Bunzl plc

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Bunzl plc

Stoke House
Stoke Green
Stoke Poges
Slough SL2 4JN
United Kingdom
(0753) 693693
Fax: (0753) 694 694

Public Company
Incorporated: 1940 as Tissue Papers Ltd.
Employees: 9,300
Sales: £1.46 billion (US$2.82 billion)
Stock Exchange: London

Bunzl is an international group of companies engaged in the marketing and distribution of paper and plastic disposables, printing and writing papers, and specialty building materials to a wide variety of end-use markets principally in the United States and Europe. Bunzl has a worldwide cigarette-filter manufacturing business and has plastic-products manufacturing operations in Europe, the United States, and Brazil. Bunzl is focused on a limited number of substantial businesses, each of which occupies a leading or prominent position in its chosen marketplace. Its most important market is the United States.

The present company was set up in the United Kingdom in 1940, but it was the offshoot of a much older and larger Austrian enterprise, which began in 1854 as a haberdashery business in Bratislava, Czechoslovakia and moved to Austria in 1883. From haberdashery it moved into rag trading, and from that into textile and paper manufacturing. The firm traded as Bunzl & Biach, but was run from an early date by the Bunzl family. By 1914 it was well established in the textile, paper, and pulp industries, and had branches throughout the Austro-Hungarian Empire.

In the late 1920s Bunzl & Biach developed what was probably the world’s first cigarette filter. It was actually invented by a Hungarian called Boris Aivaz, but as it was made from crepe paper he needed the cooperation of a paper manufacturer. The filters went into production in 1927, and over the next ten years were sold to cigarette manufacturers in 15 countries. The idea did not catch on widely, however, and cigarette filters were no more than a sideline for the firm in the 1930s.

The business, still owned and run by the Bunzl family, continued to prosper until Hitler’s annexation of Austria in 1938. The Bunzls, being Jewish, had every reason to fear a Nazi takeover and had taken the precaution of moving the company’s headquarters from Vienna to Switzerland two years earlier. They also had a subsidiary company in London, Bunzl & Biach (British) Ltd., which gave them an alternative base. When the Nazi government took over the company’s Austrian assets most of the family emigrated, some to Switzerland and some to the United States, but the majority to the United Kingdom.

In this new environment the family began to rebuild its business, some concentrating on textiles and some on paper. The latter group was headed by Hugo Bunzl, who had been the first to show interest in the idea of cigarette filters. In 1940, he and several colleagues founded Tissue Papers Ltd., a company manufacturing tissue and crepe paper, together with the cigarette filters, in U.K. factories. This business remained very small during the war years, and had fewer than 30 employees in 1946.

In 1946 the Bunzl family regained control of its Austrian business, but Tissue Papers Ltd. continued to develop independently. It took on the international distribution of the Austrian company’s paper products, and in 1952 changed its name to Bunzl Pulp & Paper Ltd., but continued to manufacture its own products in the United Kingdom.

Among these were cigarette filters. In the post-war period, filter-tipped cigarettes became more popular and this side of Bunzl’s business gradually expanded. In the 1940s filters were still made from paper, and the production process was a slow one. A number of chemical companies experimented with other materials and eventually Eastman Kodak came up with a superior material, cellulose acetate tow. Filters made from this material proved to be more efficient and could be produced at higher speed. Bunzl began to use this material in 1954 and the cigarette manufacturers responded by launching more filtertipped brands.

This technical advance coincided with the first indications from medical research that cigarette smoking could be seriously harmful. The World Health Organization published one of the earliest reports on the subject in 1955. Another ten years were to pass before the link with lung cancer was conclusively proved, but from the mid-1950s filter-tipped cigarettes began to be seen as a way of reducing whatever health risk there might be.

As a result, the new filter-tipped brands started to gain market share rapidly in all the developed countries. Bunzl rose to this challenge with remarkable speed and success for a small company. In the United Kingdom it quickly stepped up its output and became virtually the sole supplier of filters to the two companies which then controlled 90% of the cigarette market, Imperial Tobacco and Gallaher Ltd. Both these companies had tried making their own filters but decided when the technology changed to buy in their supplies from Bunzl.

In the United States, the Bunzl family set up a separate company, American Filtrona Corporation, in 1954. This company and Bunzl Pulp & Paper had shares in each other’s business but neither controlled the other. Besides supplying their home markets, both set up overseas subsidiaries, some wholly owned, some jointly owned and some in partnership with local interests. In this way the Filtrona group, as it came to be called, soon became the world leader in cigarette filters. By 1964 the group was manufacturing in five European countries, the United States, Canada, South Africa, Australia, India, Brazil, and Argentina. The companies directly controlled by Bunzl Pulp & Paper increased their filter output twelvefold between 1956 and 1964.

Meanwhile, the company was expanding in other directions. Its international paper trading business was growing steadily and it had several factories in the United Kingdom, making a variety of paper and packaging products as well as filters. In the late 1950s its profits began to rise steeply and in 1957 it went public. Only 30% of the equity was released on to the market at that stage and the Bunzl family retained control of the company for another decade.

In its first 11 years as a public company, Bunzl’s profits rose uninterruptedly, from less than £1 million a year to more than £5 million, and the company became a favorite with investors. However, its growth was mainly due to the success of filter cigarettes, which was unlikely to continue at the same rate. In the United Kingdom, filter cigarettes grew from 11% of the market in 1959 to 70% in 1968, but after that their share grew more slowly. At the same time, awareness of the health risks of smoking, with or without filters, was increasing throughout the 1960s and governments began to impose restrictions on how cigarettes could be marketed.

Bunzl suffered its first reduction in profits in 1969. Apart from the adverse market conditions it was beginning to face, the company fell under a cloud in 1967-1969, when the Monopolies Commission held an enquiry into the supply of cigarette filters in the United Kingdom. This was instigated by Courtaulds, which had been supplying Bunzl with the acetate tow it needed, when Eastman Kodak and Bunzl jointly set up a factory in the United Kingdom to produce this material themselves. The commission eventually rejected Courtaulds’s complaints, ruling that although Bunzl was in a monopoly position it had not abused it. Even so, the publicity was unwelcome because it drew attention to the company’s vulnerability.

Against this background of assorted threats to its main profit earner, Bunzl saw that it must reduce its dependence on the cigarette market by expanding more vigorously in other directions. The company already had a foothold in the packaging market and its first thought was to develop this area. In the late 1960s, through a mixture of product development and acquisitions, Bunzl moved into the production of polythene film and bags, self-adhesive labels, tapes, and plastic tubes.

In 1970, a much more ambitious step was taken: Bunzl Pulp & Paper took over Bunzl & Biach, its one time big brother in Austria. The U.K. company had long been selling the paper products of the Austrian company overseas and by 1970 was the bigger of the two. This takeover increased Bunzl’s turnover by almost half, raised its work force to more than 7,000, and put it squarely into paper manufacturing as well as merchanting. The enlarged company was split into four divisions, filters, paper, packaging, and plastics, and for a few years profits grew strongly. In 1974, when the paper market was particularly buoyant, profits reached a peak of £14 million, of which less than half came from filters.

In the later 1970s the company found that it could not sustain this progress. Inflation continued to push up turnover, but profits did not regain their 1974 level for nine years. Taking inflation into account, there was a steep decline in real terms. The main problems were in the filter market. In the developed countries cigarette smoking was declining, and cigarette manufacturers were increasingly making their own filters. Imperial Tobacco, Bunzl’s biggest single customer, began to do so in the 1970s. In less developed countries there were still growth opportunities, but Bunzl was by then struggling to maintain existing sales levels.

At the same time, the company’s diversification program failed to deliver the expected benefits. The Austrian paper mills faced increasing competition from Eastern Europe and were badly in need of re-equipment. After paying interest on the debts they had accumulated, there was no surplus to swell group profits. In the United Kingdom, the plastics division successfully broke into new markets, particularly pipes for building and agricultural uses, but against that Bunzl made an ill-judged entry into the data processing business which resulted only in losses.

By 1980 it was clear that the company must find a new strategy. In that year it took the painful step of selling its Austrian paper business, which it had only owned for ten years. This sharply reduced the company’s turnover and work force, but improved its financial position and opened the way to new acquisitions. At the same time G.G. Bunzl, who had headed the company since 1961, handed over the chair to Ernest Beaumont, (a Bunzl by birth, who had changed his name), and a new chief executive, James White, was brought in from outside the company.

Under the new team, Bunzl was reorganized into three divisions: filters, pulp and paper merchanting, and industrial. After the sale of Bunzl & Biach, the company’s work force was down to about 4,000, the majority based in the United Kingdom, and around 70% of its profits were coming from the declining filter business. Of its other businesses, pulp and paper trading was the next largest contributor to profits and it was decided to develop this division. In particular, Bunzl was attracted by the growing business of distributing specialized paper and plastic products to industrial customers, such as supermarkets and airlines, as opposed to trading in bulk paper and pulp.

Between 1981 and 1984 Bunzl systematically bought its way into this business, first in the United States, state by state, then Australia. Among its more important acquisitions were Jersey Paper and the PCI/Mac-Pak Group, both in the United States, but there were many others. By the end of 1984 Bunzl’s turnover was five times what it had been in 1980 and profits had grown from £11 million to £28 million. More importantly, the company had finally freed itself from its long dependence on cigarette filters, which contributed less than 20% of profits in 1984 and that year Bunzl cut its link with American Filtrona Corporation.

The success of this diversification plan led the company into what Jane Fuller, writing in the Financial Times on March 28, 1990, called “a headlong rush for growth.” In the years 1985-1987, Bunzl raised capital from two rights issues, increased borrowing, and spent some £400 million on acquisitions. Around 70 separate purchases were made. In contrast to Bunzl’s previous policy, many of the acquisitions took the company into fields quite unrelated to its existing business, such as parcel distribution, graphic arts supplies, and electrical equipment distribution. The group’s three divisions at the start of the decade expanded to five, the distribution division covering a multitude of different products.

This policy worked well in the short term. Profits raced up from £28 million in 1984 to £86 million in 1987, and earnings per share also increased. However, problems soon emerged among the acquisitions and by 1987 the company had started to shed some of the more troublesome ones. In 1988 there were more disposals, including most of the transportation division, and profits made only a small advance. In 1989 the company was back to four divisions: paper, building materials, plastics, and cigarette filters. Turnover was down by 6%, and profits slumped by 30%. James White, who had become chairman in 1988, came under sharp attack from shareholders and admitted in 1990 that “with the benefit of hindsight we made too many acquisitions too quickly.” Bunzl entered the 1990s slightly chastened and slightly slimmer than a year or two earlier, but much larger and more broadly based than in 1980, and with better prospects than in its cigarette-dependent days.

A boardroom reorganization in November 1990 saw the departure of James White and the appointment as chairman of David Kendall, former managing director of BP Oil and Bunzl non-executive director since 1988.

Principal Subsidiaries

Bunzl Distribution USA Inc.; Bunzl Australia Ltd.; Bunzl Fine Paper Ltd; Wilhelm Seiler GmbH (Germany); Bunzl Italia SpA; Bunzl Building Supply Inc. (U.S.A.); Filtrona International Ltd.; Filtrona Instruments & Automation Ltd.; Bunzl Plastics Europe; Bunzl Plastics Inc. (U.S.A.).