains.
Depreciation Depreciation is provided at rates calculated to write-off the cost or valuation, less estimated residual value, of each asset on a straight-line basis over its expected useful life, as follows: Straight-line %
Plant and machinery
20-33
Short leasehold property
16.7
Fixed asset investments
Dividend distribution Final dividend distribution to the company’s shareholders is recognised as a liability to the group’s financial statements in the period in which the dividends are approved by the company’s shareholders. Interim dividends are recognised when paid.
Governance
Investments are initially stated at cost. Investments denominated in foreign currencies are translated at the rates prevailing on the balance sheet date, only to the extent that they are hedged by foreign currency borrowings. All such exchange differences are offset directly in reserves. Investments are tested for impairment when an event that might affect asset value has occurred. An impairment loss is recognised to the extent that the carrying amount cannot be recovered either by selling the asset or by the discounted future cash flows from the investment.
Deferred taxation Deferred taxation is provided on a full provision basis, without discounting, on all timing differences which have arisen but not reversed at the balance sheet date. Except where otherwise required by Accounting Standards, no timing differences are recognised in respect of: (a) Property revaluation surpluses where there is no commitment to sell the asset; (b) Gains on sale of assets where those gains have been rolled over into replacement assets; (c) Additional tax which would arise if profits of overseas subsidiaries were distributed; and (d) Deferred tax assets except to the extent that it is more likely than not that they will be recovered.
Pension costs
The company’s pension cost charged to the income statement is in accordance with FRS 17 – ‘Retirement Benefits’. The FRS 17 valuation has been carried out at bid-value based on the recent amendment to FRS 17 – ‘Retirement Benefits’. In line with FRS17 we have capped the recognition of the pension asset at the level of future service costs. Key assumptions and other disclosures for this plan are included in the disclosures in note 27 to the consolidated financial statements.
Financial statements statments
It is the policy of the company to fund defined benefit pension liabilities, on the advice of external actuaries, by payments to schemes controlled by independent trustees. Pension costs are charged against profits on a systematic basis over the service lives of the eligible employees, based on payroll, actuarial methods and assumptions, in accordance with the actuaries’ advice. The costs of defined contribution schemes or pension arrangements of a similar nature are charged against income as contributions become payable to the relevant scheme or arrangement.
172
Berendsen plc Report and Accounts 2013
Accounting policies to the parent company financial statements Operating leases Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.
Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest method and if included in a fair value hedge relationship are revalued to reflect the fair value movements on the hedged risk associated with loans and other borrowings. Borrowings are classified as non-current liabilities where the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation.
Derivatives and other financial instruments Financial instruments Financial instruments are reported and measured in accordance with FRS 25 and FRS 26 respectively. The company has availed itself of the exemption not to present FRS 29 disclosures in the notes to the entity financial statements as full equivalent disclosures are presented within the consolidated financial statements. Financial instruments comprise non-derivative financial assets and liabilities, including amounts owed by and to group companies and borrowings and financial derivatives, whose value changes in line with movements in market rates. The company uses derivative financial instruments to hedge exposure to interest rate risks arising from financing and investment activities. In accordance with its treasury policy, the company does not hold or issue derivative financial instruments for trading purposes. Fair value hedging, cash flow hedging and net investment hedging is applied. Non-derivative financial assets are classified as loans and receivables. The company’s financial assets are stated at the lower of their initial cost (including accrued interest receivable) and their estimated recoverable amount. Non-derivative financial liabilities are classified as borrowings. They are stated at their redeemable value, including accrued interest payable, less transaction costs that have not yet been recognised in the profit and loss account. Where the change in value of a non-derivative financial liability, due to the movement in market interest rates, has been hedged with a financial derivative, its value is adjusted for the change in market value due to the financial risk being hedged. Where such fair value hedging relationships exist, the change in the value of the liability being hedged should broadly offset the change in market value of the hedging instrument and any difference is recognised immediately in the profit and loss account. Derivative financial instruments are stated at their market value in the balance sheet and are classified as current assets or liabilities, unless they form part of a hedging relationship, in which case their classification follows the classification of the hedged financial asset or liability. Thus all currently held derivative financial instruments are classified as long term. Interest expense reflects the underlying cost of borrowing arising from interest rate swaps. Net payments and receipts under interest rate swap contracts are accrued over the period to which they relate and added to or credited against interest expense. No accounting entries are required for the principal amount of interest rate swaps as it is purely a notional figure and does not represent an asset, a liability or a contingency.
Berendsen plc Report and Accounts 2013
173
Share capital Ordinary shares are classified as equity and are recorded at par value of proceeds received, net of direct issue costs. Where shares are issued above par value, the proceeds in excess of par value are recorded in the share premium account. Where the company purchases the company’s own equity share capital, the consideration paid, including any directly attributable incremental costs, is deducted from equity attributable to the shareholders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental costs, is included in equity attributable to the shareholders.
In accordance with the FRS 20 ‘Accounting for share-based payments’, an expense is recognised in the profit and loss account for the award to employees of shares in the company’s UK HMRC approved Sharesave Scheme. The company operates an Employee Benefit Trust to hold shares in the company for certain of the group’s employees. These employees, who are members of the group’s various share-based schemes are entitled to receive shares as compensation for their performance. The trust ensures that the obligation of these share issuances to employees through the purchase of the shares with finance provided by Berendsen plc or the employee.
Strategic report
Employee share schemes
The trust is an Employee Share Ownership Plan and under UK GAAP is accounted for in accordance with ‘UITF Abstract 38 Accounting for ESOP Trusts’.
Cash at bank and in hand Cash includes cash in hand and bank deposits repayable on demand.
Cash flow statement and related party disclosures The parent company is included in the consolidated financial statements, which are publicly available. Consequently, the company has followed convention and not prepared a cash flow statement. There are no related party transactions other than those with group undertakings.
Governance Financial statements statments
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Berendsen plc Report and Accounts 2013
Notes to the parent company financial statements 1 Parent company income statement As permitted by Section 408 of the Companies Act 2006, the company has not presented its profit and loss account. The profit of the company for the year attributable to shareholders was £124.3 million (2012: £22.4 million profit). The fees payable to the company’s auditors for the audit of the parent company are included in the group fees disclosed in note 3 of the group financial statements.
2 Tangible assets Short leasehold property £m
Plant and machinery owned £m
Total £m
0.3
1.0
1.3
Cost: At 1 January 2013 Additions at cost At 31 December 2013
–
0.1
0.1
0.3
1.1
1.4
0.1
0.5
0.6
Accumulated depreciation At 1 January 2013 Charge for the year
0.1
0.2
0.3
0.2
0.7
0.9
At 31 December 2013
0.1
0.4
0.5
At 31 December 2012
0.2
0.5
0.7
At 31 December 2013 Net book amount
3 Fixed asset investments Interests in group undertakings £m
Cost or valuation At 1 January 2013
706.7
Investment in subsidiary undertakings
128.4
Currency translation At 31 December 2013
11.6 846.7
Amounts provided At 1 January 2013 Amount provided in the year At 31 December 2013
(0.9) – (0.9)
Net book amount At 31 December 2013
845.8
At 31 December 2012
705.8
Disclosure of the company’s subsidiaries is given in note 22 of the group financial statements. The directors believe that the carrying value of the investments is supported by their underlying net assets.
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Berendsen plc Report and Accounts 2013
4 Debtors As at 31 December 2013 £m
As at 31 December 2012 £m
26.6
39.5
–
0.1
Taxation
3.0
3.0
Deferred tax asset
0.2
0.1
Prepayments and accrued income
0.3
0.3
30.1
43.0
216.1
266.2
7.7
3.8
223.8
270.0
Amounts falling due within one year: Amounts due from group undertakings
Strategic report
Other debtors
Amounts falling due after more than one year: Amounts due from group undertakings Deferred tax asset
Full disclosures relating to the company’s derivative financial instruments and financial risk management strategies are given in notes 16 and 17 of the group financial statements. Deferred tax asset comprises of deferred tax asset on capital allowances and provisions of £0.3 million (2012: £0.1 million), share options of £2.3 million (2012: £2.6 million), and derivatives of £5.3 million (2012: £1.2 million).
5 Creditors: amounts falling due within one year As at 31 December 2012 £m
103.4
84.1
Trade creditors
0.2
0.2
Amounts owed to group undertakings
3.5
2.7
Other creditors
2.3
1.6
Other taxes and social security
0.2
0.1
Accruals and deferred income
4.3
4.1
113.9
92.8
As at 31 December 2013 £m
As at 31 December 2012 £m
468.5
526.6
79.6
77.9
548.1
604.5
Governance
Bank overdrafts
As at 31 December 2013 £m
6 Creditors: amounts falling due after more than one year
Bank loans Amounts owed to group undertakings
All creditors are unsecured. Full disclosures relating to bank loan maturities are given in note 15 of the group financial statements.
Financial statements statments
Full disclosures relating to the company’s derivative financial instruments and financial risk management strategies are given in notes 16 and 17 of the group financial statements.
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Berendsen plc Report and Accounts 2013
Notes to the parent company financial statements 7 Provisions for liabilities
At 1 January 2013 Charged in the year At 31 December 2013
Property disposals £m
Deferred tax £m
Total £m
2.5
0.3
2.8
–
0.6
0.6
2.5
0.9
3.4
2.5
0.9
3.4
Represented by: Non-current Property disposals The group has outstanding warranties, indemnities and guarantees on a number of properties operated by former subsidiaries which were issued prior to the sale of these businesses. The majority of these expire in 2017 with the remaining expiring by 2022. Deferred tax Deferred tax provision comprises of deferred tax liability on share options of £0.2 million (2012: £0.3 million) and deferred tax liability on derivatives of £0.7 (2012: £nil).
8 Called up share capital Ordinary shares millions
Ordinary shares £m
172.3
51.7
0.2
0.1
172.5
51.8
Allotted and fully paid At 1 January 2013 Allotted in respect of share option schemes At 31 December 2013
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Berendsen plc Report and Accounts 2013
9 Reserves Other reserve £m
Capital redemption reserve £m
Profit and loss account Restated £m
Total £m
98.4
16.1
150.9
21.3
286.7
0.8
–
–
–
0.8
Purchase of own shares by the Employee Benefit Trust
–
–
–
(12.2)
(12.2)
Actuarial gain recognised in pension scheme net of deferred tax
–
–
–
6.4
6.4
Effect of asset limit on pension surplus
–
–
–
(9.1)
(9.1)
Value of employee service in respect of share option schemes and share awards
–
–
–
4.9
4.9
Dividends paid (note ii)
–
–
–
(44.8)
(44.8)
Profit for the financial year
–
–
–
124.3
124.3
Hedging reserve net of deferred tax
–
2.3
–
–
2.3
At 1 January 2013 Issue of share capital in respect of share option schemes (note i)
Currency translation net of deferred tax At 31 December 2013
–
–
–
6.5
6.5
99.2
18.4
150.9
97.3
365.8
Strategic report
Share premium account £m
Included within the profit and loss account is an amount of £7.3 million (2012: £1.2 million) which relates to foreign currency translation. (i)
Share option scheme disclosures are given in note 20 of the group financial statements.
(ii)
Disclosure of dividends paid is given in note 6 of the group financial statements.
10 Reconciliation of movements in shareholders’ funds 2012 Restated £m
Profit for the financial year
124.3
22.4
Dividends paid
(44.8)
(40.6)
Currency translation net of deferred tax
6.5
0.8
Actuarial gain recognised in pension scheme net of deferred tax – Restated
6.4
Effect of asset limit on pension surplus
(9.1)
Issue of share capital in respect of share option schemes
0.9
1.8
(12.2)
(5.4)
Hedging reserve net of deferred tax
2.3
(0.3)
Value of employee service in respect of share option schemes and share awards
4.9
6.4
79.2
(31.3)
Purchase of own shares by the Employee Benefit Trust
Net addition/(decrease) to shareholders’ funds Shareholders’ funds at 1 January Shareholders’ funds at 31 December
Governance
2013 £m
2.4 (18.8)
338.4
369.7
417.6
338.4
2012 restated for impact of IAS19 Employee Benefits.
Value of employee service in respect of share options is £4.9 million in 2013 (2012: £6.4 million). This includes the group charge of £5.5 million (2012: £4.7 million) and deferred tax of £(0.6) million (2012: £1.7 million).
Financial statements statments
The company has an Employee Benefit Trust to administer the share plans and to acquire company shares, using funds contributed by the group, to meet commitments to group employees. At 31 December 2013, the Trust held 2,798,134 (2012: 2,882,275) shares.
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Berendsen plc Report and Accounts 2013
Notes to the parent company financial statements 11 Contingent liabilities The company has guaranteed the liabilities of its subsidiaries, Spring Grove Ireland Limited, Spring Grove Services Limited and Steri-Tex Limited pursuant to Section 17 of the Irish Companies (Amendment) Act, 1986. The company has considered the fair value of this arrangement under FRS 26 and assessed the value to be nil. This is due to the profitable nature of the underlying business and a considerable financial deposit held by the company from the Irish subsidiaries.
12 Other financial commitments 2013 Land and buildings £m
2012 Land and buildings £m
–
–
0.3
0.3
0.3
0.3
As at 31 December annual commitments under non-cancellable operating leases comprise those which expire as follows: Within one year Within two to five years
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Berendsen plc Report and Accounts 2013
Five year record
2013 £m
Revenue Operating profit
2012* Restated £m
2011 £m
2010 £m
2009 £m
1,054.2
985.1
992.0
986.1
970.9
135.0
117.3
107.3
61.4
85.3
158.9
142.4
139.8
123.9
115.3
1.8
–
(8.5)
(40.9)
(12.7)
Analysed as:
Exceptional items Amortisation of customer contracts and intellectual property rights
(25.7)
(25.1)
(24.0)
(21.6)
(17.3)
Operating profit
135.0
117.3
107.3
61.4
85.3
Finance costs
(25.0)
(27.8)
(29.7)
(28.1)
(25.1)
2.4
2.2
1.7
1.3
1.5
Profit before taxation
112.4
91.7
79.3
34.6
61.7
Taxation
(27.2)
(21.3)
(21.8)
(12.2)
(15.9)
Profit for the year
85.2
70.4
57.5
22.4
45.8
0.5
0.5
0.5
0.6
0.7
84.7
69.9
57.0
21.8
45.1
85.2
70.4
57.5
22.4
45.8
526.2
489.2
454.1
463.8
472.0
– Basic
49.8
41.3
33.8
12.9
26.6
– Adjusted
59.8
50.7
48.4
41.7
39.4
Dividend per ordinary share expressed in pence
28.0
25.5
23.4
21.2
20.0
1.8
1.6
1.4
0.6
1.3
2.1
2.0
2.1
2.0
2.0
Finance income
Profit attributable to non-controlling interest Profit attributable to owners of parent company Shareholders’ equity
Strategic report
Operating profit before exceptional items and amortisation of customer contracts and intellectual property rights
Earnings per share expressed in pence per share
– on adjusted earnings
Governance
Dividend times covered – on profit attributable to owners of parent company
*2012 restated for impact of IAS19 Employee Benefits reducing EPS by 1.5p. Earlier years have not been restated.
Financial statements statments
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Berendsen plc Report and Accounts 2013
Shareholder information Advisers Investment Bankers
Rothschild
Stockbrokers
JPMorgan Cazenove Oriel Securities
Solicitors
Slaughter and May
Auditors
PricewaterhouseCoopers LLP, Chartered Accountants and Statutory Auditors, London
Registrars
Equiniti
Financial calendar – 2014 Final results announced
28 February
Annual general meeting
24 April
Interim results announced
29 August
Dividend calendar – 2014 Final dividend:
Interim dividend:
Ex-Dividend date
9 April
10 September
Register date
11 April
12 September
Dividend paid
2 May
10 October
Shareholder information Enquiries relating to shareholders, such as queries concerning notification of change of address, dividend payments and lost share certificates, should be made to the company’s registrars. The company has a share account, management and dealing facility for all shareholders via Equiniti Limited Shareview. This offers shareholders secure access to their account details held on the share register to amend address information and payment instructions directly, as well as providing a simple and convenient way of buying and selling the company’s ordinary shares. For internet services visit www.shareview.co.uk or the investor relations sections of the company’s website www.berendsen.com. The Shareview Dealing service is also available by telephone on 08456 037037 between 8.00 am and 4.30 pm, Monday to Friday (excluding Bank Holidays). The best way to ensure that dividends are received as quickly as possible is to instruct the company’s registrars to pay them directly into a bank or building society account; tax vouchers are then mailed to shareholders separately. This method also avoids the risk of dividend cheques being delayed or lost in the post. Dividend mandate forms are available from the registrars, either from their website www.shareview.co.uk or by telephone on the Equiniti General Shareholder Helpline number below. Calling from the UK: 0871 384 2179* or if calling from overseas: +44 (0) 121 415 7047 * Calls to this number are charged at 8p per minute from a BT landline; other telephone provider costs may vary. Lines are open 8.30 am to 5.30 pm, Monday to Friday (excluding Bank Holidays).
Website Financial information about the company, including Annual Reports, public announcements and share price data, is available from the company’s website at www.berendsen.com, which also contains further information about the group and links to the websites of its subsidiaries.
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Registered office
Berendsen plc 4 Grosvenor Place London SW1X 7DL Registered Nº 1480047 Tel: 020 7259 6663 E-mail:
[email protected]
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