Bunzl plc

LSE:BNZL

Earnings Call Transcript 2021-Q4

[Operator]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[Operator]

Thank

you,

Frank.

[Operator Instructions]



The

first

question

comes

from

Simona

Sarli

at

Bank

of America.

Simona,

please

go

ahead.

[Simona Sarli, Analyst, Bank of America]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Simona Sarli, Analyst, Bank of America]

Thank

you

very

much.

[Operator]

The

next

question

comes

from Oscar Val

at JPMorgan. Oscar,

please

go

ahead.

[Oscar Val Mas, Analyst, JPMorgan Securities Plc]

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?

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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?

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Oscar Val Mas, Analyst, JPMorgan Securities Plc]

Okay.

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Oscar Val Mas, Analyst, JPMorgan Securities Plc]

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?

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

It's

broadly

the

same.

[Oscar Val Mas, Analyst, JPMorgan Securities Plc]

Okay.

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

But, obviously,

the

pickup

in

the

second

half

is

on

a

higher

number.

[Oscar Val Mas, Analyst, JPMorgan Securities Plc]

Okay.

That's

great.

Thanks,

Richard

and

Frank.

[Operator]

The

next

question

comes

from

Kate

Somerville

at

UBS.

Kate,

please

go

ahead.

[Kate Somerville, Analyst, UBS AG (London Branch)]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

Do

you want

to take

that,

Richard?

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Kate Somerville, Analyst, UBS AG (London Branch)]

Incredibly

helpful.

Thank

you

very

much.

[Operator]

The

next

question

comes

from

Annelies

Vermeulen

at

Morgan

Stanley.

Annelies,

please

go

ahead.

[Annelies Vermeulen, Analyst, Morgan Stanley & Co. International Plc]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

Okay.

I'll

take

the

last

question.

You

take

the

first

two,

Richard,

please.

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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%.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[Annelies Vermeulen, Analyst, Morgan Stanley & Co. International Plc]

That's

very

clear.

Thank

you.

[Operator]

The

next

question

comes

from

Suhasini

Varanasi

from

Goldman

Sachs.

Suhasini, please

go

ahead.

[Suhasini Varanasi, Analyst, Goldman Sachs International]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

Richard,

these

are

for

you.

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Suhasini Varanasi, Analyst, Goldman Sachs International]

It's

very clear.

Thank

you

so

much.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

We're

taking

the

next

question.

[Operator]

The

next

question

comes

from

Dominic

Edridge

at

Deutsche

Bank.

Dominic,

please

go

ahead.

[Dominic Edridge, Analyst, Deutsche Bank AG]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[Operator]

The

next

question

comes

from

James

Rose

at

Barclays.

James,

please

go

ahead.

[James Rose, Analyst, Barclays Capital Securities Ltd.]

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.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[James Rose, Analyst, Barclays Capital Securities Ltd.]

Okay.

Thank

you.

[Operator]

The

next

question

comes

from

Karl

Green

at

RBC.

Karl,

please

go

ahead.

[Karl Green, Analyst, RBC Europe Ltd.]

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?

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Karl Green, Analyst, RBC Europe Ltd.]

Okay.

Thanks

very

much.

[Operator]

The

next

question

comes

from

Gerry

Hennigan

at

Goodbody.

Gerry,

please

go

ahead.

[Gerry Hennigan, Analyst, Goodbody Stockbrokers ULC]

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?

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[Gerry Hennigan, Analyst, Goodbody Stockbrokers ULC]

Okay.

Thank

you.

[Operator]

The

final

question

today

comes

from

Rajesh

Kumar

at

HSBC.

Rajesh,

please

go

ahead.

[Rajesh Kumar, Analyst, HSBC Bank Plc]

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?

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

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.

[Rajesh Kumar, Analyst, HSBC Bank Plc]

Understood.

Thank

you.

[Richard Howes, Chief Financial Officer & Director, Bunzl Plc]

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.

[Rajesh Kumar, Analyst, HSBC Bank Plc]

Thank

you

very

much.

[Operator]

We

have

no

further

questions

today,

so

I'll

hand

back

to

Frank

and

Richard

to

conclude

the

call.

[Frank Andre van Zanten, Chief Executive Officer & Director, Bunzl Plc]

Yeah.

Thank

you

very

much

for

attending

this

call,

and

I

wish

you

a

great

day.

[Operator]

This

concludes

today's

conference

call.

Thank

you

for

joining.

You

may

now

disconnect

your

lines.