Bunzl plc
LSE:BNZL
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Bunzl plc
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Hello,
everybody,
and
welcome
to
the
Bunzl
2021
Annual
Results
Call.
My
name
is
Bethany
and
I'll
be
your
operator
today.
[Operator Instructions]
I
will
now
hand
over
to your
host,
Frank
van
Zanten,
Chief
Executive
Officer
of
Bunzl.
Frank,
over
to
you.
Good
morning,
everyone,
and
welcome
to
Bunzl's
2021
full
year
results
presentation.
I'm
glad
you
could
join
us
today.
Richard
Howes,
our
CFO,
is
also
on
the
call
this
morning,
and
after a
short
introduction
from
me,
he
will
take
you
through
our
financial
results.
I
will
then
review
our
performance
in
more
detail,
including
business
area
results,
provide
a
brief
update
on
the
strategic
progress
we
made
over
the
year
and we'll
discuss
our
outlook.
Let
me
start
with
the
main
takeaways
from
our
results
today.
We
achieved
7.1%
revenue
growth
and
2.8%
adjusted
operating
profit
growth
at
constant
exchange
rates,
despite
the
strength
of
our
performance
in
the
prior
year
and
the
expected
decline
in
corporate-related
orders.
As
a
result,
our
revenue
was
17%
higher
and
our
adjusted
operating
profit
23%
higher
than
in
2019.
This
is
a
great
achievement
and
testament
to
the
resilience
and
agility
of
the
Bunzl
business
model.
We
have
continued
to
be
highly
cash
generative
and
delivered
cash
conversion
of 102%,
ending
the
year
with
1.6
times
net
debt
to
EBITDA,
despite
significant
acquisition
investments.
And
today,
we
announced
a
5.4%
increase
in
our
total
dividend
per
share
making
it
our 29th
consecutive
year
of
dividend
growth.
2021
was
the
second
most
acquisitive
year
by
spend
in our
history
with
£508
million
of
committed
spend
compared
to
an
average
of
£375
million
over
the
last
five
years.
This
also
takes
us
to
nearly
£1
billion
of
total
committed
spend
over
the
last
two
years
with
our
pipeline
continuing
to
be
active.
At
our
Capital
Markets
Day
in
October,
we
gave
you
more
insight
into
our
product
mix
and
how
we
have
already
been
supporting
our
customers
to
transition
to
more
sustainable
solutions.
In
2021,
only
2%
of
our
revenue
was
generated
from
consumables
that
are
facing
regulation.
Furthermore,
our
expertise
and
innovation
in
this
area
is
becoming
a
real
competitive
advantage
for
us.
Before
we
go
to
the
detail
of
our
results,
I
wanted
to
take
a
moment
to
reiterate
our
consistent
focus
on
the
longer-term,
which
has
supported
our
performance
over
the
last
two
years.
We
have
a
clear
purpose
to
deliver
essential
business
solutions
around
the
world
and
create
long-term
sustainable
value
for all
stakeholders.
Our
four
core
values
of
humility,
reliability,
responsiveness,
and
transparency
are
key
to
the
success
of
our
value-added
business
solutions.
This,
alongside
our
compounding
strategy
and
sustainability
focus,
has
driven
the
track
record
of
delivering
9%
operating
profit
CAGR
since
2004.
Our
focus
on
all
stakeholders
has
been
essential
to
our
continued
success.
Our
customer-centric
focus
enabled
us
to
supply
a
large
amount
of
COVID-related
products
when
our
customers
needed
them.
Our
people
have
worked
tirelessly
to
support
our
customers
during
the
pandemic.
Our
employees
have
a
high
level
of
engagement,
which
supports
retention
at
times
like
we
are
experiencing
now.
We
have
also
reduced
our
carbon
intensity
by
60%
since
2010
with
our
consolidation
model
supportive
of
carbon
efficiency.
Our
strong
relationships
with
more
than
10,000
suppliers
have
enabled
us
to
reliably
source
product,
despite
the
recent
challenges
in
supply
chain.
Over
2021,
we
conducted
more
than
700
ethical
audits
in
Asia,
which
provides
us
and
our
customers
with
the
reassurance
we
need
around
supporting
workers.
It
is
clear
that
our
Shanghai
operation
has
been
instrumental
to
our
performance
over
the
last
two
years.
Ultimately,
we
have
delivered
10%
dividend
CAGR
since
1992
with
growth
in
both
2020
and
2021,
despite
the
impact
the
pandemic
had
on
our
base
business.
I
believe
this
consistent
focus
will
continue
to
drive
our
success
for
the
future.
I
will
now
hand
over
to
Richard.
Thank
you,
Frank
and
good
morning,
everyone.
All
my
comments
are
at constant
exchange
rates
unless
otherwise
specified.
With
over
90%
of
operating
profit
generated
outside
the
UK
and
due
to
the
strength
of
sterling,
our
results
were
adversely
impacted
by
currency
translation
by
between
5%
and
8%
on
average
across
the
income
statement.
Starting
with
revenue,
revenue
grew
by
7.1%
to
£10.3
billion.
Underlying
growth,
which
is
organic
growth
adjusted
for
trading
days,
contributed
3.6%
to
this
growth,
with
an
adverse
impact
of
0.5%
relating
to
the
additional
trading
day
in
2020
due
to
the
leap
year.
Inflation
was
strongly
supported
to
growth
over
the
year,
with
continued
inflation
on
disposable
gloves
in
the
first half
and
with
inflation
on
paper,
plastics,
and
chemicals
supportive
in
the
second
half of
the
year.
Within
underlying
revenue
growth
of
3.6%,
the
recovery in
our
base
business
contributed
9.9%
as
we
saw
strong
growth
across
the
group
from
the
second
quarter,
supported
by
inflation.
As
expected,
partially
offsetting
this
growth
was
a
6.3%
negative
impact
from
lower
COVID-related
sales
with
limited
larger
orders,
which
had
strongly
benefited
the
prior
year.
Underlying
revenue
growth
for
the
year
was
8.5%
higher
than
in
2019
with
total
revenue
17.1%
higher.
And
acquisitions
contributed
4%
revenue
growth
year-on-year.
Now
turning
to
the
income
statement.
Adjusted
operating
profit
grew
2.8%
to
£752.8
million.
Operating
margin
reduced
from
7.7%
to
7.3%,
reflecting
the
partial
normalization
of
revenue
mix. This
decline
in
margin
was
better
than
expected.
The
decline
was
driven
by
lower
COVID-related
sales,
particularly
larger
orders,
and
strong
recovery of
typically
lower
margin
foodservice
and
retail
sectors
in
the
base
business.
Deflation
in
disposable
glove
prices
also
impacted
margins,
particularly
in
the
second
half
of
the
year.
Operating
margins
also
benefited
from
a
reduction
in
the
net
charge
relating
to
inventory
and
credit
loss
provisions
compared
to
the
prior
year.
During
the year,
the
group
saw
a
further
increase
in
the
level
of
slow-moving
inventory,
with
customer
demand
continuing
to
be
affected
and
impacted
by
pandemic-related
restrictions
and
supply
chain
disruption,
resulting
in
higher
levels
of
inventory.
This
has
resulted
in
a
net
charge
of
approximately
£25
million
in
the
year,
resulting
in
an
increase
in
slow-moving
inventory
provisions.
This
was
partially
offset
by
a
net
release
of
approximately
£5
million
related
to
expected
credit
losses
on
trade
receivables.
Net
finance
expense
decreased
by
£8.2
million
at
actual
exchange
mainly
due
to
a
change
in
the
mix
of
debt
towards
currencies
with
lower
interest
rates
and
higher
interest
income
on
cash
deposits
held
by
our
businesses.
Adjusted
profit
before
income
tax
increased
by
3.9%
to
£698.2
million.
The
effective
tax
rate
for
the
period
was
22.3%,
compared
to
23.1%
in
the
prior
year,
due
to
a
reduction
in
the
expected
tax
liabilities
for
prior
periods.
For
2022,
we
expect
the
tax
rate
to
rise
to
approximately
24%,
reflecting
the
absence
of
provision
benefits
seen
over
recent
years.
Beyond
2022, we
expect
our
effective
tax
rate
to
rise
between
24%
and
25%,
due
to
an
increase
in
the
UK
tax
rate
and
enforcement
of
a
minimum
tax
rate
for
corporate
profits
globally.
Currently,
we
do not
expect
a
significant
impact
from
the
US
federal
tax
proposals.
Adjusted
earnings per
share
increased
by
4.9%
to
£1.625.
And
we
are
recommending
a
6.5%
increase
in
the
final
dividend,
which
drives
5.4%
increase
in
our
total
2021
dividend.
The
increase
brings
our
dividend
cover
to
2.85
times
and
closer
towards
historical
levels
of
around
2.6
times.
Onto
cash
flow,
strong
cash
generation
continues
to
be
a
key
feature
of
the
Bunzl
model,
with
cash
conversion
of
102%
over
the
year,
higher
than
our
average
cash
conversion
since 2004.
Free
cash
flow
was
strong
at
£525.4
million
albeit
a
reduction
compared
to
2020. This
is
primarily
due
to
a
decrease
in
operating
cash
flow,
driven
by
a
significant
reduction
in
advance
payments
from
customers,
net of
upfront
payments
to
suppliers
for
large
orders
of
COVID-related
products,
and
higher
income
tax
paid
related
to
higher
profits
in
previous
periods.
However,
compared
to
2019, free
cash
flow
is
15%
higher
at
actual
exchange
rates.
Over
the
year,
we
also
paid
£180.4
million
in
dividends,
leaving
total
cash
generation
prior
to
investments
and
acquisitions
of
£364.5
million.
This
largely
funded
the
cash
outflow
relating
to
acquisitions
over
the
year
of
£452.7 million.
Turning
to
the
balance
sheet.
Working
capital
ended
the
year
broadly
in
line
with
2020
with
increases
from
acquisitions,
offset
by
a
decrease
in
the
underlying
business
and
from
currency
translation.
With
the
continued
strength
in
our
cash
generation,
we
ended
the
year
with
£1.3
billion
of
net
debt,
excluding
lease
liabilities,
despite
announcing
14
acquisitions.
Net
debt
to
EBITDA
on
a
covenant
basis
is
1.6
times,
which
compares
to
1.5
times
at
the
end
of
2020
and
1.9
times
at
the
end
of
2019.
We,
therefore,
remain
meaningfully
below
our
target
range
of 2
to
2.5
times,
which
gives
us
substantial
capacity
to
continue
to
self-fund
acquisitions.
Return
on
invested
capital
is 15.1%
compared
to
16.2%
at
the
end
of
2020,
driven
by
the
lower
operating
margin,
which
is
more
reflective
of
a
more
normal
revenue
mix
in the
group,
as
well
as
acquisitions
made
over
the
year,
which
temporarily
dilute
the
metric.
However,
returns
remain
well
ahead
of
the
2019
level
of
13.6%.
The
strength
of
our
cash
conversion
supports
our
ability
to
deliver
sustainable
dividend
increases
with
2021
representing
our
29th
consecutive
year
of
growth.
As
our
earnings
normalize,
2021
sees
transition
towards
more
typical
levels
of
dividend
cover
for
the
group.
So,
to
summarize,
we
have
delivered
a
strong
double-digit
profit
growth
compared
to
2019,
and
demonstrated
the
strength
and
resilience
of
the
business
model
throughout
the
pandemic.
We
largely
funded
the
second
most
acquisitive
year
in
our
history
from
cash
generated
in
the
year
and
ended
2021
with
leverage
in
a
strong
position
for
continued
acquisition
investments.
And
we
have announced
another
year
of
dividend
growth
with
a
10%
compound
annual
growth
rate
achieved
since
1992.
Overall,
this
is
another
strong
year
that
positions
Bunzl
for
continued
success.
I
will
now
hand
you
over
to
Frank
to
take
you
through
our
performance
in
more
detail.
Thank
you,
Richard.
Let
me
start
by
talking
you
to
our
sector
performance
over
the
period.
The
numbers
on
this
slide
reflect
the
combination
of
both
COVID-related
sales
and
the
base
business
sales.
They
also
reflect
the
performance
of
the
group
as
a
whole.
The
cleaning
and
hygiene,
safety
and
healthcare
sector
saw
a
combined
underlying
revenue
decline
of
12%
over
the
year.
This
was
driven
by
the
expected
decline
in
larger
COVID-related
orders
year-on-year,
as
well
as
work-from-home
trends
on
cleaning
and
hygiene
and
soft
safety
end-markets,
which
hampered
the
base
business
recovery.
However,
underlying
revenue
from
these
sectors
was
10%
higher
than
in
2019,
due
to
absolute
COVID-related
sales
remaining
elevated.
Grocery
grew
a
further
9%
year-on-year
supported
by
significant
product
cost
inflation
particularly
in
the
second
half.
Underlying
revenue
was
10%
ahead
compared
to
2019.
The
foodservice
and
retail
sectors,
which
saw
the
most
disruption
in
2020,
saw
a combined
growth
of 16%,
driven
by
significant
inflation
and
a
recovery
in
the
base
business.
Total
revenues
from
these
sectors
are
now
6%
higher
than
their
pre-pandemic
level
with
the
base
business
close
to
2019
levels
and
sales
of
COVID-related
products
remaining
elevated.
Turning
to
the
sales
of
COVID-related
products
specifically.
As
a
reminder,
these
are
the
top
eight
COVID-related
products
such
as
masks,
disposable
gloves,
and
sanitizer
that
we
have
previously
supplied
to
our
customers,
but
at
lower
levels
prior
to
the
pandemic.
We
have seen
a
significant
but
expected
decline
in
larger
COVID-related
sales
over
2021.
This
has
impacted
our
Continental
Europe
and
UK
and
Ireland
business
areas
in
particular. We
have
also
seen
a
moderate
impact
of
group
sales
from
the
decline
in
smaller
COVID-related
orders,
although
sales
of
these
products
remain
meaningfully
higher
than
pre-pandemic
levels.
Inflation
in
gloves
has
been
a
key
theme
over
the
second
half,
and
looking
to
next
year,
whilst
glove
prices
have
stabilized,
the
year-on-year
impact
of
reduced
prices
will
be
a
feature
of
trading
in
the
first half
of
the
year.
However,
overall,
we
still
expect
COVID-related
orders
to
remain
ahead
of
2019
levels
in
2022.
With
many
of
these
products
still
in
high
demand,
the
strength
of
our
global
supply
chain,
as
well
as
our
Shanghai
sourcing
office
and
own
brand
products
continue
to
be
advantages
in
fulfilling
demand.
Turning
now
to
the
main
part
of
our
business,
the
base
business,
which
excludes
the
top
eight
COVID-related
products.
Overall,
our
base
business
revenues
in
2021
were
broadly
in
line
with
2019
levels.
The
group
saw
a
very
strong
recovery
of
the
base
business
from
the
second
quarter
of
the
year
as
restrictions
eased
and
volumes
began
to
recover
and
accelerated
as
inflation
builds.
Recovery
has
been
driven
by
the
foodservice
and
retail
sectors,
as
well
as
the
continued
growth
in
grocery.
Our
healthcare
business
has
also
performed
well
compared
to
2019.
However,
our
cleaning
and
hygiene
and
safety
businesses
were
impacted
by
work-from-home
trends
and
soft
safety
end-markets.
We
have seen
good
volume
recovery
as
activity
has
improved
in
our
markets,
although
around
two-thirds
of
our
year-on-year
growth
has
been
driven
by
inflation.
As
a
result,
volumes
remain
below
2019
levels
even
in
the
second
half
of
the
year.
We
have
managed
inflation
well
over
the
year,
and
it
has
been
strongly
supportive
to
revenue
growth.
Glove
saw
strong
inflation
in
the
first
half of
the
year
with
prices
then
declining
as
expected
over
the
second
half.
While
glove
prices
have
stabilized,
the
annualization
of
this
pricing
will
have
a
year-on-year
impact
to
revenues
and
margins
in
the
first
half
of
2022.
We
have
also
experienced
strong
inflation
on
plastics,
paper
and
chemicals,
particularly
over
the
second
half
of
the
year,
and
have
been
successful
in
passing
these
price
increases
onto
our
customers.
Whilst
our
largest
customers,
particularly
in
North
America,
often
have
product
price
movements
factored
into
agreements,
elsewhere
regular
price
renegotiations
have
been
required.
Although
inflation
remained
strong
through
the
end
of
the
year,
we
did
start
to
see
a
moderate
tempering
of
plastic
prices
in
some
regions.
We
also
experienced
greater
operating
cost
inflation
in
the
second
half
of
the
year
with
wage
inflation
particularly
strong
in
North
America
and
the
UK
and
Ireland,
although
more
benign
in
Continental
Europe
and
rest
of
the
world.
Outbound
freight
costs
have
also
risen,
although
freight
costs
movements
can
be
factored
into
pricing
agreements.
We
have
also
experienced
property
cost
inflation
linked
to
lease
renewals.
Operational
efficiencies
are
something
we
always
strive
for,
but
at
times
like
these
are
particularly
important.
We
have
a
new
finance shared
service
center
in
the
UK
and Ireland
and
have
implemented
a
range
of
new
technologies
to
support
this. We
have
also
continued
to
execute
our
warehouse
optimization
strategy
and
have
consolidated
more
than
15
warehouses
over
the
year.
Overall,
we
have seen
operating
cost
inflation
more
than
offset
by
the
revenue
growth
associated
with
product
price
inflation
and
operational
efficiency
measures
taken.
In
total,
inflation
has
been
somewhat
supportive
to
margin.
Whilst
we
remain
cautious,
we
are
starting
to
see
some
stabilization
in
wages
in
North
America.
Now
taking
our
business
areas
in
turn
with the
performance
reflective
of
the
dynamics
we've
just
discussed.
In
North
America,
we
delivered
strong
revenue
and
profit
growth
despite
a
decline
in
COVID-related
sales
over
the
year
and
deflation
in
gloves,
which
significantly
impacted
operating
margin
in
the
second
half of
the
year.
This
performance
has
been
driven
by
substantial
product
inflation,
particularly
in
grocery
and
foodservice,
as
well
as
the
recovery
in
demand
in
foodservice
and
retail.
The
base
business
in
the
second
half
traded
strongly
ahead
of
2019
levels.
While
operating
cost
inflation
accelerated
through
the
year,
this
was
more than offset
by revenue
growth due
to product
inflation.
Overall
revenues
in
2021
were
20%
higher
than
in
2019.
In
Continental
Europe,
the
revenue
and
profit
decline
was
driven
by
the
reduction
of
larger
COVID-related
orders
compared
to
2020.
Excluding
these
larger
orders,
underlying
sales
grew
modestly
supported
by
inflation
and
recovery
of
the
base
business.
Strong
growth
in
foodservice
and
non-food
retail
drove
the
base
business
recovery,
with
cleaning
and
hygiene
and
safety
end-markets
continuing
to
be
soft.
Profit
margin
decline
over
the
year
reflected
the
transition
towards
more
normalized
levels
driven
by
the
reduction
in
larger
COVID-related
orders.
Overall,
revenue
in
2021
was
12%
higher
than
in
2019.
In
the
UK
and
Ireland,
revenue
decline
was
similarly
driven
by
the
decline
in
larger
COVID-related
orders.
Excluding
these
larger
orders,
underlying
sales
growth
was
good,
driven
by
the
acceleration
of
base
business
recovery
in
the
second
half.
By
the
final
quarter,
the
base
business
was
only
slightly
below
2019
levels
supported
by
inflation.
The
margin
impact
of
reduced
COVID-related
sales
over
the
year
was
offset
by
a
recovery
in
the
base
business
and
a
reduced
net
charge
in
relation
to
provisions.
Overall
operating
margin
was
meaningfully
higher
in
the
second
half
of
the
year.
Revenue
in
2021
in
total
was
1%
higher
than
in
2019,
with
the
second
half
of
the
year
being
6%
higher.
Rest
of
the
world
delivered
strong
growth
despite
the
strength
of
performance
in
the
prior
year.
Growth
was driven
by
the
Latin
American
base
business,
which
traded
very
strongly
ahead
of
2019
levels,
and
acquisition.
Latin
America
operating
margins
were,
however,
impacted
by
COVID-related
product
deflation
in
the
second half
of
the
year. Asia
Pacific
delivered
a
resilient
revenue
performance
with
the
benefit
of
acquisitions
and
base
business
growth,
offset
by
a
decline
in
COVID-related
orders.
Operating
margin
expanded
with
strong
growth
within
the
healthcare
sector
and
efficiencies
generated
by
warehouse
consolidation.
Overall
for
rest
of
the
world,
revenue
in
2021
was
34%
higher
than
in
2019.
Acquisitions
are
an
important
component
of
our
compounding
growth
strategy.
We
completed
14
acquisitions
in
2021
and
committed
£508
million
of
spend,
making
it
our
second
most
successful
year
for
acquisitions.
Since
our
half-year
results,
we
have
completed
a further
six
acquisitions,
including
our
most
recent
acquisition,
Tingley
Rubber,
another
strong
safety
business
in
the
US.
One
of
our
largest
acquisitions
over
the
year
was
McCue,
a
leading
and
fast-growing
business
in
safety
and
asset
protection
solutions
with
a
particular
strength
in
e-commerce
warehouse
protection.
This
business
is
performing
well
and
is
positioned
for
continued
strong
growth.
When
we
look at
the
last
two
years
as
a
whole,
we
announced
22
acquisitions.
With
M&A
activity
largely
driven
locally,
supported
by
execution
capabilities
at
the
center,
we
have
been
able
to
complete
acquisitions
across
all
of
our
business
areas.
These
acquisitions
were
largely
weight
to
the
safety,
cleaning
and
hygiene,
and
healthcare
sectors,
where
we
continue
to
see
very
attractive
long-term
prospects
in
most
markets.
Within
this
mix
of
businesses,
some
are
particularly
fast-growing
and
larger
such
as
McCue,
MCR,
and
Disposable
Discounter,
where
multiples
have
reflected
their
strong
growth
and
margin
proposition.
We
remain
committed
to
executing
largely
within
the
6
to
8
EV/EBITDA
range
for
the
majority
of
our
acquisitions.
Acquisitions
have
contributed
two-thirds
of
our
growth
over
the
last
10
years
with
an
average
of
4.6%
revenue
growth
each
year.
Organic
growth
has
contributed
an
average
of
2.5%
each
year
alongside
this.
Momentum
has
been
strong
and
over
the
last
two
years,
we
have
committed
an
average
of £0.5
billion
each
year
compared
to
our
10-year
average
of
£370
million.
Looking
forward,
the
current
level
of
leverage
and
annual
cash
generation
provide
plenty
of
support
for
continued
investment
with
our
pipeline
being
active.
Turning
to
our
sustainability
programs
and
our
2021
packaging
mix.
Firstly,
it
is
important
to
highlight
that
66%
of
our
total
revenue
is
generated
through
non-packaging
products.
However,
where
we
are
distributing
packaging
products,
we
are
very
well-placed
to
support
our
customers
transition
to
products
which
are
better
suited
to
the
circular
economy.
We
have
already
made
good
progress
in
this
area
and
in
total
combining
non-packaging
products
and
products
made
from
alternative
materials
drives
84%
of
our
total
group
revenue.
Furthermore,
our
risk
to
regulation
is
very
low
with
only
2%
of
our
revenue
generated
through
consumables
that
are
facing
regulation.
We
first
presented
this
data
to
you
at
our
Capital
Markets
Day
in
October
based
on
2019
data.
Whilst
growth
in
packaging
sales
has been
driven
by
inflation,
our
packaging
mix
is
similar
to
that
in
2019.
Since
2019,
we
have
seen
growth
in
packaging
made
from
alternative
materials
due
to
customers
choosing
to
transition,
regulatory
changes,
and
shortages
of
plastic
products.
However,
we
have
also
seen,
in
some
cases,
a
move
back
to
single-use
plastics
for
hygiene
reasons
during
the
pandemic,
although
we
expect
this
to
be
temporary.
We
talked
in
depth
about
how
we
are
helping
our
customers
with
the
transition
at
our
Capital
Markets
Day,
but
let
me
give
you
a
couple
of
more
examples.
Firstly,
we
have
talked
about
supporting
our
customers
with
their
ambitions,
sustainability
targets.
This
is
exactly
what
we
have
done
with
Empire,
Canada's
second
largest
grocery
retailer,
which
has
Sobeys
and
Safeway
within
its
portfolio.
In
2020,
Empire
announced
the
plans
to
become
the
first
national
grocer
to
replace
single-use
plastic
shopping
bags
with
reusable
and
paper
bags.
Given
the
size
of
their
business,
this
was
a
huge
undertaking,
but
with
our
knowledge
and
depth
of
our
supplier
relationship,
by
working
together,
we
were
able
to
remove
more
than
800
million
plastic
bags
from
circulation
annually.
There
was
no
single
supplier
able
to
provide
this
many
bags
and
so
our
deep
relationships
with
multiple
suppliers
were
crucial.
Furthermore,
to
ensure
an
impactful
launch
with
full
transition
desired
within
weeks
for
each
of
their
banners,
the
strength
of
our
inventory
management
capabilities
enabled
us
to
provide
reassurance
around
meeting
this
objective.
In
order
to
help
Empire
manage
cost
within
the
category,
we
also
completed
a
review
to
identify
potential
savings.
This
resulted
in
us
upgrading
their
digital
one-stop
shop
platform,
which
simplified
the
ordering
process
and
provided
greater
control.
This
is a
very
strong
example
of
how
Bunzl
works
as
a
partner.
It
is
focused
on
providing
complete
solutions
for
customers,
which
go
beyond
the
physical
products.
As
a
second
example,
I
refer
to
the
UK
plastic
tax,
which
will
be
coming
into
effect
in
2022
on
certain
products
that
have
less
than
30%
recycled
content
in
them.
We
have
been
proactively
analyzing
our
customers'
product
ranges
to
identify
the
potential
cost
impact
the tax
will
have
on
them
and
suggesting
alternatives
to
mitigate
this
cost.
We
have
received
very
positive
feedback
to-date
from
our
customers
on
our
approach.
Again,
this
demonstrates
our
leadership
in
this
area.
Let
me
update
you
on
the
sustainability
commitments
we
presented
at
our
Capital
Markets
Day.
I've
already
discussed
our
packaging
progress,
and
we
will
continue
increasing
the
amount
of
products
sold
that
are
made
from
alternative
materials.
In
terms
of
commitments
to
our
responsible
supply
chain,
we
completed
754
audits
in
Asia
through
our
Shanghai
team.
Whilst
we
prefer
to
support
our
suppliers
in
making
improvements
for
their
workers
when
issues
are
identified,
if
satisfactory
actions
are
not
taken,
we
will
terminate
our
relationship.
In
2021, we
terminated
10
supplier
relationships
for
this
reason.
We
have
now
started
to
expand
our
auditing
program
to
other
high-risk
regions
with
the
target
of
ensuring
90%
of
our
spend
in
high-risk
regions
is
similarly
sourced
from
assessed
and
compliant
suppliers.
Within
our
people
strategy,
our
initiatives
on
improving
diversity
are
continuing
to
support
a
number
of
senior
women
in
the
business.
In
the
UK,
22%
of
our
senior
leaders
are
now
female,
compared
to
13%
in
2019.
Our
people
strategy,
in
general,
also
places
emphasis
on
making
sure
we
have
an
engaged
workforce.
In
our
latest
survey,
88%
of
employees
said
they
had
a
strong
commitment
to
Bunzl,
which
is
a
fantastic
result.
Our
focus
on
people
has
also
paid
off
over
the
last
year
with
encouraging
retention
levels
despite
labor
tightness.
And
lastly,
moving
on
to
climate
change.
Over
the
year,
our
carbon
emission
intensity
compared
to
revenue
decreased
by
12%.
This
means
that
since
2010,
we
have
reduced
our
carbon
intensity
by
around
60%.
However,
we
are
committed
to
accelerating
our
reduction
of
carbon
and
have
committed
to
the
United
Nations
race
to
zero.
We
will
compare
to
2019
to
reduce
our
carbon
intensity
by
a
further
50%
by
2030
and
will
achieve
net
zero
by
2050
at
the
latest,
inclusive
of
Scope
3
emissions.
Before
I move
on
to
the
outlook,
I
want
to
reflect
on
our
performance
through
the
pandemic.
I
know
this
is
a busy
slide,
so
let
me
put
out
some
highlights.
Our
financial
performance
has
been
very
strong
with
adjusted
operating
profit 23%
higher
than
in
2019.
Our
strategy
for
ensuring
a
balanced
portfolio
in
terms
of
sectors
and
geographies
with
exposure
to
a
broad
range
of
sectors
and
products,
and
our
strong
supply
chain
has
enabled
us
to
achieve
this
result
alongside
the
agility
and
entrepreneurship
of
our
people.
Our
focus
on
cash
flow
also
enabled
us
to
maintain
our
track
record
of
dividend
growth
over
this
period.
Despite
the
near-term
challenges
over
the
last
two
years,
we
have
also
made
real
strategic
progress,
which
will
support
the
long-term
success
of
the
group.
We
have
committed
nearly
£1
billion
through
acquisitions,
largely
funded
by
cash
generated
over
the
period,
and
our
investments
have
supported
the
acceleration
to
digital
order
or
ordering
with
67%
of
our
orders
in
2021
placed
digitally,
which
compares
to
59%
in
2018 and
62%
in
2019.
I
believe
we
have really
strengthened
our
business
over
the
last
two
years
by
helping
our
customers
to
transition
to
sustainable
solutions,
launching
new
sustainability
commitments,
including
a
net
zero
carbon
target,
and
by
focusing
on
diversity
and
inclusion
in
our
workplace
and
ensuring
our
people
are
engaged.
We
have
exited
the
year
with
leverage
that
provides
substantial
headroom
for
further
acquisitions,
and
we
have
an
active
acquisition
pipeline.
In
addition,
we
continue
to
see
support
from
sales
of
COVID
products
through
this
transitionary
period,
whilst
being
exposed
to
sectors
with
long-term
attractive
dynamics.
Turning
to
our
2022
outlook,
which
continues
to
reflect
our
transition
out
of
the
pandemic.
Whilst
there
are
uncertainties
around
inflation
and
COVID-19
variants,
at
constant
exchange
rates,
we
upgrade
our
guidance
and
now
expect
moderate
revenue
growth
in
2022,
driven
by
the
impact
of
acquisitions
completed
in
the
last
12
months
and
supported
by
a
slight
increase
in
organic
revenue.
Continued
recovery
of
the
base
business
is
expected
to
be
offset
by
the
further
normalization
of
sales
of
COVID-related
products,
although
these
are
expected
to
remain
ahead
of
2019
levels.
Inflation
support
in
plastics,
paper,
and
chemical
products
and
the
year-on-year
impact
of
deflation
on
disposable
gloves
are
also
expected
to
remain
dynamics
within
our
performance.
Furthermore,
we
now
expect
group
operating
margin
in
2022
to
be
slightly
higher
than
historical
level
as
the
mix
of
sector
and
product
sales
to
continue
to
transition
to
more
typical
levels
for
the
group.
We
have
a
long
track
record
of
delivery
with
a
proven
strategy,
a
resilient
portfolio
and
a
strong
network
of
businesses
and
people.
Bunzl
has
strengthened
its
value-added
proposition
through
the
pandemic,
and
we
look
to
the
future
with
confidence
in
our
consistent
compounding
growth
strategy.
In
addition,
this
is
the
strongest
our
balance
sheet
has
been
for
many
years,
which
supports
the
significant
acquisition
opportunities
we
see.
As
you
can
tell,
I
continue
to
be
very
enthusiastic
about
Bunzl's
future.
So,
overall,
a
really
pleasing
year
that
has
reinforced
my
confidence
in
our
outlook
and
compounding
strategy,
which
has
delivered
10%
adjusted
EPS
CAGR
since
2004.
Thank
you
for
your
attention.
We
are
now
very
happy
to
take
any
questions.
Thank
you,
Frank.
[Operator Instructions]
The
first
question
comes
from
Simona
Sarli
at
Bank
of America.
Simona,
please
go
ahead.
Yes.
Good
morning,
gentlemen,
and
thanks
for
taking
my
questions.
A
couple
of
them.
First
of
all,
I
was
wondering
if
you
have
any
update
on
the
Walmart
contract
and
on
the
renewal
that
is
coming
in
2022,
and
if
you
could
just
briefly
remind
us
of
the
economics
of
this
contract.
And
secondly,
you
were
mentioning
an
underlying
growth
for
the
base
business
of
plus
9.9%
year-over-year.
How
much
of
that
is
driven
from
product
inflation
versus
volume
growth?
And
also
similarly
for
North
America,
that
is
20%
above
the
2019
level,
if
you
could
also
give
a
little
bit
of
a
quantitative
indication
of
how
much
of
that
is
related
to
a
volume
rebound
in
the
base
business?
Thank
you.
Okay.
Richard,
I
suggest
you
take
the
third
question.
I'll
take
the
first
two.
On
Walmart,
discussions
are
ongoing.
We
will
update
all
of
you
when
we
can.
And
I
can
say
in
general,
I
think
we
had
a
very
long-standing
relationship
with
Walmart,
more
than 30
years.
In
the
last
two
years, we
did
a
great
job
during
the
COVID
period.
And
I
would
say
in
general,
we
see
increased
levels
of
interest
also
with
other
retail
and
grocery
partners
in
the
US
around
the
area
of
outsourcing,
probably
driven
by
the
pressures
in
the
warehouse
and
delivery
space,
very
difficult
to
recruit
warehouse
people
and
drivers.
So
that
puts
us
in
a
good
position
to
continue
to
win in
the
outsourcing
space.
In
terms
of
the
economics
of
the
contract,
the
contract
is
between
8%
and
9%
of
group
turnover.
Obviously,
far
less
in
profitability,
low-single digit
margins,
but
obviously
stock
turns
relatively
quickly.
So,
return
on
capital
is
still
good,
although
well below
the
Bunzl
averages.
In
terms
of
the
second
question,
underlying
9%
base
business,
split
volume
inflation.
So,
about
two-thirds
of
that
9%
is
inflation,
product
cost
inflation,
and
about
one-third
is
real
volume
growth.
Richard,
over
to
you.
Yeah.
And
just
a
slight
build
on
that
as
well.
When
we
see
the
two-thirds
inflation
split
for
the
second
half,
if
you
think
about
– if
you're
thinking
about
Q4,
you
can
add
a
few
percentage
points
onto
that
as
well,
because
we
have
seen
an
acceleration
in
inflation
levels
Q4
over
Q3.
And
similarly,
the
North
America
story
is
one
of –
I
mean,
certainly
the
growth
that
we've
seen
in
North
– and
the
inflation
we've
seen
from
the
group
level
has
been
driven
by
North
America.
We've
seen
significant
inflation
in
large
part
because
the
products
that
we
supply
in
North
America
are – there're
a
lot
of
packaging,
which
is
often
paper
and
plastics
related.
In
addition
to
the
fact
that
we
an
auto
– in
many
cases,
an
automatic
transmission
of
these
prices
through
the
cost-plus
arrangements,
which
means
that
the
speed
of
transmission
has
been
higher
and
as
a
result,
driven
results
more
than
that.
So,
you
can
assume
that
North
America
is
driving
this
inflation
growth. Obviously,
that
growth
you've
seen in
North
America
is
not
only
that.
We
still
have
COVID
products
ahead
of
where
they
were
in
2019, and
we
still
have
acquisitions
which
have
been
meaningful
in
the
total
revenue
position.
Thank
you
very
much.
The
next
question
comes
from Oscar Val
at JPMorgan. Oscar,
please
go
ahead.
Yes.
Good
morning,
Frank
and
Richard.
I
have
three
questions.
The
first
one
is
again
on
price
and
volume.
I
guess,
just
to
check
that
two-thirds
comment
was
for
the
second
half,
not
for
the
full
year.
And
then
building
on
that,
could
you
just
talk
about
what
the
outlook
assumes
in
terms
of
price
inflation
for
the
rest
of
the
year
for
H1
2022
and
H2 2022?
That's
the
first
question.
The
second
question
is
around,
I
guess,
the
visibility
you
have
on
OpEx
cost
increases,
so
warehouse
staff
and
drivers.
Are
those
locked
in
for
2022?
Are
they
still
–
could
they
still
rise
higher?
That's
the
second
question.
And
then
the
third
question
is
maybe
just
some
color
on
the
COVID
products,
you
talk
about
them
continuing
at
high
levels.
From
an
outside
point
of
view,
it
seems
like
thankfully
we've
turned
the
corner
on
COVID.
Could
you
explain
why
you
think
that
COVID
products
will
remain
relatively
or
higher
than
they
did
before
for
the
foreseeable
future?
Okay.
Yeah.
I
suggest
you
take
the
first
question,
Rich.
I'll
take
the
one
with
the
cost
and
COVID and
please feel free to add.
In
terms
of
cost
increases,
I
think
most
of
the
cost
adjustments
are
happening
at
the
beginning
of
the
year
for
staff,
so
I
would
say
mostly
locked
in,
although
if
we
need
to
make
adjustments
to
stay
in
line
with
markets,
then
we
will
do
that.
In
terms
of
COVID
products,
why
do
we
expect
it
to
be
elevated?
I
think
there's
a
whole
sense
of
cleaning
to
be
very
important.
Offices,
other
areas
have
more
deep
cleaning,
continue
to
focus
on
hygiene,
continue
their
focus
on
using
sanitizers.
What
is
there
to
lose
when
you
enter
a
restaurant
or
a
hotel
to
use
a
sanitizer?
And
I
think
also
with
gloves,
there
may
be
an
element
of
pricing
as
well.
So,
yeah,
we do
strongly
believe,
although we've
seen it
come
down,
that
the
consumption of
these
products
will
continue
to
be
quite
a
bit
higher
than
in
2019.
Richard?
Yeah.
So,
let
me
just
build
a
little
bit
on
that
OpEx
point
as
well.
So,
we
– yeah,
we
have
seen
labor
cost
increases
significantly,
particularly
in
North
America.
As
we
said
in
the
presentation,
it's
much
more
benign
in
Continental
Europe.
And
you
can
think
of
the
UK
being
somewhere
in
between.
What
I
would
say
is
that
to
the
– to
your
point
about
are
they
locked
in,
we
have
been
using,
where
possible,
temporary
labor
during
2021
to
try
and
make
sure
that
we
don't
completely
lock
in
all
of
these
increases.
And
so,
as
the
labor
market
sort
of
comes
back
to
more normal
levels,
we
expect
to
be
able
to
replace
that
with
more
permanent
staff. So,
basically,
we
are
trying
to
variabilize
our
labor
cost
wherever
we
sensibly
can.
Okay.
Oscar,
on
your
point
on
inflation,
the
–
yes,
it
was
a –
the
two-thirds
comment
was
a
second-half
comment,
and
I
felt
like
I
highlighted
my
sense
of
Q4
over
Q3
as
well.
Looking
into
2022,
we
will
see
a
continuation
of
the
levels
we've
seen
in
Q4
into
Q1.
We
do
expect
to
start
to
see
a
partial
annualization
in
Q2,
because
it
was
Q2
in
2021
where
we
saw
the
start
of
the
increases,
particularly
in
North
America.
I
think
as
we
get
into
the
second half
of
the
year,
you
can
expect
us
to
have
annualized
these
increases.
Having
said
that,
we
are
seeing and
as
we
talked
about
the
pre-close,
plastic
prices
in
certain
regions,
in
particular,
the
US
is
starting
to
come
down.
And
I
think
when
you
overlay
that
on
to the
second
half,
you
can
expect
to
see
a
decline
in
the
year-on-year
effects
relating
to
inflation
in
the
base
business.
Okay.
Great.
Just
a
quick
follow-up.
Do
you have
a
number
for
the
full
year
price
benefit
then
just
to
help
us
understand
the
H1
and
H2
comps?
It's
broadly
the
same.
Okay.
But, obviously,
the
pickup
in
the
second
half
is
on
a
higher
number.
Okay.
That's
great.
Thanks,
Richard
and
Frank.
The
next
question
comes
from
Kate
Somerville
at
UBS.
Kate,
please
go
ahead.
Good
morning,
everyone.
Thanks
for
taking
my
questions.
Well,
just
following
up
on
the
inflation versus
volume
question.
Given
what
you
said
in
terms
of
the
commentary,
volumes
are
still
below
2019.
Are
you
able
to
give
a
split
of
that
between
the
three
different
end-markets
that
you
pull
out?
The
second
question
is
on
within
your
guidance
of how
much
of
PPE are
you
factoring
in?
And
then
my
final
question,
I
think
you
kind
of
answered
it just
now,
but
if
the
oil
prices,
plastic
prices
come
down,
do
you
see
a
risk
of
the
inflation
benefit
that
you
have
seen
getting
reversed?
Thanks
so
much.
Do
you want
to take
that,
Richard?
Yes,
happy
to.
So,
look,
we
are
seeing –
yes,
in
some
of
our
end-markets,
we
are
seeing
– and
this
is
the
base
business
I'm
talking
about,
we
are
seeing
volume
levels
lower
than
2019;
I
think
most
notably
in
cleaning
and
hygiene
and
safety
markets.
The
cleaning
and hygiene
market
is
one
where
it
is
at
least
through
the
facilities
management
businesses
tied
to
the
return
to
work
dynamics
that
we've
seen,
and
we're
a
bit
cautious
about
how
that's
going to
play
out
in
2022.
I
think
there's a
lot
of
delays
in
people
coming
back
to
the
office,
so
it's
not
fully
clear
as
to
how
that's going
to
play
out.
So,
I
think
you
can
assume
volumes
[indiscernible]
(00:49:41) also
for
us.
Again,
we've
not
seen
the
progress
in
the
base
business
volumes
of
safety
than
perhaps
we
would
like
to
see.
And
so,
a
little
bit
cautious
about
how
that
plays
out
in 2022.
But
I
would
say,
however,
medium-term,
that's
got
to
be
a
positive
for
us –
a
tailwind
for
us,
because
there's
government
stimulus
coming.
And
at
some
stage,
given
that
we
supply
into
redistribution,
we
will
see
a
pipeline
still
happening
we
think
at
some
stage
as
and
when
these
supply
chains
sort
of
release
and
become
a
bit
more
normalized.
On
COVID
products
and
the
shape
of
COVID
products
in
our
guidance,
Kate,
I
think
the
best
way
to
think
of
it
is
that
we've
got
– we
did
about
£1.6
billion
in
2021,
having
done
£2.2
billion
in
2020.
The
large
chunk
of
that
difference
was
those
large
COVID
orders
not
really
repeating.
When
we
think
forward
into
2022 –
we've
said
it'll
be
above
where
we
were
in 2019
which
is
about
£800
million.
So,
you
can
pick
a
point
somewhere
between
£800
million
and
£1.6 billion
–
£1.5 billion,
£1.6
billion.
We
sort
of
feel
somewhere
in
the
middle
of
that
range
is
probably
not
a
bad
place
to
be.
It's
broadly
consistent
with
how
we've
exited
Q – or
we've
seen
in
Q4
in
2021
as
well.
And
as
to
oil
prices,
yes,
look,
oil
and
gas
prices
actually
are
probably
more
a
reflective
of
plastic
prices
in
our
experience.
Having
said
that
to
the
extent
they
do
come
down,
they
will
normalize
and
we
are
seeing
that.
I
think
don't
forget,
it's
not
just
the
macro
that
drives
some
of
these
prices.
There's
a
point
around
capacity
in
the
plastics
market,
which
will
also
play
into
the
speed
within
which
this
may
reverse.
But
look,
it
might
do,
and
we
are
seeing
it,
particularly
in
North
America
and
it
is
factored
into
our
guidance
of
2022.
Incredibly
helpful.
Thank
you
very
much.
The
next
question
comes
from
Annelies
Vermeulen
at
Morgan
Stanley.
Annelies,
please
go
ahead.
Hi.
Good
morning.
Thank
you for
taking
my
questions.
I
just
have
a
couple
as
well.
So,
following
up
on
the
operating
cost
inflation
question.
Richard,
I
think,
at
the
H1,
you
said
that
the
wage
inflation
part
was
running
at
about
3%
in
the
first
half
and
you expected
that
to
be
higher
in
the
second
half.
Could
you
put
a
number
on
that
to
what
that
was
in
the
second
half?
And
also
based
on
those
costs
that
you've
managed
to
lock
in
so
far,
what
do
you
expect
for
2022?
And
then
related
–
if
you
could
comment –
you
commented in
the
presentation
on
employee
retentions
being
relatively
okay
given
the
tight
labor
markets
that
you've
seen.
I
think
from
memory
that
retention
was
higher
than
normal
in
2020
because
of
the
pandemic.
So,
if
you're
able
to
put
a
number
on
how
that's
developed
in
2021
that
would
be
helpful.
And
then
lastly,
I
recall
previously,
you
[audio gap]
(00:53:00)
that
sort
of
higher
cost
inflation
and
product
cost
inflation
may
also
drive
an
increase
in
contracts
tenders,
so
more
of
your
customers
putting
their
contracts
off
tender.
I
know
you've
called
out
more
opportunities
in
the
US.
I'm
just
wondering
if
you
can
comment
on
how
that
has
developed
relative
to
your
expectations
on
whether
you
are,
a)
seeing
more
opportunities
for
contracts
or
equally
if
you're
seeing
more
of
your
existing
contracts
being
put
out
for
tender.
Thank
you.
Okay.
I'll
take
the
last
question.
You
take
the
first
two,
Richard,
please.
Sure.
Annelies,
the
–
yes,
at
the
half
year, we're
talking
about
3%,
but
flagging
that
it
was
picking
up.
So, it
was
higher
towards
the
end
of
the
first
half
than
the
average
for
the
half,
first
half.
I
think
that's
true
today.
In
the
second
half,
let
me give
you
an
indication
of
North
America,
given
this
is
where
the
majority
of
the
situation
arises,
that
5%
across
the – that
3%
across
the
whole
of
the
year,
across
the
whole
of
workforce
in
North
America
was
5%,
albeit
in
the
second
half,
you
can
add
a
few
percentage
points
to
that.
And
if
I
pull
out
– and
within
that,
let's
say
7%
to
8%,
if
we
then
pull
out
drivers
and
warehouse
people,
they
were
higher
than
that
as
well.
So,
you
can
see
that
we've
seen
a
build
in
the
level
of
inflation
through
the
year.
As
we
called
out
in
the
presentation, though,
we
are
seeing
labor
costs
stabilizing,
starting
to
stabilize
in
North
America,
which
I
think
is
– which
is
positive.
And
when
we
look
into
2022,
we're
effectively
assuming
an
annualization of
that
rate
with
a
more
normal
level
of
annual
award,
if
I
can
call
it
that.
To
your
point
on
voluntary
turnover,
you'll
see
it
in
our
annual
report
when
it
comes
out
in
a
few
days
and
weeks'
time,
we'll
be
pointing
for
the
full
year
rate
of
17.3%.
Yeah.
Okay.
The
third
question
around
product
cost
inflation.
Now,
I've
been
in
this
industry
for
more
than
25
years.
I
have
not
seen
the
levels
of
product
cost
inflation
before
so
it's
been
quite
significant.
And
I
know
that,
if
you
have
periods
of,
more
than
normal
price
increases,
ultimately,
people
will
try
to
tender,
and
try
to
make
sure
they
are
buying
in
a
competitive
way.
There
where
we
have
seen
tenders,
we
have
extended
the cooperation.
We
see
opportunities
mainly
around
two
areas.
One
area
is
what
I
mentioned
about
outsourcing
which
is
it's
quite
logical,
because
if
you
can't
employ
easily
warehouse
people
and
drivers
and
you
have
a
self-distribution
system
in
retail
or
in
supermarket
business,
it's
quite
a
logical
thing
to
think
about
goods
not
for
resale
and
try
to
move
them
out of
your
buildings.
Now,
we
have
conversations.
We
always
have
conversations.
It
feels
like
we
have
a
conversation
now
also
with
slightly
higher-up
people
sometimes.
Still
very
early
days
so
there's
nothing
there
of
any
real
significance
on
the
short-term,
but
it
could
develop
over
time.
And
the
second
area
is
the
whole
area
around
sustainability,
where
we
do
see
that
customers,
especially
also
larger
ones
start
to
recognize
the
expertise
and
abilities
and
the
product
ranges
that
Bunzl
has
compared
to
others.
And
if
you
look
at
net
zero,
you
look
at
carbon,
you
look
at
Scope
3,
which
includes
supply
chains
also,
you
do
see
customers,
certainly,
larger
professional
organizations,
putting
more
value
on
these
kind
of
things,
and
that's
exactly
what
Bunzl
has
been
strengthening
over
the
last
couple
of
years
in
terms
of
our
value
proposition.
That's
very
clear.
Thank
you.
The
next
question
comes
from
Suhasini
Varanasi
from
Goldman
Sachs.
Suhasini, please
go
ahead.
Thank
you.
Hi.
Good
morning.
Just
a
couple
from
me,
please.
So,
if
you
think
about
the
2021
margins,
I
think
you
mentioned
in
your
remarks
that
they
benefited
from
the
reduction
in
the
net
charge
relating
to
inventory
and
credit
loss
provisions.
Was
this
2020? Please,
can
you
help
us
quantify
what
was
the
benefit,
please,
at
the
EBIT
level
based
on
the
order
of
£10 million, £20
million
or
so?
And
then
the
second
question
is
on
the
guidance
change
on
the
margins.
If
you
think
about
what
exactly
has
changed
between
December
trading
update
and
today
that
makes
you
more
optimistic
on
margins
for
this
year
in
the
context
of
the
higher
rate
inflation,
is
it
because
of
the
fact
that
you're
seeing
higher
product
inflation
and
that's
going to
help
the
margins?
Is
it
because
the
COVID
revenues
are
maybe
going
to
remain
for
a
little
bit
longer
than
you
anticipated
or
because
of
maybe
cost
efficiency
programs
or
maybe
M&A?
I
mean,
just
trying
to
help
us
understand
what
has
changed.
Thank
you.
Richard,
these
are
for
you.
Thank
you.
Suhasini,
so
in
terms
of
provisions,
look,
we
– last
year,
we
took
£40
million
net
provisions
of
which
within
that,
about
£15
million
are
related
to
inventory
provisions.
This
year,
we've
seen
a
net
£20
million
charge,
which
is
£10
million in the first half
and
a
net
£10
million
in
the
second
half.
Within
that,
you've
got –
within
that
£20
million
net,
you've
got
–
up
£25
million
on
inventory
provisions
and
a
release
of
£5
million
on
credit
loss
provisions.
So,
you've
got
– broadly
year-on-year,
you've
got
a £20
million
benefit
to
results
in
2020.
The
year-on-year
movement
is
–
benefits
from
about
£20 million
reduction
in
private
provisions
across
the
piece.
What
I
would
say
on
the
inventory
side
is,
well,
firstly,
it's
encouraging.
We're
seeing
some
of
these
credit
loss
provisions
being
able
to
be
released.
I
still
think
the
lion's
share
of
what
we
established
last
year
was
necessary
because
of
the
–
with some
the
issues
we're
seeing
with
some
customers.
But
it's
good
to
see
that
with
collections
significantly
improved,
we've
able
to
release
some
of
those.
On the
inventory,
most
of
these
products
are
not
date
stamps.
They're
not
perishable
in
any
way.
So,
hopefully
over
time,
as
demand
levels
improve
and
basically
these
volume
levels
improve,
we
can
start
to
see
these
provisions
be
released
over
time.
And
look,
we'll
give
you
visibility
of
that
as
we
do
so.
On
your
second
question,
what's
changed
in
guidance
between
the
pre-close
and
the
report,
look,
the
main
difference
is,
it's
really
inflation
driven.
We
have
seen
more
inflation
in
Q4
than
we
had
anticipated.
I
think
it's
also
fair
to
say
that
we've
been better
at
passing
through
price
increases
than
we
anticipated.
And
hence,
the
comment
we
make
about
that
inflation
is
that's
somewhat
supported
to
the
net
of
inflation,
OpEx
inflation
is
somewhat
supported
to
margin.
So,
it's
really
that
that
gives
us
the
confidence
as
we
come
into
the
new
year
that
we're
able
to
pass
on
some
of
that
margin
beat
that
we
achieved
in
2021.
It's
very clear.
Thank
you
so
much.
We're
taking
the
next
question.
The
next
question
comes
from
Dominic
Edridge
at
Deutsche
Bank.
Dominic,
please
go
ahead.
Hello,
there. Thanks for
taking
the
question.
Just
one
for
myself
just
– well, it's
two
connected
ones.
And firstly,
apologies
if I
missed
it,
is
there any
quantification
you
can
give
on
the
cost
savings
you got
from
the
network
rationalization
at
all?
Secondly,
are
there
sort
of
more –
is
there
more
of
that
to
come
in
terms
of
network
rationalization.
So
I'm
guessing
that
with
the
shortages
of
labor
that
you're
probably
looking
to
try
and
optimize and
space
as
much
as
possible?
And
then
connected
with
that
on
M&A,
should
we
be
thinking
there
might
be
some
more
sort
of
synergy-based
acquisitions
going
forward?
Because,
I
suppose
from
my
perspective
and
apologies
if
I'm
wrong,
the Joshen
–
I'm
guessing,
there's
quite a
lot
of
synergies
came
out of
the
Joshen
acquisition
that
you
did
a
couple
of
years
ago.
Is
that
sort
of
thing
we
should
be
thinking
about
it
or
is
it
still
very
much
your
focus
is
on
good
quality
standalone
businesses
where
you
don't
– you're
not
factoring
a
lot
of
cost
synergies?
Thank
you
very much.
Okay.
Well,
let
me
try
to
give
a
go
here.
So,
on
the
cost
savings,
this
is
really
an
ongoing
daily
bread
and
butter
activity.
People
who
know
me
also
in
the
business
know
me
always
of about
talking
of
repairing
the
roof
when
the
sun
shines.
And
so,
we
are
constantly
looking
at
our
warehouse
capacity.
We're
looking
at
when
we
were
buying
businesses,
can
we
streamline
things?
Can
we
improve
things?
But
this
is
a daily,
weekly,
monthly,
ongoing
thing,
and
we
shared
with
you
obviously
what
we've
done
a
number
of
consolidation,
and
there's
more
to
come
also
on
the
shared
service
side.
It's
not
going
to
make
huge
step
change
within
cost,
but
it's
an
ongoing
activity
that
it's
supporting
our
business,
and
dealing
with
sort
of inflation
by
getting
more
efficient.
You
heard
me
talk
about
the
number
of
orders
coming
in.
That's
also
the
number
of
invoices
coming
in.
There's
an
ongoing
process
of
becoming
more
efficient.
On
the
M&A
side,
it's
always
a
combination
of
different
kind
of
acquisition.
It
can
be
an
anchor
acquisition
in
a
new
area.
It
can be
a
bolt-on
acquisition,
but
it
could
also
increasingly
be
acquisitions
in
slightly
newer
area
like
we've
seen
in
McCue, where
we
found
basically
an
area
that
is
close
to
a
market
we're
already
strong
in
terms
of
safety.
Our
safety
business
protects
people
at
work,
and
the
McCue
is
one
where
it
basically
protects
expensive
assets
from
damage
and
things
like
that.
So,
until
you
complete
a
deal,
you
never
know
what
is
happening,
but
it
will
be
a
combination
of
standalone,
bolt-on
and
slightly
newer
things
like
we've
also
done
in
the
area
of
slightly
more
Internet
distribution
businesses.
You
heard me
talk
about
Disposable
Discounter
in
the
UK.
We've
done
a
few
more
deals
where
we're
really
trying
to
capture
a
newer
part
of
the
more prosumer
kind
of
side
of
the
markets.
The
next
question
comes
from
James
Rose
at
Barclays.
James,
please
go
ahead.
Hi
there.
Just
one
left
for me.
On
plastics
taxes,
which
are coming
into
forth
in
April
in
the
UK
and
I
think
it's planned
across
Europe,
emerging
as
well,
are
these
regulations
in
which
you
can
get
market
share
gains, do
you
think,
going
forward
and
presumably
you
could
pass
those
higher
product
costs
on
and
it
could
be
a
benefit
to
gross
profits
in
the
future?
Appreciate
your
thoughts
there.
Thanks.
Yeah.
I
would
say,
it's
still
early
days,
but
we
have
seen
occasions
where
customers
really
put
value
on
our
capabilities.
Providing
information
and
data,
we
don't
talk
a
lot
about
data
in
Bunzl,
but
we
do
use
data
and
information
to
help
our
customers
to
transition.
The
alternative
of
the
products
is
more
expensive.
The
alternative
is
often
also
own
brands,
because
we
position
ourselves
in
a
clever
way
by
building
these
ranges
and
then
move
to
the
right
alternatives
within
the
range.
So,
should
be
supportive
for
us
to
margin
also.
But,
if
you
look
at
the,
let's
say,
the
level
of
products
that
is
sort
of
at
risk
of
regulation
is
only
2%.
So,
it's
a
small
part.
But
we
are
very
well
suited
to
deal
with
it.
UK
is
a
bit
ahead,
Europe
is
following,
and
what
we
do
is
also
use
all
that
best
practice
within
the
Bunzl
world
and
Australia
and
the
US
also
to
get
our
capabilities
further
up
in
our
systems.
So,
we
are
effectively
more
proactive
in
terms
of
dealing
with
customers,
because
certainly
larger
customers
are
also
very
focused
on
moving
to
buying
products
that
are
more
better
suited
to
the circular
economy.
Okay.
Thank
you.
The
next
question
comes
from
Karl
Green
at
RBC.
Karl,
please
go
ahead.
Yeah.
Thanks
very
much.
Good
morning. It's
just
a
final
question
for
me
just on
the
residual
one
for
Richard.
Just
on
the
provision
releases,
the
net
£20
million
that
benefited
results.
But
firstly,
can
you
indicate
broadly
how
that
was
allocated
out
to
the
different
regions?
And
then
following
on
from
that,
in
terms
of
what's
left,
can
I
just
clarify
what's
the
outstanding
balance
sheet
provision
for
loan
loss
and
inventory
write-downs,
please?
And
just
how
would
it
– how
should
we
think
about
that
in
terms
of
how
it's
tracking
versus
a
more normal
pre-COVID
year,
please?
Yeah.
Karl,
regionally,
you
can
think
of,
I'd
say
the
majority
of
this
was
in
North
America
in
the
year.
But
other
than
that
broadly
spread
across
the
rest
of
the
– that
rest of
the
group.
As
to
how
much
of
what
we
established
last
year
is
still
in
place.
Well,
look,
all
we've
released
to
this
point
is
the
£5
million
on
credit
loss.
So,
all
the
rest
that
we
– so
that
the
£40
million,
you
can
take
£5 million
of
that
£40 million
from
last
year
and
add
on
the
£25
million
that
we've increased
this
year,
all
of
those are
still
in
place
at
our
balance
sheet
at end
of
the
year.
And,
look,
that's
high. I mean,
it's
higher that it
has
been
normally. If
you
look
back
to
2008-2009
levels,
it's
sort
of
analogous
to
those
levels.
So,
it
is
something
that
is
reflective
of
having
been
through
a
pandemic
where
supply
chains
are
disrupted,
demand
has been
disrupted.
A
fight
to
get
product
meant
that
in
certain
cases,
we've
got
more
product
than
we
have
certain
lines
than
we
really
need.
As
a
result,
they're
moving
slowly.
But
as
I
said,
these
are
not
products
that
tend
to
go
off.
They're
not
that
time
sensitive. And
as
a
result,
I
do
think
over
time
that
we
can
see
more
of
these
big
provisions
coming
down
gradually.
Okay.
Thanks
very
much.
The
next
question
comes
from
Gerry
Hennigan
at
Goodbody.
Gerry,
please
go
ahead.
Thank
you.
Just
to
follow
up
on
one
of those
questions
earlier
on
with
regard
to
sustainable
packaging.
Can
you
comment
on
regional
variation
and
drivers,
whether
corporate
led
or
government
led?
And
maybe
just
alluded
to
– you alluded
to
it
in
terms
of
higher
own
product
sales,
can
you
comment
maybe
on
the
proportion
currently
and where
you
see
that
maybe
going
to?
And
then
just
briefly
on
acquisitions,
there
has
been
a
bias
towards
more
the
higher-margin
sectors over
the
last
couple of
years
in
terms
of
deal
flow.
Has
that
been
just
a
function
of
opportunity
or
is
it
something
more
strategic
at
play
there?
Okay.
Yeah.
In
terms
of
sustainability
moves,
I
would
say
it
all
started
in
the
UK
followed
by
Europe,
Australia
and
US
still
a
bit
lagging
with
the
exception
of
certain
states
in
the
West,
for
instance.
Let's
say,
you
see
the
biggest
moves
happening
when
there's
regulation
in
place
or
announced
bit like
in
the
UK
and
in
Europe.
And
you
also
see
probably
the
most
significant
interest
with
larger
customers
as
well.
But
it's
coming
to
the
whole
sort
of
customer
base
over
time.
Own
brands,
own
brand
is
developing
well,
although
we've
seen
a
reduction
in
own
brand
by
about
– own
brand and
imports by
about
1%
compared
to
last
year,
which
was
fully
expected,
because
COVID
big
orders
were
own
brand
as
well.
But
we
see
this
ongoing
growth
of
own
brand
in
our
organic
business,
but
also
we
see
a
slightly
higher
percentage
of
own
brand
in
acquisition
businesses
purely
because
safety
is
a
very
high
percentage
of
own
brand.
In
terms
of
acquisitions,
I
think
it's
–
it
is
also
a
strategic
focus,
not
so
much
that
we
want
to
buy
higher-margin
businesses,
which
we
obviously
like.
But,
what
we
are
aiming
for
in
the
vast
majority
is
businesses
that
have
a
very
strong
position
in
the
supply
chain,
which
means,
not
a
lot
of reliance
on
a
few
suppliers,
and
often
also
more
fragmented
customer
base,
which
puts
you
in
a
strong
position
in
the
supply
chain,
especially
if
you
also
own
your
own
brands
as
a
real
brand.
And
if
you're
able
to
buy
businesses
like
that
with
a
very
strong
position
in the
supply
chain
that
often
delivers
a
higher
margin.
So,
yeah,
it
is
a
strategic
focus
on
buying
certain
types
of
companies
and
they,
as
a
result,
come
often
with
a
higher
margin
as
well.
Okay.
Thank
you.
The
final
question
today
comes
from
Rajesh
Kumar
at
HSBC.
Rajesh,
please
go
ahead.
Hi,
morning.
Just
thinking
through
the
point
on
provisions
of –
I
mean,
last
year
was
an
exceptional
slide
compared
to
your
long-term
history.
So,
is
this
year
more
of
a
normalization
of
the
trend
or
would
you
say
that
it's
still
at
an
elevated
level
and
there's
a
bit
more
to
go?
The
second
question
is
on
the
own
brand.
You
definitely
provided
with
some
very interesting
color
there.
When
we
are
thinking
of
customers
struggling
with
inflation,
have
you
seen
any
preference
towards
own
brand
or
demand
for
own
brand
solutions
where
you
don't
have
emerging
from
the
customers,
because
often
you
can
find
own
brand
can
be
cheaper
and
a
part
of
your
toolkit
to
help
customers
with the
solution.
And
finally,
on
the
labor
cost
side,
you
kindly
provided
some
color
on
the
temp,
the
temp
cost
been
used.
Temps
building
rate
tends
to
be
higher
but
can
potentially
reduce
the
overall
cost.
But
if
you
were
to
switch
to
temp
to perm, would
your
overall
cost
base
go
down
or
up?
Yeah.
Okay.
Let
me
answer
the
own
brand
question,
and
then,
Richard,
maybe
you
can
deal
with
the
provisions
and
the
temporary
labor
question.
So,
on
own
brand,
spot
on.
When
you
see
more
than
normal
price
increases
happening
from
branded
suppliers,
we
do
get
often
requests
from
customers
saying,
I'm
not
buying
brand
A,
B
or
C
toilet
paper
or
towels
or
other
paper
cups
or
other
things,
the
price
goes
up
by
7%
or
8%.
Can
you
help
me
with
an
alternative?
And
that's
where
our
own
brands
come
in.
So,
yes,
I
do
expect
that,
let's
say,
if
inflation
continues
and
prices
continue
to
be
elevated, this
is
an
excellent
opportunity
for
our
operating
companies,
our
150
operating
companies
to
further
increase
on
brand penetration.
Understood.
Thank
you.
And,
Rajesh,
on
the
provisioning
levels,
look,
I
do
think
they're
high.
I
do
feel
that
they
should
start
to
come
down.
But
from
my
side,
I
felt
that
last
year,
and
I
was
proven
wrong
through
2021.
But
I
think
it's
reasonable
to
assume
that
with
activity
levels
higher
as
economies
have
reopened,
but
we
will
sell
through
at least stock
over
time.
Therefore,
I'd
like
to
think
this
is
the
peak.
I
mean,
one
thing
to
note,
we
haven't
– our
guidance
doesn't
assume
that
we
are
releasing
any of
these
provisions.
So,
to
the
extent
that
happens,
I
think
it
is going
to
be
additive.
On
the
labor
cost
points,
that
means
you're
right.
Use
of
temps
was
more
to
do
with
–
there's
a
bit
of
labor
constraint
that
drove
us
to using
temps,
but
also
it
does
help
us
to
variabilize
and
take
advantage
of
lower.
If
the
market
becomes
a
little
less
price
sensitive,
then
we
can
switch
those
people
out
and
end
up
having
a
lower
cost
we
think,
because
don't think
– don't
forget
that
this
not
just
a
temp –
the
temp
is
not
just
about
rates.
The
rates
can
be
a
bit
higher
initially,
but
you
benefit
from
flexibility.
But
they
can
also
be a
little
less
efficient
on
–
in
the
early
days.
So,
I
think
that
the
move
from
temp
to
perm,
should
we
be
able
to do
that
in
our
markets
this
year,
a)
it
does
help
us
manage
this
transition,
but
I
think
also
could
actually
bring
some
costs
down
as
we
have
a
greater
level of
training
and
efficiency
in
the
workforce.
Thank
you
very
much.
We
have
no
further
questions
today,
so
I'll
hand
back
to
Frank
and
Richard
to
conclude
the
call.
Yeah.
Thank
you
very
much
for
attending
this
call,
and
I
wish
you
a
great
day.
This
concludes
today's
conference
call.
Thank
you
for
joining.
You
may
now
disconnect
your
lines.