Bunzl PLC

Annual Report • Mar 17, 2022

213800Q1Q9DV4L78UM092021-01-012021-12-31iso4217:GBP213800Q1Q9DV4L78UM092020-01-012020-12-31iso4217:GBPxbrli:shares213800Q1Q9DV4L78UM092021-12-31213800Q1Q9DV4L78UM092020-12-31213800Q1Q9DV4L78UM092020-12-31ifrs-full:IssuedCapitalMember213800Q1Q9DV4L78UM092020-12-31ifrs-full:SharePremiumMember213800Q1Q9DV4L78UM092020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800Q1Q9DV4L78UM092020-12-31ifrs-full:MergerReserveMember213800Q1Q9DV4L78UM092020-12-31ifrs-full:CapitalRedemptionReserveMember213800Q1Q9DV4L78UM092020-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800Q1Q9DV4L78UM092020-12-31bunzlplc:OwnSharesMember213800Q1Q9DV4L78UM092020-12-31ifrs-full:RetainedEarningsMember213800Q1Q9DV4L78UM092021-01-012021-12-31ifrs-full:RetainedEarningsMember213800Q1Q9DV4L78UM092021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800Q1Q9DV4L78UM092021-01-012021-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800Q1Q9DV4L78UM092021-01-012021-12-31ifrs-full:IssuedCapitalMember213800Q1Q9DV4L78UM092021-01-012021-12-31ifrs-full:SharePremiumMember213800Q1Q9DV4L78UM092021-01-012021-12-31bunzlplc:OwnSharesMember213800Q1Q9DV4L78UM092021-12-31ifrs-full:IssuedCapitalMember213800Q1Q9DV4L78UM092021-12-31ifrs-full:SharePremiumMember213800Q1Q9DV4L78UM092021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800Q1Q9DV4L78UM092021-12-31ifrs-full:MergerReserveMember213800Q1Q9DV4L78UM092021-12-31ifrs-full:CapitalRedemptionReserveMember213800Q1Q9DV4L78UM092021-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800Q1Q9DV4L78UM092021-12-31bunzlplc:OwnSharesMember213800Q1Q9DV4L78UM092021-12-31ifrs-full:RetainedEarningsMember213800Q1Q9DV4L78UM092019-12-31ifrs-full:IssuedCapitalMember213800Q1Q9DV4L78UM092019-12-31ifrs-full:SharePremiumMember213800Q1Q9DV4L78UM092019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800Q1Q9DV4L78UM092019-12-31ifrs-full:MergerReserveMember213800Q1Q9DV4L78UM092019-12-31ifrs-full:CapitalRedemptionReserveMember213800Q1Q9DV4L78UM092019-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800Q1Q9DV4L78UM092019-12-31bunzlplc:OwnSharesMember213800Q1Q9DV4L78UM092019-12-31ifrs-full:RetainedEarningsMember213800Q1Q9DV4L78UM092019-12-31213800Q1Q9DV4L78UM092020-01-012020-12-31ifrs-full:RetainedEarningsMember213800Q1Q9DV4L78UM092020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800Q1Q9DV4L78UM092020-01-012020-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800Q1Q9DV4L78UM092020-01-012020-12-31ifrs-full:IssuedCapitalMember213800Q1Q9DV4L78UM092020-01-012020-12-31ifrs-full:SharePremiumMember213800Q1Q9DV4L78UM092020-01-012020-12-31bunzlplc:OwnSharesMember Bunzl plc Annual Report 2021 Scroll down Bunzl plc Annual Report 2021  About Bunzl Visit our new website at bunzl.com We are the largest value-added distributor in the world in our market sectors…       Our purpose is to deliver essential business solutions  long term sustainable value   Engaging digital solutions READ MORE PAGE 22 Focused on sustainability READ MORE PAGE 18 Contents Strategic report A year in review 4   Chairman’s statement 8       Market trends 24 Our purpose-led strategy 28 Our business model 30 Our strategy 32   Operating review 38       Viability 73      SASB Reporting for Bunzl       Directors’ report       Nomination Committee report 110     Other statutory information 150 Financial statements   Consolidated statement     Consolidated statement         Company statement of   Notes to the Company        Shareholder information 222 Five year review 231 Investing in our people READ MORE PAGE 20 1Bunzl plc Annual Report 2021     READ MORE PAGE 57 Bunzl plc Annual Report 20212 A year in review 4   Chairman’s statement 8       Market trends 24 Our purpose-led strategy 28 Our business model 30 Our strategy 32   Operating review 38       Viability 73            Strategic report 3Bunzl plc Annual Report 2021 Strong results with a focus on sustainability Financial performance: Highlights  committed to further accelerating our focus on sustainability for tomorrow and beyond.      Adjusted earnings per share      Dividend per share    Revenue            Cash conversion   Committed acquisition spend £508m Basic earnings per share    Net debt : EBITDA **       Reconciliation of alternative performance measures to statutory measures  Adjusting items Year ended  Alternative  measures £m Customer relationships and brands amortisation £m  related items £m  pension   £m Statutory measures £m Adjusted operating     –            income tax    –   income tax     –    for the year    –   Adjusted earnings per share    –  Basic earnings per share          Bunzl plc Annual Report 20214 A YEAR IN REVIEW Sustainability performance: Highlights   leadership team are women  754    84% of Group revenue attributable   alternative materials that are well   Only 2% of Group revenue    Joined the Race to Zero    12%    FURTHER INFORMATION ABOUT SUSTAINABILITY AT BUNZL CAN BE FOUND ON PAGES 46 TO 57 5Bunzl plc Annual Report 2021 STRATEGIC REPORT Sector revenue split Foodservice 28% Grocery 26% Safety 15% Cleaning & Hygiene 10% Retail 10% Healthcare 8% Other 3% Facilitating businesses globally with essential products and services We provide a one-stop-shop, on-time and in-full specialist distribution service across 31 countries, supplying a broad range of internationally and responsibly sourced non-food products to a variety of market sectors Foodservice         Grocery       Safety        Retail        Cleaning & Hygiene      Other   Healthcare        Bunzl plc Annual Report 20216 AT A GLANCE Our business regions     developing our global network to    Years of dividend growth 31 Countries 183         Continental Europe 25% Rest of the World 15% UK & Ireland 9% North America 51% Adjusted operating  ** North America    UK & Ireland    Rest of the World    Continental Europe    STRATEGIC REPORT 7Bunzl plc Annual Report 2021 Our people and culture continue to be key to our success ‘The strength of our performance over the last two years has provided me with even  Peter Ventress Chairman   growth in 2021 against a strong prior year  the Group delivered strong revenue            revenues between the traditional base      has provided me with even stronger          Strategic priorities  and proven strategy of developing the             Bunzl plc Annual Report 20218 CHAIRMAN’S STATEMENT Thank you to our people The power of a strong and motivated   have gone above and beyond to      the business forward over the last         feeling personally driven to help Bunzl   READ MORE PAGE 53    compound annual growth rate of 10% over the period.’ highlighted the strong progress we have   from alternative materials that are better  People and culture The power of a strong and motivated   gone above and beyond to support our    proud of their entrepreneurial spirit                  demonstrating the power of these initiatives as the number of women in senior leadership roles has grown    Group to ensure we better understand            from a more diverse pool of talent and     pleased with the progress we have    Shareholder returns          to shareholders through dividends and  to support a growth strategy that has    Peter Ventress Chairman 28 February 2022 2021 share price High  Low  Share price range (p) 2,436 2,465 2,452 2,551 2,603 2,968 1,950 1,671 1,735 2,016 1,936 1,943 1,277 2,150 1,367 1,820 852 1,167 1,014 1,450 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 9 STRATEGIC REPORT Bunzl plc Annual Report 2021 A strong track record for delivering growth Bunzl has a compounding growth strategy that  part of the equation.  balanced and resilient business A consistent and proven compounding strategy  opportunities for future growth •  •   • Fragmented markets •  relationships •  • Operating model improvements •   •   •   Committed acquisition spend in 2021 £508m Net debt to EBITDA 2 provides substantial capacity for further self-funded acquisitions  Average underlying revenue growth 1 since 2004  Self-funded committed acquisition spend since 2004  Acquisitions since 2004 183 Revenue CAGR since 2004   1 CAGR since 2004  Resilience demonstrated by  1 growth 2019 – 2021 at constant currency of  Bunzl plc Annual Report 202110 INVESTMENT CASE Sustainable and equitable growth Disciplined  management A long term track record of returns for shareholders •  supplier audits •   •   •   In-person supplier audits in Asia over 2021 754 Scope 1 and 2 tonnes of CO 2 e   % of Group revenue generated by consumables facing regulation  Proportion of female members of Board and Executive Committee during 2021  •   •  •  •    • Long term dividend growth and total shareholder return •  growth remains sustainable        Return on invested capital 1  Return on average operating capital 1  Cash conversion 1  Annual consecutive dividend growth  Adjusted earnings per share 1 in 2004 to        in 2021 Bunzl plc Annual Report 2021 STRATEGIC REPORT 11 Driving the transition to better solutions ‘Our proactive leadership and capabilities supporting the transition to alternative materials is a growth avenue that is deepening our customer relationships.’ Frank van Zanten  Overview       the entrepreneurial nature of our people   on being a responsible business is well      materials and solutions that are tailored   Committing to ambitious climate action Today Tomorrow Beyond Bunzl plc Annual Report 202112 CHIEF EXECUTIVE OFFICER’S REVIEW   business model has already driven     Operating performance                                        of 2020 and generated predominately           remained substantially higher than       Group’s underlying revenue growth by                       Our focus areas to 2025   solutions • Trialling alternative fuels   measures in warehouses • Renewable energy  generation • Committing to SBTi 1 approved targets with  •  2 •   • Net zero by 2050 at the latest 3       STRATEGIC REPORT 13Bunzl plc Annual Report 2021  business has been supported by strong                              saw moderate underlying revenue        Helping customers with alternative packaging solutions         revenue in the Rest of the World grew                  business revenues broadly in-line with           year delivered base business sales that           towards the end of the year we started                                of Group revenue attributable   from alternative materials   Our role in supporting the circular economy •  •  •  usage and reusable options •  solutions 2021 highlights •   •   •     •           Bunzl plc Annual Report 202114 Bunzl plc Annual Report 202114 CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED  and had driven strong volume leverage   margin businesses within our base         in the level of slow moving inventory        provisions whilst additional provisions                      deposits held in the subsidiaries through           The risk of having to 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  Underlying growth and operational                                 Acquisitions          enabling the Group to fund one of the        Bunzl ended the year with net debt to         STRATEGIC REPORT 15Bunzl plc Annual Report 2021 Sustainable solutions  leader in the transition to a more                             alternative materials that are well   Completion   January 2021  revenue of £20 million  February 2021  with annualised revenue of £11 million   February 2021     May 2021   Harvey  May 2021  of £4 million  Holdings June 2021    Proin Pinilla July 2021  annualised revenue of £14 million Arprosa July 2021   Medshop September 2021    September 2021  with annualised revenue of £22 million  Corporation     revenue of £73 million Workwear      November 2021  annualised revenue of £8 million Tingley Rubber   of £47 million                                  Ensuring a responsible supply chain        suppliers to improve their operations    of spend in Asia audited every 2 years 754  in Asia in 2021  auditing programme to      SCAN TO LEARN MORE ABOUT OUR SHANGHAI OPERATIONS Bunzl plc Annual Report 202116 CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED Our leadership team   businesses and seek further opportunities for  READ MORE PAGE 96 Andrew Mooney   Frank van Zanten   Richard Howes    General Counsel and Company  Diana Breeze   Jim McCool   Alberto Grau   Jonathan Taylor   Andrew Tedbury   Kim Hetherington     Prospects                                    further normalisation in the near-term        family have only been strengthened           Frank van Zanten  28 February 2022 Mark Jordan Group Chief  17Bunzl plc Annual Report 2021 STRATEGIC REPORT Supporting our customers with sustainable solutions ‘Bunzl’s business model is perfectly positioned to support our customers’ sustainability objectives. The risk-based approach we take to ethical   model and unrivalled range of alternative packaging products means we can engage the whole value chain to help build a better world.’ Ensuring products are made from alternative materials             WATCH THE FILM: TAILORED SOLUTIONS FOR A BETTER WORLD James Pitcher Group Head of Sustainability Bunzl plc Annual Report 202118 THE DIFFERENCE IS ESSENTIAL Sustainability as a competitive advantage            Supporting a more circular economy              19Bunzl plc Annual Report 2021 STRATEGIC REPORT Bunzl’s ‘We Believe’ employment brand articulates our culture                including learning and development support and almost limitless career  what really sets us apart is our inclusive and customer-focused culture’ Continued focus and investment in our people Diana Breeze  20 Bunzl plc Annual Report 2021 THE DIFFERENCE IS ESSENTIAL  of employees believe that leaders support diversity  “In Bunzl North  that our culture is truly inclusive has been a huge area of  and this has started with making sure that we take the time to listen to our colleagues and understand their perspectives”   began with a series of listening initiatives  the Business were surveyed to assess the interest in an establishment of a Women’s   was overwhelmingly positive and the  sessions were held for small groups of       learnings was the opportunity to       21 STRATEGIC REPORT Bunzl plc Annual Report 2021 ‘Complex customer journeys necessitate smart digital solutions that simplify ordering but also provide customer enhancing insights.’ Mark Jordan      digitally in 2021 Customised dynamic dashboards         At the heart of Bunzl’s proposition is the         provide digital solutions that enable       with engaging digital solutions Bunzl plc Annual Report 202122 THE DIFFERENCE IS ESSENTIAL Using our footprint tools to support customers in making the right choices            Product recyclability Widely recyclable 74% Recyclable through specialist provision * 21% Not recyclable 5% Products at risk of legislation High 4% Medium high 8% Medium low 26% Low 62%    Example customer output 23Bunzl plc Annual Report 2021 STRATEGIC REPORT Agile response to evolving market dynamics Bunzl’s organisation structure and strength of management teams continues to be a driving force in Bunzl’s response to challenges faced and opportunities. Summary of performance over the pandemic                   Resilience through mix     and underlying revenue growth   3 growth  2020 2021 0 1,000 2,000 3,000 4,000 5,000 Absolute base business 2 revenue (£m) H1-19 H2-19 H1-20 H2-20 H1-21 H2-21 0 200 400 600 800 1,000 1,200 Absolute top 8 Covid-19 related revenue 1 (£m) H1-19 H2-19 H1-20 H2-20 H1-21 H2-21 Smaller orders Larger orders Underlying revenue growth 3 of    1 and  2 Underlying revenue growth 3 of    1  from base business revenue 2 Bunzl plc Annual Report 202124 MARKET TRENDS Transition to normalisation •      •   Foodservice •   markets open and as home delivery remains elevated •  speed given return to work  •  on international travel •  strong growth Retail • Big box and mall based improved footfall will   •  strong  Grocery •  momentum maintained with support from  •   will follow improved travel trends Safety •    materials and labour shortages Cleaning & Hygiene •     •   Healthcare •    In the near term we expect varying speeds of recovery by sector 25Bunzl plc Annual Report 2021 STRATEGIC REPORT Beyond the pandemic Our underlying growth is supported by   Trends Revenue opportunity in the medium term Safety •   •  • Cleaning & Hygiene •  •   • Healthcare •  •   • Grocery •  •   •   • Foodservice •  • Home delivery •   • Retail •  •   • Bunzl plc Annual Report 202126 MARKET TRENDS CONTINUED Supporting our customers with the omnichannel shift Grocery Foodservice •  delivery platforms and the    •  independently of restaurant visits and this is therefore a new growth  Retail •     for returns •    •    Listen to what one of our   support we provide to them • 14 years of partnership •   •   •   SCAN THE QR CODE TO GO TO THE BOL.COM VIDEO •          • Shift from in-store orders to  neutral to Bunzl • Stores remain important in an   •       27Bunzl plc Annual Report 2021 STRATEGIC REPORT Delivering long term sustainable value Our purpose We believe that our purpose is to deliver essential business solutions around  long term sustainable   Through our core values • Humility • Responsiveness • Reliability •  One-stop-shop We source We consolidate We deliver We ensure: •  •  •  •  • Sustainable and responsible solutions • Reliability What  business  Bunzl plc Annual Report 202128 OUR PURPOSE-LED STRATEGY A compounding strategy that consistently delivers… …with sustainability a vital part of the equation •  • Operating model improvements •  •  •  •  • Providing tailored alternative solutions How Create long term sustainable  Why For the  stakeholders We deliver: • Growth opportunities •  •  •  •  We provide: •  •  •  •  READ MORE PAGE 32 READ MORE PAGE 46 READ MORE PAGE 58 Customers Colleagues Shareholders Environment Suppliers Communities 29Bunzl plc Annual Report 2021 STRATEGIC REPORT Essential business solutions Our tailored service model    Our service and value proposition for our customers        We source •  • Global supplier relationships • Own brand portfolio •   •  •  We consolidate •  single delivery • Customised digital solutions •  •  •  deliveries We deliver •  •   replenishment •   Saving our customers more than just the cost of products Product cost Cost to process Cost of failure Working capital investment Sustainability risks Logistal infrastructure Established product expertise and supplier network Innovation costs Bunzl plc Annual Report 202130 OUR BUSINESS MODEL Our capital allocation priorities Our sources of competitive advantage Tailored solutions and value-added services Our tailored solutions enable us to add value to our    Global and ethical sourcing      Sustainable solutions        Digital capabilities    Our people     Decentralised model      International scale     Acquisition track record            dividend and grow our  Reinvestment     and warehouse management   Acquisitions      while maintaining a prudent     Dividends Our dividend has grown every    sustainable dividend growth in  Delivering value for all of our stakeholders 31Bunzl plc Annual Report 2021 STRATEGIC REPORT A consistent compounding strategy Our strategy is founded  operating model improvements and growth  with a commitment that growth is sustainable and equitable. Within these  priorities enable Bunzl to maintain and strengthen its competitive advantages.  advantage to support the growth of our   share  our business more     markets further   growth Operating model improvements  growth Consistent compounding strategy Proven track record MORE INFORMATION ON PAGE 33 MORE INFORMATION ON PAGE 34 MORE INFORMATION ON PAGE 35 2004 2005 2006 2007 2008 2009 2010 20152011 20162012 20172013 201920182014 2020 2021 Revenue (£bn) CAGR 9% 2.4 10.3 2004 2005 2006 2007 2008 2009 2010 20152011 20162012 20172013 201920182014 2020 2021 Adjusted EPS 1 (p) CAGR 10% 31.7 162.5   Bunzl plc Annual Report 202132 OUR STRATEGY STRATEGY IN ACTION How our model drove success during the pandemic •   related orders in 2020 •   •  •   •  of great disruption  organic growth Volume        Price    Mix Own brand/imports   Sustainability Our organic growth drivers  looking to grow   and developing our business with  and by gaining new business with additional  Underlying revenue growth 1 2021 vs 2019  33Bunzl plc Annual Report 2021 STRATEGIC REPORT Operating model improvements  continually assessed • Consolidating warehouses –   •  •  •  •  Digital a key enabler   •  •  •  •  Optimising our operations •  •  • Leading warehouse management systems STRATEGY IN ACTION UK grocery and non-food retail   strive to improve  operations and to make our businesses   Warehouse consolidations: six small   energy usage by 70% Investment in workforce management   Investment in transport management software  and optimising vehicle route planning Bunzl plc Annual Report 202134 OUR STRATEGY CONTINUED Acquisition growth Success of acquisition strategy •  •   • Two thirds of revenue growth driven  •  • Group average return on invested   We seek out businesses that     at the same time providing opportunities to  value as part of  STRATEGY IN ACTION 50 safety acquisitions since 2000 •  •   •   •   Acquisition of McCue Corporation    for use in warehouses and high footfall environments •  •  •  –  –   –   – international growth Average components of revenue growth over last 10 years Average growth over last 10 years Organic growth Acquisitions 2.5% 4.6% 35Bunzl plc Annual Report 2021 STRATEGIC REPORT Measuring our strategic progress We use the following key performance indicators  successful implementation of our strategy and to monitor and drive performance.  Organic revenue growth (%) 2017 2018 2019 2020 2021 3.2 5.3 (0.2) 4.3 4.3      Reconciliation of revenue growth between 2020 and 2021 £m 2020 Currency translation Impact of one less trading day Under- lying revenue growth Acquisitions 2021 10,285 345 379 (512) 10,111 (38)     Acquisition growth Acquisition spend £m 2017 2018 2019 2020 2021 508 445 124 616 183      Annualised revenue from acquisitions £m 2017 2018 2019 2020 2021 322 602 97 621 148     Financial IAS 17 IFRS 16 Return on invested capital %  2017 2018 2019 2019 2020 2021 16.2 15.1 13.6 14.6 16.0 15.0   to the average of the         IAS 17 IFRS 16 Cash conversion %  2017 2018 2019 2019 2020 2021 103 102 101 100 97 94           IAS 17 IFRS 16 Adjusted earnings per share p  2017 2018 2019 2019 2020 2021 164.9 162.5 132.2 132.4 119.4 129.6   divided by the weighted        Operating model improvements IAS 17 IFRS 16 Operating margin %  2017 2018 2019 2019 2020 2021 7.7 7.3 7.0 6.8 6.9 6.8          IAS 17 IFRS 16 Return on average operating capital %  2017 2018 2019 2019 2020 2021 45.4 43.3 36.948.4 53.1 50.7           Bunzl plc Annual Report 202136 KEY PERFORMANCE INDICATORS  priorities of developing the business   of our operations as well as other       key performance indicators Scope 1 carbon emissions Tonnes of CO 2 e per £m revenue 2017 2018 2019 2020 2021 8.5  9.5 10.7 11.3 11.4         Scope 2 carbon emissions Tonnes of CO 2 e per £m revenue 2017 2018 2019 2020 2021 2.4  2.9 3.2 3.7 3.6         Fuel usage Litres per £000 revenue 2017 2018 2019 2020 2021 2.7  3.1 3.4 3.7 3.6               Responsible supply chains Investing in our people and a diverse workforce Providing tailored alternative solutions Taking further action on climate change Target   2   Target      supplied to our  them meet their targets Target   Committee will be at least  Target for 2030   2   Target     suppliers by 2025 37Bunzl plc Annual Report 2021 STRATEGIC REPORT   208       North America ‘Our strong network has been resilient against supply challenges’ Jim McCool  North America             the base business was trading strongly                               business also saw improvement throughout the year as travel gradually       the reopening of in-restaurant dining       Our businesses serving the food           Bunzl plc Annual Report 202138 OPERATING REVIEW Revenue                  Operating margin        Our retail supplies business delivered     by many retailers provided growth in  Our safety business grew very strongly                   SUSTAINABILITY IN ACTION Supporting customers to meet industry-leading targets               Number of clamshells supplied made from recycled content 300m 39Bunzl plc Annual Report 2021 STRATEGIC REPORT   175       Continental Europe  growth since 2019 shows the strength of our model’ Alberto Grau  Continental Europe          underlying sales grew moderately as the                                  our ongoing strategy of improving our                             marginally lower as good growth in the     Bunzl plc Annual Report 202140 OPERATING REVIEW CONTINUED            Operating margin              was seen in our more traditional                   SUSTAINABILITY IN ACTION Independent advice when transitioning from one material to another               Number of trays transitioned to fully recyclable solution with recycled content  Revenue       41Bunzl plc Annual Report 2021 STRATEGIC REPORT          UK & Ireland ‘We have seen a strong recovery since the lifting of restrictions’ Andrew Tedbury Managing Director UK & Ireland          sales saw good growth driven by the   although the base business in the             Our safety businesses were very strongly              driven by their desire for a strong and established supplier of sustainable        and with the base business trading      moderate growth as we rolled out two              saw a material improvement over the   Bunzl plc Annual Report 202142 OPERATING REVIEW CONTINUED            Operating margin        surgeries and strong sales and      hospitality industry has resulted in an          SUSTAINABILITY IN ACTION  through optimised and consolidated deliveries   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    43Bunzl plc Annual Report 2021 STRATEGIC REPORT   112       Rest of the World ‘Our resilient portfolio has been key to our success during the pandemic’ Kim Hetherington Managing Director  ‘Our acquisition strategy has continued to support growth’ Jonathan Taylor Managing Director Latin America The Rest of the World delivered a very              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  businesses had a very strong year                                   Bunzl plc Annual Report 202144 OPERATING REVIEW CONTINUED            Operating margin    business had another very good year     swabs from state health departments  Our Australian safety businesses  again from ongoing improvements and initiatives implemented over the past              Our safety business in Singapore      SUSTAINABILITY IN ACTION Enabling faster transition with Bunzl own-brand solutions                Number of consumable products transitioned to alternative materials 20m Revenue       45Bunzl plc Annual Report 2021 STRATEGIC REPORT Tailored solutions for  tomorrow and beyond Bunzl has always provided its customers with solutions and the value we add is even more important when it comes to supporting their progress on sustainability.        improving the ways we do things to     leader in the transition to a more     Key themes Our contribution  the environment and society Responsible     •  •  •    people and a diverse      •  •   •  Taking further   Consolidating orders from a range     •  •  •  targets Providing tailored alternative solutions    suppliers to lead the industry towards a more sustainable  •   •  • Competitive advantage Bunzl plc Annual Report 202146 SUSTAINABILITY REPORT Strong track record of transitioning customers  Category   Consumable  regulation  addressed by legislation in our markets    Consumable  to transition to alternative materials     Carrier and fresh    an important purpose            from alternative materials      All of the above     made from alternative materials that are well suited   Non-packaging products   Packaging and products made from alternative materials   Packaging with an important purpose   Consumables likely to transition   Consumables facing regulation               Group revenue 2021  47Bunzl plc Annual Report 2021 STRATEGIC REPORT Responsible    Highlights •   •  •   • Our people are highly engaged •  and development of talent •   Our progress • 754 suppliers audited •  •  • 11 in progress •  standards •    •   • Representation of women in senior leadership roles                            ‘It is great to see Bunzl taking a risk based approach to responsible sourcing on such a large scale, as work like this is vital to the prevention of modern slavery and labour exploitation worldwide. We look forward  partnership with Bunzl and helping them achieve their social impact goals.’     ‘My manager asked if I would like to be part of the  I was a little reluctant, fearing it could be a tick box exercise. My fears were unfounded as IEIB has turned out to be one of the most important activities that    Senior National   Bunzl plc Annual Report 202148 SUSTAINABILITY REPORT CONTINUED   Providing tailored alternative solutions Highlights •   •   • A new renewable energy target and net zero ambition for the business •   •   •    Our progress •   •  •   •    •  been transitioned to alternative materials •                          ‘As a market leader in Europe, we take our social responsibility very seriously and are contributing  collaboration with King Belgium, the entire process, from factory to customer and end consumer, is now much more environmentally friendly.’     ‘We’re so thrilled to partner with Bunzl on a project in South India that supports both the planet and  we’ve seen meaningful impact in some of the most vulnerable communities in the world. Plastics for Change through the partnership support from Bunzl has been able to support and lift over 100 waste- collectors and their families from extreme poverty through income opportunities related to new waste management infrastructure.’    49Bunzl plc Annual Report 2021 STRATEGIC REPORT Responsible supply chains            Supply Chain Solutions team in Shanghai  thorough level of oversight over our         Respecting Human Rights We build solid and lasting relationships         from Asia are through suppliers that                     relationships with 10 suppliers who  Our progress in 2021 Our Global Supply Chain Solutions team     buyers were unable to visit suppliers in   preferred suppliers were able to meet       ensure engagement on this important   telephone interviews and day-long video meetings where management teams  To ensure the auditing standards we    an industry leader in sustainability and          methodology to rank the inherent modern slavery and human rights risks        Our new commitments           Today      Tomorrow      Beyond                     Bunzl plc Annual Report 202150 SUSTAINABILITY REPORT CONTINUED  •      Category Description Countries and product sectors Risk Mitigation Category A   Suppliers operating in very high or high  regardless of   Our responsible       •   • Risk-based assessment and   to determine the most  •     as spend and number of employees at supplier  Category B   Suppliers operating in lower  operating in a very high or high    •  wearing apparel •  •    • Similar assessment and  Category A but targeting      Category C   Suppliers operating in lower  operating in lower    •  •  •     • These suppliers are provided with Bunzl’s Supplier Code  51Bunzl plc Annual Report 2021 STRATEGIC REPORT Investing in our people and a diverse workforce We believe everyone has a right to   to ensure that we have a working     • it is fundamental to our employer    • it is a key strand of our talent strategy       •  of doing business’ with our key         in 2021 to help gain insight into the levels of engagement of Bunzl employees on a      whole our employees feel positive about  •  •  •   •      employees have an appetite for more      spend time reviewing the survey results    Our progress in 2021 The development of leadership talent  our Group HR strategy and we have   now have our Global Senior Leadership      ‘Overdrive’ programme in Bunzl North           investment through the retention and                •    high potential females an internal or      •   –    parts of the Group where data  –     •  leaders from a more diverse pool of   •      •   •     Bunzl plc Annual Report 202152 SUSTAINABILITY REPORT CONTINUED 82%91% 92% 88% 89% “My work is          “Leaders support diversity and  Excellent engagement scores   The results from the employee survey have been shared with employees   Question: What do you value most about working here?  customer focus management my team team skills work environment day   opportunity communication stability recognitionsupport immediate manager relations between departments safety enjoy help working relationships empowerment  work life balance atmosphere pay motivation working hours  learning leadership 53Bunzl plc Annual Report 2021 STRATEGIC REPORT Taking action on climate change   miles and minimise both our and              business supported by our new      business and how we manage those          emissions from Bunzl’s operations has remained stable despite the business   Our new commitments Today • We are working to have our new      Tomorrow •    •   Beyond •   Our progress in 2021       We have done this by formally   Based Targets initiative in partnership      and trialling alternative fuels in our larger                 Assessing climate change scenarios and their impact on our business      our assessment on three alternative                    fundamentally resilient to the potential       Retailer with stores Bunzl Retailer with stores Online-only retailer Business services Last-mile delivery Distributor Comparing Bunzl to other companies with large logistics networks Tonnes CO 2 per £m revenue (scope 1 and 2) Bunzl plc Annual Report 202154 SUSTAINABILITY REPORT CONTINUED Our carbon roadmap to 2030 Scope 1 and 2 emission source   Commercial vehicles                       Company cars       Electricity             Heating   systems and improved building insulation will be     these emissions down as far as possible to meet our  0% 20% 40% 60% 80% 100% 120% 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Carbon emissions intensity projection Commercial vehicles Company cars Electricity Heating 55Bunzl plc Annual Report 2021 STRATEGIC REPORT Providing tailored solutions           We work with thousands of suppliers         Our progress in 2021    and lead the industry towards a more          Our new commitments Today •    Tomorrow •      Beyond •  and disposable in our range will    •   •   •    •      1 Smart material choices  with the lowest total environmental          understand their position against their    IN ACTION  Gathering information on sustainability   provides information on the total              and engage suppliers to improve the   Bunzl plc Annual Report 202156 SUSTAINABILITY REPORT CONTINUED 2 Designing for circularity not waste    We have been innovating the way the      latest legislation in our markets but often   IN ACTION Transitioning a   materials     environmental stewardship and         have been distributed representing   3 Promoting responsible usage and reusable options      serve an important purpose but despite            IN ACTION        to trial and embed PVA Hygiene’s water                 4 Partnering to support closed loop solutions   networks or by partnering with suppliers        IN ACTION  thermoforms                   57Bunzl plc Annual Report 2021 STRATEGIC REPORT  all our stakeholders The following information describes how the directors have had regard to the matters set out in  the Companies Act 2006 when performing their duty to promote the success of the Company. Bunzl has a global and diverse            mutual understanding of both the Group’s and stakeholders’ views and                  Through a range of engagement   Bunzl is able to maintain meaningful     methods used in order to ensure that  Customers Colleagues Environment Shareholders Suppliers Communities Why do we engage? Our business and livelihood  Building strong relationships   ensures that we gain a deep understanding of their varying   and bespoke solutions to  Our people underpin everything   that we need to drive future growth is a business priority  and supportive environment    to address points raised by     Our goal is for Bunzl to be a responsible and resilient organisation that inspires and         sustainability for tomorrow   helps us to understand their      Bunzl regards suppliers as  between Bunzl and its suppliers    promote innovation and drive ambitious business solutions         and grow our business when    How do we engage? • Our businesses use ‘hotlines’  days to engage with    •     •   use their deep and detailed knowledge to work with    •    • We use a range of methods to      messaging and meetings with  • The Board ensures that it understands the views of     leadership programmes and   • Board meetings are     •    established working groups and targeted events  •  provided on employee  •         •      waste and providing innovative    • We work in partnership   alternatives to single use  development of innovative    •       •     • Bunzl updates shareholders   • Presentations of the half year and annual results   •   shareholders and report  •    are available to meet with   • The Board reviews and  brokers’ reports and surveys of shareholder opinions  brokers and investor relations  •       given the opportunity to meet  • The Board engages with shareholders before and after the AGM to understand voting  • We work with our suppliers to   sustainability within our supply      •     •   monitors and works with our key suppliers in Asia and elsewhere to ensure that they  •    •   for Bunzl people to get    •     •       •  where our employees live     Bunzl plc Annual Report 202158 SECTION 172 STATEMENT Customers Colleagues Environment Shareholders Suppliers Communities Why do we engage? Our business and livelihood  Building strong relationships   ensures that we gain a deep understanding of their varying   and bespoke solutions to  Our people underpin everything   that we need to drive future growth is a business priority  and supportive environment    to address points raised by     Our goal is for Bunzl to be a responsible and resilient organisation that inspires and         sustainability for tomorrow   helps us to understand their      Bunzl regards suppliers as  between Bunzl and its suppliers    promote innovation and drive ambitious business solutions         and grow our business when    How do we engage? • Our businesses use ‘hotlines’  days to engage with    •     •   use their deep and detailed knowledge to work with    •    • We use a range of methods to      messaging and meetings with  • The Board ensures that it understands the views of     leadership programmes and   • Board meetings are     •    established working groups and targeted events  •  provided on employee  •         •      waste and providing innovative    • We work in partnership   alternatives to single use  development of innovative    •       •     • Bunzl updates shareholders   • Presentations of the half year and annual results   •   shareholders and report  •    are available to meet with   • The Board reviews and  brokers’ reports and surveys of shareholder opinions  brokers and investor relations  •       given the opportunity to meet  • The Board engages with shareholders before and after the AGM to understand voting  • We work with our suppliers to   sustainability within our supply      •     •   monitors and works with our key suppliers in Asia and elsewhere to ensure that they  •    •   for Bunzl people to get    •     •       •  where our employees live     FURTHER INFORMATION ABOUT HOW THE COMPANY ENGAGES WITH ITS STAKEHOLDERS CAN ALSO BE FOUND IN THE SUSTAINABILITY REPORT ON PAGES 46 TO 57 AND IN THE CORPORATE GOVERNANCE REPORT ON PAGE 103 59Bunzl plc Annual Report 2021 STRATEGIC REPORT Customers Colleagues Environment Shareholders Suppliers Communities Relevance to strategy A fundamental element of Bunzl’s  involves growing the business  developing our business with  new business with additional          The people in our business make   strategy for the individual businesses   retain the best talent so that Bunzl    talent development and broadening the talent pool to ensure we have the knowledge and skills to give the best     materials are not only desirable in their own right but are also of    maintaining shareholder trust and in           Bunzl’s operations are international but our     vision by seeking to gain sustainable   How do we monitor the impact of our actions? •   •    •  •   • Gaining new business with  • Monitoring underlying sales  • Ongoing monitoring of gender  •   •      •   • Ongoing monitoring of whistle  •    •   •   •   • Monitoring of results of CO 2  • Analysis and monitoring of   •  •  •  •  •   • Results of audits performed by Bunzl’s   •   •   •   •  •   •   •  •   How we engaged during 2021 •   •   •   • Customer data analysed for risk assessment against single-use  •   •   • 2021 employee engagement  •   •   •  •    •   •    •     •    •   •  on sustainability at Capital  •  • Consultation with shareholders regarding  •  •  •  •      •    • The Board was kept informed of how the   •     •  • Approval and implementation of the          Outcomes of engagement •   organisations and governments    •    •    for high potential women in senior  •  implemented around working   •  survey results and gaining an understanding of the employee  •  new targets in the most relevant  •   •  following engagement with  • Committed to the Business  •  •  • Clarity given around possible   •  Committee following engagement with   •  drive to improve shareholder  •   •  •   • Partnerships formed with NGOs to  • 10 suppliers were terminated for not   •   •   there are higher levels of team member  Bunzl plc Annual Report 202160 SECTION 172 STATEMENT CONTINUED Customers Colleagues Environment Shareholders Suppliers Communities Relevance to strategy A fundamental element of Bunzl’s  involves growing the business  developing our business with  new business with additional          The people in our business make   strategy for the individual businesses   retain the best talent so that Bunzl    talent development and broadening the talent pool to ensure we have the knowledge and skills to give the best     materials are not only desirable in their own right but are also of    maintaining shareholder trust and in           Bunzl’s operations are international but our     vision by seeking to gain sustainable   How do we monitor the impact of our actions? •   •    •  •   • Gaining new business with  • Monitoring underlying sales  • Ongoing monitoring of gender  •   •      •   • Ongoing monitoring of whistle  •    •   •   •   • Monitoring of results of CO 2  • Analysis and monitoring of   •  •  •  •  •   • Results of audits performed by Bunzl’s   •   •   •   •  •   •   •  •   How we engaged during 2021 •   •   •   • Customer data analysed for risk assessment against single-use  •   •   • 2021 employee engagement  •   •   •  •    •   •    •     •    •   •  on sustainability at Capital  •  • Consultation with shareholders regarding  •  •  •  •      •    • The Board was kept informed of how the   •     •  • Approval and implementation of the          Outcomes of engagement •   organisations and governments    •    •    for high potential women in senior  •  implemented around working   •  survey results and gaining an understanding of the employee  •  new targets in the most relevant  •   •  following engagement with  • Committed to the Business  •  •  • Clarity given around possible   •  Committee following engagement with   •  drive to improve shareholder  •   •  •   • Partnerships formed with NGOs to  • 10 suppliers were terminated for not   •   •   there are higher levels of team member  61Bunzl plc Annual Report 2021 STRATEGIC REPORT The Board of directors of Bunzl plc promote the success of the Company  The likely consequences of any decision in the long term •  •  •  •  •  The impact of the Company’s operations on the community and the environment •  •  •  •  The interests of the Company’s employees •  •  •  •  The desirability of the Company maintaining a reputation for high standards of business conduct •  •  •  •  •  The need to foster the Company’s business relationships with   •  •  •  • Modern Slavery Statement •  The need to act fairly as between members of the Company •  •  SUSTAINABILITY IN ACTION Tailored solutions that support the circular economy and climate change agenda       distributed the dispensers and remaining  businesses in Glasgow and the wider           Bunzl plc Annual Report 202162 SECTION 172 STATEMENT CONTINUED CASE STUDY Diversity listening events     held two listening sessions inviting       The Board understands that diversity     potential and perform to their best          gave key insights and frank suggestions regarding what has helped them  there are any barriers to progression    This overwhelmingly positive meeting               CASE STUDY Bunzl’s AGM: engaging with shareholders     The Board understands that the AGM is an important opportunity for all           by the Board in an appropriate and          was made available for shareholders           to the responses to the engagement    shareholders in person to the  CASE STUDY The Board’s ethical supplier policy  Group that Bunzl wishes to partner with      undertaken or overseen throughout the        the suppliers during this time to solve   trading with those suppliers who fail      63Bunzl plc Annual Report 2021 STRATEGIC REPORT A robust approach to risk management Bunzl operates in six core market sectors in 31 countries which exposes it to many risks and uncertainties. The Group  critical to achieving its strategic objectives.  Inherent risk assessment Risk response and residual risk assessment •    •   •   –    –  •   •   •    Risk assessment Bunzl plc Annual Report 202164 PRINCIPAL RISKS AND UNCERTAINTIES Risk management process            The Audit Committee       Executive Committee Holds regular meetings with business area management            risks as well as the threats and opportunities from emerging risks Business area management Business management        The Board     Continuously monitors and oversees the Group’s risk   Performs a robust assessment of the Group’s risks through a biannual review of the Group’s risk          Risk management 65Bunzl plc Annual Report 2021 STRATEGIC REPORT Principal risks and uncertainties                          environment prevailing in the Group’s    and are not presented in order of             Monitoring risks     and probability to set the Group’s   updated following review by the   Emerging risks    or that have the potential to develop and   risks as part of the ongoing risk                   sustainability and pages 54 and 55 of        Covid-19 impact               diversity of its operations and                         Group has been able to manage    internal supplier auditing     the Group is now seeing a reversal          Bunzl plc Annual Report 202166 PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED Principal risks facing the Group Description of risk and how it  How the risk is managed or mitigated Developments in 2021 Strategic risks 1. Competitive pressures   Group loses a    pressures Risk owner:  Area Heads Change to risk level: Included in viability statement: Yes • The Group operates in highly      •      in routes to market •   pressure on the Group’s selling    •     •     markets also enables the Group to provide the broadest possible range   •         • The Group maintains strong relationships with a variety of       •   help them understand the range  their needs •    •    their sustainability goals 2. Financial collapse of either a large customer and/or a  of small customers   Group loses  Risk owner:  Area Heads Change to risk level: Included in viability statement: Yes •          operating margin erosion due to  •     •  developments in relationships with    •  that there is oversight of all material   •        •     67Bunzl plc Annual Report 2021 STRATEGIC REPORT Principal risks facing the Group Description of risk and how it  How the risk is managed or mitigated Developments in 2021 Strategic risks  3. Product cost    the Group’s need to   Risk owner:  Area Heads Change to risk level: Included in viability statement: Yes  •    due to suppliers passing on lower          •     •      •       •      •       •      hold regular meetings to understand   the Group   from the Group’s inability to pass on   Risk owner:  Area Heads Change to risk level: ncluded in viability statement: Yes  •           •      •          •         •    •      •      evaluated and updated to ensure     •     •      Bunzl plc Annual Report 202168 PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED Principal risks facing the Group Description of risk and how it  How the risk is managed or mitigated Developments in 2021 Strategic risks  5. Inability to make further acquisitions   Group’s inability to   Risk owner:  Area Heads Change to risk level: Included in viability statement: Yes •  of the Group’s growth strategy and    •    unwillingness of business owners    • The Group maintains a large       development team and information   •   At the same time the Group     owners to remain within the Group    •   of any available opportunities for investment •    6. Unsuccessful acquisition    due to an    integration Risk owner:  Area Heads Change to risk level: Included in viability statement: Yes  •       •           intangible assets •      •      opportunities •           area and Group management •       69Bunzl plc Annual Report 2021 STRATEGIC REPORT Principal risks facing the Group Description of risk and how it  How the risk is managed or mitigated Developments in 2021 Strategic risks  7. Sustainability driven market changes Revenue and  from the Group’s  sustainable       environment Risk owner:  Area Heads Change to risk level: Included in viability statement: Yes  • Over the last year we have seen           as governments doing the right thing • Consumer awareness of the       of the material that these items are       or reusable alternatives •     biodegradable or reusable      •     gives the Group an opportunity to      •             •      ensures that the Group is well- positioned to be able to support its      •        alternatives we have in our range •    the Group has developed proprietary       •     Verive and the new range not only     a new digital webshop platform Operational risks 8. Cyber security failure   Group is unable to operate and serve  due to being   Risk owner:  Change to risk level: Included in viability statement: Yes  •   businesses are rising at the same       •      the likelihood and severity of a     •       •      •   implemented in the event of any      •       •    threats while improving operational  •      Bunzl plc Annual Report 202170 PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED Principal risks facing the Group Description of risk and how it  How the risk is managed or mitigated Developments in 2021 Financial risks 9. Availability of funding   markets leading  Risk owner: CFO Change to risk level: Included in viability statement   •   institutions being unwilling to lend        •      obligations as they fall due and that    • No new debt was issued in 2021 but     10. Currency translation   rates leading to a  reported results   Risk owner: CFO Change to risk level: Included in viability statement: No   •     •  strengthening of sterling against the      • The Group does not hedge the  arising on translation of earnings into    the risks • The Group’s borrowings are  and euros in similar proportions to    volatility of the ratio of net debt to                •      • The Group’s results are reviewed     71Bunzl plc Annual Report 2021 STRATEGIC REPORT Principal risks facing the Group Description of risk and how it  How the risk is managed or mitigated Developments in 2021 Financial risks  11. Increase in taxation    Risk owner: CFO Change to risk level: Included in viability statement: Yes  •        •  is within the remit of the Board and  Committee • The Group seeks to plan and manage  responsibly with a view to ensuring      Company’s shareholders in line with  •        • At the same time the Group monitors    •     •      2023 and model provisions have      •          Bunzl plc Annual Report 202172 PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED Viability Assessment of the prospects of the Company and its viability statement      been assessed and the Company’s  The context for and period over which the prospects of the Company have   Company and determine an appropriate time frame for the purpose of making a statement on the Company’s longer term    business model and strategy and the   •    •     • the business model and strategy minimise the volatility of the Company’s        budgets are prepared annually by the business areas and approved by the      Company will not be viable over a longer     longer-term viability is the three year  How the prospects of the Company     Company’s ability to meet its liabilities                     Group’s 2022 Budget and look ahead over the three year assessment period    •       •               year assessment period the Group would          it was found that the Group was resilient        testing based assessment of the  results of the robust assessment of    of the Group to severe but plausible           Company and they have a reasonable   liabilities as they fall due over the three  73Bunzl plc Annual Report 2021 STRATEGIC REPORT Financial review ‘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 investment.’ Richard Howes       † Dividend per share           † Revenue     † Cash conversion    Adjusted earnings per share     † 74 Bunzl plc Annual Report 202174 FINANCIAL REVIEW 2021  2020 £m Growth as reported Growth at   Financial results Revenue      752.8     698.2     162.5p     57.0p   Statutory results  623.3     568.7     132.7p      43.3%   15.1%   102%         Currency translation     Average exchange rates 2021 2020  1.38   1.16   1.72  Brazilian real 7.42   1.83  Closing exchange rates 2021 2020  1.35   1.19   1.71  Brazilian real 7.54   1.86  Revenue     10 ,111.1 10,285.1 (511.7) 378.6 (37.7 ) 344.8 10,000 10,500 9,000 9,500 8,500 2020 revenue Currency translation Impact of one less trading day Underlying revenue growth Acquisitions 2021 revenue 75Bunzl plc Annual Report 2021 STRATEGIC REPORT    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  778.4 (46.4) 20.8 752.8 750 800 650 700 600  Currency translation 2021 growth    618.5 (39.8) 20.8 623.3 8.2 15.6 625 675 525 575 475  Currency translation Growth in adjusted  Decrease in customer relationships and brands amortisation and acquisition related items Non-repeat of non-recurring pension scheme charges   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  Bunzl plc Annual Report 202176 FINANCIAL REVIEW CONTINUED Taxation       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     128.8 (8.7) 132.7 1.9 6.0 3.5 1.2 130 140 110 120 100 2020 basic EPS Currency translation Increase in  before income tax Decrease in customer relationships and brands amortisation and acquisition related items 2021 basic EPSNon repeat of non-recurring pension scheme charges Decrease in reported tax rate 77Bunzl plc Annual Report 2021 STRATEGIC REPORT  164.9 (10.0) 6.0 162.5 1.6 150 160 170 130 140 120 2020 adjusted EPS Currency translation Increase in adjusted    2021 adjusted EPS Dividends  2021 2020 Growth  16.2    40.8    57.0    2.9                Acquisitions         £m   Goodwill  Consideration          Contingent payments relating to retention of former owners      Total committed spend in respect of acquisitions agreed and completed in the current year  Bunzl plc Annual Report 202178 FINANCIAL REVIEW CONTINUED  £m                 2021  2020 £m Cash generated from operations† 930.5  Payment of lease liabilities       741.6         525.4      19.5   364.5        †          2021  2020 £m                   Net debt       79Bunzl plc Annual Report 2021 STRATEGIC REPORT Balance sheet  2021  2020 £m    Right-of-use assets 448.3   120.9     Other net liabilities      31.2     Lease liabilities       43.3%   15.1%        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    Bunzl plc Annual Report 202180 FINANCIAL REVIEW CONTINUED Treasury policies and controls    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       Going concern     Richard Howes  28 February 2022 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 112 150 140 122 204 167 116 55 130 37 400 300 583 600 800 1000 1200 200 400 0 Bank facilities – undrawn Bank facilities – drawn Senior bonds US private placement notes 81Bunzl plc Annual Report 2021 STRATEGIC REPORT TCFD Index       Topic Disclosure summary Disclosure Bunzl response Governance                Strategy   opportunities on the organisation’s                      Risk management                  Metrics and targets  used to assess and manage     line with its strategy and risk management               Bunzl plc Annual Report 202182 TASKFORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES (TCFD) SASB Reporting for Bunzl Sustainability Metrics      SASB Metric Bunzl Disclosures Product lifecycle management          the environmental       Greenhouse Gas Emissions  emissions  and short-term strategy     against those targets  2 e          •  •  •  •      renewable        renewable    83Bunzl plc Annual Report 2021 SASB REPORTING FOR BUNZL SUSTAINABILITY METRICS STRATEGIC REPORT SASB Metric Bunzl Disclosures Labour conditions in the supply chain    Tier 1 that have been audited to a labour    party auditor                    Bunzl Modern Slavery Statement Priority non-     audits  •  •  •   •     and safety risks in the    •  •  •  •  •   •  •  •  •  Workforce diversity and inclusion     other employees      Total amount of monetary losses as a result of legal  with employment    Voluntary and involuntary turnover rates for employees  Bunzl plc Annual Report 202184 SASB REPORTING FOR BUNZL SUSTAINABILITY METRICS CONTINUED Packaging categories •   •  •   Category detail and name applied by Bunzl # Description Example products in category Category detail:   Bunzl name:  regulation 1            and lids Category detail:    Bunzl name:  transition 2                Category detail:   appropriate material for the      Bunzl name:  an important purpose 3         and wrappers Category detail:   those made from renewable  Bunzl name:  made from alternative materials 4                Cardboard or paperboard        and wrappers Paper bags  ESG Appendix 85Bunzl plc Annual Report 2021 ESG APPENDIX STRATEGIC REPORT Code of conduct    2020 2021 Comment Material breaches of code of conduct 0 0 0  Speak up 8 43 33      Suppliers     2020 2021 Comment Number of supplier audits and assessments covering environmental and social standards 707  754     Data for the period 1 October to 30 September   2020 2021 Scope 1  2       2 e/£m revenue   8.5   3         Scope 2 – Location based  2       2    2.4      Scope 2 – Market based  2      2    2.4 Total gross emissions – location based  2       2    10.9         Scope 1:    2       2   Bunzl plc Annual Report 202186 ESG APPENDIX CONTINUED Scope 2:    2        Scope 1 and 2:    2   Scope 1 carbon emissions Tonnes of CO 2 per £m revenue Measured in accordance with the Greenhouse Gas Protocol applying DEFRA conversion factors 2017 2018 2019 2020 2021 8.5  9.5 10.7 11.3 11.4 Scope 2 carbon emissions (location based) Tonnes of CO 2 per £m revenue Measured in accordance with the Greenhouse Gas Protocol applying DEFRA conversion factors 2017 2018 2019 2020 2021 2.4  2.9 3.2 3.7 3.6     Data for the period 1 October to 30 September  2020 2021 Scope 1  2      3         Scope 2  2         Total gross emissions  2           2    14.6   87Bunzl plc Annual Report 2021 STRATEGIC REPORT          Scope 3:      Scope 3 carbon emissions Tonnes of CO 2 e per £m revenue 2017 2018 2019 2020 2021 5.6 5.6 5.4 5.7 5.7 0.5 0.2 0.1 0.2 0.5 0.1 1.1 0.2 0.1 1.0 0.2 0.1 1.1 0.3 0.1 Third party carriers Business travel Electricity transmission Waste 12 months to 30 September  2  2  Waste   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     Bunzl plc Annual Report 202188 ESG APPENDIX CONTINUED Health & safety Health & safety indicators 2017 2018  2020 2021  81   85 86         Fatalities 0 1 0 0 0   Targets for 2021: Reduce the Group accident incidence rate by 5% from 2019. Reduce the Group accident severity rate by 5% from 2019.           Target for 2022: Reduce the Group accident incidence rate by 5% from 2021 Reduce the Group accident severity rate by 5% from 2021 Incidence rate Average number of incidents per month per 100,000 employees 2017 2018 2019 2020 2021 86  85 96 81 95 Severity rate Average number of days lost per month per 100,000 employees 2017 2018 2019 2020 2021 2,615  3,040 3,110 1,890 2,370 12 months to 30 September   89Bunzl plc Annual Report 2021 STRATEGIC REPORT Employees   What we said we would do in 2021 What we did What we plan to do in 2022 2020 2021 Employee turnover: Voluntary   17. 3%   ensure we understand and where appropriate address reasons for unintended  Continued to listen to employees who leave and     Build on the strong      Gender diversity: Women at senior management level   19% Monitor progress of high potential females in network    high potential females through regional and  potential females have been    into leadership roles though   of leadership development  Employee engagement index score –  86% Run a Global engagement   understand trends and     on understanding employees   survey for all employees with    to develop plans based on    improved or understood in      Males   374 Males           Females  * 88 Females     40–54  Rest of the World  Over 55       HR from BRMS    HR from BRMS Charitable contributions  2020 2021           •  •  •     •    •       Bunzl plc Annual Report 202190 ESG APPENDIX CONTINUED  information statement   Business model Read more on pages 30 and 31       Human rights        •  •  •  •  •  •  •  •  •  •  FIND OUT MORE IN OUR POLICY HUB ON OUR WEBSITE 91Bunzl plc Annual Report 2021 NON-FINANCIAL INFORMATION STATEMENT STRATEGIC REPORT      READ MORE PAGE 102 Bunzl plc Annual Report 202192 Directors’ report       Nomination Committee report 110     Other statutory information 150 93Bunzl plc Annual Report 2021 Introduction from  Chairman of the Board ‘We are dedicated to leading by example to demonstrate Bunzl’s strong corporate values and culture.’ Peter Ventress Chairman    Throughout the year the Board has    like to thank the Board for their wise          Last year we refreshed the Board with          stepped down from the Board and its    to the Board and wish her the best in     Bunzl plc Annual Report 202194 CHAIRMAN’S INTRODUCTION       progress being made in these areas throughout the business and with the initiatives that have been     pleased to report that the Company has met the targets set by the       opinions of our shareholders and other stakeholders seriously and  important opportunity for all   While it was unfortunate that we  in person to the 2021 AGM due to  opportunities for shareholder           Peter Ventress Chairman 28 February 2022      open engagement with stakeholders and                     Stakeholders are at the heart of Bunzl’s    with our diverse range of stakeholders and further details of the engagement           At Bunzl we want every employee to have a sense of belonging and pride that they are part of the Bunzl Group and during the year we undertook our employee     Annual listening sessions                 Colleagues are given the opportunity to input their own ideas and raise     working for Bunzl and gain insight    provided with a more detailed insight into the results of the employee  95Bunzl plc Annual Report 2021 DIRECTORS’ REPORT The right balance of skills and experience Peter Ventress Chairman Frank van Zanten   Richard Howes   Vanda Murray OBE   Lloyd Pitchford   Stephan Nanninga   Vin Murria OBE   Appointment               Chair of the Remuneration         Experience                assumed responsibility for a number       a member of the Supervisory Board of                       Having previously held a          After holding a number of positions with Sonepar and Royal      he was initially responsible for         Stephan will step down as an   2022 and he has been nominated to be appointed as a member of the Supervisory Board of Cabka                   Committee – – Bunzl plc Annual Report 202196 BOARD OF DIRECTORS Peter Ventress Chairman Frank van Zanten   Richard Howes   Vanda Murray OBE   Lloyd Pitchford   Stephan Nanninga   Vin Murria OBE   Appointment               Chair of the Remuneration         Experience                assumed responsibility for a number       a member of the Supervisory Board of                       Having previously held a          After holding a number of positions with Sonepar and Royal      he was initially responsible for         Stephan will step down as an   2022 and he has been nominated to be appointed as a member of the Supervisory Board of Cabka                   Committee – – Committee membership      97Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Board Governance overview Meetings    Board  Audit  Nomination  Remuneration  Chairman Peter Ventress 7 2 Executive directors  7 2  7 Independent non-executive directors  7 4 2 3  7 4 2 3 Stephan Nanninga 7 4 2 3  7 4 2 3  7 4 2 3 What we bring Core industry experience Senior executive experience  Legal IT/cyber security Health & safety Supply chain Digital/technology Retail International Other current plc experience Media/communications Sustainability Succession planning priorities Digital/technology Diversity Prior leadership in a multinational business Scale and complexity experience Tenure (non-executive directors, incl. Chairman) (year ended 31 December 2021) 0 – 3 years 3 3 – 6 years 2 6+ years 1 Executive and non-executive directors (year ended 31 December 2021) Executive 2 Non-executive (inc. Chairman) 6 Board gender (year ended 31 December 2021) Male 5 Female 3 Independent directors (excl. Chairman) (year ended 31 December 2021) Independent 5 Other 2 Bunzl plc Annual Report 202198 CORPORATE GOVERNANCE REPORT Key activities and decisions of the Board Jan Aug •    • Presentation on the global employee ‘pulse’ survey  •  from employee listening  • Presentation on potential  • Results for the half year  •  •  • Presentation on    •   Feb Oct • Results for the year ended  • Final dividend for the year  •   •   •   •   •  •   •   •   •  • Follow up on the 2020  Apr Nov •  •  •  • Presentation on AGM  •   Jun Dec •  •  responsibility and supplier  •   • Presentation on investor  • Presentation on treasury   •   •   •  •     •   •   Matters reserved for the Board  Shareholders •   •   Capital allocation and structure •  •   •   •  •   Policies and statements •    –  –  –  –   –  People and leadership •   •   •  •   Strategy and management •   •   risk and controls •   •  •  • Risk management and internal  99Bunzl plc Annual Report 2021 DIRECTORS’ REPORT UK Corporate Governance Code compliance statement      should be aligned with those available to                 and the Company will therefore be fully                 Board leadership and company purpose Relevant section of the Annual Report Page       Culture  102    Engagement with shareholders   S.172 statement and engagement with stakeholders   Engagement with employees  103 Workforce policies and practices Other statutory information 152 Division of responsibilities Relevant section of the Annual Report Page Division of responsibilities Board roles and responsibilities 105 Board independence   Board attendance and time commitments    Relevant section of the Annual Report Page Appointment procedure Nomination Committee report 110 to 115 Succession plans Nomination Committee report 110 to 115 Composition of the Board and its Committees   Tenure of directors   Evaluation    Relevant section of the Annual Report Page Audit Committee role Audit Committee report  External Audit Audit Committee report    108 Internal control framework Audit Committee report  Principal and emerging risks   Remuneration Relevant section of the Annual Report Page Remuneration policy and practices Remuneration Committee report  Development of executive remuneration policy Remuneration Committee report  Independent judgement and discretion Remuneration Committee report  Bunzl plc Annual Report 2021100 CORPORATE GOVERNANCE REPORT CONTINUED Governance structure The Board has ultimate responsibility     Board meets regularly throughout the    details of the matters reserved for the  The Board has established three         information relating to the Board Committees is set out below and in the   Board composition                                            Audit Committee Chair  Members Vanda Murray Stephan Nanninga Vin Murria Key responsibilities Reviews and monitors the integrity of     Remuneration Committee Chair Vanda Murray Members  Stephan Nanninga Vin Murria Key responsibilities   elements of the remuneration and   Board Nomination Committee Chair Peter Ventress Members Vanda Murray  Stephan Nanninga Vin Murria Key responsibilities     FOR MORE INFORMATION SEE PAGES 110 TO 115 FOR MORE INFORMATION SEE PAGES 116 TO 124 FOR MORE INFORMATION SEE PAGES 125 TO 149 101Bunzl plc Annual Report 2021 DIRECTORS’ REPORT  monitor culture The Board is responsible for setting the  Company and ensuring that these align  is to deliver essential business solutions                      Adherence to Bunzl’s business code of conduct and other working practices Attendance at employee forums Site visits Our values Humility in action     Group operates while promoting the drive towards   of Awareness of Food Loss  Bunzl Australasia teamed  awareness about food     SCAN THE QR CODE TO VIEW VIDEO Responsiveness in action         more sustainable solutions in response to environmental   of our responsiveness to a  Reliability in action  partner with an unrivalled              Transparency in action Bunzl and its leaders believe         and senior management are  espoused by the Company     how we have engaged with stakeholders throughout  TransparencyReliabilityResponsivenessHumility    Dialogue with executives and senior management Health & safety data Regular Board reporting on people matters Analysis of employee survey results Monitoring of ‘culture indicators’  inclusion activities Whistle blowing reports Non-executive director listening groups Bunzl plc Annual Report 2021102 CORPORATE GOVERNANCE REPORT CONTINUED Employee engagement statement       regards employee engagement as a   involved in a number of initiatives aimed  of the views and interests of Bunzl’s         alternative arrangements to engage with      engagement methods suit the nature          also be found in the Sustainability report and in the Other statutory information   and others  Company’s stakeholders is a key priority     matter most to the Group’s businesses  Fostering strong business relationships is          Examples of how we engaged with colleagues during 2021 2021 Employee engagement survey READ MORE PAGE 53 Non-executive director listening groups READ MORE PAGE 95 Visits to UK and North America sites READ MORE PAGE 107  and inclusion sessions READ MORE PAGE 63 Further examples can be found in the Strategic report on pages 20 and 21 and in the section 172 statement on pages 58 to 63. 103Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Board activity in 2021 The Board meets formally at least seven times a year and normally at least two of these meetings are held at or near Group         presentations are made by the Chief     presents to the Board on potential      presentations to the Board about a   provided training and updates to the      Board agendas are set by the Chairman     by the Board to ensure that all matters reserved for the Board and other key         Board is supplied with full and timely                    Governance in action – acquisition process    Our markets are very fragmented      ensuring that a robust and rigorous           1 Presentation made to the Board by management regarding the relevant   2         3    4     Bunzl plc Annual Report 2021104 CORPORATE GOVERNANCE REPORT CONTINUED Board roles and responsibilities  Role Responsibilities Chairman   •  •   •   The Chairman is also viewed by investors as the ultimate steward of the Group and the guardian of the   division of responsibilities between the Chairman and the Chief   in writing and has been agreed  Chief Executive      •  •  •  •  •  Chief Financial      Senior Independent Director     Independent non-executive directors      External appointments and time commitment of directors                    those set out in the Code or institutional         Engagement with shareholders following    votes against the re-appointments of      understand their views and reasons   understood that the negative votes    time to the Company due to overboarding   both Vin and Stephan are on boards of      Board reiterates that it is unanimously       views and provide appropriate oversight  The Chairman has agreed to engage with the dissenting shareholders further              105Bunzl plc Annual Report 2021 DIRECTORS’ REPORT  during 2020 Examples of action taken Outcome 1 Monitoring the progress being made in key strategic    and growth.         The Board  that the priorities  following the evaluation  in 2020 have been  addressed  2 Focusing on longer term strategy and trends.    3 The post Covid-19  returning to face-to- face meetings and site visits.   •  •  •  •       4 Finalising non-  with a particular  experience in North America and expertise  sustainability and technology.  •  •         Performance evaluation                evaluation of the Board and its  at least every three years and as                    The Chairman also held individual  of key priorities to improve the Board’s        Engagement timeline April 2021 • AGM question and answer session. • 2021 AGM. • Announcement of   June and July 2021 Meetings with the institutional shareholders who voted against the re-appointments of Vin  Chairman of the Company. September 2021 Update released on Bunzl’s website regarding the Company’s engagement  votes against. March 2022 Publication of result of engagement in the 2021 Annual Report. Bunzl plc Annual Report 2021106 CORPORATE GOVERNANCE REPORT CONTINUED August 2021 UK tour • Site visit to Bunzl’s Retail Division • Site visit to Bunzl’s Cleaning & Safety Division November 2021 North America tour • Site visit to Bunzl Processor Division • Site visit to Bunzl Kansas City • Site visit to Bunzl North America  •  •    •   •  •  Training and development needs of the Board are kept under review and    Induction    understanding and awareness of the     is regularly reviewed and is tailored    •      • one-to-one meetings with the other members of the Board and the  •   •  •  • information on the main areas of the  and • information on the Company’s      undertake key site visits and meet Bunzl’s      operations in situ through an immersive  This engagement has enabled both Vin and Maria Fernanda to gain a valuable and in-depth understanding of the         is enabled by a deep understanding of               advisers and auditors give presentations   2021 training & development activities •   •  • Presentations from senior   •   –  –   –  –   –     – sustainability priorities and  –  •  •  •    executive members of the Board. 2. Focusing on digitalisation and IT security.  4. Driving and monitoring the success of acquisitions.    that both it and its Committees  Example induction     107Bunzl plc Annual Report 2021 DIRECTORS’ REPORT             of any potential situational and/or               Financial and business reporting    are set out on page 213 and the auditors’          •     and •   Risk management and internal control     Group and for monitoring the Group’s   designed to manage rather than eliminate           Group and for determining the nature        and that the Group’s risk management   Further information about the Group’s               for establishing a system of internal     •   system through a tiered management  of responsibility and delegation of  •    •   by the business areas and approved by   understandable – Bunzl’s assurance framework    understandable and provided  the reader to assess the Group’s     •  provided by the ongoing work of  •   both the half year and full year  • the Board’s understanding  • the information provided by the         involved in the Annual Report’s      Bunzl plc Annual Report 2021108 CORPORATE GOVERNANCE REPORT CONTINUED •        •    relating to the operation of the Group’s  •  reporting system for the statutory   •    operations supplemented by internal      manage and mitigate business risk are  •  meetings with business area       •   business area meetings on internal  •       •    •     •  relation to the management of foreign    •  world are monitored on a weekly basis   • the internal audit department     that management implements the  audit department’s work is determined on a risk assessment basis and its  business area management as well as to the Audit Committee and the  • an annual self-assessment of the status   is performed by every business and   •   •           the Audit Committee report on pages  • regular meetings are held with   •    Committee and the Supply Chain       •  audits and a regular review of progress    •       Company’s risk management and internal       and evaluation of the system of internal    opinion on the truth and fairness  Assessment of the prospects of the Company and its viability statement     been assessed and the Company’s formal   By order of the Board   28 February 2022 109Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Nomination Committee report  which prizes constructive  diversity of background  commitment to act fairly and in the interests of all stakeholders. ‘ Peter Ventress Chairman and Chair of the Nomination Committee Introduction from Peter Ventress        and it has been essential that our Board and senior management team have been robust in supporting the Group through            Committee has a primary role to play in                  to attend Committee meetings at the    and understanding of employee-related   and senior management and potential    from the Board and its Committees with                  The need to refresh the Board but at the same time maintain a knowledgeable         to ensure that there is a diverse supply  Board members with appropriate skills     meets the target for the proportion of women on boards set out in the        have made in these areas at Board and  and the Committee are nevertheless   Bunzl plc Annual Report 2021110 NOMINATION COMMITTEE REPORT       under-represented groups to ensure     that the Company has a strong Board that is able to manage the demands of  nevertheless be useful to bolster the       improvement in this area at both Board   Board and in the senior management                   Committee to be thorough and fully    every Board member and the Company        The views of our stakeholders are very important to us and we value greatly   through routine engagement with            down as a member of the Committee   interests of our stakeholders and is    investor sentiment and opinion by the     number of the listening groups that have  that they stay informed of employee                   By providing an overview of the Committee’s role and a meaningful       Peter Ventress Chairman and Chair of the Nomination Committee 28 February 2022 111Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Role and support       Board and senior management positions and oversee the development of a             Committee has been authorised to enlist            Performance evaluation   both the Committee and as part of the   Committee member independently to ensure that their individual views about the operation of the Committee are taken     Principal responsibilities of the Committee Board structure •      Succession •    Company and the skills and  and senior management in the  •  planning presentation in relation to the Company’s senior  Appointments •    • Approving the appointment of    •     Evaluation •     Composition    Committee is dealing with the matter            Meetings       Meetings attended Peter Ventress 4  1 4 Vanda Murray 4  4 Stephan Nanninga 4 Vin Murria 4  4    Committee meetings held between 1 January 2021 and  Key areas of focus in 2022 •    understanding of the Group’s plans  •     •   developing and retaining talent and  involvement in the Group’s Global   •  Bunzl plc Annual Report 2021112 NOMINATION COMMITTEE REPORT CONTINUED Activities Succession planning      responsibility of the Committee is to satisfy itself that a robust and rigorous              planning and assessment also enable the Committee and the Board to ensure that      below Board level and during the year     performing individuals within senior  nurtured in order to strengthen the          performing talent and informing        The Committee also plans to deepen its           that Bunzl has the talent it needs to deliver its strategy and deal with any     are key in promoting diversity in a   Inclusion and diversity                                   remains a key priority for the Committee         While taking the important    Board based on merit and the individual        The Board and the Committee’s   management is set out in the Board’s    113Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Diversity policy              appointments is to ensure the strength of the Board’s    while ensuring that the Board members are able to provide a         diversity within the business areas and one of the key   initiatives within the Group to help provide learning and       Monitoring and reporting The Nomination Committee is responsible for regularly       relation to any Board appointments made during the relevant    DIVERSITY IN ACTION Bunzl is committed to playing its role  more equitable  being and safety of Bunzl’s people is a top priority  number of powerful new initiatives worldwide      these initiatives have provided some detail on how being part of the initiatives is having a  ‘Being a part of the DEI initiative has been an honor. It’s not often that an organisation is willing to have candid conversations to promote change and equity in the  just that. Bunzl has given every employee permission to break the common stigma that we all  Shelly Jones Bunzl North America ‘The killing of George Floyd and the worldwide movement calling for greater racial and ethnic justice was my motivation to help drive change. I felt Bunzl should be doing  hesitantly because I didn’t want   hesitation was unfounded as the response was resoundingly positive. So the IEIB Group in the UK & Ireland was founded.’ Matt Hall Woodway UK & Ireland Bunzl plc Annual Report 2021114 NOMINATION COMMITTEE REPORT CONTINUED 1 Board of directors • Supports management to ensure that diversity and  into the Company’s  •  leadership traits among  • Holds management  developing Bunzl’s talent  •    •  Nomination Committee is  • Challenges management to establish strong   •   •  groups and other  that support diversity and  • Considers both diversity   • Prioritises stakeholder  •   2 Nomination Committee •   of the Board and the  •   •   determining the needs most relevant to Bunzl’s forward-looking strategy  • Reviews and updates the   regularly as the needs of the Board and the  •  signatories to the Voluntary Code of   •    •     • Has regard to the Board   • Considers diversity and    3 Chairman of the Board •   Boardroom and  thinking and behaviours into all of the Board’s   •  pipeline of potential  •  plays a prominent role on  •    •    members to highlight any  •  members to be open-minded and look at   •  members are heard and  4 Executive Committee •  and embedding the   •  and behaviours that  diversity in its broadest  •    •   that drive the diversity  •   the business to raise   •  programmes for under-represented  •  pipeline of talent within  5 Human Resources • Sets thoughtful targets on diversity and implements robust monitoring  • Surveys Bunzl employees globally to measure their engagement levels and gain invaluable insights   •  into leadership roles   •           employees from under-represented  sessions involving employees and Board    Driving diversity and inclusion at Bunzl Diversity and inclusion Board of directors 1 Nomination Committee 2 Human Resources 5 Executive C ommittee 4 Chairman of the Board 3 FURTHER INFORMATION ABOUT DIVERSITY AND INCLUSION AT BUNZL CAN BE FOUND ON PAGES 46 TO 57. 115Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Audit Committee report   Company’s governance  valuable independent challenge and oversight across the Company’s  internal control procedures.’  Chair of the Audit Committee Introduction from Lloyd Pitchford  Committee’s report for the year ended  This report is intended to provide an   during the past year and demonstrate   on the integrity of the Company’s 2021    providing valuable independent               provided ample opportunity for early   fundamental to the integrity of the  relationship between management              and internal audit teams and Bunzl’s employees for their sustained    Audit and internal controls  audit is vital to ensuring that users of  rely on the information published by     auditors and other stakeholders to   our stakeholders who rely on the      play an essential role in assuring the                             implementation of a new Group wide     Bunzl plc Annual Report 2021116 AUDIT COMMITTEE REPORT Key accounting estimates and judgements and alternative performance     undertaken and the appropriateness      that are designed to assist with understanding Bunzl’s underlying        Cyber threat and information security        to the number of people working from     measures being taken by management                  and further information relating to the     Governance and regulatory developments        of the Committee and to enable areas of  Performance evaluation       against these priorities and that the 2021          Audit Committee review are set out on       ensure that they remain appropriate and   Stakeholder engagement  emphasis on the views and sentiment   opportunities to engage with these groups when appropriate in order to   the Committee’s operations and   stakeholders during the year did not               This report has been prepared in              Lloyd Pitchford Chair of the Audit Committee 28 February 2022 117Bunzl plc Annual Report 2021 DIRECTORS’ REPORT   Chair of the Audit Committee How has the Committee navigated Covid-19?   auditors and the CFO throughout the transition to remote working has been key and has meant that the Committee     and the auditors are addressing      timing and plans for addressing areas of  What do you think makes an        underpinned by honesty and      to promote an open and listening      members is also an essential              What are the top concerns faced by audit committees today?    The Committee understands that    are being implemented around new       ensured that the Group has been able to navigate the prolonged period of    the implementation of a new Group    strengthening its risk management and       targeting internal improvements to   engage with and support our  Composition and experience    Committee by the Board following          understanding of the Company’s           are of an independent mindset and    turn ensures that the Committee is able to provide an appropriate amount            Meetings The table below sets out the     Meetings attended  4 Vanda Murray 4 Stephan Nanninga 4 Vin Murria 4  4        Bunzl plc Annual Report 2021118 AUDIT COMMITTEE REPORT CONTINUED Key areas of focus in 2022      •       •  • further evolving the internal audit  •  •     •    Role and support  independently of management to ensure that the interests of shareholders are              The Committee ensures that the      management of the Group’s systems of          auditors and may obtain outside      Performance evaluation   both the Committee and as part of the   Committee member independently to ensure that their individual views about the operation of the Committee are taken     Principal responsibilities of the Committee Financial reporting • Monitoring and reviewing the    Risk management and internal control •  – the Group’s risk management   –   Internal audit • Overseeing the Company’s internal  • Monitoring and reviewing the   External audit •  Board in relation to the appointment/re-appointment/  • Reviewing the Company’s  auditors and monitoring their  •  engagement and fees for the  •     •     Assurance framework    • the Company’s risk management and internal  •   • the regular reporting of the    119Bunzl plc Annual Report 2021 DIRECTORS’ REPORT  Issue Review and conclusion Accounting for business combinations      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          Inventory and receivable provisions       accounting matters       2021 annual results news release and the            matters are summarised in the table  found in the relevant Notes to the        Bunzl plc Annual Report 2021120 AUDIT COMMITTEE REPORT CONTINUED Internal controls and risk management      relating to the Company’s risk               The Committee monitored the                responsibility of managers to provide   throughout the business and this is      system is monitored annually by the    are then reviewed and audited on a sample basis by the internal audit           other oversight from management and      Meetings and activities Committee meetings are generally       and is designed to ensure that the Committee’s responsibilities are           The Chair of the Committee holds       A summary of the Committee’s key     review and adapt them wherever      Standing agenda items/activities   •   undertaken by the internal audit  –  –  –  –  –  –   – progress against the points raised  assessment of the internal audit  •   meetings between the Committee and    • The forward agenda planner is       •       • The Committee Chair attends the AGM to respond to any shareholder   121Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Audit Commitee meetings and activities Financial reporting Risk management and internal controls Audit matters Governance and other •  of the Company’s internal   relating to risk management    • Reviewing the Company’s    •  of the risk management  •   Company and the steps  • Considering an update from the CFO and the Head of      •      results of reviews by       establishment of a Group   • Considering a paper from    the results of the 2021  and approving the proposed   •   Risk relating to the Group’s        •   and the internal audit    Board and senior management within the  •   re-appointment of the  approving the remuneration and terms of engagement of   • Reviewing and approving  provision of non-audit   • Reviewing and approving the level and nature of non-audit  auditors performed during     • Reviewing and approving the internal audit work   •   progress being made in addressing the points raised  assessment of the internal  •  reports from the Head of   undertaken by the internal    and improvement  • Reviewing and approving   •   regulatory and  • Reviewing the Committee’s    • Reviewing the Committee’s terms of  • Reviewing and approving    • Considering a paper from the CFO on the Group’s     and audit system in the      the future of internal audit and the results of a regional deep dive into   •   reports from management and the  relation to the half yearly    • Reviewing the half yearly   statements and the   • Reviewing the amendments made by management to the   appropriateness of   report and annual  •     Bunzl plc Annual Report 2021122 AUDIT COMMITTEE REPORT CONTINUED Internal audit The Company has an internal audit             audit plan is approved by the Committee annually and is reviewed regularly   Committee to assess how internal audit is       updates on management’s progress in addressing any outstanding         Committee with a further means of  manage and mitigate those risks                External auditors     Committee is responsible for ensuring that the three-way relationship between  the Company’s management is  auditors remain independent of the                 the external and internal auditors is an ongoing process at Bunzl and the  methods to ensure that it is fully aware of how the auditors are performing.      of the reviews followed a broadly    Audit and Risk attend and table reports   Committee members have the opportunity to provide real-time           of the Committee who held a number  the year outside formal Committee     management and to ensure that the Committee is kept informed of any    implementation        •  • senior managers at Group and business  Results of     External audit process              Internal audit function     123Bunzl plc Annual Report 2021 DIRECTORS’ REPORT       +        +                 +     +     +      auditors be put before shareholders in general meeting for  Auditor appointment – key considerations             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         Bunzl plc Annual Report 2021124 AUDIT COMMITTEE REPORT CONTINUED Directors’ remuneration report ‘During a year of continuing challenge we have made great progress against key strategic objectives as well as delivering  results.’  Chair of the Remuneration Committee Introduction from Vanda Murray  remuneration report for the year ended  Context of remuneration   year would unfold – many parts of the          there was ongoing demand for essential   hospitality industry in most markets has             year left the Group in very strong shape   taking any government support and of         Performance and reward for 2021 Annual bonus Annual bonus payments are based on            parts of the business and of the whole                                The Committee assessed the                       125Bunzl plc Annual Report 2021 DIRECTORS’ REPORT      Director’s remuneration policy                Award plan is the most appropriate plan  •   operating model improvements and      •    •  shareholders and management       •     •      April 2021 following the approval of the                 remuneration report the ratio between       Implementing the policy for the 2022  Base salary     broadly in line with that of the leadership  Annual Bonus  annual bonus opportunity will remain                     four key pillars of the transition to    build on the strategy and targets agreed   deferred into shares for a period of              proportionate and always linked  LTIP            Priorities for 2022              Bunzl organisation to satisfy itself that     Bunzl plc Annual Report 2021126 DIRECTORS’ REMUNERATION REPORT CONTINUED Conclusions  2020 as we saw ongoing demand for key        the outturns of both the short and long    •   • the annual report on remuneration for    •     Vanda Murray OBE Chair of the Remuneration Committee 28 February 2022  with Vanda Murray OBE Chair of the Remuneration Committee How has the role of the Remuneration Committee evolved over the last     the Committee spent a great deal of      role in ensuring that the remuneration       observed that the Committee takes a  reward arrangements for the wider  What key recent developments have you seen in the Executive Pay landscape?     need to give real thought to the setting                 How has the Bunzl Remuneration Committee responded to these developments? The Bunzl Remuneration Committee has always kept abreast of any new             that the time was right to move to  we made some other minor   Do you feel that the current  purpose for the future?           future developments and be   How does the Committee stay abreast of wider workforce pay issues? When we are approving plans and  Committee members normally take        listening sessions with employee       127Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Committee membership Date of appointment to the Committee Vanda Murray 1 February 2015   Stephan Nanninga 1 May 2017 Vin Murria 1 June 2020   Meetings Meetings eligible to attend Meetings attended Vanda Murray 3 3  3 3 Stephan Nanninga 3 3 Vin Murria 3 3  3 3   on 2 February 2022 Compliance statement This report has been prepared on    sized Companies and Groups    Authority’s Listing Rules and takes into        shareholders to vote on an advisory     details of the remuneration earned by    approved by shareholders in a binding  The responsibilities and operation of the Committee Committee membership role and remit            reviewed by both the Committee and         invited to attend meetings of the Committee but were not present during any part of the meeting when their own remuneration was under    Committee during 2021 are listed  The primary role of the Committee is to determine the framework and             of the business and that it is aligned with the Company’s shareholders’    remuneration arrangements when     The key responsibilities of the Committee include: •    reward them for their individual   applied to the rest of the employees  • determining the framework and broad    • ensuring that remuneration is aligned with and supports the Company’s  regard to the interests of the     •  remuneration issues with the Company’s stakeholders as and when  •      • ensuring that all remuneration paid to  with the Company’s previously  •   are fair to the individual and the  •    Board level and making  • overseeing the Company’s long term  • ensuring that provisions relating to      Bunzl plc Annual Report 2021128 DIRECTORS’ REMUNERATION REPORT CONTINUED Alignment of incentive outcomes in 2021  Wider workforce elements of remuneration  2021 remuneration at a glance Remuneration principles •    •    •  variable pay to be  • Framework to be  line of sight from   Summary of executive directors’ remuneration for the year  Frank van Zanten (£000)  Richard Howes (£000) CEO CFO Salary +  Bonus LTIP 2020 2021 Max 2020 2021 Max  Median  Positioning of total direct  to external benchmarks 1,271.4 1,597.2 621.7 1,244.6 1,610.7 1,217.1 1,244.6 1,643.5 1,422.9 627.2 931.1 287.3 645.0 929.4 1,001.3 645.0 958.1 1,139.7 • External benchmark data for total   FTSE 11-100 CEO & CFO roles Alignment of performance and remuneration 2021 Annual bonus To motivate and reward the  the Company’s  operational  Eps  35% RAOC  10%   25%      20% 20% ESG goals 10% Total bonus opportunity/result   100% 100% LTIP To motivate and reward  linked to long  Eps  LTIP A 100% 50% TSR   50% Total LTIP opportunity/result 100%   462 leaders  annual share grant  employees are eligible for share save  employees  or variable pay     129Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Annual report on directors’ remuneration for 2021   Executive directors Salary £000   £000 Bonus £000  £000 Pension £000 Total £000 Sub- total  pay £000 Sub- total of variable pay £000 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2021  913.1  148.9      182.6       598.8  16.3  929.4    29.9    645.0  Total   165.2      212.5      Notes         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   Non-executive directors Board fees £000 Committee  fees £000  payments/  £000 Total £000 2021 2020 2021 2020 2021 2020 2021 2020 Peter Ventress – Chairman 368.0  - – 0.2 – 368.2  Vanda Murray 73.2  39.0  1.2 – 113.4   73.2  20.0  - – 93.2  Stephan Nanninga 73.2  - – -  73.2  Vin Murria 73.2  - – – – 73.2   73.2  - – - - 73.2  Total 734.0  59.0  1.4  794.4  Notes              Bunzl plc Annual Report 2021130 DIRECTORS’ REMUNERATION REPORT CONTINUED Executive directors’ annual salary   Salary from 1 January 2021 Salary from 1 January 2020  salary 2020 to 2021          Executive directors’ external appointments   Non-executive directors’ fees   With  January 2021 Fees paid in 2020  fees 2020 to 2021 Chairman’s fee   –          Audit Committee Chair   – Remuneration Committee Chair   –         Group performance Weighting  Threshold Target                                                                    see details below   see details below Notes   131Bunzl plc Annual Report 2021 DIRECTORS’ REPORT         •       streamlining warehouse footprints and   •       • Further develop talent by supporting high potentials as part of their development plans with leadership training programmes and other   appropriate to build a stronger  •   •   •    •     •    •  • Continued development of digital tools          •   % of base salary awarded 34% % of maximum 95%    •    engage with investors and further  •       •   •    •    –  –  •     Bunzl plc Annual Report 2021132 DIRECTORS’ REMUNERATION REPORT CONTINUED               –  –   –   •  –  –  •   % of base salary awarded 16% % of maximum 90%     •     •    •   •    •    • Coordinate and undertake a review of    •   % of base salary awarded 29% % of maximum 90%    •   •     •    •    •  •    •     % of base salary awarded 14% % of maximum 90%     2021 % 2020    2018  2017   176.4      155.2  – – –   133Bunzl plc Annual Report 2021 DIRECTORS’ REPORT  Executive share options – LTIP Part A     LTIP Part A – 28 February 2019 and 11 September 2019 grants   Threshold       growth                Number of awards granted Vesting   value of award vesting              – – –  – – – Note        Performance shares – LTIP Part B     LTIP Part B – 9 April and 8 October 2018 awards  Vesting  Threshold target    target    growth                period Vesting  Threshold target   target      group of bespoke peer  1 April 2018 to            30 September 2021              Number of shares granted Vesting  Vesting  Value of award vesting                  Note          Bunzl plc Annual Report 2021134 DIRECTORS’ REMUNERATION REPORT CONTINUED     Total pension 2021       Note   LTIP grant policy      Plan  Basis of award  £000 Number of shares  period end date  RSA 21 April 2021    21 April 2024  RSA 21 April 2021    21 April 2024 Notes     Performance underpins Restricted Share Award–LTIP 21 April 2021     Shareholder dilution    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            Note   135Bunzl plc Annual Report 2021 DIRECTORS’ REPORT      Total interests held Owned outright          underpin         employment Vested but not                   Peter Ventress   Vin Murria – Vanda Murray      Stephan Nanninga –  – Notes   Performance graph and table  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bonus payment             98%                96.4%              81% Notes          Bunzl plc Annual Report 2021136 DIRECTORS’ REMUNERATION REPORT CONTINUED Percentage change in each director’s remuneration     Salary/Fees  Bonus 2020 2021 2020 2021 2020 2021   2.9%    0.8%   2.9% n/a 1.2% n/a  Chairman – Peter Ventress  0.0% n/a 100% n/a n/a   2.2%  100% n/a n/a   1.6%  0.0% n/a n/a  n/a 2.0%   n/a n/a  n/a 2.0% n/a 0.0% n/a n/a a n/a 2.0% n/a 0.0% n/a n/a   3.1%  33.2%   Notes                   Year Method  pay ratio Median pay ratio  pay ratio Salary  2021 Option A    Total remuneration  2021 Option A    Salary  2020 Option A    Total remuneration  2020 Option A    Salary   Option A    Total remuneration   Option A    Salary Total remuneration       Median employee      Note   Relative importance of spend on pay    £m 2021 2020    844.0  –  180.4    162.5   Notes      137Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Remuneration arrangements for 2022 Salary   Salary from 1 January 2022 Salary from 1 January 2021  in salary 2021 to 2022         2022 bonus measures       Performance measures and pricing basis for long term incentives to be awarded in 2022  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         Audit Committee Chair    Remuneration Committee Chair    Bunzl plc Annual Report 2021138 DIRECTORS’ REMUNERATION REPORT CONTINUED    Deferred share awards as at 31 December 2021   Awards  held at 1 January 2021 Shares awarded during 2021 Shares vested during 2021 Total number of awards  31 December 2021 Normal vesting date Share  at grant p Market  at vesting p Monetary value of vested awards £000    –             –          –     Notes        LTIP   Executive share options – LTIP Part A Options held at 1 January 2021 Grant date   p Options  between Options held at 31 December 2021                                          Total              Total   Notes   Performance shares – LTIP Part B Awards  held at 1 January 2021 Conditional shares awarded during 2021 Award date Market  share at award p Lapsed awards  during 2021  awards  during 2021 Market  per share  p Value at  £000 Awards  held at 31 December 2021        471 –        –    – – – –     – – – –     – – – –     – – – –  Total  0            –    – – – –     – – – –     – – – –  Total  0    Note  139Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Restricted Share Awards Awards  held at 1 January 2021 Conditional shares awarded during 2021 Award date Market  share at award p Lapsed awards  during 2021  awards  during 2021 Market  per share  p Value at  £000 Awards  held at 31 December 2021  –    – – – –  Total 0  0 0   –    – – – –  Total 0  0 0  Note  All employees share scheme   Sharesave Schemes Options at 1 January 2021 Grant date   p Options  between Options at 31 December 2021      0     959 –    504  –     Advisers to the Remuneration Committee         Statement of voting at the 2021 AGM for the remuneration report and the remuneration policy    Votes for  voted Votes against  voted Votes withheld Remuneration report              Notes   Bunzl plc Annual Report 2021140 DIRECTORS’ REMUNERATION REPORT CONTINUED Directors’ remuneration policy    Objectives of the policy  •   •    •   •   •   •   •    •    •     •        141Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Remuneration policy for executive directors   Base salary Purpose •  •  Operation •  •   •     •   potential value •       •    Annual bonus Purpose •  •  •  Operation •  •    •     •      •   potential value •  •  •     •   •   •   •       Bunzl plc Annual Report 2021142 DIRECTORS’ REMUNERATION REPORT CONTINUED Long term incentives Purpose •  •  •  Operation  •   •   •        •   •   potential value •  •  •   •    •         •    Long term incentives – previous policy applied for awards up to and including October 2020 Purpose •    Operation •    •       •   •  •   potential value Executive share options •  •  •  Performance shares •  •   143Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Long term incentives – previous policy applied for awards up to and including October 2020   •   Executive share options •   •  –  –  –  –  •    Performance shares •    •   •  –  –  –   –  •    All employee share plans Purpose •    Operation •  •     •   potential value •    •   Purpose •  •  Operation •   •  •   potential value •   •     •  Bunzl plc Annual Report 2021144 DIRECTORS’ REMUNERATION REPORT CONTINUED  Purpose •  Operation •   •     potential value •     •  Shareholding requirement Purpose •  Operation •       •      potential value •    •    Fees Purpose •   Operation •   •  •   •   •   •     potential value •    •    •   145Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Selection of performance measures and targets           Statement of consideration of shareholder views    Discretions retained by the Committee in operating the incentive plans    •  •  •  •  •  •  •   •   •    Legacy arrangements     Executive directors’ external appointments   Bunzl plc Annual Report 2021146 DIRECTORS’ REMUNERATION REPORT CONTINUED Recruitment of executive directors – approach to remuneration Executive directors                 Non-executive directors   Executive directors’ service contracts         Non-executive directors’ terms of appointment     appointment  re-appointment at AGM Length of  2022 AGM Peter Ventress  21 April 2021 2 years 10 months  1 April 2011 n/a Vanda Murray 1 February 2015 21 April 2021 7 years 2 months   21 April 2021 5 years 1 month Stephan Nanninga 1 May 2017 21 April 2021 4 years 11 months Vin Murria 1 June 2020 21 April 2021 1 year 10 months   21 April 2021 1 year 3 months Notes   147Bunzl plc Annual Report 2021 DIRECTORS’ REPORT      Component of pay Voluntary resignation or termination for cause   pension and  Paid for the proportion  worked and any untaken holidays pro-rated to the leaving date     Annual bonus  Cessation of employment during a bonus year will normally  being paid Cessation of employment during a bonus year or after the year end but prior to the normal bonus   Annual bonus deferred shares  shares will lapse     share options  share options will lapse           shares  shares will lapse         shares  share awards will lapse    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 Statement of consideration of employment conditions elsewhere in the Group          Remuneration scenarios     34% 27% 23% 3% 36% 38% 3% 41% 29% 4% 26% 36% 46% 5% 49% Stretch performance (Total £4,099,575) Target performance (Total £3,253,935) Stretch + 50% share price increase (Total £4,686,825) Frank van Zanten Below threshold performance (Total £2,408,295) 35% 28% 25% 1% 38% 36% 1% 44% 27% 2% 28% 2% 35% 50% 48% Stretch performance (Tota l £2 ,2 65 ,8 04) Target performance (Total £1,772,849) Stretch + 50% share price increase (Total £2,573,900) Richard Howes Below threshold performance (Total £1,279,895)  Pension Bonus (Cash/DASBS) LTIP Notes            Vanda Murray OBE Chair of the Remuneration Committee 28 February 2022 149Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Other statutory information Annual General Meeting        Dividends          on 4 July 2022 to those shareholders on   Share capital             Company’s shares are traded on the       Bunzl Group General Employee  The trustee of the Bunzl Group General   options and awards that have not been   The trustee has agreed to waive the right to dividend payments on shares held    Rights and obligations attaching      by ordinary resolution to issue shares       resolution of the Company passed   the Board is duly authorised to issue and            shares will be deemed to be varied by the  and by the allotment of further shares   more favourable voting rights than the  otherwise be deemed to be varied by  Power to issue and allot shares   authorities granted at the 2021 AGM          pre-emption provisions of the Companies       than to satisfy share options under the    These authorities are valid until the    Restrictions on transfer of shares           refuse to register an instrument of    •        the right of the transferor to make the  Bunzl plc Annual Report 2021150 OTHER STATUTORY INFORMATION •  and • in favour of not more than four  Registration of a transfer of an          the transferor has been served with a        is shown to the Board to be pursuant to      The Company is not aware of any agreements between shareholders   Restrictions on voting rights        to vote if he has been served with a           more than 48 hours after it was demanded  demanded if the poll is not taken straight away but is taken not more than 48 hours  Purchase of own shares        to this authority or the authority granted at the 2020 AGM and no shares have     Directors        retire at the AGM held in the third  appointed or last appointed and any    of nine years or more at the date of the  The Board may also appoint a person               •  or is asked to resign by all of the other   •     • is absent without permission from  months and the Board resolves that his  •   • is prohibited by law from being a  •      Notwithstanding the retirement by       ordinary shares are shown in Note 22 to    with the Company or any of its subsidiary undertakings during or at the end of   remuneration for the year and details of       151Bunzl plc Annual Report 2021 DIRECTORS’ REPORT Substantial shareholdings    Shareholder   Number of shares             Powers of the directors    business of the Company is managed by    any person or persons to be the agent    Directors’ indemnities              Amendment of articles      Environmental and social responsibility         Greenhouse gas emissions    Employment policies  have been developed to meet the needs                   together with a number of subsidiary or        during their working life will be retained in employment wherever possible and  Further information relating to the         substantially the same form and are repayable at the option of the lender in   provisions in relation to the Company are         Political donations      review on pages 74 to 81 and in the Notes   Disclosures required under UK Listing Rule 9.8.4        Bunzl plc Annual Report 2021152 OTHER STATUTORY INFORMATION CONTINUED External auditors   •   the Group and the Company’s auditors  •    any relevant audit information and to establish that the Group and the Company’s auditors are aware of that      Resolutions are to be proposed at the    remuneration to be determined by  Future developments within the Group  developments in the Group’s business   Strategic report and Directors’ report    These reports have been drawn up and                            report were approved by the Board on  By order of the Board   28 February 2022 153Bunzl plc Annual Report 2021 DIRECTORS’ REPORT MCR Safety was one of 50     READ MORE PAGE 201 Bunzl plc Annual Report 2021154 Financial Statements   Consolidated statement                      Shareholder information 222 Five year review 231 155Bunzl plc Annual Report 2021 Consolidated income statement for the year ended 31 December 2021 156 Bunzl plc Annual Report 2021 Notes 2021 £m 2020 £m Revenue 4 10,285.1 10,111.1 Operating profit 4 623.3 618.5 Finance income 6 10.7 10.4 Finance expense 6 (65.3) (73.2) Profit before income tax 568.7 555.7 Income tax 7 (125.9) (125.7) Profit for the year attributable to the Company’s equity holders 442.8 430.0 Earnings per share attributable to the Company’s equity holders Basic 8 132.7p 128.8p Diluted 8 131.8p 128.3p Alternative performance measures † Operating profit 4 623.3 618.5 Adjusted for: Customer relationships and brands amortisation 4 106.5 100.4 Acquisition related items 4 23.0 42.7 Non-recurring pension scheme charges 4 – 16.8 Adjusted operating profit 752.8 778.4 Finance income 6 10.7 10.4 Finance expense 6 (65.3) (73.2) Adjusted profit before income tax 698.2 715.6 Tax on adjusted profit 7 (155.7) (165.1) Adjusted profit for the year 542.5 550.5 Adjusted earnings per share 8 162.5p 164.9p † See Note 3 on page 170 for further details of the alternative performance measures. The Accounting policies and other Notes on pages 162 to 204 form part of these consolidated financial statements. Bunzl plc Annual Report 2021156 FINANCIAL STATEMENTS C onsolidated income statement for the year ended 31 December 2021 156 Bunzl plc Annual Report 2021 Notes 202 1 £m 2020 £m Revenue 4 10,285.1 10,111.1 Operating profit 4 623.3 618.5 Finance income 6 10.7 10.4 Finance expense 6 (65.3) (73.2) Profit before income tax 568.7 555.7 Income tax 7 (125.9) (125.7) Profit for the year attributable to the Company’s equity holders 442.8 430.0 Earnings per share attributable to the Company’s equity holders Basic 8 132.7p 128.8p Diluted 8 131.8p 128.3p Alternative performance measures † Operating profit 4 623.3 618.5 Adjusted for: Customer relationships and brands amortisation 4 106.5 100.4 Acquisition related items 4 23.0 42.7 Non-recurring pension scheme charges 4 – 16.8 Adjusted operating profit 752.8 778.4 Finance income 6 10.7 10.4 Finance expense 6 (65.3) (73.2) Adjusted profit before income tax 698.2 715.6 Tax on adjusted profit 7 (155.7) (165.1) Adjusted profit for the year 542.5 550.5 Adjusted earnings per share 8 162.5p 164.9p † See Note 3 on page 170 for further details of the alternative performance measures. The Accounting policies and other Notes on pages 162 to 204 form part of these consolidated financial statements. Consolidated statement of comprehensive income for the year ended 31 December 2021 Bunzl plc Annual Report 2021 157 FINANCIAL STATEMENTS Notes 2021 £m 2020 £m Profit for the year 442.8 430.0 O ther comprehensive income/(expense) I tems that will not be reclassified to profit or loss: A ctuarial gain/(loss) on defined benefit pension schemes 23 74.1 (16.2) Gain/(loss) recognised in cash flow hedge reserve 4.4 (8.5) Tax on items that will not be reclassified to profit or loss 7 (19.3) 4.6 Total items that will not be reclassified to profit or loss 59.2 (20.1) Items that may be reclassified subsequently to profit or loss: Fo reign currency translation differences on foreign operations (89.8) (63.5) Gain/(loss) taken to equity as a result of effective net investment hedges 11.5 (15.9) Tax on items that may be reclassified to profit or loss 7 – 0.3 Total items that may be reclassified subsequently to profit or loss (78.3) (79.1) Other comprehensive expense for the year (19.1) (99.2) Total comprehensive income attributable to the Company’s equity holders 423.7 330.8 157Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Consolidated balance sheet at 31 December 2021 158 Bunzl plc Annual Report 2021 Notes 2021 £m 2020 £m Assets Property, plant and equipment 9 120.9 122.7 Right-of-use assets 10 448.3 453.4 Intangible assets 11 2,766.8 2,441.9 Defined benefit pension assets 23 63.6 0.4 Derivative financial assets 6.9 17.0 Deferred tax assets 18 2.8 2.5 Total non-current assets 3,409.3 3,037.9 Invento ries 13 1,474.0 1,432.2 Trade and other receivables 14 1,431.0 1,395.8 Income tax receivable 8.0 6.6 Derivative financial assets 14.9 12.6 Cash at bank and in hand 26 776.9 944.3 Total current assets 3,704.8 3,791.5 Total assets 7,114.1 6,829.4 Equity Share capital 19 108.4 108.3 Share premium 194.2 187.7 Translation reserve (269.2) (190.9) Other reserves 19.0 14.3 Retained earnings 2,151.5 1,799.7 Total equity attributable to the Company’s equity holders 2,203.9 1,919.1 Liabili ties Interest bearing loans and borr owings 26 1,433.7 1,615.2 Defined benefit pension liabilities 23 32.4 45.2 Other payables 15 72.9 50.2 Income tax payable 1.5 2.0 Provisions 17 56.3 55.7 Lease liabilities 25 359.6 368.4 Derivative financial liabilities 27.9 0.8 Deferred tax liabilities 18 151.0 105.1 Total non-current liabilities 2,135.3 2,242.6 Bank overd rafts 26 551.6 514.6 Interest bearing loans and borrowings 26 111.9 79.9 Trade and other payables 15 1,921.3 1,836.3 Income tax payable 42.1 75.7 Provisions 17 8.5 8.5 Lease liabilities 25 129.1 129.1 Derivative financial liabilities 10.4 23.6 Total current liabilities 2,774.9 2,667.7 Total liabilities 4,910.2 4,910.3 Total equity and liabilities 7,114.1 6,829.4 Approved by the Board of directors of Bunzl plc (Company registration number 358948) on 28 February 2022 and signed on its behalf by Frank van Zanten, Chief Executive Officer and Richard Howes, Chief Financial Officer. Bunzl plc Annual Report 2021158 FINANCIAL STATEMENTS Cons olidated balance sheet at 31 December 2021 158 Bunzl plc Annual Report 2021 Notes 2021 £m 2020 £m Assets Property, plant and equipment 9 120.9 122.7 Right-of-use assets 10 448.3 453.4 Intangible assets 11 2,766.8 2,441.9 Defined benefit pension assets 23 63.6 0.4 Derivative financial assets 6.9 17.0 Deferred tax assets 18 2.8 2.5 Total non-current assets 3,409.3 3,037.9 Inventories 13 1,474.0 1,432.2 Trade and other receivables 14 1,431.0 1,395.8 Income tax receivable 8.0 6.6 Derivative financial assets 14.9 12.6 Cash at bank and in hand 26 776.9 944.3 Total current assets 3,704.8 3,791.5 Total assets 7,114.1 6,829.4 Equity Share capital 19 108.4 108.3 Share premium 194.2 187.7 Translation reserve (269.2) (190.9) Other reserves 19.0 14.3 Retained earnings 2,151.5 1,799.7 Total equity attributable to the Company’s equity holders 2,203.9 1,919.1 Liabilities Interest bearing loans and borrowings 26 1,433.7 1,615.2 Defined benefit pension liabilities 23 32.4 45.2 Other payables 15 72.9 50.2 Income tax payable 1.5 2.0 Provisions 17 56.3 55.7 Lease liabilities 25 359.6 368.4 Derivative financial liabilities 27.9 0.8 Deferred tax liabilities 18 151.0 105.1 Total non-current liabilities 2,135.3 2,242.6 Bank overdrafts 26 551.6 514.6 Interest bearing loans and borrowings 26 111.9 79.9 Trade and other payables 15 1,921.3 1,836.3 Income tax payable 42.1 75.7 Provisions 17 8.5 8.5 Lease liabilities 25 129.1 129.1 Derivative financial liabilities 10.4 23.6 Total current liabilities 2,774.9 2,667.7 Total liabilities 4,910.2 4,910.3 Total equity and liabilities 7,114.1 6,829.4 Approved by the Board of directors of Bunzl plc (Company registration number 358948) on 28 February 2022 and signed on its behalf by Frank van Zanten, Chief Executive Officer and Richard Howes, Chief Financial Officer. Consolidated statement of changes in equity for the year ended 31 December 2021 Bunzl plc Annual Report 2021 159 FINANCIAL STATEM ENTS Other reserves Retained earnings Share capital £m Share premium £m Translation reserve £m Merger £m Capital redemption £m Cash flow hedge £m Own shares £m Earnings £m Total equity £m At 1 January 2021 108.3 187.7 (190.9) 2.5 16.1 (4.3) (73.4) 1,873.1 1,919.1 Profit for the year 442.8 442.8 Actuarial gain on defined benefit pension schemes 74.1 74.1 Foreign currency translation differences on foreign operations (89.8) (89.8) Gain taken to equity as a result of effective net investment hedges 11.5 11.5 Gain recognised in cash flow hedge reserve 4.4 4.4 Income tax charge on other comprehensive income – (0.8) (18.5) (19.3 ) Total comprehensive income (78.3) 3.6 498.4 423.7 2020 interim dividend (52.8) (52.8) 2020 final dividend (127.6) (127.6) Movement from cash flow hedge reserve to inventory 1.1 1.1 Issue of share capital 0.1 6.5 6.6 Employee trust shares 15.5 15.5 Movement on own share reserves 5.0 (5.0) – Share based payments 18.3 18.3 At 31 December 2021 108.4 194.2 (269.2) 2.5 16.1 0.4 (52.9) 2,204.4 2,203.9 Other reserves Retained earnings Share capita l £m Share premium £m Translation reserve £m Merger £m Capital redemption £m Cash flow hedge £m Own shares £m Earnings £m Total equity £m At 1 January 2020 108.3 184.0 (111.8) 2.5 16.1 (2.4) (69.9) 1,617.5 1,744.3 Profit for the year 430.0 430.0 Actuarial loss on defined benefit pension schemes (16.2) (16.2) Foreign currency translation differences on foreign operations (63.5) (63.5) Loss taken to equity as a result of effective net investment hedges (15.9) (15.9) Loss recognised in cash flow hedge reserve (8.5) (8.5) Income tax credit on other comprehensive expense 0.3 1.6 3.0 4.9 Total comprehensive income (79.1) (6.9) 416.8 330.8 2019 interim dividend (51.7) (51.7) 2019 additional interim dividend (119.8) (119.8) Movement from cash flow hedge reserve to inventory 5.0 5.0 Issue of share capital – 3.7 3.7 Employee trust shares (9.4) (9.4) Movement on own share reserves 5.9 (5.9) – Share based payments 16.2 16.2 At 31 December 2020 108.3 187.7 (190 .9) 2.5 16.1 (4.3) (73.4) 1,873.1 1,919.1 159Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Consolidated cash flow statement for the year ended 31 December 2021 160 Bunzl plc Annual Report 2021 Notes 2021 £m 2020 £m Cash flow from operating activities Profit before income tax 568.7 555.7 Adjusted for: net financ e expense 6 54.6 62.8 customer relationships and brands amortisation 11 106.5 100.4 acquisition related items 4 23.0 42.7 non-recurring pension scheme charges 4 – 16.8 Adjusted operating profit 752.8 778.4 Adjustments: depr eciation and software amortisation 29 171.2 171.7 other non-cash items 29 4.4 13.2 working capital movement 29 2.1 5.0 Cash generated from operations before acquisition related items 930.5 968.3 Cash outflow from acquisition related items 28 (16.0) (24.3) Income tax paid (181.4) (153.8) Cash inflow from operating activities 733.1 790.2 Cash flow from investing activities Inte rest received 8.7 15.1 Purchase of property, plant and equipment and software 9,11 (32.7) (33.1) Sale of property, plant and equipment 2.7 1.2 Purchase of businesses 28 (436.7) (363.2) Cash outflow from investing activities (458.0) (380.0) Cash flow from financing activities Interes t paid excluding interest on lease liabilities (43.5) (56.6) Dividends paid 20 (180.4) (171.5) Increase in borrowings 14.5 444.5 Repayment of borrowings (134.9) (133.5) Realised gains/(losses) on foreign exchange contracts 25.0 (37.1) Payment of lease liabilities – principal 25 (138.6) (137.1) Payment of lease liabilities – interest 25 (20.3) (22.5) Proceeds from issue of ordinary shares to settle share options 6.6 3.7 Proceeds from exercise of market purchase share options 47.1 37.0 Purchase of employee trust shares (34.2) (49.1) Cash outflow from financing activities (458.7) (122.2) (Decrease)/increase in cash and cash equivalents (183.6) 2 88.0 Cash and cash equivalents at start of year 429.7 140.8 (Decrease)/increase in cash and cash equivalents (183.6) 2 88.0 Currency translation (20.8) 0.9 Cash and cash equivalents at end of year 26 225.3 429.7 Bunzl plc Annual Report 2021160 FINANCIAL STATEMENTS C onsolidated cash flow statement for the year ended 31 December 2021 160 Bunzl plc Annual Report 2021 Notes 202 1 £m 2020 £m Cash flow from operating activities Profit before income tax 568.7 555.7 Adjusted for: net finance expense 6 54.6 62.8 customer relationships and brands amortisation 11 106.5 100.4 acquisition related items 4 23.0 42.7 non-recurring pension scheme charges 4 – 16.8 Adjusted operating profit 752.8 778.4 Adjustments: depreciation and software amortisation 29 171.2 171.7 other non-cash items 29 4.4 13.2 working capital movement 29 2.1 5.0 Cash generated from operations before acquisition related items 930.5 968.3 Cash outflow from acquisition related items 28 (16.0) (24.3) Income tax paid (181.4) (153.8) Cash inflow from operating activities 733.1 790.2 Cash flow from investing activities Interest received 8.7 15.1 Purchase of property, plant and equipment and software 9,11 (32.7) (33.1) Sale of property, plant and equipment 2.7 1.2 Purchase of businesses 28 (436.7) (363.2) Cash outflow from investing activities (458.0) (380.0) Cash flow from financing activities Interest paid excluding interest on lease liabilities (43.5) (56.6) Dividends paid 20 (180.4) (171.5) Increase in borrowings 14.5 444.5 Repayment of borrowings (134.9) (133.5) Realised gains/(losses) on foreign exchange contracts 25.0 (37.1) Payment of lease liabilities – principal 25 (138.6) (137.1) Payment of lease liabilities – interest 25 (20.3) (22.5) Proceeds from issue of ordinary shares to settle share options 6.6 3.7 Proceeds from exercise of market purchase share options 47.1 37.0 Purchase of employee trust shares (34.2) (49.1) Cash outflow from financing activities (458.7) (122.2) (Decrease)/increase in cash and cash equivalents (183.6) 288.0 Cash and cash equivalents at start of year 429.7 140.8 (Decrease)/increase in cash and cash equivalents (183.6) 288.0 Currency translation (20.8) 0.9 Cash and cash equivalents at end of year 26 225.3 429.7 Consolidated cash flow statement continued for the year ended 31 December 2021 Bunzl plc Annual Report 2021 161 FINANCIAL STATEMENTS Altern ative performance measures † Notes 2021 £m 2020 £m Cash generated from operations before acquisition related items 930.5 968.3 Purchase of property, plant and equipment and software (32.7) (33.1) Sale of property, plant and equipment 2.7 1.2 Payment of lease liabilities 25 (158.9) (159.6) Operating cash flow 741.6 776.8 Adjusted operating profit 752.8 778.4 Add back depreciation of right-of-use assets 10 134.8 134.8 Deduct payment of lease liabilities 25 (158.9) (159.6) Lease adjusted operating profit 728.7 753.6 Cash conversion (operating cash flow as a percentage of lease adjusted operating profit) 102% 103% Operating cash flow 741.6 776.8 Net interest excluding interest on lease liabilities (34.8) (41.5) Income tax paid (181.4) (153.8) Free cash flow 525.4 581.5 † See Note 3 on page 170 for further details of the alternative performance measures. 161Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes 162 Bunzl plc Annual Report 2021 1 Basis of preparation Bunzl plc (the ‘Company’) is a public company, which is limited by shares and is listed on the London Stock Exchange. The Company is incorporated and domiciled in the United Kingdom and is registered in England and Wales. a. Basis of accounting On 31 December 2020, International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union at that date were brought into UK law and became UK-adopted International Accounting Standards (‘IASs’), with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted IASs in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framewor k. T he consolidated financial statements for the year ended 31 December 2021 have been approved by the Board of directors of Bunzl plc. They are prepared in accordance with UK-adopted IASs in conformity with the requirements of the Companies Act 2006 and the applicable legal requirements of the Companies Act 2006. The consolidated financial statements also comply fully with IFRSs as issued by the International Accounting Standards Board (‘IASB’). They are prepared under the historical cost convention with the exception of certain items which are measured at fair value as described in the accounting policies below. (i) Going concern The directors, having reassessed the principal risks and uncertainties, consider it appropriate to adopt the going concern basis of accounting in the preparation of the financial statements. In reaching this conclusion, the directors noted the Group’s strong operating cash flow performance in the year and the substantial funding available to the Group as described in the Financial review. The directors also considered a range of different forecast scenarios for the 18 month period from the date of these financial statements to the end of June 2023 starting with a base case projection derived from the Group’s 2022 Budget excluding any non-committed acquisition spend or changes in funding. The resilience of the Group to a range of severe but plausible downside scenarios was factored into the directors’ considerations through two levels of stress testing against the base case projection. These severe but plausible downside scenarios included the following assumptions: • A 10% reduction in adjusted operating profit from the potential for adverse impacts from the crystallisation of the principal strategic and operational risks to the Group’s organic growth and a 10% increase in working capital • A 20% reduction in adjusted operating profit from a more severe impact from the crystallisation of the principal strategic and operational risks to the Group’s organic growth and a 20% increase in working capital In addition, the Group has carried out reverse stress tests against the base case to determine the level of performance that would result in a breach of financial covenants. In order for a breach of covenants to occur during the 18 month period to the end of June 2023 the Group would need to experience a reduction in EBITDA of over 50% compared to the base case. In the first two stress tests it was found that the Group was resilient and in particular it remained in compliance with the relevant financial covenants. The conditions required to create the reverse stress test scenario were so severe that they were considered to be implausible. The directors are therefore satisfied that the Group’s forecasts, which take into account reasonably possible changes in trading performance, show that there are no material uncertainties over going concern, including no anticipated breach of covenants, and therefore the going concern basis of preparation continues to be appropriate. (ii) Impact of Covid-19 on the financial statements at 31 December 2021 During 2021, the Group has seen a further increase in the level of slow moving inventory with customer demand continuing to be impacted by the pandemic-related restrictions and supply chain disruption resulting in higher levels of inventory. This has resulted in a net charge of approximately £25m in the year to increase slow moving inventory provisions whilst additional provisions were required as a result of market price deflation on certain Covid-19 products. This has been partially offset by a net release of approximately £5m relating to expected credit losses on trade receivables. Further details on the impact of the Covid-19 pandemic on the financial results for the Group for the year ended 31 December 2021 are included elsewhere in this report, notably in the Chief Executive Officer’s review and the Financial review. b. Newly adopted accounting policies There are no new standards or amendments to existing standards that are effective that have had a material impact on the Group, nor does the Group anticipate any new or revised standards and interpretations that are effective from 1 January 2022 and beyond to have a material impact on its consolidated results or financial position. Bunzl plc Annual Report 2021162 FINANCIAL STATEMENTS Notes 162 Bunzl plc Annual Report 2021 1 Basis of preparation Bunzl plc (the ‘Company’) is a public company, which is limited by shares and is listed on the London Stock Exchange. The Company is incorporated and domiciled in the United Kingdom and is registered in England and Wales. a. Basis of accounting On 31 December 2020, International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union at that date were brought into UK law and became UK-adopted International Accounting Standards (‘IASs’), with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted IASs in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The consolidated financial statements for the year ended 31 December 2021 have been approved by the Board of directors of Bunzl plc. They are prepared in accordance with UK-adopted IASs in conformity with the requirements of the Companies Act 2006 and the applicable legal requirements of the Companies Act 2006. The consolidated financial statements also comply fully with IFRSs as issued by the International Accounting Standards Board (‘IASB’). They are prepared under the historical cost convention with the exception of certain items which are measured at fair value as described in the accounting policies below. (i) Going concern The directors, having reassessed the principal risks and uncertainties, consider it appropriate to adopt the going concern basis of accounting in the preparation of the financial statements. In reaching this conclusion, the directors noted the Group’s strong operating cash flow performance in the year and the substantial funding available to the Group as described in the Financial review. The directors also considered a range of different forecast scenarios for the 18 month period from the date of these financial statements to the end of June 2023 starting with a base case projection derived from the Group’s 2022 Budget excluding any non-committed acquisition spend or changes in funding. The resilience of the Group to a range of severe but plausible downside scenarios was factored into the directors’ considerations through two levels of stress testing against the base case projection. These severe but plausible downside scenarios included the following assumptions: • A 10% reduction in adjusted operating profit from the potential for adverse impacts from the crystallisation of the principal strategic and operational risks to the Group’s organic growth and a 10% increase in working capital • A 20% reduction in adjusted operating profit from a more severe impact from the crystallisation of the principal strategic and operational risks to the Group’s organic growth and a 20% increase in working capital In addition, the Group has carried out reverse stress tests against the base case to determine the level of performance that would result in a breach of financial covenants. In order for a breach of covenants to occur during the 18 month period to the end of June 2023 the Group would need to experience a reduction in EBITDA of over 50% compared to the base case. In the first two stress tests it was found that the Group was resilient and in particular it remained in compliance with the relevant financial covenants. The conditions required to create the reverse stress test scenario were so severe that they were considered to be implausible. The directors are therefore satisfied that the Group’s forecasts, which take into account reasonably possible changes in trading performance, show that there are no material uncertainties over going concern, including no anticipated breach of covenants, and therefore the going concern basis of preparation continues to be appropriate. (ii) Impact of Covid-19 on the financial statements at 31 December 2021 During 2021, the Group has seen a further increase in the level of slow moving inventory with customer demand continuing to be impacted by the pandemic-related restrictions and supply chain disruption resulting in higher levels of inventory. This has resulted in a net charge of approximately £25m in the year to increase slow moving inventory provisions whilst additional provisions were required as a result of market price deflation on certain Covid-19 products. This has been partially offset by a net release of approximately £5m relating to expected credit losses on trade receivables. Further details on the impact of the Covid-19 pandemic on the financial results for the Group for the year ended 31 December 2021 are included elsewhere in this report, notably in the Chief Executive Officer’s review and the Financial review. b. Newly adopted accounting policies There are no new standards or amendments to existing standards that are effective that have had a material impact on the Group, nor does the Group anticipate any new or revised standards and interpretations that are effective from 1 January 2022 and beyond to have a material impact on its consolidated results or financial position. Bunzl plc Annual Report 2021 163 FINANCIAL STATEMENTS 2 Accounting policies The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the consolidated financial statements. a. Basis of consolidatio n ( i) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group is either exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A list of all of the Company’s subsidiary undertakings is included in the Related undertakings note in the Shareholder information section on pages 222 to 230 and is subject to audit. The results of all of the subsidiary undertakings are included in full in these consolidated financial statements. (ii) Business combinations The acquisition method of accounting is used to account for the acquisition of subsidiaries. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date. The consideration paid or payable in respect of acquisitions comprises amounts paid on completion and deferred consideration, excluding payments which are contingent on the continued employment of former owners of businesses acquired. The excess of the consideration over the fair value of the identifiable net assets acquired is recorded as goodwill. Payments that are contingent on future employment and transaction costs and expenses such as professional fees are charged to the income statement. When less than 100% of the issued share capital of a subsidiary is acquired and the acquisition includes an option to purchase the remaining share capital of the subsidiary, the anticipated acquisition method is applied, where judged appropriate to do so based on the risks and rewards associated with the option to purchase, meaning that no non-controlling interest is recognised. A liability is carried on the balance sheet equal to the fair value of the option and this is revised to fair value at each reporting date with differences being recorded in acquisition related items in the income statement. (iii) Disposal of businesses Where a subsidiary undertaking is sold, the profit or loss on disposal is calculated as the difference between the aggregate of the fair value of the consideration received and the carrying amount of the assets and liabilities of the subsidiary on the date of disposal less any transaction costs relating to the disposal. On the disposal of a subsidiary with assets and liabilities denominated in foreign currency, the cumulative translation difference associated with that subsidiary in the translation reserve is credited or debited to the profit or loss on disposal recognised in the income statement. Cash received on disposal of businesses is shown within investing activities in the Consolidated cash flow statement, net of cash and cash equivalents disposed of and transaction costs. (iv) Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the consolidated financial statements. b. Foreign currency Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate prevailing at that date. Foreign exchange differences arising on translation are recognised in the income statement, unless they qualify for cash flow or net investment hedge accounting treatment, in which case the effective portion is recognised directly in other comprehensive income. Assets and liabilities of foreign operations are translated at the exchange rate prevailing at the balance sheet date. Income and expenses of foreign operations are translated at average exchange rates. All resulting exchange differences, including exchange differences arising from the translation of borrowings and other financial instruments designated as hedges of such balances, are recognised directly in other comprehensive income and accumulated in the translation reserve. Differences that have arisen since 1 January 2004, the date of transition to IFRS, are presented in this separate component of equity. c. Revenue The Group is principally engaged in the delivery of goods to customers representing a single performance obligation which is satisfied upon delivery of the relevant goods. Revenue related to the provision of services is recognised when the service is provided, which for the majority of the Group’s service revenue represents a single performance obligation. Revenue is not recognised if there is significant uncertainty regarding recovery of the consideration due. Revenue is valued at invoiced amounts, excluding sales taxes and including estimates for variable consideration where relevant, such as returns and discounts, for which a liability is recognised as required. Returns and early settlement discount liabilities are based on experience over an appropriate period whereas volume discount liabilities are based on agreements with customers and expected volumes. 163Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 164 Bunzl plc Annual Report 2021  2 Accounting policies continued d. Cost of goods sold Cost of goods sold consists of the cost of the inventories sold or disposed of in the period where the cost of inventories is net of supplier rebate income related to those inventories. e. Supplier rebates The Group has various rebate arrangements with a number of suppliers. Some of these arrangements are based on the volume of products purchased and others are based on the volume of products sold. Supplier rebate income is recognised in cost of goods sold concurrent with the sale of the inventories to which it relates and is calculated by reference to the expected consideration receivable from each rebate arrangement. Substantially all supplier rebate income is unconditional and non-judgemental. Supplier rebate income is not recognised if there is significant uncertainty regarding recovery of the amount due. Supplier rebate income accrued but not yet received is included in other receivables. f. Share based payments The Group operates a number of equity settled share based payment compensation plans. Details of these plans are outlined in Note 19 and the Directors’ remuneration report. The total expected expense is based on the fair value of options and other share based incentives on the grant date, calculated using a valuation model, and is spread over the expected vesting period with a corresponding credit to equity. g. Leases The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability plus any initial direct costs incurred and any lease payments made at or before the lease commencement date, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease. If that rate cannot readily be determined, as is the case in the vast majority of the leasing activities of the Group, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset in a similar economic environment with similar terms and conditions. The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index/rate or a change in the Group’s assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the right-of-use asset. Judgements are involved in determining the lease term, particularly because termination options are included in a number of property leases across the Group to facilitate operational flexibility. The majority of termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise a termination option. Periods after the date of a termination option are only included in the lease term if it is reasonably certain that the lease will not be terminated. The assessment of the lease term is reviewed if a significant event or a significant change in circumstances occurs that is within the control of the Group. Payments associated with short term leases and leases of low value assets are recognised on a straight line basis as an expense in profit or loss. Short term leases are leases with a lease term of 12 months or less. Low value assets are assets with a value of less than £5,000 when new, typically small items of IT equipment, office equipment and office furniture. h. Income tax Income tax in the income statement comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or recoverable on the taxable income or loss for the year using tax rates enacted or substantively enacted at the balance sheet date and any adjustments in respect of prior years. Current tax payable is recognised when it is probable that the Group will be required to settle the obligation. The Group’s policy for accounting for current tax payable or receivable where it is uncertain is described in more detail in Note 2y – Sources of estimation uncertainty – Taxation. Deferred tax is provided using the balance sheet liability method providing for temporary differences arising between tax bases and carrying amounts in the consolidated financial statements. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is not recognised for the following temporary differences: goodwill not deductible for tax purposes, the initial recognition of assets and liabilities that affect neither accounting nor taxable profits and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future and where the Company controls the timing of the reversal. A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. Bunzl plc Annual Report 2021164 FINANCIAL STATEMENTS Notes continued 164 Bunzl plc Annual Report 2021 2 Accounting policies continued d. Cost of goods sold Cost of goods sold consists of the cost of the inventories sold or disposed of in the period where the cost of inventories is net of supplier rebate income related to those inventories. e. Supplier rebates The Group has various rebate arrangements with a number of suppliers. Some of these arrangements are based on the volume of products purchased and others are based on the volume of products sold. Supplier rebate income is recognised in cost of goods sold concurrent with the sale of the inventories to which it relates and is calculated by reference to the expected consideration receivable from each rebate arrangement. Substantially all supplier rebate income is unconditional and non-judgemental. Supplier rebate income is not recognised if there is significant uncertainty regarding recovery of the amount due. Supplier rebate income accrued but not yet received is included in other receivables. f. Share based payments The Group operates a number of equity settled share based payment compensation plans. Details of these plans are outlined in Note 19 and the Directors’ remuneration report. The total expected expense is based on the fair value of options and other share based incentives on the grant date, calculated using a valuation model, and is spread over the expected vesting period with a corresponding credit to equity. g. Leases The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, comprising the initial amount of the lease liability plus any initial direct costs incurred and any lease payments made at or before the lease commencement date, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight line method from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease. If that rate cannot readily be determined, as is the case in the vast majority of the leasing activities of the Group, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset in a similar economic environment with similar terms and conditions. The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index/rate or a change in the Group’s assessment of whether it will exercise an extension or termination option. When the lease liability is remeasured, a corresponding adjustment is made to the right-of-use asset. Judgements are involved in determining the lease term, particularly because termination options are included in a number of property leases across the Group to facilitate operational flexibility. The majority of termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise a termination option. Periods after the date of a termination option are only included in the lease term if it is reasonably certain that the lease will not be terminated. The assessment of the lease term is reviewed if a significant event or a significant change in circumstances occurs that is within the control of the Group. Payments associated with short term leases and leases of low value assets are recognised on a straight line basis as an expense in profit or loss. Short term leases are leases with a lease term of 12 months or less. Low value assets are assets with a value of less than £5,000 when new, typically small items of IT equipment, office equipment and office furniture. h. Income tax Income tax in the income statement comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or recoverable on the taxable income or loss for the year using tax rates enacted or substantively enacted at the balance sheet date and any adjustments in respect of prior years. Current tax payable is recognised when it is probable that the Group will be required to settle the obligation. The Group’s policy for accounting for current tax payable or receivable where it is uncertain is described in more detail in Note 2y – Sources of estimation uncertainty – Taxation. Deferred tax is provided using the balance sheet liability method providing for temporary differences arising between tax bases and carrying amounts in the consolidated financial statements. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is not recognised for the following temporary differences: goodwill not deductible for tax purposes, the initial recognition of assets and liabilities that affect neither accounting nor taxable profits and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future and where the Company controls the timing of the reversal. A deferred tax asset is recognised only to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. Bunzl plc Annual Report 2021 165 FINANCIAL STATEMENTS 2 Accounting policies continued i. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and any impairment losses. The carrying values of property, plant and equipment are periodically reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. j. Depreciation Depreciation is charged to the income statement on a straight line basis to write off cost less estimated residual value over the assets’ estimated remaining useful lives. The estimated useful lives are as follows : Buildings 50 years (or depreciated over life of lease if shorter than 50 years) Plant and machinery 3 to 12 years Fixtures, fittings and equipment 3 to 12 years Freehold land Not depreciated Assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. k. Intangible assets (i) Goodwill Acquisitions are accounted for using the acquisition method. As permitted by IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’, the Group chose to apply IFRS 3 ‘Business Combinations’ from 1 January 2004 and elected not to restate previous business combinations. For acquisitions made before 1 January 2004, goodwill represents the amount previously recorded under UK Generall y Accepted Accounting Practice (‘UK GAAP’). For acquisitions that occurred between 1 January 2004 and 31 December 2009, goodwill represents the cost of the business combination in excess of the fair value of the identifiable assets, liabilities and contingent liabilities acquired. For acquisitions that have occurred on or after 1 January 2010, goodwill represents the cost of the business combination (excluding payments contingent on future employment and transaction costs and expenses) in excess of the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is allocated to cash generating units (‘CGUs’) and is tested annually for impairment. Negative goodwill arising on acquisition is recognised immediately in the income statement. (ii) Customer relationships and brands Customer relationships and brands intangible assets acquired in a business combination are recognised on acquisition and recorde d a t fair value. Subsequent to initial recognition, customer relationships and brands intangible assets are stated at cost less accumulate d am ortisation and any impairment losses. Amortisation is charged to the income statement on a straight line basis over the estimated useful economic lives which range from 3 to 19 years. (iii) Software Software is stated at historical cost less accumulated amortisation and any impairment losses. The carrying values of software are periodically reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. Amortisation is charged to the income statement on a straight line basis over the estimated useful economic lives which range from 3 to 10 years. l. Impairment The carrying amounts of the Group’s assets are reviewed annually to determine if there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. The recoverable amounts of assets carried at amortised cost are calculated as the present value of estimated future cash flows, discounted at appropriate pre-tax discount rates. The recoverable amounts of other assets are the greater of their fair value less the costs of disposal and the value in use. In assessing the value in use, the estimated future cash flows are discounted to their present values using appropriate pre-tax discount rates. Impairment losses are recognised when the carrying amount of an asset or CGU exceeds its recoverable amount, with impairment losses being recognised in the income statement. m. Inventories Inventories are valued at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out principle and comprises the purchase price, net of any related supplier volume rebates, plus import duties and other taxes, inbound freight and haulage costs and other related costs incurred to bring the product to its present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and estimated cost necessary to make the sale. Provision is made for obsolete, slow moving or defective items and market price movements where appropriate. 165Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 166 Bunzl plc Annual Report 2021  2 Accounting policies continued n. Trade and other receivables Trade and other receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be received from the satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition these assets are measured at amortised cost less any provision for impairment losses including expected credit losses. In accordance with IFRS 9 ‘Financial Instruments’ the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics such as the ageing of the debt and the credit risk of the customers. An historical credit loss rate is then calculated for each group and adjusted to reflect expectations about future credit losses. Inputs and assumptions used for expected credit loss provisions are based on local operating company historical experience and expectations about future credit losses. The Group does not have any significant contract assets. o. Trade and other payables Trade and other payables are initially measured at fair value including any directly attributable transaction costs. Subsequent to initial recognition these liabilities are measured at amortised cost. The Group has contract liabilities in the form of deferred income which arises from consideration received in advance of the satisfaction of performance obligations. p. Financial instruments Classification and measurement Under IFRS 9, financial instruments are initially measured at fair value with subsequent measurement depending upon the classification of the instrument. IFRS 13 ‘Fair Value Measurement’ defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All non-derivative financial assets and liabilities are subsequently held at amortised cost unless they are in a fair value hedge relationship. Financial assets and liabilities held in a fair value hedge relationship are held at amortised cost with a fair value adjustment with subsequent changes in this fair value adjustment recorded in the income statement. Derivatives and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as either: • a hedge of the fair value of recognised assets or liabilities or a firm commitment (‘fair value hedge’); • a hedge of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (‘cash flow hedge’); or • a hedge of a net investment in a foreign operation (‘net investment hedge’). The Group documents its risk management objectives and strategy for undertaking its hedge transactions. At inception of hedge relationships, the Group documents the economic relationship between the hedging instruments and the hedged items. The fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is 12 months or less. (i) Fair value hedge Where a derivative instrument is designated and qualifies as a hedge of a recognised asset or liability, all changes in the fair value of the derivative are recognised immediately in the income statement within finance expense. The carrying value of the hedged item is adjusted by the change in fair value that is attributable to the risk being hedged with changes recognised in the income statement, also within finance expense. The gain or loss relating to any ineffective portion of the hedging arrangement is recognised immediately in the income statement. If the hedge relationship is de-designated, then from the point of de-designation there is no further fair valuing of the hedged item. Any previous adjustment to the carrying amount of the hedged item is amortised over the remaining maturity of the hedged item. Bunzl plc Annual Report 2021166 FINANCIAL STATEMENTS Notes continued 166 Bunzl plc Annual Report 2021  2 Accounting policies continued n. Trade and other receivables Trade and other receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be received from the satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition these assets are measured at amortised cost less any provision for impairment losses including expected credit losses. In accordance with IFRS 9 ‘Financial Instruments’ the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics such as the ageing of the debt and the credit risk of the customers. An historical credit loss rate is then calculated for each group and adjusted to reflect expectations about future credit losses. Inputs and assumptions used for expected credit loss provisions are based on local operating company historical experience and expectations about future credit losses. The Group does not have any significant contract assets. o. Trade and other payables Trade and other payables are initially measured at fair value including any directly attributable transaction costs. Subsequent to initial recognition these liabilities are measured at amortised cost. The Group has contract liabilities in the form of deferred income which arises from consideration received in advance of the satisfaction of performance obligations. p. Financial instruments Classification and measurement Under IFRS 9, financial instruments are initially measured at fair value with subsequent measurement depending upon the classification of the instrument. IFRS 13 ‘Fair Value Measurement’ defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All non-derivative financial assets and liabilities are subsequently held at amortised cost unless they are in a fair value hedge relationship. Financial assets and liabilities held in a fair value hedge relationship are held at amortised cost with a fair value adjustment with subsequent changes in this fair value adjustment recorded in the income statement. Derivatives and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as either: • a hedge of the fair value of recognised assets or liabilities or a firm commitment (‘fair value hedge’); • a hedge of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (‘cash flow hedge’); or • a hedge of a net investment in a foreign operation (‘net investment hedge’). The Group documents its risk management objectives and strategy for undertaking its hedge transactions. At inception of hedge relationships, the Group documents the economic relationship between the hedging instruments and the hedged items. The fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is 12 months or less. (i) Fair value hedge Where a derivative instrument is designated and qualifies as a hedge of a recognised asset or liability, all changes in the fair value of the derivative are recognised immediately in the income statement within finance expense. The carrying value of the hedged item is adjusted by the change in fair value that is attributable to the risk being hedged with changes recognised in the income statement, also within finance expense. The gain or loss relating to any ineffective portion of the hedging arrangement is recognised immediately in the income statement. If the hedge relationship is de-designated, then from the point of de-designation there is no further fair valuing of the hedged item. Any previous adjustment to the carrying amount of the hedged item is amortised over the remaining maturity of the hedged item. Bunzl plc Annual Report 2021 167  FINANCIAL STATEMENTS 2 Accounting policies continued p. Financial instruments continued (ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedge reserve within equity. The gain or loss relating to any ineffective portion is recognised immediately in the income statement. Where a derivative instrument is designated and qualifies as a hedge of a forecast transaction, only the change in fair value of the forward contract related to the spot component is designated as the hedging instrument. Gains or losses relating to the effective portion of the change in the spot component of the forward contract are initially recognised in the cash flow hedge reserve within equity. The change in the forward element of the contract that relates to the hedged item is recognised in the income statement. Gains or losses accumulated in equity are reclassified to the income statement when the hedged item affects profit or loss or to the non- financial asset when the hedged item results in the recognition of a non-financial asset with the deferred gains or losses ultimately being recognised in the income statement as the non-financial asset affects profit or loss. When a hedging instrument expires, any cumulative deferred gain/loss in equity relating to that instrument remains in equity until the forecast transaction occurs at which point it is reclassified to the income statement. When the forecast transaction is no longer expected to occur, the cumulative deferred gain/loss recorded in equity is immediately reclassified to the income statement. (iii) Net investment hedge Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in foreign operations are recognised directly in equity to the extent the hedge is effective and are accumulated in a separate reserve within equity. To the extent that the hedge is ineffective such differences are recognised in the income statement. (iv) Other derivative instruments Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement. q. Cash and cash equivalents Cash and cash equivalents, as reported in the cash flow statement, comprises cash at bank and in hand and bank overdrafts. Cash at bank and in hand includes cash balances and short term deposits with maturities of three months or less from the date the deposit is made. r. Net debt Net debt is defined as interest bearing loans and borrowings adjusted for the fair value of interest rate swaps on fixed interest rate borrowings and other derivatives managing the interest rate risk and currency profile less cash and cash equivalents. s. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. t. Investment in own shares The cost of shares held either directly (treasury shares) or indirectly (employee benefit trust shares) is deducted from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are subsequently sold or reissued, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is recognised in retained earnings. At each reporting date the Group remeasures the value of the shares held in the employee benefit trust to present them in the own shares reserve at the market value of those shares at the reporting date. This is done through a reclassification from retained earnings to the own shares reserve. This movement has no effect on the actual numbers of shares held by the employee benefit trust. u. Retirement benefits (i) Defined contribution pension schemes A defined contribution pension scheme is a post-employment benefit scheme under which the Company pays fixed contributions into a separate fund and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement in the periods during which services are rendered by employees. 167Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 168 Bunzl plc Annual Report 2021 2 Accounting policies continued u. Retirement benefits continued (ii) Defined benefit pension schemes A defined benefit pension scheme is a post-employment benefit plan other than a defined contribution pension scheme. Defined benefi t p ension schemes are recognised on the balance sheet as a defined benefit pension asset or a defined benefit pension liability based on the difference between the fair value of pension scheme assets and the present value of pension scheme liabilities. The present value of pension scheme liabilities is calculated by a qualified actuary using the projected unit method by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounted using the rate applicable to AA rated corporate bonds that have a similar maturity and currency to the pension scheme liabilities. The fair value of any pension scheme assets (at bid price) is deducted from the present value of pension scheme liabilities to determine the net deficit or surplus of each scheme. Remeasurements arising from defined benefit pension schemes comprise actuarial gains and losses on pension scheme liabilities and the actual return on pension scheme assets excluding amounts already included in net interest. The net actuarial gain or loss for the year is recorded in full in the statement of comprehensive income. Current service cost, past service cost or gain and gains and losses on any settlements and curtailments are credited or charged to the income statement. Past service cost is recognised immediately to the extent benefits are already vested. Net interest on the net defined benefit pension liability or asset is calculated by applying the discount rate used to measure the defined benefit pension scheme deficit or surplus at the beginning of the year to the net defined benefit pension liability or asset at the beginning of the year. Net interest is recorded within finance expense or finance income in the income statement. When the valuation of a defined benefit pension scheme results in a surplus, the recognised defined benefit pension asset is limited to the present value of benefits available in the form of any future refunds from the pension scheme or reductions in future contributions and takes into account the adverse effect of any minimum funding requirements. v. Dividends The interim dividend is recognised in the statement of changes in equity in the period in which it is paid and the final dividend in the period in which it is approved by shareholders at the Annual General Meeting. w. Hyperinflationary economies Where the Group has operations in countries to which hyperinflation accounting applies, the financial statements of the business concerned are accounted for under IAS 29 ‘Financial Reporting in Hyperinflationary Economies’. x. Judgements made in applying the Group’s accounting poli cies In the course of preparing the financial statements, other than judgements involved in determining lease terms under the applicatio n o f IFRS 16 ‘Leases’ and in determining estimates and assumptions (see Note 2y below), no other judgements have been made in the process of applying the Group’s accounting policies that have had a significant effect on the amounts recognised in the financial statement s. I n measuring its right-of-use assets and lease liabilities, management is required to make judgements, particularly in relation to lease termination options. Periods after the date of a termination option are only included in the lease term if it is reasonably certain that the lease will not be terminated. While management determine lease terms across the Group on a case-by-case basis, if different judgements were applied relating to a number of leases, it could have a significant effect on the overall amounts recognised in the financial statements. y. Sources of estimation uncertainty In applying the Group’s accounting policies various transactions and balances are valued using estimates or assumptions. Should these estimates or assumptions prove incorrect, there may be an impact on the following year’s financial statements. As at 31 December 2021, sources of estimation uncertainty where there was a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next financial year was limited to the following item: Defined benefit pension schemes The measurement of the present value of defined benefit pension scheme liabilities involves the use of various actuarial assumptions. The Group uses independent actuarial experts to assist with the estimation of the discount rates, inflation rates and longevity assumptions used for the measurement of defined benefit pension scheme liabilities but the actual liabilities could be materially different. The main risks to which the Group is exposed in relation to the valuation of the defined benefit pension schemes are described in Note 23. The Group’s net pension asset balance as at 31 December 2021 was £31.2m (2020: £44.8m deficit). The following estimates or assumptions were also used in applying the Group’s accounting policies: Accounting for business combinations Part of the Company’s strategy is to grow through acquisitions. Acquisitions are accounted for using the acquisition method as described in the business combinations accounting policy, Note 2a(ii), and the goodwill accounting policy, Note 2k(i). This includes the determination of fair values for assets and liabilities acquired, including the separate identification of intangible assets, which use assumptions and estimates and are therefore subjective. The Group has developed a process to meet the requirements of IFRS 3 including the separate identification of customer relationships and brands intangible assets based on estimated future performance and customer attrition rates. This formal process is applied to each acquisition and involves an assessment of the assets acquired and liabilities assumed with assistance provided by external valuation specialists where appropriate. Until this assessment is complete, the allocation period remains open up to a maximum of 12 months from the relevant acquisition date. The process applied is described in Note 28. Bunzl plc Annual Report 2021168 FINANCIAL STATEMENTS Notes continued 168 Bunzl plc Annual Report 2021  2 Accounting policies continued u. Retirement benefits continued (ii) Defined benefit pension schemes A defined benefit pension scheme is a post-employment benefit plan other than a defined contribution pension scheme. Defined benefit pension schemes are recognised on the balance sheet as a defined benefit pension asset or a defined benefit pension liability based on the difference between the fair value of pension scheme assets and the present value of pension scheme liabilities. The present value of pension scheme liabilities is calculated by a qualified actuary using the projected unit method by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounted using the rate applicable to AA rated corporate bonds that have a similar maturity and currency to the pension scheme liabilities. The fair value of any pension scheme assets (at bid price) is deducted from the present value of pension scheme liabilities to determine the net deficit or surplus of each scheme. Remeasurements arising from defined benefit pension schemes comprise actuarial gains and losses on pension scheme liabilities and the actual return on pension scheme assets excluding amounts already included in net interest. The net actuarial gain or loss for the year is recorded in full in the statement of comprehensive income. Current service cost, past service cost or gain and gains and losses on any settlements and curtailments are credited or charged to the income statement. Past service cost is recognised immediately to the extent benefits are already vested. Net interest on the net defined benefit pension liability or asset is calculated by applying the discount rate used to measure the defined benefit pension scheme deficit or surplus at the beginning of the year to the net defined benefit pension liability or asset at the beginning of the year. Net interest is recorded within finance expense or finance income in the income statement. When the valuation of a defined benefit pension scheme results in a surplus, the recognised defined benefit pension asset is limited to the present value of benefits available in the form of any future refunds from the pension scheme or reductions in future contributions and takes into account the adverse effect of any minimum funding requirements. v. Dividends The interim dividend is recognised in the statement of changes in equity in the period in which it is paid and the final dividend in the period in which it is approved by shareholders at the Annual General Meeting. w. Hyperinflationary economies Where the Group has operations in countries to which hyperinflation accounting applies, the financial statements of the business concerned are accounted for under IAS 29 ‘Financial Reporting in Hyperinflationary Economies’. x. Judgements made in applying the Group’s accounting policies In the course of preparing the financial statements, other than judgements involved in determining lease terms under the application of IFRS 16 ‘Leases’ and in determining estimates and assumptions (see Note 2y below), no other judgements have been made in the process of applying the Group’s accounting policies that have had a significant effect on the amounts recognised in the financial statements. In measuring its right-of-use assets and lease liabilities, management is required to make judgements, particularly in relation to lease termination options. Periods after the date of a termination option are only included in the lease term if it is reasonably certain that the lease will not be terminated. While management determine lease terms across the Group on a case-by-case basis, if different judgements were applied relating to a number of leases, it could have a significant effect on the overall amounts recognised in the financial statements. y. Sources of estimation uncertainty In applying the Group’s accounting policies various transactions and balances are valued using estimates or assumptions. Should these estimates or assumptions prove incorrect, there may be an impact on the following year’s financial statements. As at 31 December 2021, sources of estimation uncertainty where there was a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next financial year was limited to the following item: Defined benefit pension schemes The measurement of the present value of defined benefit pension scheme liabilities involves the use of various actuarial assumptions. The Group uses independent actuarial experts to assist with the estimation of the discount rates, inflation rates and longevity assumptions used for the measurement of defined benefit pension scheme liabilities but the actual liabilities could be materially different. The main risks to which the Group is exposed in relation to the valuation of the defined benefit pension schemes are described in Note 23. The Group’s net pension asset balance as at 31 December 2021 was £31.2m (2020: £44.8m deficit). The following estimates or assumptions were also used in applying the Group’s accounting policies: Accounting for business combinations Part of the Company’s strategy is to grow through acquisitions. Acquisitions are accounted for using the acquisition method as described in the business combinations accounting policy, Note 2a(ii), and the goodwill accounting policy, Note 2k(i). This includes the determination of fair values for assets and liabilities acquired, including the separate identification of intangible assets, which use assumptions and estimates and are therefore subjective. The Group has developed a process to meet the requirements of IFRS 3 including the separate identification of customer relationships and brands intangible assets based on estimated future performance and customer attrition rates. This formal process is applied to each acquisition and involves an assessment of the assets acquired and liabilities assumed with assistance provided by external valuation specialists where appropriate. Until this assessment is complete, the allocation period remains open up to a maximum of 12 months from the relevant acquisition date. The process applied is described in Note 28. Bunzl plc Annual Report 2021 169  FINANCIAL STATEMENTS 2 Accounting policies continued y. Sources of estimation uncertainty continued Recoverability of goodwill, customer relationships and brands intangible assets As noted above, part of the Company’s strategy is to grow through acquisitions which has led to material goodwill, customer relationships and brands intangible assets being recognised on the balance sheet. Goodwill, which is allocated across CGUs, is tested annually to determine if there is any indication of impairment by comparing the carrying amount of the goodwill to the recoverable amount of the CGU to which it has been allocated. Assumptions and estimates are used to determine the recoverable amount of each CGU, principally based on the present value of estimated future cash flows. Actual performance may differ from management’s expectations. The estimates and assumptions used in performing impairment testing are described in Note 11. Customer relationships and brands intangible assets are also reviewed annually for indicators of impairment and if an indicator of impairment exists then similar recoverability testing, involving the use of estimates and assumptions, is performed for the business to which the customer relationships and brands intangible assets relate. The useful economic lives of customer relationships and brands intangible assets are also reviewed at least annually, with any revisions to the original estimated useful economic lives accounted for prospectively. As at 31 December 2021 the goodwill balance was £1,698.5m (2020: £1,494.6m), the amount of customer relationships intangible assets was £1,022.0m (2020: £912.7m) and the amount of brands intangible assets was £24.0m (2020: £12.5m). Trade receivables and inventory provisions Due to the uncertainty created by the Covid-19 pandemic, trade receivables and inventory provisions are considered to be a source of estimation uncertainty. In 2020, the Group saw a number of customers either entering insolvency processes or illustrating specific credit stress indicators that impacted the recoverability of receivables and customer specific inventory in the foodservice and retail sectors. In 2020, the Group also saw an increase in the level of slow moving inventory as the Covid-19 pandemic and the associated government imposed control measures have continued to impact customer demand across a range of market sectors. During 2021, the Group has seen a further increase in the level of slow moving inventory with customer demand continuing to be impacted by the pandemic-related restrictions and supply chain disruption resulting in higher levels of inventory. This has resulted in a net charge of approximately £25m in the year to increase slow moving inventory provisions whilst additional provisions were required as a result of market price deflation on certain Covid-19 products. This has been partially offset by a net release of approximately £5m related to expected credit losses on trade receivables. As at 31 December 2021, the Group carried trade receivables provisions of £27.4m (2020: £35.2m) and provisions for slow moving, obsolete or defective inventories of £179.9m (2020: £132.5m). Taxation The Group operates in many countries and is therefore subject to tax laws in a number of different tax jurisdictions. The amount of tax payable or receivable on profits or losses for any period is subject to the agreement of the tax authority in each respective jurisdiction and the tax liability or asset position is open to review for several years after the relevant accounting period ends. In determining the provisions for income taxes, management is required to make assumptions based on interpretations of tax statute and case law, which it does after taking account of professional advice and prior experience. The majority of the Group’s tax payable balance of £43.6m (2020: £77.7m) relates to provisions for uncertain tax matters. Uncertainties in respect of enquiries and additional tax assessments raised by tax authorities are measured by management according to the guidance provided by IFRIC 23 ‘Uncertainty over Income Tax Treatments’ but the amounts ultimately payable or receivable may differ from the amounts of any provisions recognised in the consolidated financial statements as a result of the estimates and assumptions used. Management does not consider there to be any significant risks of material adjustment within the next financial year because tax provisions cover a range of matters across multiple tax jurisdictions with a variety of timescales before such matters are expected to be concluded. 169Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 170 Bunzl plc Annual Report 2021  3 Alternative performance measures In addition to the various performance measures defined under IFRS, the Group reports a number of other measures that are designed to assist with the understanding of the underlying performance of the Group and its businesses. These measures are not defined under IFRS and, as a result, do not comply with Generally Accepted Accounting Practice (‘GAAP’) and are therefore known as ‘alternative performance measures’. Accordingly, these measures, which are not designed to be a substitute for any of the IFRS measures of performance, may not be directly comparable with other companies’ alternative performance measures. The principal alternative performance measures used within the consolidated financial statements and the location of the reconciliation to equivalent IFRS measures are shown and defined in the table below: Underlying revenue growth Revenue excluding the incremental impact of acquisitions and disposals compared to revenue in prior years at constant exchange and adjusted for differences in trading days between years (reconciled in the Financial review) Adjusted operating profit Operating profit before customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges and profit or loss on disposal of businesses (reconciled in the following tables and in the Consolidated income statement) Operating margin Adjusted operating profit as a percentage of revenue Adjusted profit before income tax Profit before income tax, customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges and profit or loss on disposal of businesses (reconciled in the following tables) Adjusted profit for the year Profit for the year before customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges, profit or loss on disposal of businesses and the associated tax (reconciled in the following tables) Effective tax rate Tax on adjusted profit before income tax as a percentage of adjusted profit before income tax (reconciled in Note 7) Adjusted earnings per share Adjusted profit for the year divided by the weighted average number of ordinary shares in issue (reconciled in the following tables and in Note 8) Adjusted diluted earnings per share Adjusted profit for the year divided by the diluted weighted average number of ordinary shares (reconciled in Note 8) Operating cash flow Cash generated from operations before acquisition related items after deducting purchases of property, plant and equipment and software and adding back the proceeds from the sale of property, plant and equipment and software and deducting the payment of lease liabilities (as shown in the Consolidated cash flow statement) Free cash flow Operating cash flow after deducting payments for tax and net interest excluding interest on lease liabilities (as shown in the Consolidated cash flow statement) Lease adjusted operating profit Adjusted operating profit after adding back the depreciation of right-of-use assets and deducting the payment of lease liabilities (as shown in the Consolidated cash flow statement) Cash conversion Operating cash flow as a percentage of lease adjusted operating profit (as shown in the Consolidated cash flow statement) Working capital Inventories and trade and other receivables less trade and other payables, excluding non-operating related receivables, non- operating related payables (including those relating to acquisition payments) and dividends payable (reconciled in Note 12) Return on average operating capital The ratio of adjusted operating profit to the average of the month end operating capital employed (being property, plant and equipment, right-of-use assets, software, inventories and trade and other receivables less trade and other payables) Return on invested capital The ratio of adjusted operating profit to the average of the month end invested capital (being equity after adding back net debt, lease liabilities, net defined benefit pension scheme liabilities, cumulative customer relationships and brands amortisation, acquisition related items and amounts written off goodwill, net of the associated tax) EBITDA Adjusted operating profit on a historical GAAP basis, before depreciation of property, plant and equipment and software amortisation and after adjustments as permitted by the Group’s debt covenants, principally to exclude share option charges and to annualise for the effect of acquisitions and disposal of businesses Net debt excluding lease liabilities Net debt excluding the carrying value of lease liabilities (reconciled in Note 26) Constant exchange rates Growth rates at constant exchange rates are calculated by retranslating the results for prior years at the average rates for the year ended 31 December 2021 so that they can be compared without the distorting impact of changes caused by foreign exchange translation. The principal exchange rates used for 2021 and 2020 can be found in the Financial review on page 75 These alternative performance measures exclude the charge for customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges, profit or loss on disposal of businesses and any associated tax, where relevant. Bunzl plc Annual Report 2021170 FINANCIAL STATEMENTS Notes continued 170 Bunzl plc Annual Report 2021  3 Alternative performance measures In addition to the various performance measures defined under IFRS, the Group reports a number of other measures that are designed to assist with the understanding of the underlying performance of the Group and its businesses. These measures are not defined under IFRS and, as a result, do not comply with Generally Accepted Accounting Practice (‘GAAP’) and are therefore known as ‘alternative performance measures’. Accordingly, these measures, which are not designed to be a substitute for any of the IFRS measures of performance, may not be directly comparable with other companies’ alternative performance measures. The principal alternative performance measures used within the consolidated financial statements and the location of the reconciliation to equivalent IFRS measures are shown and defined in the table below: Underlying revenue growth Revenue excluding the incremental impact of acquisitions and disposals compared to revenue in prior years at constant exchange and adjusted for differences in trading days between years (reconciled in the Financial review) Adjusted operating profit Operating profit before customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges and profit or loss on disposal of businesses (reconciled in the following tables and in the Consolidated income statement) Operating margin Adjusted operating profit as a percentage of revenue Adjusted profit before income tax Profit before income tax, customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges and profit or loss on disposal of businesses (reconciled in the following tables) Adjusted profit for the year Profit for the year before customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges, profit or loss on disposal of businesses and the associated tax (reconciled in the following tables) Effective tax rate Tax on adjusted profit before income tax as a percentage of adjusted profit before income tax (reconciled in Note 7) Adjusted earnings per share Adjusted profit for the year divided by the weighted average number of ordinary shares in issue (reconciled in the following tables and in Note 8) Adjusted diluted earnings per share Adjusted profit for the year divided by the diluted weighted average number of ordinary shares (reconciled in Note 8) Operating cash flow Cash generated from operations before acquisition related items after deducting purchases of property, plant and equipment and software and adding back the proceeds from the sale of property, plant and equipment and software and deducting the payment of lease liabilities (as shown in the Consolidated cash flow statement) Free cash flow Operating cash flow after deducting payments for tax and net interest excluding interest on lease liabilities (as shown in the Consolidated cash flow statement) Lease adjusted operating profit Adjusted operating profit after adding back the depreciation of right-of-use assets and deducting the payment of lease liabilities (as shown in the Consolidated cash flow statement) Cash conversion Operating cash flow as a percentage of lease adjusted operating profit (as shown in the Consolidated cash flow statement) Working capital Inventories and trade and other receivables less trade and other payables, excluding non-operating related receivables, non- operating related payables (including those relating to acquisition payments) and dividends payable (reconciled in Note 12) Return on average operating capital The ratio of adjusted operating profit to the average of the month end operating capital employed (being property, plant and equipment, right-of-use assets, software, inventories and trade and other receivables less trade and other payables) Return on invested capital The ratio of adjusted operating profit to the average of the month end invested capital (being equity after adding back net debt, lease liabilities, net defined benefit pension scheme liabilities, cumulative customer relationships and brands amortisation, acquisition related items and amounts written off goodwill, net of the associated tax) EBITDA Adjusted operating profit on a historical GAAP basis, before depreciation of property, plant and equipment and software amortisation and after adjustments as permitted by the Group’s debt covenants, principally to exclude share option charges and to annualise for the effect of acquisitions and disposal of businesses Net debt excluding lease liabilities Net debt excluding the carrying value of lease liabilities (reconciled in Note 26) Constant exchange rates Growth rates at constant exchange rates are calculated by retranslating the results for prior years at the average rates for the year ended 31 December 2021 so that they can be compared without the distorting impact of changes caused by foreign exchange translation. The principal exchange rates used for 2021 and 2020 can be found in the Financial review on page 75 These alternative performance measures exclude the charge for customer relationships and brands amortisation, acquisition related items, non-recurring pension scheme charges, profit or loss on disposal of businesses and any associated tax, where relevant. Bunzl plc Annual Report 2021 171  FINANCIAL STATEMENTS 3 Alternative performance measures continued Acquisition related items comprise deferred consideration payments relating to the retention of former owners of businesses acquired, transaction costs and expenses, adjustments to previously estimated earn outs, customer relationships asset impairment charges, goodwill impairment charges and interest on acquisition related income tax. Customer relationships and brands amortisation, acquisition related items and any associated tax are considered by management to form part of the total spend on acquisitions or are non-cash items resulting from acquisitions. The non-recurring pension scheme charges relate to non-recurring charges arising from the Group’s participation in a number of defined benefit pension schemes. In the year ended 31 December 2021 there have been no non-recurring pension scheme charges. In the year ended 31 December 2020, these non-recurring pension scheme charges comprised the costs relating to the Group’s decision to withdraw from three multi-employer pension plans in North America and a charge relating to the equalisation of guaranteed minimum pensions between male and female members on historical transfer values out of the Group’s UK defined benefit pension scheme following the outcome of the High Court judgment in November 2020 in the case of Lloyds Banking Group Pension Trustees Limited vs Lloyds Bank plc. None of these items relate to the underlying operating performance of the business and, as a result, they distort comparability between businesses and reporting periods. Accordingly, these items are not taken into account by management when assessing the results of the business and are removed in calculating the profitability measures by which management assesses the performance of the Group. However it should be noted that they do exclude charges that nevertheless do impact the Group’s cash flow and GAAP financial performance. Other alternative performance measures, including the Group’s key performance indicators which are set out and defined on pages 36 and 37, are used to monitor the performance of the Group and a number of these are based on, or derived from, the alternative performance measures noted above. All alternative performance measures have been calculated consistently with the methods applied in the consolidated financial statements for the year ended 31 December 2020. The Group’s alternative performance measures remain consistent with the prior year with the exception of two new alternative performance measures, being underlying revenue growth and working capital. The addition of these alternative performance measures, alongside an assessment of the relevance of the existing alternative performance measures, were agreed with the Audit Committee. Reconciliation of alternative performance measures to IFRS measures The principal profit related alternative performance measures, being adjusted operating profit, adjusted profit before income tax, adjusted profit for the year and adjusted earnings per share, are reconciled to the most directly reconcilable statutory measures in the tables below. Year ended 31 December 2021 Adjusting items Alternative performance measures £m Custome r relationships and brands amortisation £m Acquisition related items £m Non-recurring pension scheme charges £m Statutory measures £m Adjusted operating profit 752.8 (106.5) (23.0) – 623.3 Operating profit Finance income 10.7 10.7 Finance income Finance expense (65.3) (65.3) Finance expense Adjusted profit before income tax 698.2 (106.5) (23.0) – 568.7 Profit before income tax Tax on adjusted profit (155.7) 27.3 2.5 – (125.9) Income tax Adjusted profit for the year 542.5 (79.2) (20.5) – 442.8 Profit for the year Adjusted earnings per share 162.5p (23.7)p (6.1)p – 132.7p Basic earnings per share Year ended 31 December 2020 Adjusting items Alternative performance measures £m Custome r relationships and brands amortisation £m Acquisition related items £m Non-recurring pension scheme charges £m Statutory measures £m Adjusted operating profit 778.4 (100.4) (42.7) (16.8) 618.5 Operating profit Finance income 10.4 10.4 Finance income Finance expense (73.2) (73.2) Finance expense Adjusted profit before income tax 715.6 (100.4) (42.7) (16.8) 555.7 Profit before income tax Tax on adjusted profit (165.1) 24.5 10.7 4.2 (125.7) Income tax Adjusted profit for the year 550.5 (75.9) (32.0) (12.6) 430.0 Profit for the year Adjusted earnings per share 164.9p (22.7)p (9.6)p (3.8)p 128.8p Basic earnings per share 171Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 172 Bunzl plc Annual Report 2021  4 Segment analysis The Group results are reported as four business areas based on geographical regions which are reviewed regularly by the Company’s chief operating decision maker, the Board of directors. The principal results reviewed for each business area are revenue and adjusted operating profit. Year ended 31 December 2021 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Corporate £m Total £m Revenue 6,144.7 1,972.9 1,254.2 913.3 10,285.1 Adjusted operating profit/(loss) 401.3 191.8 67.0 116.5 (23.8) 752.8 Customer relationships and brands amortisation (44.5) (36.4) (9.1) (16.5) (106.5) Acquisition related items (7.6) (8.2) (3.1) (4.1) (23.0) Non-recurring pensions scheme charges – – – Operating profit/(loss) 349.2 147.2 54.8 95.9 (23.8) 623.3 Finance income 10.7 Finance expense (65.3) Profit before income tax 568.7 Adjusted profit before income tax 698.2 Income tax (125.9) Profit for the year 442.8 Operating margin 6.5% 9.7% 5.3% 12.8% 7.3% Return on average operating capital 42.9% 47.3% 38.4% 48.9% 43.3% Purchase of property, plant and equipment 7.7 8.1 4.3 4.6 0.1 24.8 Depreciation of property, plant and equipment 9.7 8.8 5.2 4.2 0.1 28.0 Additions to right-of-use assets 55.2 32.0 8.8 16.6 – 112.6 Depreciation of right-of-use assets 65.1 31.8 22.3 15.1 0.5 134.8 Purchase of software 2.8 2.9 1.6 0.6 – 7.9 Software amortisation 3.5 2.4 1.0 1.3 0.2 8.4 Year ended 31 December 2020 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Corporate £m Total £m Revenue 5,843.8 2,127.3 1,287.7 852.3 10,111.1 Adjusted operating profit/(loss) 395.7 238.1 68.6 104.2 (28.2) 778.4 Customer relationships and brands amortisation (39.8) (35.6) (8.8) (16.2) (100.4) Acquisition related items (8.4) (8.1) (7.2) (19.0) (42.7) Non-recurring pensions scheme charges (16.4) (0.4) (16.8) Operating profit/(loss) 331.1 194.4 52.6 69.0 (28.6) 618.5 Finance income 10.4 Finance expense (73.2) Profit before income tax 555.7 Adjusted profit before income tax 715.6 Income tax (125.7) Profit for the year 430.0 Operating margin 6.8% 11.2% 5.3% 12.2% 7.7% Return on average operating capital 41.3% 59.6% 41.4% 50.9% 45.4% Purchase of property, plant and equipment 6.3 7.1 6.1 4.6 0.3 24.4 Depreciation of property, plant and equipment 9.7 8.7 4.8 3.3 0.1 26.6 Additions to right-of-use assets 31.1 20.7 34.4 13.9 – 100.1 Depreciation of right-of-use assets 66.3 31.0 21.3 15.7 0.5 134.8 Purchase of software 3.7 2.1 1.7 1.0 0.2 8.7 Software amortisation 3.2 4.8 0.8 1.3 0.2 10.3 Bunzl plc Annual Report 2021172 FINANCIAL STATEMENTS Notes continued 172 Bunzl plc Annual Report 2021  4 Segment analysis The Group results are reported as four business areas based on geographical regions which are reviewed regularly by the Company’s chief operating decision maker, the Board of directors. The principal results reviewed for each business area are revenue and adjusted operating profit. Year ended 31 December 2021 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Corporate £m Total £m Revenue 6,144.7 1,972.9 1,254.2 913.3 10,285.1 Adjusted operating profit/(loss) 401.3 191.8 67.0 116.5 (23.8) 752.8 Customer relationships and brands amortisation (44.5) (36.4) (9.1) (16.5) (106.5) Acquisition related items (7.6) (8.2) (3.1) (4.1) (23.0) Non-recurring pensions scheme charges – – – Operating profit/(loss) 349.2 147.2 54.8 95.9 (23.8) 623.3 Finance income 10.7 Finance expense (65.3) Profit before income tax 568.7 Adjusted profit before income tax 698.2 Income tax (125.9) Profit for the year 442.8 Operating margin 6.5% 9.7% 5.3% 12.8% 7.3% Return on average operating capital 42.9% 47.3% 38.4% 48.9% 43.3% Purchase of property, plant and equipment 7.7 8.1 4.3 4.6 0.1 24.8 Depreciation of property, plant and equipment 9.7 8.8 5.2 4.2 0.1 28.0 Additions to right-of-use assets 55.2 32.0 8.8 16.6 – 112.6 Depreciation of right-of-use assets 65.1 31.8 22.3 15.1 0.5 134.8 Purchase of software 2.8 2.9 1.6 0.6 – 7.9 Software amortisation 3.5 2.4 1.0 1.3 0.2 8.4 Year ended 31 December 2020 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Corporate £m Total £m Revenue 5,843.8 2,127.3 1,287.7 852.3 10,111.1 Adjusted operating profit/(loss) 395.7 238.1 68.6 104.2 (28.2) 778.4 Customer relationships and brands amortisation (39.8) (35.6) (8.8) (16.2) (100.4) Acquisition related items (8.4) (8.1) (7.2) (19.0) (42.7) Non-recurring pensions scheme charges (16.4) (0.4) (16.8) Operating profit/(loss) 331.1 194.4 52.6 69.0 (28.6) 618.5 Finance income 10.4 Finance expense (73.2) Profit before income tax 555.7 Adjusted profit before income tax 715.6 Income tax (125.7) Profit for the year 430.0 Operating margin 6.8% 11.2% 5.3% 12.2% 7.7% Return on average operating capital 41.3% 59.6% 41.4% 50.9% 45.4% Purchase of property, plant and equipment 6.3 7.1 6.1 4.6 0.3 24.4 Depreciation of property, plant and equipment 9.7 8.7 4.8 3.3 0.1 26.6 Additions to right-of-use assets 31.1 20.7 34.4 13.9 – 100.1 Depreciation of right-of-use assets 66.3 31.0 21.3 15.7 0.5 134.8 Purchase of software 3.7 2.1 1.7 1.0 0.2 8.7 Software amortisation 3.2 4.8 0.8 1.3 0.2 10.3 Bunzl plc Annual Report 2021 173  FINANCIAL STATEMENTS 4 Segment analysis continued Acquisition related items 2021 £m 2020 £m Deferred consideration payments relating to the retention of former owners of businesses acquired 15.0 13.2 Transaction costs and expenses 8.3 7.3 Adjustments to previously estimated earn outs (0.3) 1.0 23.0 21.5 Goodwill impairment charges (Note 11) – 12.1 Customer relationships impairment charges (Note 11) – 9.1 23.0 42.7 Reportable segments are determined based on quantitative thresholds in accordance with IFRS 8 ‘Operating Segments’. The three business areas of North America, Continental Europe and UK & Ireland are operating segments that meet the quantitative thresholds for reportable segments and are therefore disclosed separately above. The Rest of the World business area contains businesses in Latin America and Asia Pacific which individually do not meet the quantitative thresholds for separate disclosure as reportable segments. Rest of the World is therefore an ‘other’ segment that is disclosed above as a reportable segment as this information is considered to be useful to users of the financial statements and it also helps to reconcile the results of the reportable segments to the Group’s consolidated results. The revenue presented relates to external customers. Sales between the business areas are not material. Each of the business areas supplies a range of products to customers operating primarily in the grocery, foodservice, safety, cleaning & hygiene, retail and healthcare market sectors but results are not monitored on this basis. The performance of the four business areas is assessed by reference to adjusted operating profit and this measure also represents the segment results for the purposes of reporting in accordance with IFRS 8. Debt and associated interest is managed at a Group level and therefore has not been allocated across the business areas. In the year ended 31 December 2021 the Group had no customer that represented 10% or more of total Group revenue (2020: no customers). As noted above, the businesses within each operating segment operate in a number of different countries and sell products across a range of market sectors, with the vast majority of revenue generated from the delivery of goods to customers. The following table provides a breakdown of revenue by market sector. The other category covers a wide range of market sectors, none of which is sufficiently material to warrant separate disclosure. Revenue by market sector 2021 £m 2020 £m Foodservice 2,879.8 2,500.2 Grocery 2,623.5 2,590.3 Safety 1,564.9 1,426.1 Cleaning & Hygiene 1,048.3 1,320.3 Retail 1,011.2 1,021.1 Healthcare 809.9 1,008.7 Other 347.5 244.4 10,285.1 10,111.1 Revenue attributable to the UK, the parent company’s country of domicile, for the year ended 31 December 2021 was £1,165.9m, representing 11% of the Group’s total (2020: £1,192.6m, representing 12% of the Group’s total). Revenue attributable to foreign countries in total was £9,119.2m, representing 89% of the Group’s total (2020: £8,918.5m, representing 88% of the Group’s total). Six foreign countries account for the majority of the revenue attributable to foreign countries, these being USA, Canada, France, the Netherlands, Australia and Brazil. These six foreign countries account for 75% of the Group’s revenue (2020: 75%). Non-current assets attributable to the UK, the parent company’s country of domicile, for the year ended 31 December 2021 were £569.8m, representing 17% of the Group’s total (2020: £441.2m, representing 15% of the Group’s total). Non-current assets attributable to foreign countries in total were £2,839.5m, representing 83% of the Group’s total (2020: £2,596.7m, representing 85% of the Group’s total). Six foreign countries account for the majority of the non-current assets attributable to foreign countries, these being USA, Canada, France, the Netherlands, Australia and Brazil. These six foreign countries account for 66% of the Group’s total non-current assets (2020: 66%). 173Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 174 Bunzl plc Annual Report 2021  4 Segment analysis continued The table below reconciles segment assets and liabilities to the Group’s total assets and total liabilities. Unallocated assets and liabilities include corporate assets and liabilities, tax assets and liabilities, cash at bank and in hand, bank overdrafts, interest bearing loans and borrowings, derivative financial assets and liabilities and defined benefit pension assets and liabilities. At 31 December 2021 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Unallocated £m Total £m Segment assets 2,952.4 1,614.9 968.3 692.3 6,227.9 Unallocated assets 886.2 886.2 Total assets 2,952.4 1,614.9 968.3 692.3 886.2 7,114.1 Segment liabilities 1,138.0 607.9 508.9 220.8 2,475.6 Unallocated liabilities 2,434.6 2,434.6 Total liabilities 1,138.0 607.9 508.9 220.8 2,434.6 4,910.2 At 31 December 2020 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Unallocated £m Total £m Segment assets 2,597.2 1,669.9 930.1 640.3 5,837.5 Unallocated assets 991.9 991.9 Total assets 2,597.2 1,669.9 930.1 640.3 991.9 6,829.4 Segment liabilities 1,063.1 599.7 524.8 206.3 2,393.9 Unallocated liabilities 2,516.4 2,516.4 Total liabilities 1,063.1 599.7 524.8 206.3 2,516.4 4,910.3 5 Analysis of operating income and expenses 2021 £m 2020 £m Cost of goods sold 7,762.5 7,526.3 Employee costs (Note 24) 934.8 935.1 Depreciation of property, plant and equipment (Note 9) 28.0 26.6 Depreciation of right-of-use assets (Note 10) 134.8 134.8 Amortisation of intangible assets (Note 11) 114.9 110.7 Acquisition related items (Note 4) 23.0 42.7 Non-recurring pension scheme charges (Note 23) – 16.8 Net impairment (reversals)/losses on trade receivables (Note 14) (4.7) 15.9 (Profit)/loss on disposal of property, plant and equipment (0.9) 0.8 Expense relating to short term leases and low value assets 6.2 8.0 Lease and sublease income (2.3) (2.1) Other operating expenses 665.5 677.0 Net operating expenses 9,661.8 9,492.6 Cost of goods sold consists of the cost of the inventories sold or disposed of in the period where the cost of inventories is net of supplier rebate income related to those inventories. Bunzl plc Annual Report 2021174 FINANCIAL STATEMENTS Notes continued 174 Bunzl plc Annual Report 2021  4 Segment analysis continued The table below reconciles segment assets and liabilities to the Group’s total assets and total liabilities. Unallocated assets and liabilities include corporate assets and liabilities, tax assets and liabilities, cash at bank and in hand, bank overdrafts, interest bearing loans and borrowings, derivative financial assets and liabilities and defined benefit pension assets and liabilities. At 31 December 2021 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Unallocated £m Total £m Segment assets 2,952.4 1,614.9 968.3 692.3 6,227.9 Unallocated assets 886.2 886.2 Total assets 2,952.4 1,614.9 968.3 692.3 886.2 7,114.1 Segment liabilities 1,138.0 607.9 508.9 220.8 2,475.6 Unallocated liabilities 2,434.6 2,434.6 Total liabilities 1,138.0 607.9 508.9 220.8 2,434.6 4,910.2 At 31 December 2020 North America £m Continental Europe £m UK & Ireland £m Rest of the World £m Unallocated £m Total £m Segment assets 2,597.2 1,669.9 930.1 640.3 5,837.5 Unallocated assets 991.9 991.9 Total assets 2,597.2 1,669.9 930.1 640.3 991.9 6,829.4 Segment liabilities 1,063.1 599.7 524.8 206.3 2,393.9 Unallocated liabilities 2,516.4 2,516.4 Total liabilities 1,063.1 599.7 524.8 206.3 2,516.4 4,910.3 5 Analysis of operating income and expenses 2021 £m 2020 £m Cost of goods sold 7,762.5 7,526.3 Employee costs (Note 24) 934.8 935.1 Depreciation of property, plant and equipment (Note 9) 28.0 26.6 Depreciation of right-of-use assets (Note 10) 134.8 134.8 Amortisation of intangible assets (Note 11) 114.9 110.7 Acquisition related items (Note 4) 23.0 42.7 Non-recurring pension scheme charges (Note 23) – 16.8 Net impairment (reversals)/losses on trade receivables (Note 14) (4.7) 15.9 (Profit)/loss on disposal of property, plant and equipment (0.9) 0.8 Expense relating to short term leases and low value assets 6.2 8.0 Lease and sublease income (2.3) (2.1) Other operating expenses 665.5 677.0 Net operating expenses 9,661.8 9,492.6 Cost of goods sold consists of the cost of the inventories sold or disposed of in the period where the cost of inventories is net of supplier rebate income related to those inventories. Bunzl plc Annual Report 2021 175  FINANCIAL STATEMENTS 5 Analysis of operating income and expenses continued 2021 2020 Auditors’ remuneration UK £m Overseas £m Total £m UK £m Overseas £m Total £m Audit of these financial statements 0.8 – 0.8 0.5 – 0.5 Amounts receivable by the Company’s auditors in respect of: audit of financial statements of subsidiaries of the Company 0.5 2.9 3.4 0.4 3.0 3.4 audit related assurance services 0.1 – 0.1 0.1 – 0.1 all other services 0.2 – 0.2 0.1 – 0.1 Total auditors’ remuneration 1.6 2.9 4.5 1.1 3.0 4.1 * Including their associates. Audit related assurance services comprise the review of the half yearly financial report for the six months ended 30 June. All other services comprise other non-audit work which was permissible in accordance with the Company’s policy and the prevailing regulations concerning the provision of non-audit services by the Company’s external auditors. It is the Company’s policy to assess the non-audit services to be performed by the Company’s auditors on a case-by-case basis to ensure adherence to the prevailing ethical standards and regulations. Other firms are normally used by the Company to provide non-audit services. However, if the provision of a service by the Company’s auditors is permitted and adequate safeguards are in place, it is sometimes appropriate for this additional work to be carried out by the Company’s auditors. In addition to the amounts shown in the table above, an additional £0.3m was incurred in 2021 in relation to the finalisation of the 2020 audit. The Audit Committee, which consists entirely of independent non-executive directors, reviews and approves the level and type of non-audit work which the external auditors perform, including the fees paid for such work, to ensure that the auditors’ objectivity and independence are not compromised. Further information is set out in the Audit Committee’s report on pages 98 to 109. 6 Finance income/(expense) 2021 £m 202 0 £m Interest on cash and cash equivalents 3.5 2.6 Interest income from foreign exchange contracts 5.0 5.3 Net interest income on defined benefit pension schemes in surplus 0.1 0.3 Interest related to income tax 0.7 0.1 Other finance income 1.4 2.1 Finance income 10.7 10.4 Interest on loans and overdrafts (40.7 ) (44.2) Lease interest expense (20.3 ) (22.5) Interest expense from foreign exchange contracts (1.5 ) (2.4) Net interest expense on defined benefit pension schemes in deficit (0.8 ) (1.0) Fair value gain/(loss) on US private placement notes and senior bond in a hedge relationship 33.3 (15.2) Fair value (loss)/gain on interest rate swaps in a hedge relationship (33.1 ) 15.4 Foreign exchange (loss)/gain on intercompany funding (25.3 ) 3.5 Foreign exchange gain/(loss) on external debt and foreign exchange forward contracts 25.2 (4.0) Interest related to income tax (0.5 ) (1.1) Other finance expense (1.6 ) (1.7) Finance expense (65.3 ) (73.2) Net finance expense (54.6 ) (62.8) The foreign exchange loss on intercompany funding arises as a result of the retranslation of foreign currency intercompany loans. This loss on intercompany funding is substantially matched by the foreign exchange gain on external debt and foreign exchange forward contracts not in a hedge relationship which minimises the foreign currency exposure in the income statement. 175Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 176 Bunzl plc Annual Report 2021  7 Income tax 2021 £m 202 0 £m Current tax on profit current year 152.9 161.1 adjustments in respect of prior years (14.1) (12.5) 138.8 148.6 Deferred tax on profit current year (10.6) (19.7) adjustments in respect of prior years (2.3) (3.2) (12.9) (22.9) Income tax on profit 125.9 125.7 In assessing the underlying performance of the Group, management uses adjusted profit before income tax. The tax effect of the adjusting items (see Note 3) is excluded in monitoring the effective tax rate (being the tax rate on adjusted profit before income tax) which is shown in the table below. 2021 £m 2020 £m Income tax on profit 125.9 125.7 Tax associated with adjusting items 29.8 39.4 Tax on adjusted profit 155.7 165.1 Profit before income tax 568.7 555.7 Adjusting items 129.5 159.9 Adjusted profit before income tax 698.2 715.6 Reported tax rate 22.1% 22.6% Effective tax rate 22.3% 23.1% 2021 2020 Tax on other comprehensive income/(expense) and equity Gross £m Tax (charge)/ credit £m Net £m Gross £m Tax (charge)/ credit £m Net £m Actuarial gain/(loss) on defined benefit pension schemes 74.1 (18.5) 55.6 (16.2) 3.0 (13.2) Foreign currency translation differences on foreign operations (89.8) – (89.8) (63.5) 0.3 (63.2) Gain/(loss) taken to equity as a result of effective net investment hedges 11.5 – 11.5 (15.9) – (15.9) Gain/(loss) recognised in cash flow hedge reserve 4.4 (0.8) 3.6 (8.5) 1.6 (6.9) Other comprehensive expense 0.2 (19.3) (19.1) (104.1) 4.9 (99.2) Dividends (180.4) – (180.4) (171.5) – (171.5) Movement from cash flow hedge reserve to inventory 1.4 (0.3) 1.1 6.1 (1.1) 5.0 Issue of share capital 6.6 – 6.6 3.7 – 3.7 Employee trust shares 15.5 – 15.5 (9.4) – (9.4) Share based payments 12.7 5.6 18.3 14.9 1.3 16.2 Other comprehensive expense and equity (144.0) (14.0) (158.0) (260.3) 5.1 (255.2) Bunzl plc Annual Report 2021176 FINANCIAL STATEMENTS Notes continued 176 Bunzl plc Annual Report 2021  7 Income tax 2021 £m 202 0 £m Current tax on profit current year 152.9 161.1 adjustments in respect of prior years (14.1) (12.5) 138.8 148.6 Deferred tax on profit current year (10.6) (19.7) adjustments in respect of prior years (2.3) (3.2) (12.9) (22.9) Income tax on profit 125.9 125.7 In assessing the underlying performance of the Group, management uses adjusted profit before income tax. The tax effect of the adjusting items (see Note 3) is excluded in monitoring the effective tax rate (being the tax rate on adjusted profit before income tax) which is shown in the table below. 2021 £m 2020 £m Income tax on profit 125.9 125.7 Tax associated with adjusting items 29.8 39.4 Tax on adjusted profit 155.7 165.1 Profit before income tax 568.7 555.7 Adjusting items 129.5 159.9 Adjusted profit before income tax 698.2 715.6 Reported tax rate 22.1% 22.6% Effective tax rate 22.3% 23.1% 2021 2020 Tax on other comprehensive income/(expense) and equity Gross £m Tax (charge)/ credit £m Net £m Gross £m Tax (charge)/ credit £m Net £m Actuarial gain/(loss) on defined benefit pension schemes 74.1 (18.5) 55.6 (16.2) 3.0 (13.2) Foreign currency translation differences on foreign operations (89.8) – (89.8) (63.5) 0.3 (63.2) Gain/(loss) taken to equity as a result of effective net investment hedges 11.5 – 11.5 (15.9) – (15.9) Gain/(loss) recognised in cash flow hedge reserve 4.4 (0.8) 3.6 (8.5) 1.6 (6.9) Other comprehensive expense 0.2 (19.3) (19.1) (104.1) 4.9 (99.2) Dividends (180.4) – (180.4) (171.5) – (171.5) Movement from cash flow hedge reserve to inventory 1.4 (0.3) 1.1 6.1 (1.1) 5.0 Issue of share capital 6.6 – 6.6 3.7 – 3.7 Employee trust shares 15.5 – 15.5 (9.4) – (9.4) Share based payments 12.7 5.6 18.3 14.9 1.3 16.2 Other comprehensive expense and equity (144.0) (14.0) (158.0) (260.3) 5.1 (255.2) Bunzl plc Annual Report 2021 177  FINANCIAL STATEMENTS 7 Income tax continued Factors affecting the tax charge for the year The Group operates in many countries and is subject to different rates of income tax in those countries. The expected tax rate is calculated as a weighted average of the tax rates in the tax jurisdictions in which the Group operates, most of which are higher than the UK statutory rate for the year of 19.0% (2020: 19.0%). The adjustments to the tax charge at the weighted average rate to determine the income tax on profit are as follows: 2021 £m 202 0 £m Profit before income tax 568.7 555.7 Tax charge at weighted average rate (2021: 24.9%; 2020: 24.7%) 141.7 137.4 Effects of: non-deductible expenditure 2.4 5.8 impact of intercompany finance (0.2) (2.1) change in tax rates (0.7) (0.3) prior year adjustments from acquisitions – (5.1) other prior year adjustments (16.4) (10.6) other current year items (0.9) 0.6 Income tax on profit 125.9 125.7 During the year, legislation was passed to increase the UK Corporation tax rate to 25% from 1 April 2023. UK taxable profits earned before that date will be subject to the current tax rate of 19% but UK temporary differences at 31 December 2021 have been calculated at the rate of 25% because reversal is expected after April 2023. The impact of this change in tax rate on the income statement was not significant. Deferred tax in the income statement 2021 £m 2020 £m Property, plant and equipment (0.9) (0.1) Defined benefit pension schemes 1.7 (2.6) Goodwill and customer relationships (13.0) (16.7) Provisions and accruals 4.3 (4.4) Inventories (5.5) 1.7 Leases 0.2 0.2 Other 0.3 (1.0) Deferred tax on profit (12.9) (22.9) In March 2021 the Group received communication from HM Revenue & Customs (‘HMRC’) regarding the potential application of State aid rules to the UK tax regime, which was described in the 2020 Annual Report. HMRC’s conclusion, with which the European Commission agreed, was that no Bunzl Group company was a beneficiary under the State aid decision of the European Commission. This means that the risk of having to pay additional tax plus interest of up to £37m in connection with the matter is now remote, whatever the EU General Court’s eventual ruling. 8 Earnings per share 2021 £m 202 0 £m Profit for the year 442.8 430.0 Adjusted for: customer relationships and brands amortisation 106.5 100.4 acquisition related items 23.0 42.7 non-recurring pension scheme charges – 16.8 tax credit on adjusting items (29.8) (39.4) Adjusted profit for the year 542.5 550.5 177Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 178 Bunzl plc Annual Report 2021  8 Earnings per share continued 2021 2020 Basic weighted average number of ordinary shares in issue (million) 333.8 333.8 Dilutive effect of employee share plans (million) 2.2 1.3 Diluted weighted average number of ordinary shares (million) 336.0 335.1 Basic earnings per share 132.7p 128.8p Adjustment 29.8p 36.1p Adjusted earnings per share 162.5p 164.9p Diluted basic earnings per share 131.8p 128.3p Adjustment 29.7p 36.0p Adjusted diluted earnings per share 161.5p 164.3p 9 Property, plant and equipment 2021 Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m Cost Beginning of year 93.9 159.6 107.1 360.6 Acquisitions (Note 28) 0.9 5.3 1.0 7.2 Additions 2.2 9.9 12.7 24.8 Disposals (3.7) (6.5) (3.7) (13.9) Currency translation (1.8) (0.7) (6.6) (9.1) End of year 91.5 167.6 110.5 369.6 Accumulated depreciation Beginning of year 49.0 110.4 78.5 237.9 Charge in year 4.7 13.4 9.9 28.0 Disposals (2.4) (6.0) (3.7) (12.1) Currency translation (0.7) (1.0) (3.4) (5.1) End of year 50.6 116.8 81.3 248.7 Net book value at 31 December 2021 40.9 50.8 29.2 120.9 2020 Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m Cost Beginning of year 83.2 151.4 100.6 335.2 Acquisitions (Note 28) 2.7 4.7 1.2 8.6 Additions 4.1 9.4 10.9 24.4 Disposals (0.8) (4.6) (6.1) (11.5) Currency translation 4.7 (1.3) 0.5 3.9 End of year 93.9 159.6 107.1 360.6 Accumulated depreciation Beginning of year 41.6 102.1 73.2 216.9 Charge in year 4.5 12.8 9.3 26.6 Disposals (0.7) (4.0) (5.6) (10.3) Currency translation 3.6 (0.5) 1.6 4.7 End of year 49.0 110.4 78.5 237.9 Net book value at 31 December 2020 44.9 49.2 28.6 122.7 Bunzl plc Annual Report 2021178 FINANCIAL STATEMENTS Notes continued 178 Bunzl plc Annual Report 2021  8 Earnings per share continued 2021 2020 Basic weighted average number of ordinary shares in issue (million) 333.8 333.8 Dilutive effect of employee share plans (million) 2.2 1.3 Diluted weighted average number of ordinary shares (million) 336.0 335.1 Basic earnings per share 132.7p 128.8p Adjustment 29.8p 36.1p Adjusted earnings per share 162.5p 164.9p Diluted basic earnings per share 131.8p 128.3p Adjustment 29.7p 36.0p Adjusted diluted earnings per share 161.5p 164.3p 9 Property, plant and equipment 2021 Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m Cost Beginning of year 93.9 159.6 107.1 360.6 Acquisitions (Note 28) 0.9 5.3 1.0 7.2 Additions 2.2 9.9 12.7 24.8 Disposals (3.7) (6.5) (3.7) (13.9) Currency translation (1.8) (0.7) (6.6) (9.1) End of year 91.5 167.6 110.5 369.6 Accumulated depreciation Beginning of year 49.0 110.4 78.5 237.9 Charge in year 4.7 13.4 9.9 28.0 Disposals (2.4) (6.0) (3.7) (12.1) Currency translation (0.7) (1.0) (3.4) (5.1) End of year 50.6 116.8 81.3 248.7 Net book value at 31 December 2021 40.9 50.8 29.2 120.9 2020 Land and buildings £m Plant and machinery £m Fixtures, fittings and equipment £m Total £m Cost Beginning of year 83.2 151.4 100.6 335.2 Acquisitions (Note 28) 2.7 4.7 1.2 8.6 Additions 4.1 9.4 10.9 24.4 Disposals (0.8) (4.6) (6.1) (11.5) Currency translation 4.7 (1.3) 0.5 3.9 End of year 93.9 159.6 107.1 360.6 Accumulated depreciation Beginning of year 41.6 102.1 73.2 216.9 Charge in year 4.5 12.8 9.3 26.6 Disposals (0.7) (4.0) (5.6) (10.3) Currency translation 3.6 (0.5) 1.6 4.7 End of year 49.0 110.4 78.5 237.9 Net book value at 31 December 2020 44.9 49.2 28.6 122.7 Bunzl plc Annual Report 2021 179  FINANCIAL STATEMENTS 10 Right-of-use assets 2021 Property £m Motor vehicles £m Equipment £m Total £m Net book value at beginning of year 358.3 66.4 28.7 453.4 Acquisitions (Note 28) 12.5 0.1 – 12.6 Additions 81.3 24.3 7.0 112.6 Depreciation charge in the year (96.4) (28.6) (9.8) (134.8) Remeasurement adjustments 16.5 (3.5) (1.5) 11.5 Currency translation (5.8) (0.9) (0.3) (7.0) Net book value at 31 December 2021 366.4 57.8 24.1 448.3 2020 Property £m Motor vehicles £m Equipment £m Total £m Net book value at beginning of year 341.5 66.4 25.0 432.9 Acquisitions (Note 28) 30.8 3.9 0.5 35.2 Additions 62.4 24.7 13.0 100.1 Depreciation charge in the year (95.2) (29.4) (10.2) (134.8) Remeasurement adjustments 22.7 0.5 1.0 24.2 Currency translation (3.9) 0.3 (0.6) (4.2) Net book value at 31 December 2020 358.3 66.4 28.7 453.4 11 Intangible assets 2021 Goodwill £m Custome r relationships £m Brands £m Software £m Total £m Cost Beginning of year 1,506.7 1,874.2 12.8 85.5 3,479.2 Acquisitions (Note 28) 240.8 234.8 11.8 0.5 487.9 Additions 7.9 7.9 Disposals – – (1.9) (1.9) Currency translation (36.6) (53.8 ) 0. 4 (1.8) (91.8) End of year 1,710.9 2,055.2 25.0 90.2 3,881.3 Accumulated amortisation and impairment Beginning of year 12.1 961.5 0.3 63.4 1,037.3 Amortisation charge in year 105.5 1.0 8.4 114.9 Disposals – – (1.9) (1.9) Currency translation 0.3 (33.8 ) (0.3) (2.0) (35.8) End of year 12.4 1,033.2 1.0 67.9 1,114.5 Net book value at 31 December 2021 1,698.5 1,022.0 24.0 22.3 2,766.8 179Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 180 Bunzl plc Annual Report 2021  11 Intangible assets continued 2020 Goodwill £m Custome r relationships £m Brands £m Software £m Total £m Cost Beginning of year 1,403.6 1,710.9 – 74.7 3,189.2 Acquisitions (Note 28) 108.8 172.2 13.7 2.0 296.7 Additions 8.7 8.7 Disposals – – (1.7) (1.7) Currency translation (5.7 ) (8.9) (0.9) 1.8 (13.7) End of year 1,506.7 1,874.2 12.8 85.5 3,479.2 Accumulated amortisation and impairment Beginning of year – 846.0 – 52.3 898.3 Amortisation charge in year 100.1 0.3 10.3 110.7 Impairment charge in year 12.1 9.1 – – 21.2 Disposals – – (0.9) (0.9) Currency translation – 6.3 – 1.7 8.0 End of year 12.1 961.5 0.3 63.4 1,037.3 Net book value at 31 December 2020 1,494.6 912.7 12.5 22.1 2,441.9 Goodwill, customer relationships and brands intangible assets have been acquired as part of business combinations. Further details of acquisitions made in the year are set out in Note 28. Customer relationships include three businesses with individually significant customer relationships assets, McCue Corporation acquired in October 2021 and based in North America, MCR Safety acquired in September 2020 and based in North America and Hedis acquired in 2017 and based in France. The net book value of customer relationships in McCue Corporation as at 31 December 2021 was £107.9m with a remaining useful economic life of 14.7 years. The net book value of customer relationships in MCR Safety as at 31 December 2021 was £90.0m (2020: £95.5m) with a remaining useful economic life of 13.7 years (2020: 14.7 years). The net book value of customer relationships in Hedis as at 31 December 2021 was £90.8m (2020: £105.4m) with a remaining useful economic life of 11.9 years (2020: 12.9 years). Impairment testing The carrying amount of goodwill is allocated across CGUs and is tested annually for impairment by comparing the recoverable amount of each CGU with its carrying value. A description of the Group’s principal activities is set out in the Chief Executive Officer’s review. There is no significant difference in the nature of activities across different geographies. The identification of CGUs reflects the way the business is managed and monitored on a geographical basis, taking into account the generation of cash flows and the sharing of synergies. Given the similar nature of the activities of each CGU, a consistent methodology is applied across the Group in assessing CGU recoverable amounts. The recoverable amount is the higher of the value in use and the fair value less the costs of disposal. The value in use is the present value of the cash flows expected to be generated by the CGU over a projection period together with a terminal value. The projection period is the time period over which future cash flows are predicted. The Group’s methodology is to use a projection period of five years consisting of detailed cash flow forecasts for the first two years and CGU specific growth assumptions for years three, four and five. For periods after this five year period, the methodology applies a long term growth rate specific to the CGU to derive a terminal value. Cash flow expectations exclude any future cash flows that may arise from restructuring or other enhancements to the cash generating activities of the CGU and reflect management’s expectations of the range of economic conditions that may exist over the projection period. The value in use calculations are principally sensitive to revenue growth, including any significant changes to the customer base, achievability of future profit margins and the discount rates used in the present value calculation. The information used for valuation purposes takes into consideration past experience and the current economic environment with regard to customer attrition rates and additions to the customer base, the ability to introduce price increases and new products and experience in controlling the underlying cost base. This information is used to determine a long term growth rate which is consistent with the geographic segments in which the Group operates and management’s assessment of future operating performance and market share movements. The discount rates used are determined with assistance provided by external valuation specialists. The Group allocates goodwill across seven CGUs (2020: seven). Based on our impairment testing, no impairments were identified to the carrying value of goodwill within the Group. Bunzl plc Annual Report 2021180 FINANCIAL STATEMENTS Notes continued 180 Bunzl plc Annual Report 2021  11 Intangible assets continued 2020 Goodwill £m Custome r relationships £m Brands £m Software £m Total £m Cost Beginning of year 1,403.6 1,710.9 – 74.7 3,189.2 Acquisitions (Note 28) 108.8 172.2 13.7 2.0 296.7 Additions 8.7 8.7 Disposals – – (1.7) (1.7) Currency translation (5.7 ) (8.9) (0.9) 1.8 (13.7) End of year 1,506.7 1,874.2 12.8 85.5 3,479.2 Accumulated amortisation and impairment Beginning of year – 846.0 – 52.3 898.3 Amortisation charge in year 100.1 0.3 10.3 110.7 Impairment charge in year 12.1 9.1 – – 21.2 Disposals – – (0.9) (0.9) Currency translation – 6.3 – 1.7 8.0 End of year 12.1 961.5 0.3 63.4 1,037.3 Net book value at 31 December 2020 1,494.6 912.7 12.5 22.1 2,441.9 Goodwill, customer relationships and brands intangible assets have been acquired as part of business combinations. Further details of acquisitions made in the year are set out in Note 28. Customer relationships include three businesses with individually significant customer relationships assets, McCue Corporation acquired in October 2021 and based in North America, MCR Safety acquired in September 2020 and based in North America and Hedis acquired in 2017 and based in France. The net book value of customer relationships in McCue Corporation as at 31 December 2021 was £107.9m with a remaining useful economic life of 14.7 years. The net book value of customer relationships in MCR Safety as at 31 December 2021 was £90.0m (2020: £95.5m) with a remaining useful economic life of 13.7 years (2020: 14.7 years). The net book value of customer relationships in Hedis as at 31 December 2021 was £90.8m (2020: £105.4m) with a remaining useful economic life of 11.9 years (2020: 12.9 years). Impairment testing The carrying amount of goodwill is allocated across CGUs and is tested annually for impairment by comparing the recoverable amount of each CGU with its carrying value. A description of the Group’s principal activities is set out in the Chief Executive Officer’s review. There is no significant difference in the nature of activities across different geographies. The identification of CGUs reflects the way the business is managed and monitored on a geographical basis, taking into account the generation of cash flows and the sharing of synergies. Given the similar nature of the activities of each CGU, a consistent methodology is applied across the Group in assessing CGU recoverable amounts. The recoverable amount is the higher of the value in use and the fair value less the costs of disposal. The value in use is the present value of the cash flows expected to be generated by the CGU over a projection period together with a terminal value. The projection period is the time period over which future cash flows are predicted. The Group’s methodology is to use a projection period of five years consisting of detailed cash flow forecasts for the first two years and CGU specific growth assumptions for years three, four and five. For periods after this five year period, the methodology applies a long term growth rate specific to the CGU to derive a terminal value. Cash flow expectations exclude any future cash flows that may arise from restructuring or other enhancements to the cash generating activities of the CGU and reflect management’s expectations of the range of economic conditions that may exist over the projection period. The value in use calculations are principally sensitive to revenue growth, including any significant changes to the customer base, achievability of future profit margins and the discount rates used in the present value calculation. The information used for valuation purposes takes into consideration past experience and the current economic environment with regard to customer attrition rates and additions to the customer base, the ability to introduce price increases and new products and experience in controlling the underlying cost base. This information is used to determine a long term growth rate which is consistent with the geographic segments in which the Group operates and management’s assessment of future operating performance and market share movements. The discount rates used are determined with assistance provided by external valuation specialists. The Group allocates goodwill across seven CGUs (2020: seven). Based on our impairment testing, no impairments were identified to the carrying value of goodwill within the Group. Bunzl plc Annual Report 2021 181  FINANCIAL STATEMENTS 11 Intangible assets continued As at 31 December 2021 North America, UK & Ireland, France and Rest of Continental Europe carried a significant amount of goodwill in comparison with the total value of the Group’s goodwill. At 31 December 2021 the carrying value of goodwill in respect of North America was £649.3m (2020: £490.9m), UK & Ireland was £325.3m (2020: £282.4m), France was £245.0m (2020: £260.3m) and Rest of Continental Europe was £199.1m (2020: £195.6m). As at 31 December 2021 the aggregate amount of goodwill attributable to the Group’s CGUs, excluding North America, UK & Ireland, France and Rest of Continental Europe, was £279.8m (2020: £265.4m), none of which is individually significant. For North America, UK & Ireland, France and Rest of Continental Europe, the weighted average long term growth rate used in 2021 was in the range of 2.5%–3.7% (2020: 2.5%–3.5%) reflecting anticipated revenue and profit growth. A pre-tax discount rate in the range of 8%–10% (2020: 7%–10%) has been applied to the value in use calculations reflecting market assessments of the time value of money at the balance sheet date. Similar assumptions have been applied to the other CGUs but where appropriate the directors have considered alternative market risk assumptions to reflect the specific conditions arising in individual CGUs with long term growth rates ranging from 2.5%–5.9% (2020: 2.5%–5.9%) and discount rates ranging from 7%–14% (2020: 7%–14%). As part of the annual impairment testing for goodwill, the Group also considered whether there were any indicators that individual customer relationships and brands intangible assets were impaired. As for the impairment testing for the Group’s CGUs noted above, value in use calculations were prepared based on management’s latest expectations of the performance of the relevant business over a five year projection period and appropriate long term growth and discount rates. Based on our impairment testing, no impairments were identified to the carrying value of customer relationships and brands intangible assets within the Group. The Group has also considered whether climate change would have a significant impact on the approach taken to the annual impairment testing. As part of this the Group has assessed three alternative climate change scenarios up to 2050. Two of our scenarios align with the global warming trajectory of 2C by 2100 but differ in the speed and extent of decarbonisation over the next 30 years (orderly and disorderly). Our final scenario assessed the potential impacts of a world in which global warming exceeds 3C by 2100 (hot-house world scenario). Having assessed these scenarios the Group has concluded that, while climate change is an emerging risk, it is not currently expected to have a material financial impact and does not warrant any amendments to the assumptions used in the impairment testing. Sensitivity to changes in key assumptions Impairment testing is dependent on management’s estimates and judgements, particularly as they relate to the forecasting of future cash flows, expected long term growth rates and the discount rates selected. Key assumptions on which value in use calculations are dependent relate to the discount rates used and revenue growth including the impact of changes to the underlying customer base from customer attrition and the rate at which new customer relationships are introduced and established. As part of the annual impairment testing, management performed sensitivity analysis by modelling the impact of higher discount rates, and reviewing the combination of discount rates and long term growth rates which would bring the value in use to the net book value or below. From this sensitivity testing management has concluded that no reasonably possible change in key assumptions would result in a material change to the carrying amounts of any of the Group’s intangible assets in the next 12 months. 12 Working capital 2021 £m 202 0 £m Inventories (Note 13) 1,474.0 1,432.2 Trade and other receivables (Note 14) 1,431.0 1,395.8 Trade and other payables - current (Note 15) (1,921.3) (1,836.3) Add back net non-trading related receivables and payables 43.9 29.7 1,027.6 1,021.4 See Note 29 for the cash flow impact of movements in working capital which exclude the impact from foreign exchange movements and acquisitions. 13 Inventories 2021 £m 202 0 £m Goods for resale 1,474.0 1,432.2 During the year £8.5m (2020: £10.1m) was written off from inventories due to obsolescence or damage. Inventory provisions, including provisions for slow moving, obsolete or defective inventories and market price movements, as at 31 December 2021 were £179.9m (2020: £132.5m). During the year the Group saw an increase in the level of slow moving inventory with customer demand continuing to be impacted by the pandemic-related restrictions and supply chain disruption resulting in higher levels of inventory. This has resulted in an increase in the level of provisions required, including a net charge of approximately £25m (2020: approximately £15m) to increase provisions for slow moving inventory, whilst additional provisions were required as a result of market price deflation on certain Covid-19 products. 181Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 182 Bunzl plc Annual Report 2021  14 Trade and other receivables 2021 £m 202 0 £m Trade receivables 1,173.3 1,138.0 Prepayments 86.8 96.1 Other receivables 170.9 161.7 1,431.0 1,395.8 The Group does not have any significant contract assets. The ageing of trade receivables at 31 December was: 2021 202 0 Gross £m Provision £m Gross £m Provision £m Current 983.8 4.8 936.1 6.6 0–30 days overdue 147.6 2.1 163.0 1.8 31–90 days overdue 43.5 2.4 43.2 2.7 Over 90 days overdue 25.8 18.1 30.9 24.1 1,200.7 27.4 1,173.2 35.2 The trade receivables provision includes provisions for expected credit losses and credit notes to be issued. The movement in the provision during the year was as follows: 2021 £m 202 0 £m Beginning of year 35.2 23.9 Acquisitions 1.5 4.1 Charge 5.7 16.9 Released (10.4) (4.3) Utilised (3.7) (4.4) Currency translation (0.9) (1.0) End of year 27.4 35.2 The movement in the year includes a net release of £4.7m (2020: net charge of £12.6m) reflecting a reduction in the level of recoverability risk from customers as businesses begin to recover from the impacts of the Covid-19 pandemic. The total net impairment reversals on trade receivables during the year were £4.7m (2020: net impairment losses of £15.9m) comprising the net reversal of £4.7m (2020: net charge of £12.6m) relating to the trade receivables provision and a nil charge (2020: charge of £3.3m) relating to the write-off of gross trade receivable balances not previously provided for. 15 Trade and other payables Current 2021 £m 202 0 £m Trade payables 1,216.6 1,080.4 Other tax and social security contributions 28.0 34.0 Other payables 222.4 235.8 Accruals and contract liabilities 454.3 486.1 1,921.3 1,836.3 Other payables includes £46.5m (2020: £30.3m) related to deferred consideration on acquisitions. The Group’s contract liabilities are limited to deferred income of £34.5m (2020: £82.9m). This arises from contracts with customers in the form of consideration that has been received in advance of the satisfaction of performance obligations. The reduction in contract liabilities compared to 2020 is a result of the majority of customer prepayments at the end of the prior year relating to large orders having been recognised as revenue in 2021, offset by additional customer prepayments during the year relating to orders which are yet to be satisfied. Non-current Other payables greater than one year of £72.9m (2020: £50.2m) includes £61.3m (2020: £38.6m) related to deferred consideration on acquisitions. Bunzl plc Annual Report 2021182 FINANCIAL STATEMENTS Notes continued 182 Bunzl plc Annual Report 2021  14 Trade and other receivables 2021 £m 202 0 £m Trade receivables 1,173.3 1,138.0 Prepayments 86.8 96.1 Other receivables 170.9 161.7 1,431.0 1,395.8 The Group does not have any significant contract assets. The ageing of trade receivables at 31 December was: 2021 202 0 Gross £m Provision £m Gross £m Provision £m Current 983.8 4.8 936.1 6.6 0–30 days overdue 147.6 2.1 163.0 1.8 31–90 days overdue 43.5 2.4 43.2 2.7 Over 90 days overdue 25.8 18.1 30.9 24.1 1,200.7 27.4 1,173.2 35.2 The trade receivables provision includes provisions for expected credit losses and credit notes to be issued. The movement in the provision during the year was as follows: 2021 £m 202 0 £m Beginning of year 35.2 23.9 Acquisitions 1.5 4.1 Charge 5.7 16.9 Released (10.4) (4.3) Utilised (3.7) (4.4) Currency translation (0.9) (1.0) End of year 27.4 35.2 The movement in the year includes a net release of £4.7m (2020: net charge of £12.6m) reflecting a reduction in the level of recoverability risk from customers as businesses begin to recover from the impacts of the Covid-19 pandemic. The total net impairment reversals on trade receivables during the year were £4.7m (2020: net impairment losses of £15.9m) comprising the net reversal of £4.7m (2020: net charge of £12.6m) relating to the trade receivables provision and a nil charge (2020: charge of £3.3m) relating to the write-off of gross trade receivable balances not previously provided for. 15 Trade and other payables Current 2021 £m 202 0 £m Trade payables 1,216.6 1,080.4 Other tax and social security contributions 28.0 34.0 Other payables 222.4 235.8 Accruals and contract liabilities 454.3 486.1 1,921.3 1,836.3 Other payables includes £46.5m (2020: £30.3m) related to deferred consideration on acquisitions. The Group’s contract liabilities are limited to deferred income of £34.5m (2020: £82.9m). This arises from contracts with customers in the form of consideration that has been received in advance of the satisfaction of performance obligations. The reduction in contract liabilities compared to 2020 is a result of the majority of customer prepayments at the end of the prior year relating to large orders having been recognised as revenue in 2021, offset by additional customer prepayments during the year relating to orders which are yet to be satisfied. Non-current Other payables greater than one year of £72.9m (2020: £50.2m) includes £61.3m (2020: £38.6m) related to deferred consideration on acquisitions. Bunzl plc Annual Report 2021 183  FINANCIAL STATEMENTS 16 Risk management and financial instruments Capital management The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group monitors the return on average operating capital employed and the return on invested capital (as defined on page 170) as well as the level of total shareholders’ equity and sets the amount of dividends paid to ordinary shareholders. The principal covenant limits are net debt to EBITDA, calculated at average exchange rates and in accordance with the Group’s external debt covenants, of no more than 3.5 times and interest cover of no less than 3.0 times. Sensitivity analyses using various scenarios are applied to forecasts to assess their impact on covenants and net debt. Additionally, compliance with the Group’s biannual debt covenants is monitored on a monthly basis and formally tested at 30 June and 31 December. During 2021 all covenants have been complied with and based on current forecasts it is expected that such covenants will continue to be complied with for the foreseeable future. Debt covenants are based on historical accounting standards. The Group funds its operations through a mixture of shareholders’ equity and bank and capital market borrowings. All of the borrowings are managed by a central treasury function and funds raised are lent onward to operating subsidiaries as required. The overall objective is to manage the funding to ensure the borrowings have a range of maturities, are competitively priced and meet the demands of the business over time and, in order to do so, the Group arranges a mixture of borrowings from different sources with a variety of maturity dates. The Group’s businesses provide a high and consistent level of cash generation which helps fund future development and growth. The Group seeks to maintain an appropriate balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes to the Group’s approach to capital management during the year and the Group is not subject to any externally imposed capital requirements. Treasury policies and controls The Group has a centralised treasury department to control external borrowings and manage liquidity, interest rate, foreign currency and credit risks. Treasury policies have been approved by the Board and cover the nature of the exposure to be hedged, the types of financial instruments that may be employed and the criteria for investing and borrowing cash. The Group uses derivatives to manage its foreign currency and interest rate risks arising from underlying business activities. No transactions of a speculative nature are undertaken. The treasury department is subject to periodic independent review by the internal audit department. Underlying policy assumptions and activities are periodically reviewed by the Board. Controls over exposure changes and transaction authenticity are in place. Derivatives and hedge accounting The Group designates derivatives which qualify as hedges for accounting purposes as either (a) a hedge of the fair value of a recognised asset or liability; (b) a hedge of the cash flow risk resulting from changes in interest rates or foreign exchange rates; or (c) a hedge of a net investment in a foreign operation. The accounting treatment for hedges and derivatives is set out in the financial instruments’ accounting policy in Note 2p. The Group tests the effectiveness of hedges on a prospective basis to ensure compliance with IFRS 9. Information about the methods and assumptions used in determining the fair value of derivatives is provided under the ‘Financial instruments’ section on page 189. Hedge effectiveness For hedges of foreign currency purchases and sales, the Group enters into cash flow hedge relationships where the critical terms of the hedging instrument are similar to those of the hedged item, such as notional amount, expected maturity date and currency. Hedge ineffectiveness may arise if the timing of the forecast transaction changes from what was originally estimated. The Group therefore performs a quantitative hedge effectiveness assessment to calculate any ineffectiveness during the period. Part of the Group’s fixed rate debt portfolio is swapped to floating rates using interest rate swaps where the hedged items are individual tranches of fixed rate debt. These interest rate swaps are held in fair value hedges with critical terms exactly matching those of the underlying hedged items, such as notional amounts, payment dates, reset dates, maturity dates and currencies. As all critical terms matched during the year, the economic relationship was 100% effective. The Group therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group will perform a quantitative assessment of effectiveness. Hedge ineffectiveness may arise due to a change in credit risk of the counterparty or if there is a change in timings or amounts of the hedged cash flows. There was no material ineffectiveness during 2021 in relation to the interest rate swaps or the forward currency contracts. 183Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 184 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued Risk management (a) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group continually monitors net debt and forecast cash flows to ensure that sufficient facilities are in place to meet the Group’s requirements in the short, medium and long term and, in order to do so, arranges borrowings from a variety of sources. The Group has substantial funding available comprising multi-currency credit facilities from the Group’s banks, US private placement notes and senior bonds. During 2020, the Group issued a £400m bond which matures in 2030 under the terms of its Euro Medium Term Note (EMTN) Programme. Loans, borrowings and net debt 2021 £m 202 0 £m Bank overdrafts (551.6) (514.6) Bank loans – (0.5) US private placement notes (111.9) (79.4) Borrowings due within one year (663.5) (594.5) Bank loans (14.6) (45.1) US private placement notes (750.5) (874.8) Senior bonds (668.6) (695.3) Borrowings due after one year (1,433.7) (1,615.2) Derivatives managing the interest rate risk and currency profile of the debt (17.1) 10.4 Gross debt (2,114.3) (2,199.3) Cash at bank and in hand 776.9 944.3 Net debt excluding lease liabilities (1,337.4) (1,255.0) Lease liabilities (488.7) (497.5) Net debt including lease liabilities (1,826.1) (1,752.5) Further information on the movement in net debt and lease liabilities is shown in Note 27. The total available committed funding at 31 December 2021 was £2,530.9m (2020: £2,594.3m). The committed funding maturity profile at 31 December 2021 is set out in the chart below. Committed funding maturity profile by year (£m) The undrawn committed bank facilities available at 31 December were as follows: 2021 £m 202 0 £m Expiring within one year – 105.0 Expiring after one year but within two years 139.8 160.0 Expiring after two years 841.9 668.0 981.7 933.0 During the year, all of the Group’s committed bank facilities, which previously referenced the discontinued GBP LIBOR, have been renegotiated to reference SONIA, the new GBP benchmark. This has not had an impact on the financial results for the year ended 31 December 2021. In addition, the Group maintains overdraft and uncommitted facilities to provide short term flexibility. As at 31 December 2021 there were no loans secured by fixed charges on property (2020: none). 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 112 150 140 122 204 167 116 55 130 37 400 300 583 600 800 1000 1200 200 400 0 Bank facilities – undrawn Bank facilities – drawn Senior bonds US private placement notes Bunzl plc Annual Report 2021184 FINANCIAL STATEMENTS Notes continued 184 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued Risk management (a) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group continually monitors net debt and forecast cash flows to ensure that sufficient facilities are in place to meet the Group’s requirements in the short, medium and long term and, in order to do so, arranges borrowings from a variety of sources. The Group has substantial funding available comprising multi-currency credit facilities from the Group’s banks, US private placement notes and senior bonds. During 2020, the Group issued a £400m bond which matures in 2030 under the terms of its Euro Medium Term Note (EMTN) Programme. Loans, borrowings and net debt 2021 £m 202 0 £m Bank overdrafts (551.6) (514.6) Bank loans – (0.5) US private placement notes (111.9) (79.4) Borrowings due within one year (663.5) (594.5) Bank loans (14.6) (45.1) US private placement notes (750.5) (874.8) Senior bonds (668.6) (695.3) Borrowings due after one year (1,433.7) (1,615.2) Derivatives managing the interest rate risk and currency profile of the debt (17.1) 10.4 Gross debt (2,114.3) (2,199.3) Cash at bank and in hand 776.9 944.3 Net debt excluding lease liabilities (1,337.4) (1,255.0) Lease liabilities (488.7) (497.5) Net debt including lease liabilities (1,826.1) (1,752.5) Further information on the movement in net debt and lease liabilities is shown in Note 27. The total available committed funding at 31 December 2021 was £2,530.9m (2020: £2,594.3m). The committed funding maturity profile at 31 December 2021 is set out in the chart below. Committed funding maturity profile by year (£m) The undrawn committed bank facilities available at 31 December were as follows: 2021 £m 202 0 £m Expiring within one year – 105.0 Expiring after one year but within two years 139.8 160.0 Expiring after two years 841.9 668.0 981.7 933.0 During the year, all of the Group’s committed bank facilities, which previously referenced the discontinued GBP LIBOR, have been renegotiated to reference SONIA, the new GBP benchmark. This has not had an impact on the financial results for the year ended 31 December 2021. In addition, the Group maintains overdraft and uncommitted facilities to provide short term flexibility. As at 31 December 2021 there were no loans secured by fixed charges on property (2020: none). Bunzl plc Annual Report 2021 185  FINANCIAL STATEMENTS 16 Risk management and financial instruments continued Contractual maturity profile The contractual maturity profile of the Group’s financial liabilities at 31 December is set out in the tables below. The amounts disclosed are the contractual undiscounted cash flows and therefore include interest cash flows (forecast using SONIA and USD LIBOR interest rates at 31 December in the case of floating rate financial assets and liabilities). Derivative assets and liabilities have been included within the tables since they predominantly relate to derivatives which are used to manage the interest cash flows on the Group’s debt. Bank loans have been drawn under committed facilities and can be refinanced on maturity from these same facilities. Accordingly, they have been aged based on the maturity dates of the underlying facilities. Foreign currency cash flows have been translated using spot rates as at 31 December. 2021 Contractual cash (outflows)/inflow s Total contractual cash flows £m Within one year £m After one year but within two years £m After two years but within five years £m After five years £m Financial liabilities Bank overdrafts (551.6) (551.6) Bank loans (14.9) (0.1) (0.2) (14.6) US private placement notes (939.8) (140.0) (174.5) (450.6) (174.7) Senior bonds (781.1) (12.8) (12.8) (331.5) (424.0) Lease payments (562.2) (143.9) (108.2) (186.9) (123.2) Trade and other payables (1,966.2) (1,893.3) (72.9) (4,815.8) (2,741.7) (368.6) (983.6) (721.9) Derivative financial instruments Net settled: Interest rate swaps 10.9 2.1 2.1 6.3 0.4 Gross settled: Foreign exchange inflows 2,081.5 2,081.5 Foreign exchange outflows (2,075.6) (2,075.6) 16.8 8.0 2.1 6.3 0.4 Total (4,799.0) (2,733.7) (366.5) (977.3) (721.5) 2020 Contractual cash (outflows)/inflows Total contractual cash flows £m Within one year £m After one year but within two years £m After two years but within five years £m After five years £m Financial liabilities Bank overdrafts (514.6) (514.6) – – – Bank loans (46.6) (0.6) (0.3) (45.7) – US private placement notes (1,050.7) (109.8) (142.6) (501.6) (296.7) Senior bonds (793.9) (12.8) (12.8) (338.3) (430.0) Lease payments (583.9) (146.3) (122.4) (184.6) (130.6) Trade and other payables (1,852.5) (1,802.3) (50.2) – – (4,842.2) (2,586.4) (328.3) (1,070.2) (857.3) Derivative financial instruments Net settled: Interest rate swaps 21.8 2.9 2.9 8.9 7.1 Gross settled: Foreign exchange inflows 1,803.9 1,803.9 – – – Foreign exchange outflows (1,809.6) (1,809.6) – – – 16.1 (2.8) 2.9 8.9 7.1 Total (4,826.1) (2,589.2) (325.4) (1,061.3) (850.2) 185Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 186 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued (b) Interest rate risk The Group is funded by a mixture of fixed and floating rate debt with the Group’s main interest rate risk arising on its floating rate debt. Interest rate swaps and interest rate caps are used to manage the interest rate risk profile. The table below shows the fixed/floating rate debt mix after interest rate swaps. Of the US private placement notes of £862.4m (2020: £954.2m), there are US dollar denominated amounts totalling £95.8m (2020: £100.4m), with maturities ranging from 2026 to 2028, which have been swapped to floating rates using interest rate swaps which reprice every three or six months. Of the senior bonds of £668.6m (2020: £695.3m), an amount totalling £369.9m (2020: £396.9m), with a maturity of 2030, has been swapped to floating rates using interest rate swaps which reprice daily. The US private placement notes of £862.4m include a fair value adjustment of £20.8m (2020: £25.1m) related to interest rate swaps terminated in previous years. The terminations resulted in discontinuation of a number of fair value hedge relationships. At the date of de- designation, there was a fair value adjustment on the US private placement notes which will be amortised to the income statement across the remaining life of the debt. The amortisation of the fair value adjustment in 2021 was £4.3m (2020: £2.1m). During 2020 the termination of interest rate swaps resulted in a cash inflow of £15.1m within increase in borrowings on the consolidated cash flow statement. There were no terminations in 2021. The interest rate risk on the floating rate liability is managed using interest rate options. Hedge accounting is not applied to the interest rate caps since the majority of their value is related to time value. The strike rates of these options are based on EURIBOR and are repriced every three months. Bank loans are drawn for periods up to one month at interest rates linked to SONIA. Fixed vs floating interest rate table 2021 £m 202 0 £m Fixed rate debt US private placement notes (862.4) (954.2) Senior bonds (668.6) (695.3) Total fixed rate debt (1,531.0) (1,649.5) Interest rate swaps (fixed leg) 465.7 497.3 Fixed rate liability (1,065.3) (1,152.2) Floating rate debt Bank overdrafts (551.6) (514.6) Bank loans (14.6) (45.6) Total floating rate debt (566.2) (560.2) Interest rate swaps (floating leg) (465.7) (497.3) Floating rate liability (1,031.9) (1,057.5) Derivatives managing the interest rate risk and currency profile of the debt (17.1) 10.4 Gross debt (2,114.3) (2,199.3) Effects of hedge accounting on the financial position and performance The effects of the interest rate swaps on the Group’s financial position and performance are as follows: 2021 202 0 Interest rate swaps Net carrying amount (liability/(asset)) (£m) (21.3) 11.8 Notional amount (£m) 488.9 487.6 Maturity date range 2026–2030 2026–2030 Hedge ratio 1:1 1:1 Fair value gain/(loss) on US private placement notes and senior bond in a hedge relationship (£m) 33.3 (15.2) Fair value (loss)/gain on interest rate swaps in a hedge relationship (£m) (33.1) 15.4 Bunzl plc Annual Report 2021186 FINANCIAL STATEMENTS Notes continued 186 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued (b) Interest rate risk The Group is funded by a mixture of fixed and floating rate debt with the Group’s main interest rate risk arising on its floating rate debt. Interest rate swaps and interest rate caps are used to manage the interest rate risk profile. The table below shows the fixed/floating rate debt mix after interest rate swaps. Of the US private placement notes of £862.4m (2020: £954.2m), there are US dollar denominated amounts totalling £95.8m (2020: £100.4m), with maturities ranging from 2026 to 2028, which have been swapped to floating rates using interest rate swaps which reprice every three or six months. Of the senior bonds of £668.6m (2020: £695.3m), an amount totalling £369.9m (2020: £396.9m), with a maturity of 2030, has been swapped to floating rates using interest rate swaps which reprice daily. The US private placement notes of £862.4m include a fair value adjustment of £20.8m (2020: £25.1m) related to interest rate swaps terminated in previous years. The terminations resulted in discontinuation of a number of fair value hedge relationships. At the date of de- designation, there was a fair value adjustment on the US private placement notes which will be amortised to the income statement across the remaining life of the debt. The amortisation of the fair value adjustment in 2021 was £4.3m (2020: £2.1m). During 2020 the termination of interest rate swaps resulted in a cash inflow of £15.1m within increase in borrowings on the consolidated cash flow statement. There were no terminations in 2021. The interest rate risk on the floating rate liability is managed using interest rate options. Hedge accounting is not applied to the interest rate caps since the majority of their value is related to time value. The strike rates of these options are based on EURIBOR and are repriced every three months. Bank loans are drawn for periods up to one month at interest rates linked to SONIA. Fixed vs floating interest rate table 2021 £m 202 0 £m Fixed rate debt US private placement notes (862.4) (954.2) Senior bonds (668.6) (695.3) Total fixed rate debt (1,531.0) (1,649.5) Interest rate swaps (fixed leg) 465.7 497.3 Fixed rate liability (1,065.3) (1,152.2) Floating rate debt Bank overdrafts (551.6) (514.6) Bank loans (14.6) (45.6) Total floating rate debt (566.2) (560.2) Interest rate swaps (floating leg) (465.7) (497.3) Floating rate liability (1,031.9) (1,057.5) Derivatives managing the interest rate risk and currency profile of the debt (17.1) 10.4 Gross debt (2,114.3) (2,199.3) Effects of hedge accounting on the financial position and performance The effects of the interest rate swaps on the Group’s financial position and performance are as follows: 2021 202 0 Interest rate swaps Net carrying amount (liability/(asset)) (£m) (21.3) 11.8 Notional amount (£m) 488.9 487.6 Maturity date range 2026–2030 2026–2030 Hedge ratio 1:1 1:1 Fair value gain/(loss) on US private placement notes and senior bond in a hedge relationship (£m) 33.3 (15.2) Fair value (loss)/gain on interest rate swaps in a hedge relationship (£m) (33.1) 15.4 Bunzl plc Annual Report 2021 187  FINANCIAL STATEMENTS 16 Risk management and financial instruments continued Sensitivity to movements in interest rates After taking account of hedge relationships, a change of 1% in the interest rate forward curves on 31 December would have affected profit before income tax for the year and equity as at the year end as a result of changes in the fair values of derivative assets and liabilities at that date by the amounts shown below: Impact on profit before tax Impact on equity +1 % £m –1% £m +1 % £m –1 % £m 2021 1.3 (0.3) 1.3 (0.3) 2020 0.6 – 0.6 – (c) Foreign currency risk The majority of the Group’s sales are made and income is earned in US dollars, euros and other foreign currencies. The Group does not hedge the impact of exchange rate movements arising on translation of earnings into sterling at average exchange rates. The following significant exchange rates applied during the year: Average rate Closing rat e 2021 202 0 2021 202 0 US dollar 1.38 1.28 1.35 1.37 Euro 1.16 1.12 1.19 1.12 The majority of the Group’s transactions are carried out in the respective functional currencies of the Group’s operations and so transaction exposures are usually relatively limited. Where they do occur the Group’s policy is to hedge exposures of highly probable forecast transactions using forward foreign exchange contracts and these are designated as cash flow hedges. During the year the Group hedged highly probable forecast transactions for periods of up to 12 months. However, the economic impact of foreign exchange on the value of uncommitted future purchases and sales is not hedged. As a result, sudden and significant movements in foreign exchange rates can impact profit margins where there is a delay in passing the resulting price increases on to customers. For the year ended 31 December 2021, all foreign exchange cash flow hedges were effective with a cumulative pre-tax gain of £0.5m (2020 cumulative pre-tax loss of £5.3m) recognised in equity at the end of the year and this will affect the income statement during 2022. Effects of hedge accounting on the financial position and performance 2021 202 0 Forward foreign currency hedges in relation to inventory purchases Net carrying amount asset/(liability) (£m) 0.5 (5.3) Notional amount at 31 December 2021 (£m) 149.3 143.9 Maturity date range 2022 2021 Hedge ratio 1:1 1:1 Change in value of hedged items since 1 January (£m) (5.8 ) 2.4 Change in fair value of outstanding foreign currency forward contracts since 1 January (£m) 5.8 (2.4) The majority of the Group’s borrowings are effectively denominated in US dollars, sterling and euros, aligning them to the respective functional currencies of the component parts of the Group’s EBITDA. This currency profile is achieved using short term foreign exchange contracts and foreign currency debt which are designated as hedging instruments to achieve net investment hedge accounting at a Group level. This currency composition minimises the impact of movements in foreign exchange rates on the ratio of net debt to EBITDA. No ineffectiveness was recorded from net investments in foreign entity hedges. 187Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 188 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued The currency profile of the Group’s net debt excluding lease liabilities at 31 December is set out in the table below: 2021 £m 2020 £m US dollar 572.1 458.0 Sterling 135.1 308.5 Euro 502.4 398.4 Other 127.8 90.1 1,337.4 1,255.0 The Group also enters into foreign currency derivatives to hedge intercompany loans economically although these do not qualify for hedge accounting and therefore gains and losses are recorded in the income statement. These currency derivatives are subject to the same risk management policies as all other derivative contracts. Sensitivity to movements in foreign exchange rates For the year ended 31 December 2021, a movement of one cent in the US dollar and euro average exchange rates would have changed profit before income tax by £2.0m and £0.9m respectively (2020: £2.0m and £1.2m) and adjusted profit before income tax by £2.3m and £1.2m respectively (2020: £2.5m and £1.5m). If a 10% strengthening or weakening of sterling had taken place on 31 December it would have increased/(decreased) profit before income tax and (decreased)/increased equity for the year by the amounts shown below. The impact of this translation is much greater on equity than it is on profit before income tax since equity is translated using the closing exchange rates at the year end and profit before income tax is translated using the average exchange rates for the year. As a result, the value of equity is more sensitive than the value of profit before income tax to a movement in exchange rates on 31 December and the resulting movement in profit before income tax is due solely to the translation effect on monetary items. This analysis assumes that all other variables, in particular interest rates, remain constant. Impact on profit before tax Impact on equity +10% £m –10% £m +10% £m –10% £m 2021 0.4 (0.5) (177.0) 212.9 2020 0.4 (0.5) (192.7) 200.9 (d) Credit risk Credit risk is the risk of loss in relation to a financial asset due to non-payment by the relevant counterparty. The Group’s objective is to reduce its exposure to counterparty default by restricting the type of counterparty it deals with and by employing an appropriate policy in relation to the collection of financial assets. The Group’s financial assets are cash at bank and in hand, derivative financial instruments and trade and other receivables which represent the Group’s maximum exposure to credit risk in relation to financial assets. The maximum exposure to credit risk for cash at bank and in hand, derivative financial assets (see page 190) and trade and other receivables (see Note 14) is their respective carrying amounts. Dealings are restricted to those banks with the relevant combination of geographic presence and suitable credit rating. The Group continually monitors the credit ratings of its counterparties and the credit exposure to each counterparty. For trade and other receivables, the amounts represented in the balance sheet are net of any impairment losses measured using the expected credit loss model. Note 14 sets out an analysis of trade and other receivables and the provision for doubtful debts in respect of trade receivables. At the balance sheet date there were no significant concentrations of credit risk (2020: none). Bunzl plc Annual Report 2021188 FINANCIAL STATEMENTS Notes continued 188 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued The currency profile of the Group’s net debt excluding lease liabilities at 31 December is set out in the table below: 2021 £m 2020 £m US dollar 572.1 458.0 Sterling 135.1 308.5 Euro 502.4 398.4 Other 127.8 90.1 1,337.4 1,255.0 The Group also enters into foreign currency derivatives to hedge intercompany loans economically although these do not qualify for hedge accounting and therefore gains and losses are recorded in the income statement. These currency derivatives are subject to the same risk management policies as all other derivative contracts. Sensitivity to movements in foreign exchange rates For the year ended 31 December 2021, a movement of one cent in the US dollar and euro average exchange rates would have changed profit before income tax by £2.0m and £0.9m respectively (2020: £2.0m and £1.2m) and adjusted profit before income tax by £2.3m and £1.2m respectively (2020: £2.5m and £1.5m). If a 10% strengthening or weakening of sterling had taken place on 31 December it would have increased/(decreased) profit before income tax and (decreased)/increased equity for the year by the amounts shown below. The impact of this translation is much greater on equity than it is on profit before income tax since equity is translated using the closing exchange rates at the year end and profit before income tax is translated using the average exchange rates for the year. As a result, the value of equity is more sensitive than the value of profit before income tax to a movement in exchange rates on 31 December and the resulting movement in profit before income tax is due solely to the translation effect on monetary items. This analysis assumes that all other variables, in particular interest rates, remain constant. Impact on profit before tax Impact on equity +10% £m –10% £m +10% £m –10% £m 2021 0.4 (0.5) (177.0) 212.9 2020 0.4 (0.5) (192.7) 200.9 (d) Credit risk Credit risk is the risk of loss in relation to a financial asset due to non-payment by the relevant counterparty. The Group’s objective is to reduce its exposure to counterparty default by restricting the type of counterparty it deals with and by employing an appropriate policy in relation to the collection of financial assets. The Group’s financial assets are cash at bank and in hand, derivative financial instruments and trade and other receivables which represent the Group’s maximum exposure to credit risk in relation to financial assets. The maximum exposure to credit risk for cash at bank and in hand, derivative financial assets (see page 190) and trade and other receivables (see Note 14) is their respective carrying amounts. Dealings are restricted to those banks with the relevant combination of geographic presence and suitable credit rating. The Group continually monitors the credit ratings of its counterparties and the credit exposure to each counterparty. For trade and other receivables, the amounts represented in the balance sheet are net of any impairment losses measured using the expected credit loss model. Note 14 sets out an analysis of trade and other receivables and the provision for doubtful debts in respect of trade receivables. At the balance sheet date there were no significant concentrations of credit risk (2020: none). Bunzl plc Annual Report 2021 189  FINANCIAL STATEMENTS 16 Risk management and financial instruments continued (e) Financial instruments Financial assets and liabilities 2021 £m 2020 £m Financial assets held at amortised cost Cash at bank and in hand 776.9 944.3 Trade and other receivables 1,344.2 1,299.7 Financial assets held at fair value Interest rate derivatives in fair value hedges 6.6 12.6 Foreign exchange derivatives in cash flow hedges 1.4 – Foreign exchange derivatives in net investment hedges 7.0 4.6 Other foreign exchange and interest rate derivatives 6.8 12.4 Total financial assets 2,142.9 2,273.6 Financial liabilities held at amortised cost Bank overdrafts (551.6) (514.6) Bank loans (14.6) (45.6) US private placement notes (862.4) (954.2) Senior bonds (668.6) (695.3) Lease liability (488.7) (497.5) Trade and other payables (1,866.6) (1,793.6) Financial liabilities held at fair value Interest rate derivatives in fair value hedges (27.9) (0.8) Foreign exchange derivatives in cash flow hedges (0.9) (5.3) Foreign exchange derivatives in net investment hedges (3.9) (16.3) Other foreign exchange derivatives (5.6) (2.0) Other payables (99.6) (58.9) Total financial liabilities (4,590.4) (4,584.1) Financial assets and liabilities stated as being measured at fair value in the tables above (including all derivative financial instruments), with the exception of other payables, have carrying amounts where the fair value is, and has been throughout the year, a level two fair value measurement. Level two fair value measurements use inputs other than quoted prices that are observable for the relevant asset or liability, either directly or indirectly. The fair values of financial assets and liabilities stated at level two fair value have been determined by discounting expected future cash flows, translated at the appropriate balance sheet date exchange rates and adjusted for counterparty or own credit risk as applicable. Other payables measured at fair value relate to earn outs on businesses acquired. This is a level three fair value which is initially measured based on the expected future profitability of the businesses acquired at the acquisition date and subsequently reassessed at each reporting date based on the most recent data available on the expected profitability of the businesses acquired. There were no transfers between levels for recurring fair value measurements during the year. As at 31 December 2021 the fair values, based on unadjusted market data, of the US private placement notes was £882.1m (2020: £991.9m) and of the senior bonds was £694.0m (2020: £731.6m). For other financial assets and financial liabilities not measured at fair value, including cash at bank and in hand, bank loans and overdrafts, trade and other receivables and trade and other payables, their carrying amount is a reasonable approximation of fair value due to their short term nature. Bank loans are priced based on floating interest rates and the credit spread has not changed since the inception of the loan. 189Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 190 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued Offsetting of financial assets and liabilities The following table sets out the Group’s derivative financial assets and liabilities that are subject to counterparty offsetting or master netting agreements. 2021 Gross amounts £m Gros s amounts offset in the balance sheet £m Net amount s recognised in the balance sheet £m Amounts not offset in the balance sheet £m Net amounts £m Derivative financial assets 21.8 – 21.8 (12.1) 9.7 Derivative financial liabilities (38.3) – (38.3) 12.1 (26.2) 2020 Derivative financial assets 29.6 – 29.6 (19.4) 10.2 Derivative financial liabilities (24.4) – (24.4) 19.4 (5.0) 17 Provisions 2021 £m 202 0 £m Current 8.5 8.5 Non-current 56.3 55.7 64.8 64.2 2021 2020 Properties £m MEPP withdrawal £m Other £m Total £m Properties £m MEPP withdrawal £m Other £m Total £m Beginning of year 24.3 15.3 24.6 64.2 18.7 – 21.7 40.4 Charge 1.6 – 4.4 6.0 5.9 16.4 2.6 24.9 Acquisitions 2.1 – 2.6 4.7 1.0 – 3.4 4.4 Utilised or released (2.5) (3.2 ) (3.1) (8.8) (1.7) – (2.5) (4.2) Currency translation (0.3) 0.2 (1.2) (1.3) 0.4 (1.1) (0.6) (1.3) End of year 25.2 12.3 27.3 64.8 24.3 15.3 24.6 64.2 The Properties provision includes provisions for repairs and dilapidations. These provisions cover the relevant periods of the lease agreements, which typically extend from one to 10 years, up to the expected termination date. The MEPP withdrawal provision relates to the withdrawal liability on multi-employer pension plans in North America. See Note 23 for further details. Group companies are, from time to time, subject to certain claims and litigation incidental to their operations and arising in the ordinary course of business including, but not limited to, those relating to the products and services that they supply, contractual and commercial disputes, environmental claims and employment related disputes. Other provisions include management’s best estimate of the liabilities for such claims and litigation at the balance sheet date, determined by reference to known factors and past experience of similar items. Provision is made if, on the basis of current information and professional advice, liabilities are considered likely to arise. Management expects these matters to be settled within the next one to five years. While any dispute has an element of uncertainty, management does not expect that the actual outcome of any such claims and litigation, either individually or in the aggregate, will be materially different to the amounts provided. In the case of unfavourable outcomes, the Group may benefit from applicable insurance protection. Bunzl plc Annual Report 2021190 FINANCIAL STATEMENTS Notes continued 190 Bunzl plc Annual Report 2021  16 Risk management and financial instruments continued Offsetting of financial assets and liabilities The following table sets out the Group’s derivative financial assets and liabilities that are subject to counterparty offsetting or master netting agreements. 2021 Gross amounts £m Gros s amounts offset in the balance sheet £m Net amount s recognised in the balance sheet £m Amounts not offset in the balance sheet £m Net amounts £m Derivative financial assets 21.8 – 21.8 (12.1) 9.7 Derivative financial liabilities (38.3) – (38.3) 12.1 (26.2) 2020 Derivative financial assets 29.6 – 29.6 (19.4) 10.2 Derivative financial liabilities (24.4) – (24.4) 19.4 (5.0) 17 Provisions 2021 £m 202 0 £m Current 8.5 8.5 Non-current 56.3 55.7 64.8 64.2 2021 2020 Properties £m MEPP withdrawal £m Other £m Total £m Properties £m MEPP withdrawal £m Other £m Total £m Beginning of year 24.3 15.3 24.6 64.2 18.7 – 21.7 40.4 Charge 1.6 – 4.4 6.0 5.9 16.4 2.6 24.9 Acquisitions 2.1 – 2.6 4.7 1.0 – 3.4 4.4 Utilised or released (2.5) (3.2 ) (3.1) (8.8) (1.7) – (2.5) (4.2) Currency translation (0.3) 0.2 (1.2) (1.3) 0.4 (1.1) (0.6) (1.3) End of year 25.2 12.3 27.3 64.8 24.3 15.3 24.6 64.2 The Properties provision includes provisions for repairs and dilapidations. These provisions cover the relevant periods of the lease agreements, which typically extend from one to 10 years, up to the expected termination date. The MEPP withdrawal provision relates to the withdrawal liability on multi-employer pension plans in North America. See Note 23 for further details. Group companies are, from time to time, subject to certain claims and litigation incidental to their operations and arising in the ordinary course of business including, but not limited to, those relating to the products and services that they supply, contractual and commercial disputes, environmental claims and employment related disputes. Other provisions include management’s best estimate of the liabilities for such claims and litigation at the balance sheet date, determined by reference to known factors and past experience of similar items. Provision is made if, on the basis of current information and professional advice, liabilities are considered likely to arise. Management expects these matters to be settled within the next one to five years. While any dispute has an element of uncertainty, management does not expect that the actual outcome of any such claims and litigation, either individually or in the aggregate, will be materially different to the amounts provided. In the case of unfavourable outcomes, the Group may benefit from applicable insurance protection. Bunzl plc Annual Report 2021 191  FINANCIAL STATEMENTS 18 Deferred tax 2021 2020 Asset £m Liability £m Net £m Asset £m Liability £m Net £m Property, plant and equipment 1.4 (9.4) (8.0) 1.2 (10.6) (9.4) Defined benefit pension schemes 7.8 (15.7) (7.9) 11.4 (0.1) 11.3 Goodwill and customer relationships 4.1 (195.6) (191.5) 3.2 (160.4) (157.2) Share based payments 12.8 – 12.8 7.1 – 7.1 Leases 6.9 – 6.9 7.1 (0.1) 7.0 Provisions and accruals 33.7 (2.2) 31.5 33.2 (2.0) 31.2 Inventories 10.9 (7.1) 3.8 10.5 (10.4) 0.1 Other 8.2 (4.0) 4.2 10.7 (3.4) 7.3 Deferred tax asset/(liability) 85.8 (234.0) (148.2) 84.4 (187.0) (102.6) Set-off of tax (83.0) 83.0 – (81.9) 81.9 – Net deferred tax asset/(liability) 2.8 (151.0) (148.2) 2.5 (105.1) (102.6) Except as noted below, deferred tax is calculated in full on temporary differences under the liability method using the tax rate of the country of operation. The Company is able to control the dividend policy of its subsidiaries and, therefore, the timing of the remittance of the undistributed earnings of overseas subsidiaries. In general, the Company has determined either that such earnings will not be distributed in the foreseeable future or, where there are plans to remit those earnings, no tax liability is expected to arise except for a liability of £1.4m (2020: £0.6m) which has been provided for. Deferred tax assets in respect of temporary differences have only been recognised in respect of tax losses and other temporary differences where it is probable that these assets will be realised. No deferred tax asset has been recognised in respect of unutilised tax losses of £4.1m (2020: £6.2m). No deferred tax has been recognised in respect of unutilised capital losses of £94.6m (2020: £94.6m) as it is not considered probable that there will be suitable future taxable profits against which they can be utilised. The movement in the net deferred tax liability is shown below: 2021 £m 202 0 £m Beginning of year 102.6 123.8 Acquisitions 51.7 6.6 Credit to income statement (12.9) (22.9) Recognised in other comprehensive income and equity 16.1 (4.3) Reclassified to current tax (5.8) 0.9 Currency translation (3.5) (1.5) End of year 148.2 102.6 191Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 192 Bunzl plc Annual Report 2021  19 Share capital and share based payments 2021 £m 2020 £m Issued and fully paid ordinary shares of 32 1  7 p each 108.4 108.3 Number of ordinary shares in issue and fully paid 2021 2020 Beginning of year 336,998,961 336,792,607 Issued – option exercises 399,835 206,354 End of year 337,398,796 336,998,961 The Company operates a number of share plans for the benefit of employees of the Company and its subsidiaries. Further details of the share plans as they relate to the directors of the Company are set out in the Directors’ remuneration report. Sharesave Scheme, International Sharesave Plan and Irish Sharesave Plan For many years, the Company has operated all employee savings related share option schemes. The existing scheme in the UK, the Bunzl plc Sharesave Scheme, was approved by shareholders at the 2011 Annual General Meeting (‘AGM’) and renewal amendments were approved by shareholders at the 2021 AGM. It is an HMRC tax advantaged scheme and is open to all eligible UK employees, including UK based executive directors. The Bunzl Irish Sharesave Plan, which is approved by the Irish Revenue Commissioners, and the Bunzl plc International Sharesave Plan, were first introduced in 2006 and have since been extended, most recently following the renewal of the Bunzl plc Sharesave Scheme in 2021. The Bunzl plc Sharesave Scheme, Bunzl plc International Sharesave Plan and the Bunzl Irish Sharesave Plan operate on a similar basis with options granted to participating employees who have completed at least three months of continuous service at a discount of up to 20% of the market price prevailing shortly before the invitation to apply for the options. Depending on the scheme, options are normally exercisable either three or five years after they have been granted with employees saving up to £500 (2020: £500) per month (or the equivalent value in other currencies under the Bunzl plc International Sharesave Plan) or €500 (2020: €500) per month under the Bunzl Irish Sharesave Plan. Long Term Incentive Plan 2004 (‘2004 LTIP’) and 2014 (‘2014 LTIP’) The 2004 LTIP was approved by shareholders at the 2004 Annual General Meeting and expired in May 2014. No further share options or performance share awards have been granted under the 2004 LTIP since that date. The 2014 LTIP was approved by shareholders at the 2014 Annual General Meeting and replaced the 2004 LTIP. The operation of both LTIPs is overseen by the Remuneration Committee of the Board and each is divided into two parts. Part A of the LTIP relates to the grant of market priced executive share options. In normal circumstances options granted under Part A are only exercisable if the relevant performance condition has been satisfied. The performance condition is based on the Company’s adjusted earnings per share growth exceeding UK RPI inflation over three financial years by a specified margin (for the 2004 LTIP) or meeting certain specified targets (for the 2014 LTIP). Part B of the LTIP relates to the grant of performance share awards and restricted share awards both of which are conditional rights to receive shares in the Company for nil consideration. Performance share awards and restricted awards will usually vest (i.e. become exercisable) on the third anniversary of their grant. The extent to which a performance share award will vest is usually subject to the extent to which the applicable performance conditions have been satisfied, based partly on the Company’s total shareholder return performance, relative to a comparator group of companies over a three year period, and partly subject to the Company’s adjusted earnings per share growth exceeding UK RPI inflation over three years by a specified margin (for the 2004 LTIP) or meeting certain specified targets (for the 2014 LTIP). The extent to which a restricted share award will vest is usually subject to the extent to which the applicable underpin condition has been satisfied. There are no set measures or targets in relation to the underpin condition. The basis of assessment is at the absolute discretion of the Remuneration Committee. Investment in own shares The Company holds a number of its ordinary shares in an employee benefit trust. The principal purpose of this trust is to hold shares in the Company for subsequent transfer to certain senior employees and executive directors in relation to options granted and awards made under the LTIPs and the Deferred Annual Share Bonus Scheme (‘DASBS’) over market purchase shares. Details of these plans are set out above and in the Directors’ remuneration report. The assets, liabilities and expenditure of the trust have been incorporated in the consolidated financial statements. Finance expenses and administration charges are included in the income statement on an accruals basis. As at 31 December 2021 the trust held 1,831,893 (2020: 3,006,186) shares, upon which dividends have been waived, with an aggregate nominal value of £0.6m (2020: £1.0m) and market value of £52.9m (2020: £73.4m). Bunzl plc Annual Report 2021192 FINANCIAL STATEMENTS Notes continued 192 Bunzl plc Annual Report 2021  19 Share capital and share based payments 2021 £m 2020 £m Issued and fully paid ordinary shares of 32 1  7 p each 108.4 108.3 Number of ordinary shares in issue and fully paid 2021 2020 Beginning of year 336,998,961 336,792,607 Issued – option exercises 399,835 206,354 End of year 337,398,796 336,998,961 The Company operates a number of share plans for the benefit of employees of the Company and its subsidiaries. Further details of the share plans as they relate to the directors of the Company are set out in the Directors’ remuneration report. Sharesave Scheme, International Sharesave Plan and Irish Sharesave Plan For many years, the Company has operated all employee savings related share option schemes. The existing scheme in the UK, the Bunzl plc Sharesave Scheme, was approved by shareholders at the 2011 Annual General Meeting (‘AGM’) and renewal amendments were approved by shareholders at the 2021 AGM. It is an HMRC tax advantaged scheme and is open to all eligible UK employees, including UK based executive directors. The Bunzl Irish Sharesave Plan, which is approved by the Irish Revenue Commissioners, and the Bunzl plc International Sharesave Plan, were first introduced in 2006 and have since been extended, most recently following the renewal of the Bunzl plc Sharesave Scheme in 2021. The Bunzl plc Sharesave Scheme, Bunzl plc International Sharesave Plan and the Bunzl Irish Sharesave Plan operate on a similar basis with options granted to participating employees who have completed at least three months of continuous service at a discount of up to 20% of the market price prevailing shortly before the invitation to apply for the options. Depending on the scheme, options are normally exercisable either three or five years after they have been granted with employees saving up to £500 (2020: £500) per month (or the equivalent value in other currencies under the Bunzl plc International Sharesave Plan) or €500 (2020: €500) per month under the Bunzl Irish Sharesave Plan. Long Term Incentive Plan 2004 (‘2004 LTIP’) and 2014 (‘2014 LTIP’) The 2004 LTIP was approved by shareholders at the 2004 Annual General Meeting and expired in May 2014. No further share options or performance share awards have been granted under the 2004 LTIP since that date. The 2014 LTIP was approved by shareholders at the 2014 Annual General Meeting and replaced the 2004 LTIP. The operation of both LTIPs is overseen by the Remuneration Committee of the Board and each is divided into two parts. Part A of the LTIP relates to the grant of market priced executive share options. In normal circumstances options granted under Part A are only exercisable if the relevant performance condition has been satisfied. The performance condition is based on the Company’s adjusted earnings per share growth exceeding UK RPI inflation over three financial years by a specified margin (for the 2004 LTIP) or meeting certain specified targets (for the 2014 LTIP). Part B of the LTIP relates to the grant of performance share awards and restricted share awards both of which are conditional rights to receive shares in the Company for nil consideration. Performance share awards and restricted awards will usually vest (i.e. become exercisable) on the third anniversary of their grant. The extent to which a performance share award will vest is usually subject to the extent to which the applicable performance conditions have been satisfied, based partly on the Company’s total shareholder return performance, relative to a comparator group of companies over a three year period, and partly subject to the Company’s adjusted earnings per share growth exceeding UK RPI inflation over three years by a specified margin (for the 2004 LTIP) or meeting certain specified targets (for the 2014 LTIP). The extent to which a restricted share award will vest is usually subject to the extent to which the applicable underpin condition has been satisfied. There are no set measures or targets in relation to the underpin condition. The basis of assessment is at the absolute discretion of the Remuneration Committee. Investment in own shares The Company holds a number of its ordinary shares in an employee benefit trust. The principal purpose of this trust is to hold shares in the Company for subsequent transfer to certain senior employees and executive directors in relation to options granted and awards made under the LTIPs and the Deferred Annual Share Bonus Scheme (‘DASBS’) over market purchase shares. Details of these plans are set out above and in the Directors’ remuneration report. The assets, liabilities and expenditure of the trust have been incorporated in the consolidated financial statements. Finance expenses and administration charges are included in the income statement on an accruals basis. As at 31 December 2021 the trust held 1,831,893 (2020: 3,006,186) shares, upon which dividends have been waived, with an aggregate nominal value of £0.6m (2020: £1.0m) and market value of £52.9m (2020: £73.4m). Bunzl plc Annual Report 2021 193  FINANCIAL STATEMENTS 19 Share capital and share based payments continued IFRS 2 disclosures Options granted during the year have been valued using a Black-Scholes model. The fair value per option granted during the year and the assumptions used in the calculations are as follows: 2021 202 0 Grant date 31.03.21–15.09.21 10.03.20–30.10.20 Share price at grant date (£) 23.23–25.28 15.55–25.21 Exercise price (£) nil–26.03 nil–23.92 Number of options granted during the year (shares) 2,405,719 3,418,392 Vesting period (years) 3–5 3–5.2 Expected volatility (%) 19–21 18–24 Option life (years) 3.0–10 3.0–10 Expected life (years) 3.0–6.5 3.0–6.7 Risk free rate of return (%) 0.1–0.6 0.0–0.2 Expected dividends expressed as a dividend yield (%) 0.0–2.3 2.1–3.3 Fair value per option (£) 2.87–18.54 1.34–22.34 The expected volatility is based on historical volatility over the last three to seven years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life. The weighted average share price for options exercised by employees of the Company and its subsidiaries during the year was £26.37 (2020: £24.29). The total charge for the year relating to share based payments was £12.7m (2020: £14.9m). After tax the total charge was £8.4m (2020: £11.2m). Details of share options and awards which have been granted and exercised, those which have lapsed during 2021 and those outstanding and available to exercise at 31 December 2021, whether over new issue or market purchase shares, under the Sharesave Scheme (2011), International Sharesave Plan, Irish Sharesave Plan, the 2004 LTIP Part A and Part B and 2014 LTIP Part A and Part B, are set out in the following table: Options outstanding at 01.01.2021 Grants/ awards Exercises Lapses * Options outstanding Options available to exercise at 31.12.21 2021 2021 2021 at 31.12.21 Numbe r Numbe r Price (£ ) Numbe r Price (£ ) Number Numbe r Price (£ ) Numbe r Sharesave Scheme (2011) 649,528 313,410 17.81 222,897 15.28-19.16 86,314 653,727 15.28-19.16 2,497 International Sharesave Plan 267,493 110,154 17.81 82,420 15.28-19.16 30,950 264,277 15.28-19.16 1,998 Irish Sharesave Plan 39,355 14,166 17.81 19,100 15.28-19.16 3,901 30,520 15.28-19.16 – 2004 LTIP Part A 562,335 – – 295,644 8.13-15.66 – 266,691 10.90-15.66 266,691 2014 LTIP Part A 10,114,066 1,705,506 26.03 2,029,037 16.38-24.01 207,747 9,582,788 16.38-26.03 3,358,418 2014 LTIP Part B 1,479,090 262,483 nil 295,238 nil 109,350 1,336,985 nil 56,895 13,111,867 2,405,719 2,944,336 438,262 12,134,988 3,686,499 * Share option lapses relate to those which have either been forfeited or have expired during the year. For the options outstanding at 31 December 2021, the weighted average fair values and the weighted average remaining contractual lives (being the time period from 31 December 2021 until the lapse date of each share option) are set out below: Weighted average fair value of options outstanding (£) Weighted average remaining contractual life (years) Sharesave Scheme (2011) 4.31 2.29 International Sharesave Plan 4.29 2.00 Irish Sharesave Plan 4.57 1.98 2004 LTIP and 2014 LTIP Part A 2.82 7.27 2004 LTIP and 2014 LTIP Part B 16.12 4.22 The outstanding share options and performance share awards are exercisable at various dates up to September 2031. 193Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 194 Bunzl plc Annual Report 2021  20 Dividends Total dividends for the years in which they are recognised are: 2021 £m 2020 £m 2019 interim 51.7 2019 additional interim 119.8 2020 interim 52.8 2020 final 127.6 Total 180.4 171.5 Total dividends per share for the year to which they relate are: Per share 2021 202 0 Interim 16.2p 15.8p Final 40.8p 38.3p Total 57.0p 54.1p The 2021 interim dividend of 16.2p per share was paid on 5 January 2022 and comprised £54.3m of cash. The 2021 final dividend of 40.8p per share will be paid on 4 July 2022 to shareholders on the register at the close of business on 20 May 2022. The 2021 final dividend will comprise approximately £137m of cash. * The 2019 final dividend of 35.8p per share recommended by the Board of directors of the Company in the 2019 Annual results announcement on 24 February 2020 was subsequently not proposed at the Annual General Meeting on 15 April 2020 as a result of the heightened uncertainty created by the Covid-19 pandemic. As a result of the better than expected trading performance during the first half of 2020, the Board of directors of the Company decided to reinstate the final dividend for the year ended 31 December 2019 at the same level as originally proposed (35.8p per share) as an additional interim dividend for the year ended 31 December 2019. This was paid on 16 November 2020 and comprised £119.8m of cash. 21 Contingent liabilities 2021 £m 2020 £m Bank guarantees 1.5 1.3 22 Directors’ ordinary share interests The interests of the directors, and their connected persons, in the share capital of the Company at 31 December were: 2021 2020 Peter Ventress 2,608 2,608 Frank van Zanten 153,116 122,428 Richard Howes 30,117 8,363 Vanda Murray 3,000 3,000 Lloyd Pitchford 4,000 4,000 Stephan Nanninga – – Vinodka Murria – – Maria Fernanda Mejía – – 192,841 140,399 Details of the directors’ options and awards over ordinary shares made under the 2014 LTIP, Sharesave Scheme (2011) and DASBS are set out in the Directors’ remuneration report. No changes to the directors’ ordinary share interests shown in this Note and the Directors’ remuneration report have taken place between 31 December 2021 and 28 February 2022. Bunzl plc Annual Report 2021194 FINANCIAL STATEMENTS Notes continued 194 Bunzl plc Annual Report 2021  20 Dividends Total dividends for the years in which they are recognised are: 2021 £m 2020 £m 2019 interim 51.7 2019 additional interim 119.8 2020 interim 52.8 2020 final 127.6 Total 180.4 171.5 Total dividends per share for the year to which they relate are: Per share 2021 202 0 Interim 16.2p 15.8p Final 40.8p 38.3p Total 57.0p 54.1p The 2021 interim dividend of 16.2p per share was paid on 5 January 2022 and comprised £54.3m of cash. The 2021 final dividend of 40.8p per share will be paid on 4 July 2022 to shareholders on the register at the close of business on 20 May 2022. The 2021 final dividend will comprise approximately £137m of cash. * The 2019 final dividend of 35.8p per share recommended by the Board of directors of the Company in the 2019 Annual results announcement on 24 February 2020 was subsequently not proposed at the Annual General Meeting on 15 April 2020 as a result of the heightened uncertainty created by the Covid-19 pandemic. As a result of the better than expected trading performance during the first half of 2020, the Board of directors of the Company decided to reinstate the final dividend for the year ended 31 December 2019 at the same level as originally proposed (35.8p per share) as an additional interim dividend for the year ended 31 December 2019. This was paid on 16 November 2020 and comprised £119.8m of cash. 21 Contingent liabilities 2021 £m 2020 £m Bank guarantees 1.5 1.3 22 Directors’ ordinary share interests The interests of the directors, and their connected persons, in the share capital of the Company at 31 December were: 2021 2020 Peter Ventress 2,608 2,608 Frank van Zanten 153,116 122,428 Richard Howes 30,117 8,363 Vanda Murray 3,000 3,000 Lloyd Pitchford 4,000 4,000 Stephan Nanninga – – Vinodka Murria – – Maria Fernanda Mejía – – 192,841 140,399 Details of the directors’ options and awards over ordinary shares made under the 2014 LTIP, Sharesave Scheme (2011) and DASBS are set out in the Directors’ remuneration report. No changes to the directors’ ordinary share interests shown in this Note and the Directors’ remuneration report have taken place between 31 December 2021 and 28 February 2022. Bunzl plc Annual Report 2021 195  FINANCIAL STATEMENTS 23 Retirement benefits The Group operates a number of defined benefit and defined contribution retirement benefit schemes in the US, the UK and elsewhere in Europe (including France, the Netherlands and the Republic of Ireland). The funds of the principal defined benefit schemes are administered by trustees and are held independently from the Group. Pension costs of defined benefit schemes are assessed in accordance with the advice of independent professionally qualified actuaries. Contributions to all schemes are determined in line with actuarial advice and local conditions and practices. Scheme assets for the purpose of IAS 19 ‘Employee Benefits’ are stated at their bid value. Characteristics of defined benefit pension schemes UK The UK defined benefit scheme is a contributory defined benefit pension scheme providing benefits based on final pensionable pay. The scheme has been closed to new members since 2003. The valuation of the UK defined benefit pension scheme has been updated to 31 December 2021 by the Group’s actuaries. The UK scheme is an HMRC registered pension scheme and is subject to standard UK pensions and tax law. This means that the payment of contributions and benefits are subject to the appropriate tax treatments and restrictions and the scheme is subject to the scheme funding requirements outlined in section 224 of the Pensions Act 2004. In accordance with UK trust and pensions law, the pension scheme has a corporate trustee. Although the Company bears the financial cost of the scheme, the responsibility for the management and governance of the scheme lies with the trustee, which has a duty to act in the best interest of members at all times. The assets of the scheme are held in trust by the trustee who consults with the Company on investment strategy decisions. The trustee, in agreement with the Company, has hedging in place to reduce the impact of inflation and interest rate movements on the funding of the plan. The last full triennial valuation on the UK defined benefit pension scheme was carried out by a qualified actuary as at 5 April 2018 and showed that there was a deficit on the agreed funding basis. To address the deficit, the Company has agreed to contribute an additional £5.5m per year from March 2019 to 30 June 2022. The triennial valuation as at 5 April 2021 is ongoing. US The principal US defined benefit pension scheme is a non-contributory defined benefit pension scheme providing benefits based on final pensionable pay. The scheme has been closed to new members since 2003. The valuation of the US defined benefit pension scheme has been updated to 31 December 2021 by the Group’s actuaries. The US scheme is a qualified pension scheme and is subject to standard regulations under the Employee Retirement Income Security Act of 1974, the Pension Protection Act of 2006 and the Department of Labor and Internal Revenue reporting requirements. The scheme pays annual premiums to the Pension Benefit Guaranty Corporation to insure the benefits of the scheme. The assets of the scheme are held in trust by an independent custodian. The Company has established a Retirement Scheme Investment Committee. The members of the Committee are the scheme fiduciaries and, as such, are ultimately responsible for the management of the scheme assets. The Committee performs the oversight function and delegates the day-to-day management process to appropriate staff. A registered investment adviser advises the Committee regarding the investment of scheme assets. A de-risking strategy has been agreed for the scheme to reduce the mismatch between the assets and liabilities, whereby investments are switched from return seeking assets to liability matching assets as the funding improves, based on pre-agreed triggers. Annual actuarial valuations are performed on the US defined benefit pension scheme. The last annual review was carried out by a qualified actuary as at 1 January 2021 and showed that there was a required annual contribution of $3.4m. In 2022, the Group plans to contribute $6.0m which also includes a contribution prior to the termination of one of the schemes. In 2021, Bunzl paid a contribution of $1.1m for the 2020 plan year. The annual review as at 1 January 2022 is ongoing. Risks The main risks to which the Group is exposed in relation to the defined benefit pension schemes are described below: • Inflation risk – the majority of the UK scheme’s liabilities increase in line with inflation and, as a result, if inflation is greater than expected the liabilities will increase. The impact of high inflation is capped each year for the UK scheme’s benefits. The US scheme’s liabilities are not directly tied to inflationary increases. • Interest rate risk – a fall in bond yields will increase the value of the schemes’ liabilities. A proportion of both the UK and US schemes’ assets are invested in liability matching assets to mitigate the interest rate and also the inflation risk. • Mortality risk – the assumptions adopted by the Group make allowance for future improvements in life expectancy. However, if life expectancy improves at a faster rate than assumed, this would result in greater payments from the schemes and consequently increases in the schemes’ liabilities. The mortality assumptions are reviewed on a regular basis to minimise the risk of using an inappropriate assumption. 195Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 196 Bunzl plc Annual Report 2021  23 Retirement benefits continued Risks continued • Investment risk – the schemes invest in a diversified range of asset classes to mitigate the risk of falls in any one area of the investments. In the UK, the trustee implements partial currency hedging on the overseas assets to mitigate currency risk. The risks mentioned above could lead to a material change to the deficit or surplus of the pension schemes. Given the long term time horizon of the schemes’ cash flows, the assumptions used can lead to volatility in the scheme valuations from year to year. The Company and the trustee of the UK scheme seek to mitigate actively the risks associated with the schemes. A higher defined benefit obligation could lead to additional funding requirements in future years. Any deficit measured on a funding valuation basis, which may differ from the actuarial valuation under IAS 19, will generally be financed over a period that ensures the contributions are appropriate to the Group and in line with the relevant regulations. Financial information The amounts included in the consolidated financial statements at 31 December were: Amounts included in the income statement 2021 £m 202 0 £m Defined contribution pension schemes 23.0 22.0 Defined benefit pension schemes current service cost (net of contributions by employees) 5.7 6.2 past service cost 0.1 – losses on curtailment and settlement 0.7 – Total included in employee costs excluding non-recurring pensions scheme charges 29.5 28.2 Defined benefit pension schemes past service cost recognised in non-recurring pension scheme charges – 0.4 Total included in employee costs 29.5 28.6 Amounts included in finance (income)/expense Net interest income on defined benefit pension schemes in surplus (0.1) (0.3) Net interest expense on defined benefit pension schemes in deficit 0.8 1.0 Total charge to the income statement 30.2 29.3 Amounts recognised in the statement of comprehensive income 2021 £m 2020 £m Actual return less expected return on pension scheme assets 26.1 57.9 Experience gain on pension scheme liabilities 20.1 2.0 Impact of changes in financial assumptions relating to the present value of pension scheme liabilities 20.1 (77.4) Impact of changes in demographic assumptions relating to the present value of pension scheme liabilities 7.8 1.3 Actuarial gain/(loss) on defined benefit pension schemes 74.1 (16.2) The cumulative amount of net actuarial losses arising since 1 January 2004 recognised in the statement of comprehensive income at 31 December 2021 was £41.9m (2020: £116.0m). The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 were: UK 2021 2020 Longevity at age 65 for current pensioners (years) 22.0 22.0 Longevity at age 65 for future pensioners (years) 23.4 23.4 US Longevity at age 65 for current and future pensioners (years) 21.6 21.4 UK US 2021 202 0 2019 2021 202 0 2019 Rate of increase in salaries 3.8% 3.4% 3.4% 3.0% 3.0% 3.0% Rate of increase in pensions 2.8% 2.4% 2.2% – – – Discount rate 1.8% 1.4% 2.1% 2.6% 2.3% 3.1% Inflation rate 2.8% 2.4% 2.2% 2.3% 2.3% 2.3% The assumptions used by the actuaries are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescales covered, may not necessarily be borne out in practice. Bunzl plc Annual Report 2021196 FINANCIAL STATEMENTS Notes continued 196 Bunzl plc Annual Report 2021  23 Retirement benefits continued Risks continued • Investment risk – the schemes invest in a diversified range of asset classes to mitigate the risk of falls in any one area of the investments. In the UK, the trustee implements partial currency hedging on the overseas assets to mitigate currency risk. The risks mentioned above could lead to a material change to the deficit or surplus of the pension schemes. Given the long term time horizon of the schemes’ cash flows, the assumptions used can lead to volatility in the scheme valuations from year to year. The Company and the trustee of the UK scheme seek to mitigate actively the risks associated with the schemes. A higher defined benefit obligation could lead to additional funding requirements in future years. Any deficit measured on a funding valuation basis, which may differ from the actuarial valuation under IAS 19, will generally be financed over a period that ensures the contributions are appropriate to the Group and in line with the relevant regulations. Financial information The amounts included in the consolidated financial statements at 31 December were: Amounts included in the income statement 2021 £m 202 0 £m Defined contribution pension schemes 23.0 22.0 Defined benefit pension schemes current service cost (net of contributions by employees) 5.7 6.2 past service cost 0.1 – losses on curtailment and settlement 0.7 – Total included in employee costs excluding non-recurring pensions scheme charges 29.5 28.2 Defined benefit pension schemes past service cost recognised in non-recurring pension scheme charges – 0.4 Total included in employee costs 29.5 28.6 Amounts included in finance (income)/expense Net interest income on defined benefit pension schemes in surplus (0.1) (0.3) Net interest expense on defined benefit pension schemes in deficit 0.8 1.0 Total charge to the income statement 30.2 29.3 Amounts recognised in the statement of comprehensive income 2021 £m 2020 £m Actual return less expected return on pension scheme assets 26.1 57.9 Experience gain on pension scheme liabilities 20.1 2.0 Impact of changes in financial assumptions relating to the present value of pension scheme liabilities 20.1 (77.4) Impact of changes in demographic assumptions relating to the present value of pension scheme liabilities 7.8 1.3 Actuarial gain/(loss) on defined benefit pension schemes 74.1 (16.2) The cumulative amount of net actuarial losses arising since 1 January 2004 recognised in the statement of comprehensive income at 31 December 2021 was £41.9m (2020: £116.0m). The principal assumptions used by the independent qualified actuaries for the purposes of IAS 19 were: UK 2021 2020 Longevity at age 65 for current pensioners (years) 22.0 22.0 Longevity at age 65 for future pensioners (years) 23.4 23.4 US Longevity at age 65 for current and future pensioners (years) 21.6 21.4 UK US 2021 202 0 2019 2021 202 0 2019 Rate of increase in salaries 3.8% 3.4% 3.4% 3.0% 3.0% 3.0% Rate of increase in pensions 2.8% 2.4% 2.2% – – – Discount rate 1.8% 1.4% 2.1% 2.6% 2.3% 3.1% Inflation rate 2.8% 2.4% 2.2% 2.3% 2.3% 2.3% The assumptions used by the actuaries are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescales covered, may not necessarily be borne out in practice. Bunzl plc Annual Report 2021 197  FINANCIAL STATEMENTS 23 Retirement benefits continued Financial information continued The increase/(decrease) that would arise on the overall net pension surplus as at 31 December 2021 as a result of reasonably possible changes to key assumptions was: Impact of change in longevity Impact of change in inflation rate Impact of change in discount rate +1 yea r £m –1 yea r £m +0.25 % £m –0.25 % £m +0.25 % £m –0.25 % £m UK (14.8) 15.6 (9.5) 9.1 17.2 (18.9 ) US (3.7) 3.8 – – 3.0 (3.2 ) The market value of pension scheme assets and the present value of retirement benefit obligations at 31 December were: 2021 UK £m US £m Other £m Total £m Equities 149.9 52.1 3.0 205.0 Bonds 308.8 46.4 9.9 365.1 Other 0.3 16.1 13.9 30.3 Total market value of pension scheme assets 459.0 114.6 26.8 600.4 Present value of funded obligations (396.2) (122.4) (28.1) (546.7) Present value of unfunded obligations – (11.2) (11.3) (22.5) Present value of funded and unfunded obligations (396.2) (133.6) (39.4) (569.2) Defined benefit pension schemes in deficit – (19.0) (13.4) (32.4) Defined benefit pension schemes in surplus 62.8 – 0.8 63.6 Total surplus/(deficit) before tax 62.8 (19.0) (12.6) 31.2 Deferred tax (15.7) 4.4 3.4 (7.9) Total surplus/(deficit) after tax 47.1 (14.6) (9.2) 23.3 2020 UK £m US £m Other £m Total £m Equities 143.3 58.0 4.1 205.4 Bonds 293.9 54.0 8.6 356.5 Other 1.1 13.7 15.6 30.4 Total market value of pension scheme asse ts 438.3 125.7 28.3 592.3 Present value of funded obligations (437.9) (142.9) (31.1) (611.9) Present value of unfunded obligations – (11.6) (13.6) (25.2) Present value of funded and unfunded obligations (437.9) (154.5) (44.7) (637.1) Defined benefit pension schemes in deficit – (28.8) (16.4) (45.2) Defined benefit pension schemes in surplus 0.4 – – 0.4 Total surplus/(deficit) before tax 0.4 (28.8) (16.4) (44.8) Deferred tax (0.1) 6.8 4.6 11.3 Total surplus/(deficit) after tax 0.3 (22.0) (11.8) (33.5) There is a net surplus of £47.1m (£62.8m before deferred tax) (2020: £0.3m (£0.4m before deferred tax)) on the UK scheme, which is recorded separately as a defined benefit pension asset on the balance sheet. In accordance with IFRIC 14, the surplus on the scheme is recognised as a defined benefit asset because the Group considers that it has an unconditional right to a refund of any surplus from the UK scheme. Of the pension scheme assets, £574.9m (2020: £566.6m) are valued based on a quoted market prices. Movement in net surplus/(deficit) 2021 £m 2020 £m Beginning of year (44.8) (36.0) Current service cost (5.7) (6.2) Past service cost (0.1) (0.4) Contributions 8.4 14.6 Net interest expense (0.7) (0.7) Actuarial gain/(loss) 74.1 (16.2) Net benefit obligation attributable to settlement (0.7) – Currency translation 0.7 0.1 End of year 31.2 (44.8) 197Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 198 Bunzl plc Annual Report 2021  23 Retirement benefits continued Financial information continued Changes in the present value of defined benefit pension scheme liabilities 2021 £m 2020 £m Beginning of year 637.1 572.6 Current service cost 5.7 6.2 Past service cost 0.1 0.4 Interest expense 9.8 12.9 Contributions by employees 0.5 0.6 Benefit obligation attributable to settlement (7.7) – Actuarial (gain)/loss (48.0) 74.1 Benefits paid (27.7) (26.1) Currency translation (0.6) (3.6) End of year 569.2 637.1 Changes in the fair value of defined benefit pension scheme assets 2021 £m 2020 £m Beginning of year 592.3 536.6 Interest income 9.1 12.2 Actuarial gain 26.1 57.9 Contributions by employer 8.4 14.6 Contributions by employees 0.5 0.6 Benefits paid due to settlement (8.4) – Benefits paid (27.7) (26.1) Currency translation 0.1 (3.5) End of year 600.4 592.3 The actual return on pension scheme assets was a gain of £35.2m (2020: gain of £70.1m). The Group expects to pay approximately £12.0m in contributions to the defined benefit pension schemes in the year ending 31 December 2022 (expected as at 31 December 2020 for the year ending 31 December 2021: £15.3m) including £6.8m for the UK (expected as at 31 December 2020 for the year ending 31 December 2021: £7.0m). The weighted average duration of the defined benefit pension scheme liabilities at 31 December 2021 was approximately 18.2 years (2020: 19.4 years) for the UK and 10.4 years (2020: 11.7 years) for the US. The total defined benefit pension scheme liabilities are divided between active members (£155.5m (2020: (£206.8m)), deferred members (£186.0m (2020: £204.2m)) and pensioners (£227.7m (2020: £226.1m)). Multi-employer pension plans The Group participates in six multi-employer pensions plans (‘MEPPs’) in North America. Although these plans are defined benefit plans the Group does not have sufficient information to account for them as defined benefit plans and, therefore, in accordance with IAS 19, accounts for them as defined contribution plans. For MEPPs, US law requires payment of a withdrawal liability when employers cease contributing to underfunded MEPPs. The liability for withdrawal payments is shared by all members of the group of companies in any particular plan and solvent entities must cover the unfunded liabilities of employers who are unable to pay due to insolvency or bankruptcy. On withdrawal from a plan, an employer’s withdrawal liability amount is calculated by reference to the employer’s proportionate share of the MEPP’s unfunded vested benefits based on the employer’s share of all contributions made to the plan over the previous 10 years. During 2020 the Group reviewed its exposure to the six MEPPs in which it participated and determined that it was in its best interests to serve notice to withdraw from three of the plans due to their critical funding status, recognising a provision for the estimated withdrawal liability for these three plans of £15.3m as at 31 December 2020, as shown in Note 17. During the year, the Group has agreed to pay a lump sum to settle the liability at the amount equal to that provided (£3.2m) for one of these plans. Negotiations on the Group’s exit from the other two plans remain ongoing. The Group continues to participate in the other three MEPPs and continues to account for these as defined contribution plans with the combined ongoing annual contributions for the three plans in 2022 expected to be no more than £2m per annum. Bunzl plc Annual Report 2021198 FINANCIAL STATEMENTS Notes continued 198 Bunzl plc Annual Report 2021  23 Retirement benefits continued Financial information continued Changes in the present value of defined benefit pension scheme liabilities 2021 £m 2020 £m Beginning of year 637.1 572.6 Current service cost 5.7 6.2 Past service cost 0.1 0.4 Interest expense 9.8 12.9 Contributions by employees 0.5 0.6 Benefit obligation attributable to settlement (7.7) – Actuarial (gain)/loss (48.0) 74.1 Benefits paid (27.7) (26.1) Currency translation (0.6) (3.6) End of year 569.2 637.1 Changes in the fair value of defined benefit pension scheme assets 2021 £m 2020 £m Beginning of year 592.3 536.6 Interest income 9.1 12.2 Actuarial gain 26.1 57.9 Contributions by employer 8.4 14.6 Contributions by employees 0.5 0.6 Benefits paid due to settlement (8.4) – Benefits paid (27.7) (26.1) Currency translation 0.1 (3.5) End of year 600.4 592.3 The actual return on pension scheme assets was a gain of £35.2m (2020: gain of £70.1m). The Group expects to pay approximately £12.0m in contributions to the defined benefit pension schemes in the year ending 31 December 2022 (expected as at 31 December 2020 for the year ending 31 December 2021: £15.3m) including £6.8m for the UK (expected as at 31 December 2020 for the year ending 31 December 2021: £7.0m). The weighted average duration of the defined benefit pension scheme liabilities at 31 December 2021 was approximately 18.2 years (2020: 19.4 years) for the UK and 10.4 years (2020: 11.7 years) for the US. The total defined benefit pension scheme liabilities are divided between active members (£155.5m (2020: (£206.8m)), deferred members (£186.0m (2020: £204.2m)) and pensioners (£227.7m (2020: £226.1m)). Multi-employer pension plans The Group participates in six multi-employer pensions plans (‘MEPPs’) in North America. Although these plans are defined benefit plans the Group does not have sufficient information to account for them as defined benefit plans and, therefore, in accordance with IAS 19, accounts for them as defined contribution plans. For MEPPs, US law requires payment of a withdrawal liability when employers cease contributing to underfunded MEPPs. The liability for withdrawal payments is shared by all members of the group of companies in any particular plan and solvent entities must cover the unfunded liabilities of employers who are unable to pay due to insolvency or bankruptcy. On withdrawal from a plan, an employer’s withdrawal liability amount is calculated by reference to the employer’s proportionate share of the MEPP’s unfunded vested benefits based on the employer’s share of all contributions made to the plan over the previous 10 years. During 2020 the Group reviewed its exposure to the six MEPPs in which it participated and determined that it was in its best interests to serve notice to withdraw from three of the plans due to their critical funding status, recognising a provision for the estimated withdrawal liability for these three plans of £15.3m as at 31 December 2020, as shown in Note 17. During the year, the Group has agreed to pay a lump sum to settle the liability at the amount equal to that provided (£3.2m) for one of these plans. Negotiations on the Group’s exit from the other two plans remain ongoing. The Group continues to participate in the other three MEPPs and continues to account for these as defined contribution plans with the combined ongoing annual contributions for the three plans in 2022 expected to be no more than £2m per annum. Bunzl plc Annual Report 2021 199  FINANCIAL STATEMENTS 24 Directors and employees Closing Average Number of employees 2021 2020 2021 2020 North America 8,189 7,618 7,936 7,078 Continental Europe 5,292 5,151 5,221 5,042 UK & Ireland 4,082 3,671 3,812 3,808 Rest of the World 3,386 3,348 3,368 3,248 20,949 19,788 20,337 19,176 Corporate 72 65 69 63 21,021 19,853 20,406 19,239 Employee costs 2021 £m 2020 £m Wages and salaries 801.8 801.2 Social security costs 90.8 90.8 Pension costs 29.5 28.2 Share based payments 12.7 14.9 934.8 935.1 GMP equalisation charge – 0.4 MEPP withdrawal liability charge – 16.4 934.8 951.9 In addition to the above, acquisition related items for the year ended 31 December 2021 include deferred consideration payments of £15.0m (2020: £13.2m) relating to the retention of former owners of businesses acquired. Key management remuneration 2021 £m 2020 £m Salaries and short term employee benefits 6.7 7.1 Share based payments 2.7 2.5 Retirement benefits 0.7 0.7 10.1 10.3 The Group considers key management personnel as defined in IAS 24 ‘Related Party Disclosures’ to be the directors of the Company and those members of the Executive Committee and the Managing Directors of the major geographic regions who are not directors of the Company. Directors’ emoluments 2021 £m 2020 £m Non-executive directors 0.8 0.7 Executive directors: remuneration excluding performance related elements 1.7 1.7 annual bonus 1.3 1.3 3.8 3.7 More detailed information concerning directors’ emoluments and long term incentives is set out in the Directors’ remuneration report. The aggregate amount of gains made by directors on the exercise of share options during the year was nil (2020: £0.1m). The aggregate market value of performance share awards exercised by directors under long term incentive schemes during the year was £1.8m (2020: £0.8m). The aggregate market value of share awards exercised by directors under the DASBS was £0.5m (2020: £0.2m). 199Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 200 Bunzl plc Annual Report 2021  25 Lease liabilities The Group leases certain property, plant, equipment and vehicles under non-cancellable operating lease agreements. These leases have varying terms and renewal rights. Movement in lease liabilities 2021 £m 202 0 £m Beginning of year 497.5 480.0 Acquisitions (Note 28) 12.9 35.2 New leases 112.6 100.1 Interest charge in the year 20.3 22.5 Payment of lease liabilities (158.9) (159.6) Remeasurement adjustments 11.5 24.2 Currency translation (7.2) (4.9) End of year 488.7 497.5 Ageing of lease liabilities: Current lease liabilities 129.1 129.1 Non-current lease liabilities 359.6 368.4 End of year 488.7 497.5 As at 31 December 2021, the Group had £21.2m (2020: £8.6m) of leases which had been committed to but which had not yet started. Such leases are not included in the Group’s lease liabilities as at 31 December 2021. In relation to leases which are included in lease liabilities, there are potential further future cash flows of £28.5m (2020: £26.5m) if termination options are not exercised and extension options are exercised. The cash outflow for low value and short term leases was £6.2m for the year ended 31 December 2021 (2020: £8.0m). 26 Cash and cash equivalents and net debt 2021 £m 202 0 £m Cash at bank and in hand 776.9 944.3 Bank overdrafts (551.6) (514.6) Cash and cash equivalents 225.3 429.7 Interest bearing loans and borrowings – current liabilities (111.9) (79.9) Interest bearing loans and borrowings – non-current liabilities (1,433.7) (1,615.2) Derivatives managing the interest rate risk and currency profile of the debt (17.1) 10.4 Net debt excluding lease liabilities (1,337.4) (1,255.0) Lease liabilities (488.7) (497.5) Net debt including lease liabilities (1,826.1) (1,752.5) The cash at bank and in hand and bank overdrafts amounts included in the table above include the amounts associated with the Group’s cash pool. The cash pool enables the Group to access cash in its subsidiaries to pay down the Group’s borrowings. The Group has the legal right of set-off of balances within the cash pool which is an enforceable right which the Group intends to use. The cash at bank and in hand and bank overdrafts figures net of the amounts in the cash pool are disclosed below for reference: 2021 £m 202 0 £m Cash at bank and in hand net of amounts in the cash pool 274.6 475.3 Bank overdrafts net of amounts in the cash pool (49.3) (45.6) Cash and cash equivalents 225.3 429.7 Bunzl plc Annual Report 2021200 FINANCIAL STATEMENTS Notes continued 200 Bunzl plc Annual Report 2021  25 Lease liabilities The Group leases certain property, plant, equipment and vehicles under non-cancellable operating lease agreements. These leases have varying terms and renewal rights. Movement in lease liabilities 2021 £m 202 0 £m Beginning of year 497.5 480.0 Acquisitions (Note 28) 12.9 35.2 New leases 112.6 100.1 Interest charge in the year 20.3 22.5 Payment of lease liabilities (158.9) (159.6) Remeasurement adjustments 11.5 24.2 Currency translation (7.2) (4.9) End of year 488.7 497.5 Ageing of lease liabilities: Current lease liabilities 129.1 129.1 Non-current lease liabilities 359.6 368.4 End of year 488.7 497.5 As at 31 December 2021, the Group had £21.2m (2020: £8.6m) of leases which had been committed to but which had not yet started. Such leases are not included in the Group’s lease liabilities as at 31 December 2021. In relation to leases which are included in lease liabilities, there are potential further future cash flows of £28.5m (2020: £26.5m) if termination options are not exercised and extension options are exercised. The cash outflow for low value and short term leases was £6.2m for the year ended 31 December 2021 (2020: £8.0m). 26 Cash and cash equivalents and net debt 2021 £m 202 0 £m Cash at bank and in hand 776.9 944.3 Bank overdrafts (551.6) (514.6) Cash and cash equivalents 225.3 429.7 Interest bearing loans and borrowings – current liabilities (111.9) (79.9) Interest bearing loans and borrowings – non-current liabilities (1,433.7) (1,615.2) Derivatives managing the interest rate risk and currency profile of the debt (17.1) 10.4 Net debt excluding lease liabilities (1,337.4) (1,255.0) Lease liabilities (488.7) (497.5) Net debt including lease liabilities (1,826.1) (1,752.5) The cash at bank and in hand and bank overdrafts amounts included in the table above include the amounts associated with the Group’s cash pool. The cash pool enables the Group to access cash in its subsidiaries to pay down the Group’s borrowings. The Group has the legal right of set-off of balances within the cash pool which is an enforceable right which the Group intends to use. The cash at bank and in hand and bank overdrafts figures net of the amounts in the cash pool are disclosed below for reference: 2021 £m 202 0 £m Cash at bank and in hand net of amounts in the cash pool 274.6 475.3 Bank overdrafts net of amounts in the cash pool (49.3) (45.6) Cash and cash equivalents 225.3 429.7 Bunzl plc Annual Report 2021 201  FINANCIAL STATEMENTS 27 Movement in net debt 2021 Net debt £m Cash and cash equivalents £m Other components £m Beginning of year excluding lease liabilities (1,255.0 ) 429.7 (1,684.7) Net cash outflow (88.2 ) (183.6) 95.4 Realised gain on foreign exchange contracts 25.0 – 25.0 Currency translation (19.2 ) (20.8 ) 1.6 End of year excluding lease liabilities (1,337.4 ) 225.3 (1,562.7) Lease liabilities (488.7) – (488.7) End of year including lease liabilities (1,826.1 ) 225.3 (2,051.4) 2020 Net debt £m Cash and cash equivalents £m Other components £m Beginning of year excluding lease liabilities (1,247.0 ) 140.8 (1,387.8) Net cash inflow 14.1 288.0 (273.9) Realised losses on foreign exchange contracts (37.1 ) – (37.1) Currency translation 15.0 0.9 14.1 End of year excluding lease liabilities (1,255.0 ) 429.7 (1,684.7) Lease liabilities (497.5 ) – (497.5) End of year including lease liabilities (1,752.5 ) 429.7 (2,182.2) The net cash inflow of £95.4m (2020: outflow of £273.9m) on other components of net debt comprises an increase in borrowings of £14.5m (2020: £444.5m), a repayment of borrowings of £134.9m (2020: £133.5m) and the impact of a realised gain of £25.0m on foreign exchange contracts (2020: loss of £37.1m). 28 Acquisitions Acquisitions involving the purchase of the acquiree’s share capital or, as the case may be, the relevant assets of the businesses acquired, have been accounted for under the acquisition method of accounting. A key part of the Group’s strategy is to grow through acquisition. The Group has developed a process to assist with the identification of the fair values of the assets acquired and liabilities assumed, including the separate identification of intangible assets in accordance with IFRS 3 ‘Business Combinations’ as revised. This formal process is applied to each acquisition and involves an assessment of the assets acquired and liabilities assumed with assistance provided by external valuation specialists where appropriate. Until this assessment is complete, the allocation period remains open up to a maximum of 12 months from the relevant acquisition date. At 31 December 2021 the allocation period for all acquisitions completed since 1 January 2021 remained open and accordingly the fair values presented are provisional. Adjustments are made to the assets acquired and liabilities assumed during the allocation period to the extent that further information and knowledge come to light that more accurately reflect conditions at the acquisition date. Adjustments are made to the value of assets acquired to reflect more accurately the estimated realisable or settlement value. Similarly, adjustments are made to acquired liabilities to record onerous commitments or other commitments existing at the acquisition date but not recognised by the acquiree. Adjustments are also made to reflect the associated tax effects. During the year ended 31 December 2021 adjustments have been recognised to the fair value of assets and liabilities acquired related to acquisitions made in the prior year, resulting in a net increase to goodwill of £3.4m. Given the immaterial amounts involved the fair value of assets and liabilities acquired as reported in the prior year have not been restated. The consideration paid or payable in respect of acquisitions comprises amounts paid on completion, deferred consideration and payments which are contingent on the retention of former owners of businesses acquired. Any payments that are contingent on future employment, including payments which are contingent on the retention of former owners of businesses acquired, are charged to the income statement. All other consideration has been allocated against the identified net assets, with the balance recorded as goodwill. Transaction costs and expenses such as professional fees are charged to the income statement. The acquisitions provide opportunities for further development of the Group’s activities and to create enhanced returns. Such opportunities and the workforces inherent in each of the acquired businesses do not translate to separately identifiable intangible assets but do represent much of the assessed value that supports the recognised goodwill. For each of the businesses acquired and announced during the year, the name of the business, the market sector served, its location and date of acquisition, as well as the estimated annualised revenue it would have contributed to the Group for the year if such acquisitions had been made at the beginning of the year, are separately disclosed. The remaining disclosures required by IFRS 3 are provided separately for those individual acquisitions that are considered to be material and in aggregate for individually immaterial acquisitions. An acquisition would generally be considered individually material if the impact on the Group’s revenue or profit measures (on an annualised basis) or the relevant amounts on the balance sheet is greater than 5%. Management also applies judgement in considering whether there are any material qualitative differences from other acquisitions made. 201Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 202 Bunzl plc Annual Report 2021  28 Acquisitions continued 2021 Summary details of the businesses acquired during the year ended 31 December 2021 are shown in the table below: Business Sector Country Acquisition date 2021 Annualised revenue £m Deliver Net Healthcare UK 31 January 19.5 Pinnacle Cleaning & Hygiene Canada 1 February 11.3 Disposable Discounter 1 Foodservice Netherlands 2 February 23.6 Comax Cleaning & Hygiene UK 31 May 16.4 Harvey Distributors Cleaning & Hygiene Australia 31 May 4.4 Obex Medical Holdings 2 Healthcare New Zealand 1 June 28.7 Proin Pinilla Safety Spain 22 July 14.3 Arprosa Safety Spain 31 July 6.6 Medshop 3 Healthcare Australia 8 September 14.4 Intergro Foodservice US 30 September 22.3 McCue Corporation 4 Safety US 15 October 72.6 Workwear Express 5 Safety UK 26 October 33.2 Hydropac 6 Foodservice UK 4 November 8.4 Tingley Rubber Safety US 21 December 46.7 Acquisitions agreed and completed in the current year 322.4 1 Acquisition of 75.1% of share capital. 2 Acquisition of 99.1% of share capital. 3 Acquisition of 75.1% of share capital. 4 Acquisition of 96.9% of share capital. 5 Acquisition of 96.3% of share capital. 6 Located in the UK, but reporting through Continental Europe. The acquisition of McCue Corporation is considered to be individually significant due to its impact on intangible assets. The acquisition is therefore separately disclosed in the table below. In 2020 the acquisition of MCR Safety was considered to be individually significant and is shown separately in the table below. A summary of the effect of acquisitions in 2021 and 2020 is shown below: McCue £m Other £m 2021 Total £m MCR Safety £m Other £m 202 0 Total £m Customer relationships 107.1 127.7 234.8 104.5 67.7 172.2 Brands 8.6 3.2 11.8 13.7 − 13.7 Property, plant and equipment and software 1.2 6.5 7.7 6.5 4.1 10.6 Right-of-use assets 3.4 9.2 12.6 18.0 17.2 35.2 Inventories 10.1 22.7 32.8 62.0 40.2 102.2 Trade and other receivables 25.1 38.7 63.8 35.0 54.6 89.6 Trade and other payables (18.5) (42.4) (60.9) (20.2) (44.0) (64.2) Net cash 5.0 6.3 11.3 7.4 1.5 8.9 Provisions (0.4) (4.3) (4.7) (0.2) (4.2) (4.4) Lease liabilities (3.6) (9.3) (12.9) (18.0) (17.2) (35.2) Derivative liabilities – (0.1) (0.1) – – – Income tax payable and deferred tax liabilities (29.1) (28.2) (57.3) (0.1) (9.8) (9.9) Fair value of net assets acquired 108.9 130.0 238.9 208.6 110.1 318.7 Goodwill 132.5 108.3 240.8 71.8 37.0 108.8 Consideration 241.4 238.3 479.7 280.4 147.1 427.5 Satisfied by: cash consideration 234.3 208.5 442.8 245.2 122.7 367.9 deferred consideration 7.1 29.8 36.9 35.2 24.4 59.6 241.4 238.3 479.7 280.4 147.1 427.5 Contingent payments relating to retention of former owners 8.4 22.5 30.9 1.4 17.7 19.1 Net cash acquired (5.0) (6.3) (11.3) (7.4) (1.5) (8.9) Transaction costs and expenses 1.7 6.6 8.3 2.1 5.2 7.3 Total committed spend in respect of acquisitions agreed and completed in the current year 246.5 261.1 507.6 276.5 168.5 445.0 Bunzl plc Annual Report 2021202 FINANCIAL STATEMENTS Notes continued 202 Bunzl plc Annual Report 2021  28 Acquisitions continued 2021 Summary details of the businesses acquired during the year ended 31 December 2021 are shown in the table below: Business Sector Country Acquisition date 2021 Annualised revenue £m Deliver Net Healthcare UK 31 January 19.5 Pinnacle Cleaning & Hygiene Canada 1 February 11.3 Disposable Discounter 1 Foodservice Netherlands 2 February 23.6 Comax Cleaning & Hygiene UK 31 May 16.4 Harvey Distributors Cleaning & Hygiene Australia 31 May 4.4 Obex Medical Holdings 2 Healthcare New Zealand 1 June 28.7 Proin Pinilla Safety Spain 22 July 14.3 Arprosa Safety Spain 31 July 6.6 Medshop 3 Healthcare Australia 8 September 14.4 Intergro Foodservice US 30 September 22.3 McCue Corporation 4 Safety US 15 October 72.6 Workwear Express 5 Safety UK 26 October 33.2 Hydropac 6 Foodservice UK 4 November 8.4 Tingley Rubber Safety US 21 December 46.7 Acquisitions agreed and completed in the current year 322.4 1 Acquisition of 75.1% of share capital. 2 Acquisition of 99.1% of share capital. 3 Acquisition of 75.1% of share capital. 4 Acquisition of 96.9% of share capital. 5 Acquisition of 96.3% of share capital. 6 Located in the UK, but reporting through Continental Europe. The acquisition of McCue Corporation is considered to be individually significant due to its impact on intangible assets. The acquisition is therefore separately disclosed in the table below. In 2020 the acquisition of MCR Safety was considered to be individually significant and is shown separately in the table below. A summary of the effect of acquisitions in 2021 and 2020 is shown below: McCue £m Other £m 2021 Total £m MCR Safety £m Other £m 202 0 Total £m Customer relationships 107.1 127.7 234.8 104.5 67.7 172.2 Brands 8.6 3.2 11.8 13.7 − 13.7 Property, plant and equipment and software 1.2 6.5 7.7 6.5 4.1 10.6 Right-of-use assets 3.4 9.2 12.6 18.0 17.2 35.2 Inventories 10.1 22.7 32.8 62.0 40.2 102.2 Trade and other receivables 25.1 38.7 63.8 35.0 54.6 89.6 Trade and other payables (18.5) (42.4) (60.9) (20.2) (44.0) (64.2) Net cash 5.0 6.3 11.3 7.4 1.5 8.9 Provisions (0.4) (4.3) (4.7) (0.2) (4.2) (4.4) Lease liabilities (3.6) (9.3) (12.9) (18.0) (17.2) (35.2) Derivative liabilities – (0.1) (0.1) – – – Income tax payable and deferred tax liabilities (29.1) (28.2) (57.3) (0.1) (9.8) (9.9) Fair value of net assets acquired 108.9 130.0 238.9 208.6 110.1 318.7 Goodwill 132.5 108.3 240.8 71.8 37.0 108.8 Consideration 241.4 238.3 479.7 280.4 147.1 427.5 Satisfied by: cash consideration 234.3 208.5 442.8 245.2 122.7 367.9 deferred consideration 7.1 29.8 36.9 35.2 24.4 59.6 241.4 238.3 479.7 280.4 147.1 427.5 Contingent payments relating to retention of former owners 8.4 22.5 30.9 1.4 17.7 19.1 Net cash acquired (5.0) (6.3) (11.3) (7.4) (1.5) (8.9) Transaction costs and expenses 1.7 6.6 8.3 2.1 5.2 7.3 Total committed spend in respect of acquisitions agreed and completed in the current year 246.5 261.1 507.6 276.5 168.5 445.0 Bunzl plc Annual Report 2021 203  FINANCIAL STATEMENTS 28 Acquisitions continued The net cash outflow in the year in respect of acquisitions comprised: McCue £m Other £m 2021 Total £m MCR Safety £m Other £m 202 0 Total £m Cash consideration 234.3 208.5 442.8 245.2 122.7 367.9 Net cash acquired (5.0) (6.3) (11.3) (7.4) (1.5) (8.9) Deferred consideration payments – 5.2 5.2 − 4.2 4.2 Net cash outflow in respect of acquisitions 229.3 207.4 436.7 237.8 125.4 363.2 Transaction costs and expenses paid 1.5 7.6 9.1 1.3 5.8 7.1 Payments relating to retention of former owners – 6.9 6.9 − 17.2 17.2 Total cash outflow in respect of acquisitions 230.8 221.9 452.7 239.1 148.4 387.5 Acquisitions completed in the year ended 31 December 2021 contributed £123.2m (2020: £356.0m) to the Group’s revenue, £17.3m (2020: £22.5m) to the Group’s adjusted operating profit and £10.6m (2020: £18.0m) to the Group’s operating profit for the year ended 31 December 2021. The estimated contributions from acquisitions completed during the year to the results of the Group for the year ended 31 December if such acquisitions had been made at the beginning of the year, are as follows: 2021 £m 2020 £m Revenue 322.4 601.8 Adjusted operating profit 46.3 50.0 The total amount of goodwill expected to be deductible for tax purposes in relation to acquisitions completed during the year is £9.3m (2020: £78.6m). 2020 Summary details of the businesses acquired or agreed to be acquired during the year ended 31 December 2020 are shown in the table below: Business Sector Country Acquisition date 2020 Annualised revenue £m J oshen Paper & Packaging Grocery US 6 January 254.9 Medcorp Healthcare Brazil 31 January 9.4 Bodyguard Workwear Safety UK 28 February 7.6 MCR Safety Safety US 1 September 206.7 Abco Kovex 1 Other Ireland 30 September 20.3 ICM 2 Safety Denmark 30 October 49.5 SP Equipamentos Safety Brazil 30 November 23.9 Snelling Cleaning & Hygiene Canada 7 December 27.2 Other 2.3 Acquisitions agreed and completed in 2020 601.8 1 Acquisition of 80% of share capital. 2 Acquisition of 78.9% of share capital. 203Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes continued 204 Bunzl plc Annual Report 2021  29 Cash flow from operating activities The tables below give further details on the adjustments for depreciation and software amortisation, other non-cash items and the working capital movement shown in the Consolidated cash flow statement. Depreciation and software amortisation 2021 £m 202 0 £m Depreciation of right-of-use assets 134.8 134.8 Other depreciation and software amortisation 36.4 36.9 171.2 171.7 Other non-cash items 2021 £m 202 0 £m Share based payments 12.7 14.9 Provisions (8.0) 4.7 Retirement benefit obligations (1.9) (8.4) Other 1.6 2.0 4.4 13.2 Working capital movement 2021 £m 202 0 £m Increase in inventories (32.9) (192.5) Increase in trade and other receivables (10.7) (81.0) Increase in trade and other payables 45.7 278.5 2.1 5.0 30 Related party disclosures The Group has identified the directors of the Company, their close family members, the Group’s defined benefit pension schemes and its key management as related parties for the purpose of IAS 24. Details of the relevant relationships with these related parties are disclosed in the Directors’ remuneration report, Note 23 and Note 24 respectively. All transactions with subsidiaries are eliminated on consolidation. Bunzl plc Annual Report 2021204 FINANCIAL STATEMENTS Notes continued 204 Bunzl plc Annual Report 2021  29 Cash flow from operating activities The tables below give further details on the adjustments for depreciation and software amortisation, other non-cash items and the working capital movement shown in the Consolidated cash flow statement. Depreciation and software amortisation 2021 £m 202 0 £m Depreciation of right-of-use assets 134.8 134.8 Other depreciation and software amortisation 36.4 36.9 171.2 171.7 Other non-cash items 2021 £m 202 0 £m Share based payments 12.7 14.9 Provisions (8.0) 4.7 Retirement benefit obligations (1.9) (8.4) Other 1.6 2.0 4.4 13.2 Working capital movement 2021 £m 202 0 £m Increase in inventories (32.9) (192.5) Increase in trade and other receivables (10.7) (81.0) Increase in trade and other payables 45.7 278.5 2.1 5.0 30 Related party disclosures The Group has identified the directors of the Company, their close family members, the Group’s defined benefit pension schemes and its key management as related parties for the purpose of IAS 24. Details of the relevant relationships with these related parties are disclosed in the Directors’ remuneration report, Note 23 and Note 24 respectively. All transactions with subsidiaries are eliminated on consolidation. Company balance sheet at 31 December 2021 Bunzl plc Annual Report 2021 205  Notes 2021 £m 2020 £m Fixed assets Property, plant and equipment 3 0.3 0.4 Right-of-use assets 4 0.2 0.7 Intangible assets 3 0.8 1.1 Investments 5 729.8 718.4 731.1 720.6 Current assets Deferred tax asset 6 – 1.8 Defined benefit pension asset 11 62.8 0.4 Debtors: amounts falling due after more than one year 7 837.9 837.9 Debtors: amounts falling due within one year 7 764.9 647.7 Cash at bank and in hand 30.6 0.2 1,696.2 1,488.0 Current liabilities Creditors: amounts falling due within one year 8 (98.8) (98.1) Lease liabilities 10 (0.2) (0.7) Net current assets 1,597.2 1,389.2 Total assets less current liabilities 2,328.3 2,109.8 Non-current liabilities Provisions 9 (1.0) (1.6) Lease liabilities 10 – (0.2) Deferred tax liability 6 (12.0) – Net assets 2,315.3 2,108.0 Capital and reserves Share capital 12 108.4 108.3 Share premium 194.2 187.7 Other reserves 5.6 5.6 Capital redemption reserve 13 16.1 16.1 Profit and loss account † 13 1,991.0 1,790.3 Total shareholders’ funds 2,315.3 2,108.0 Approved by the Board of directors of Bunzl plc (Company registration number 358948) on 28 February 2022 and signed on its behalf by Frank van Zanten, Chief Executive Officer and Richard Howes, Chief Financial Officer. The Accounting policies and other Notes on pages 207 to 212 form part of these financial statements. † Profit and loss account includes a net profit after tax for the year of £304.1m (2020: £268.1m). As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the Company has not been separately presented in these financial statements. 205Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Company statement of changes in equity for the year ended 31 December 2021 206 Bunzl plc Annual Report 2021  Capital redemption reserve £m Profit and loss account Total shareholders’ funds £m Share capital £m Share premium £m Othe r reserves £m Own shares £m Retained earnings £m At 1 January 2020 108.3 184.0 5.6 16.1 (69.9) 1,766.0 2,010.1 Profit for the year 268.1 268.1 Other comprehensive income Contributions to pension scheme by participating subsidiaries 4.5 4.5 Actuarial loss on defined benefit pension scheme (14.9) (14.9) Income tax credit on other comprehensive income 2.0 2.0 Total comprehensive income 259.7 259.7 2019 interim dividend (51.7) (51.7) 2019 final dividend (119.8) (119.8) Issue of share capital – 3.7 3.7 Employee trust shares (9.4) (9.4) Movement on own share reserves 5.9 (5.9) – Share based payments 15.4 15.4 At 31 December 2020 108.3 187.7 5.6 16.1 (73.4) 1,863.7 2,108.0 Capital redemption reserve £m Profit and loss account Total shareholders’ funds £m Share capital £m Share premium £m Othe r reserves £m Own shares £m Retained earnings £m At 1 January 2021 108.3 187.7 5.6 16.1 (73.4) 1,863.7 2,108.0 Profit for the year 304.1 304.1 Other comprehensive income Contributions to pension scheme by participating subsidiaries 4.6 4.6 Actuarial gain on defined benefit pension scheme 58.0 58.0 Income tax charge on other comprehensive income (15.6) (15.6) Total comprehensive income 351.1 351.1 2020 interim dividend (52.8) (52.8) 2020 final dividend (127.6) (127.6) Issue of share capital 0.1 6.5 6.6 Employee trust shares 15.5 15.5 Movement on own share reserves 5.0 (5.0) – Share based payments 14.5 14.5 At 31 December 2021 108.4 194.2 5.6 16.1 (52.9) 2,043.9 2,315.3 Bunzl plc Annual Report 2021206 FINANCIAL STATEMENTS Company statement of changes in equity for the year ended 31 December 2021 206 Bunzl plc Annual Report 2021  Capital redemption reserve £m Profit and loss account Total shareholders’ funds £m Share capital £m Share premium £m Othe r reserves £m Own shares £m Retained earnings £m At 1 January 2020 108.3 184.0 5.6 16.1 (69.9) 1,766.0 2,010.1 Profit for the year 268.1 268.1 Other comprehensive income Contributions to pension scheme by participating subsidiaries 4.5 4.5 Actuarial loss on defined benefit pension scheme (14.9) (14.9) Income tax credit on other comprehensive income 2.0 2.0 Total comprehensive income 259.7 259.7 2019 interim dividend (51.7) (51.7) 2019 final dividend (119.8) (119.8) Issue of share capital – 3.7 3.7 Employee trust shares (9.4) (9.4) Movement on own share reserves 5.9 (5.9) – Share based payments 15.4 15.4 At 31 December 2020 108.3 187.7 5.6 16.1 (73.4) 1,863.7 2,108.0 Capital redemption reserve £m Profit and loss account Total shareholders’ funds £m Share capital £m Share premium £m Othe r reserves £m Own shares £m Retained earnings £m At 1 January 2021 108.3 187.7 5.6 16.1 (73.4) 1,863.7 2,108.0 Profit for the year 304.1 304.1 Other comprehensive income Contributions to pension scheme by participating subsidiaries 4.6 4.6 Actuarial gain on defined benefit pension scheme 58.0 58.0 Income tax charge on other comprehensive income (15.6) (15.6) Total comprehensive income 351.1 351.1 2020 interim dividend (52.8) (52.8) 2020 final dividend (127.6) (127.6) Issue of share capital 0.1 6.5 6.6 Employee trust shares 15.5 15.5 Movement on own share reserves 5.0 (5.0) – Share based payments 14.5 14.5 At 31 December 2021 108.4 194.2 5.6 16.1 (52.9) 2,043.9 2,315.3 Notes to the Company financial statements Bunzl plc Annual Report 2021 207  1 Basis of preparation Bunzl plc (the ‘Company’) is a company incorporated and domiciled in the United Kingdom. These financial statements present information about the Company as an individual undertaking and not about its Group. The financial statements of the Company have been prepared on a going concern basis and under the historical cost convention with the exception of certain items which are measured at fair value as described in the accounting policies below. These financial statements have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’) and the Companies Act 2006 as applicable to companies using FRS 101. There are no new standards, amendments or interpretations that are applicable to the Company for the year ended 31 December 2021. In preparing these financial statements the Company has applied the exemptions available under FRS 101 in respect of: • a cash flow statement and related notes; • comparative period reconciliations for share capital and tangible fixed assets; • disclosures relating to transactions with wholly owned subsidiaries and capital management; • the effects of new but not yet effective IFRSs; and • disclosures relating to the compensation of key management personnel. As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also applied the exemptions available under FRS 101 in respect of: • certain disclosures required by IFRS 2 ‘Share Based Payments’ in respect of Group settled share based payments; and • certain disclosures required by IFRS 13 ‘Fair Value Measurement’ and disclosures required by IFRS 7 ‘Financial Instruments: Disclosures’. 2 Accounting policies The accounting policies of the Company have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. In most cases the accounting policies for the Company are fully aligned with the equivalent accounting policies for the Group as stated on pages 163 to 169 in Note 2 to the consolidated financial statements. The accounting policies of the Company which are aligned with those of the Group are the policies for tangible assets, leases, intangible assets, income tax, trade and other payables, provisions, retirement benefits, investment in own shares, dividends and leases. The accounting policies that are specific to the Company are set out below. a. Investment in subsidiary undertakings Investments in subsidiary undertakings are held at cost less any provision for impairment. The subsidiary undertakings which the Company held at 31 December 2021 are disclosed in the Related undertakings Note in the Shareholder information section on pages 222 to 228. b. Share based payments The Company operates a number of equity settled share based payment compensation plans. Details of these plans are outlined in Note 19 to the consolidated financial statements and the Directors’ remuneration report. The total expected expense is based on the fair value of options and other share based incentives on the grant date, calculated using a valuation model, and is spread over the expected vesting period with a corresponding credit to equity. Where the Company grants options over its own shares to the employees of its subsidiaries and it has not recharged the cost to the relevant subsidiaries, it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity settled share based payment charge recognised in its consolidated financial statements, with the corresponding credit being recognised directly in equity. c. Financial guarantee contracts Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. 207Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes to the Company financial statements continued 208 Bunzl plc Annual Report 2021  2 Accounting policies continued d. Intercompany and other receivables Intercompany and other receivables are initially measured at fair value. Subsequent to initial recognition these assets are measured at amortised cost less any provision for expected credit losses. The Group measures expected credit losses using the expected credit loss model in accordance with IFRS 9. There were no impairment losses on intercompany or other receivables during the year (2020: none). e. Defined benefit pension schemes The Company is the sponsoring company of the UK defined benefit pension scheme. As there is no contractual agreement or stated Group policy for charging the net defined benefit cost of the scheme to participating subsidiaries, the net defined benefit pension cost or benefit is recognised fully by the Company. The contributions paid by the participating subsidiaries other than the Company are credited to profit or loss of the Company where the amounts relate to service and are independent of the number of years of service or to other comprehensive income if not linked to service. f. Judgements made in applying the Company’s accounting policies In the course of preparing the financial statements, other than judgements involved in determining estimates and assumptions (see Note 2g below), no judgements have been made in the process of applying the Company’s accounting policies that have had a significant effect on the amounts recognised in the financial statements. g. Sources of estimation uncertainty In applying the Company’s accounting policies various transactions and balances are valued using estimates or assumptions. Should these estimates or assumptions prove incorrect, there may be an impact on the following year’s financial statements. As at 31 December 2021, the only source of estimation uncertainty that has a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year is the measurement of the defined benefit pension scheme liability which is explained in Note 2u to the consolidated financial statements. 3 Property, plant and equipment and intangible assets Short leasehold improvement £m Fixtures, fittings and equipment £m Total tangible assets £m Total intangible assets £m Cost Beginning and End of year 0.1 1.7 1.8 2.1 Accumulated depreciation and amortisation Beginning of year 0.1 1.3 1.4 1.0 Charge in year – 0.1 0.1 0.3 End of year 0.1 1.4 1.5 1.3 Net book value at 31 December 2021 – 0.3 0.3 0.8 Net book value at 31 December 2020 – 0.4 0.4 1.1 Bunzl plc Annual Report 2021208 FINANCIAL STATEMENTS Notes to the Company financial statements continued 208 Bunzl plc Annual Report 2021  2 Accounting policies continued d. Intercompany and other receivables Intercompany and other receivables are initially measured at fair value. Subsequent to initial recognition these assets are measured at amortised cost less any provision for expected credit losses. The Group measures expected credit losses using the expected credit loss model in accordance with IFRS 9. There were no impairment losses on intercompany or other receivables during the year (2020: none). e. Defined benefit pension schemes The Company is the sponsoring company of the UK defined benefit pension scheme. As there is no contractual agreement or stated Group policy for charging the net defined benefit cost of the scheme to participating subsidiaries, the net defined benefit pension cost or benefit is recognised fully by the Company. The contributions paid by the participating subsidiaries other than the Company are credited to profit or loss of the Company where the amounts relate to service and are independent of the number of years of service or to other comprehensive income if not linked to service. f. Judgements made in applying the Company’s accounting policies In the course of preparing the financial statements, other than judgements involved in determining estimates and assumptions (see Note 2g below), no judgements have been made in the process of applying the Company’s accounting policies that have had a significant effect on the amounts recognised in the financial statements. g. Sources of estimation uncertainty In applying the Company’s accounting policies various transactions and balances are valued using estimates or assumptions. Should these estimates or assumptions prove incorrect, there may be an impact on the following year’s financial statements. As at 31 December 2021, the only source of estimation uncertainty that has a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year is the measurement of the defined benefit pension scheme liability which is explained in Note 2u to the consolidated financial statements. 3 Property, plant and equipment and intangible assets Short leasehold improvement £m Fixtures, fittings and equipment £m Total tangible assets £m Total intangible assets £m Cost Beginning and End of year 0.1 1.7 1.8 2.1 Accumulated depreciation and amortisation Beginning of year 0.1 1.3 1.4 1.0 Charge in year – 0.1 0.1 0.3 End of year 0.1 1.4 1.5 1.3 Net book value at 31 December 2021 – 0.3 0.3 0.8 Net book value at 31 December 2020 – 0.4 0.4 1.1 Bunzl plc Annual Report 2021 209  FINANCIAL STATEMENTS 4 Right-of-use assets: Property Net book value 2021 £m 202 0 £m Beginning of year 0.7 1.2 Depreciation charge in the year (0.5) (0.5) End of year 0.2 0.7 5 Investments Investments in subsidiary undertakings 2021 £m 202 0 £m Cost Beginning of year 721.7 710.3 Additions 11.4 11.4 End of year 733.1 721.7 Impairment provisions Beginning and end of year 3.3 3.3 Net book value at 31 December 729.8 718.4 6 Deferred tax asset/(liability) Recognised deferred tax assets net of deferred tax liabilities are attributable to the following: Defined benefit pension scheme £m Share based payments £m Other £m Net deferred tax asset/ (liability) £m 1 January 2020 (1.9) 1.2 0.2 (0.5) Recognised in profit or loss (0.2) – – (0.2) Recognised in other comprehensive income or directly in equity 2.0 0.5 – 2.5 31 December 2020/1 January 2021 (0.1) 1.7 0.2 1.8 Recognised in profit or loss – – – – Recognised in other comprehensive income or directly in equity (15.6) 1.8 – (13.8) 31 December 2021 (15.7) 3.5 0.2 (12.0) No deferred tax asset has been recognised in respect of unutilised capital losses of £68.5m (2020: £68.5m). During the year, legislation was passed to increase the UK Corporation tax rate to 25% from 1 April 2023. UK taxable profits earned before that date will be subject to the current tax rate of 19% but UK temporary differences at 31 December 2021 have been calculated at the rate of 25% because reversal is expected after April 2023. The impact of this change in tax rate on the income statement was not significant. 7 Debtors 2021 £m 2020 £m Debtors: amounts falling due within one year Amounts owed by Group undertakings 760.3 644.5 Prepayments and other debtors 4.6 3.2 764.9 647.7 Debtors: amounts falling due after more than one year Amounts owed by Group undertakings 837.9 837.9 The carrying value of the amounts owed by Group undertakings falling due after more than one year is a reasonable approximation of their fair values. These amounts have a fixed repayment date and are interest bearing at an interest rate which is reset periodically based on the Bank of England base rate. 209Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes to the Company financial statements continued 210 Bunzl plc Annual Report 2021  8 Creditors: amounts falling due within one year 2021 £m 2020 £m Trade creditors 1.1 0.7 Amounts owed to Group undertakings 83.0 82.1 Other tax and social security contributions 0.8 0.3 Income tax payable 0.5 0.5 Accruals 13.4 14.5 98.8 98.1 Amounts due to Group undertakings are repayable on demand and are not interest bearing. 9 Provisions 2021 £m 2020 £m Beginning of year 1.6 1.7 Utilised or released (0.6) (0.1) End of year 1.0 1.6 The provisions relate to properties, where amounts are held against liabilities for repairs and dilapidations, and other claims. 10 Lease liabilities 2021 £m 2020 £m Beginning of year (0.9) (1.6) Interest charge in the year – (0.1) Payments of lease liabilities 0.7 0.8 End of year (0.2) (0.9) Ageing of lease liabilities: Current lease liabilities (0.2) (0.7) Non-current lease liabilities – (0.2) End of year (0.2) (0.9) 11 Retirement benefits The Company operates a number of retirement benefit schemes in the UK, including both defined benefit and defined contribution schemes. A description of the characteristics and risks to which the Company is exposed in relation to the UK defined benefit pension scheme together with the principal assumptions used and sensitivity to changes in assumptions are detailed in Note 23 to the consolidated financial statements. The amounts included in the Company financial statements relating to the defined benefit pension scheme at 31 December were: Amounts included in profit for the year 2021 £m 2020 £m Current service cost (net of contributions by employees) 2.4 2.2 Past service cost – 0.4 Net interest income (0.1) (0.3) Contributions paid by participating subsidiaries linked to service (1.0) (1.2) Total charge to profit for the year 1.3 1.1 Bunzl plc Annual Report 2021210 FINANCIAL STATEMENTS Notes to the Company financial statements continued 210 Bunzl plc Annual Report 2021  8 Creditors: amounts falling due within one year 2021 £m 2020 £m Trade creditors 1.1 0.7 Amounts owed to Group undertakings 83.0 82.1 Other tax and social security contributions 0.8 0.3 Income tax payable 0.5 0.5 Accruals 13.4 14.5 98.8 98.1 Amounts due to Group undertakings are repayable on demand and are not interest bearing. 9 Provisions 2021 £m 2020 £m Beginning of year 1.6 1.7 Utilised or released (0.6) (0.1) End of year 1.0 1.6 The provisions relate to properties, where amounts are held against liabilities for repairs and dilapidations, and other claims. 10 Lease liabilities 2021 £m 2020 £m Beginning of year (0.9) (1.6) Interest charge in the year – (0.1) Payments of lease liabilities 0.7 0.8 End of year (0.2) (0.9) Ageing of lease liabilities: Current lease liabilities (0.2) (0.7) Non-current lease liabilities – (0.2) End of year (0.2) (0.9) 11 Retirement benefits The Company operates a number of retirement benefit schemes in the UK, including both defined benefit and defined contribution schemes. A description of the characteristics and risks to which the Company is exposed in relation to the UK defined benefit pension scheme together with the principal assumptions used and sensitivity to changes in assumptions are detailed in Note 23 to the consolidated financial statements. The amounts included in the Company financial statements relating to the defined benefit pension scheme at 31 December were: Amounts included in profit for the year 2021 £m 2020 £m Current service cost (net of contributions by employees) 2.4 2.2 Past service cost – 0.4 Net interest income (0.1) (0.3) Contributions paid by participating subsidiaries linked to service (1.0) (1.2) Total charge to profit for the year 1.3 1.1 Bunzl plc Annual Report 2021 211  FINANCIAL STATEMENTS 11 Retirement benefits continued Amounts recognised in other comprehensive income 2021 £m 2020 £m Actual return less expected return on pension scheme assets 18.5 44.6 Experience gain on pension scheme liabilities 20.7 – Impact of changes in assumptions relating to the present value of pension scheme liabilities 18.8 (59.5) Actuarial gain/(loss) on defined benefit pension scheme 58.0 (14.9) Contributions paid by participating subsidiaries not linked to service 4.6 4.5 Total credit/(charge) to other comprehensive income 62.6 (10.4) Movement in defined benefit pension scheme surplus/(deficit) 2021 £m 2020 £m Beginning of year 0.4 10.8 Current service cost (2.4) (2.2) Past service cost – (0.4) Contributions 6.7 6.8 Net interest income 0.1 0.3 Actuarial gain/(loss) 58.0 (14.9) End of year 62.8 0.4 Changes in the present value of defined benefit pension scheme liabilities 2021 £m 2020 £m Beginning of year 437.9 379.2 Current service cost 2.4 2.2 Past service cost – 0.4 Interest expense 6.1 7.9 Contributions by employees 0.5 0.5 Actuarial (gain)/loss (39.5) 59.5 Benefits paid (11.2) (11.8) End of year 396.2 437.9 Changes in the fair value of defined benefit pension scheme assets 2021 £m 2020 £m Beginning of year 438.3 390.0 Interest income 6.2 8.2 Actuarial gain 18.5 44.6 Contributions by the Company 1.1 1.1 Contributions by participating subsidiaries 5.6 5.7 Contributions by employees 0.5 0.5 Benefits paid (11.2) (11.8) End of year 459.0 438.3 The actual return on pension scheme assets was a gain of £24.7m (2020: gain of £52.8m). The market value of scheme assets and the present value of retirement benefit obligations at 31 December are detailed in Note 23 to the consolidated financial statements. The total defined benefit pension liability is divided between active members (£77.9m (2020: £102.9m)), deferred members (£156.5m (2020: £172.9m)) and pensioners (£161.8m (2020: £162.1m)). 12 Share capital 2021 £m 202 0 £m Issued and fully paid ordinary shares of 32 1  7 p each 108.4 108.3 Number of ordinary shares in issue and fully paid 2021 2020 Beginning of year 336,998,961 336,792,607 Issued – option exercises 399,835 206,354 End of year 337,398,796 336,998,961 211Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Notes to the Company financial statements continued 212 Bunzl plc Annual Report 2021  13 Reserves The capital redemption reserve of £16.1m (2020: £16.1m) as presented in the statement of changes in equity records the aggregate nominal value of treasury shares that have been cancelled. The own shares reserve of £52.9m (2020: £73.4m) as presented in the statement of changes in equity comprises ordinary shares of the Company held by the Company in an employee benefit trust. The assets, liabilities and expenditure of the trust are included in the Company financial statements. Details of the trust and investment in own shares reserve are set out in Note 19 to the consolidated financial statements. The dividends paid and declared in the current and prior year are detailed in Note 20 to the consolidated financial statements. 14 Contingent liabilities Borrowings by subsidiary undertakings totalling £1,549.2m (2020: £1,661.3m) which are included in the Group’s borrowings have been guaranteed by the Company. 15 Employees’ and directors’ remuneration The average number of persons employed by the Company during the year (including directors) was 56 (2020: 53) and the aggregate employee costs relating to these persons were: 2021 £m 202 0 £m Wages and salaries 11.1 11.0 Social security costs 1.7 1.8 Share based payments (0.2) 2.3 Pension costs 0.8 0.8 13.4 15.9 Conditional awards of executive share options and performance shares are granted to executive directors and other senior employees of the Company. Employees of the Company can also participate in the Company’s Sharesave Scheme. Further information on the Company’s share plans is disclosed in Note 19 to the consolidated financial statements. 16 Related party disclosures The Company has identified the directors of the Company, their close family members, its key management, the UK pension scheme and its subsidiary undertakings as related parties for the purpose of IAS 24 ‘Related Party Disclosures’. Details of the relevant relationships with these related parties are disclosed in the Directors’ remuneration report, Note 23 and Note 24 to the consolidated financial statements and the Related undertakings Note in the Shareholder information section on pages 222 to 228. Bunzl plc Annual Report 2021212 FINANCIAL STATEMENTS Statement of directors’ responsibilities                       •   •       •   •  unless it is inappropriate to presume that the Group and the          Group and the Company and enable them to ensure that the               •     •     •     By order of the Board Frank van Zanten Richard Howes   28 February 2022 213Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Independent auditors’ report to the members of Bunzl plc  Opinion  •    •  •    •             Basis for opinion     Independence       Our audit approach Overview Audit scope •   •    Key audit matters •  •  •  •  Materiality •  •  •   The scope of our audit  Bunzl plc Annual Report 2021214 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BUNZL PLC Key audit matters               Key audit matter How our audit addressed the key audit matter      multiple geographies and relating to multiple                nature of the Group and the magnitude of the           •   •    •   •                     in relation to the value of assets and liabilities           • We assessed the methodology and key assumptions used in determining the  •    •     215Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Key audit matter How our audit addressed the key audit matter                                                  of the risk surrounding the level of estimation       •   •   •    • We tested the net realisable value of a sample of inventory items to ensure      •  •  •   •            Bunzl plc Annual Report 2021216 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BUNZL PLC CONTINUED How we tailored the audit scope          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    Materiality        Overall materiality   How we determined it   Rationale for benchmark applied      Considering the nature of the business and                217Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS    Conclusions relating to going concern   •   •  •   •   •   •   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     Directors’ Remuneration   Bunzl plc Annual Report 2021218 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BUNZL PLC CONTINUED Corporate governance statement  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      219Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS    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       Use of this report     Bunzl plc Annual Report 2021220 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BUNZL PLC CONTINUED Other required reporting Companies Act 2006 exception reporting  •  •   •  •    Appointment    Other matter        London 28 February 2022 221Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Related undertakings as at 31 December 2021        Subsidiary undertakings Registered office address Argentina  1 Australia Atlas Health Care Pty Limited 7 Bunzl Australasia Limited   4 Bunzl Catering Supplies Limited 7  3  7  2  5    8  4    7  4    7 Worksense Workwear and Safety Pty Limited 4 Austria Bunzl Holdings Austria GmbH    Belgium  10  14  12 Total Safety Supply Belgium BVBA 13  11 Brazil  17    23  21  22  20  15     18 Canada   28      25  27   28 Subsidiary undertakings Registered office address   28  24 Chile  30 Bunzl Chile Holdings SpA 30  32  32  31  30 China  38  35  40  41  44  45    37  34  33  43    47  42 Colombia  Spa  48  48    50 Czech Republic  52  51 Denmark  53  53 Clean Care A/S 54  55 MultiLine A/S  France  70  84  83    72  71 Comptoir de Bretagne SAS  Shareholder information Bunzl plc Annual Report 2021222 SHAREHOLDER INFORMATION Subsidiary undertakings Registered office address  73        80  57    78    75  74 Hedis SAS  Hygiadis SAS   Hygiene L'image du Propre SAS 77   Ligne T SAS  Mat'hygiene SAS   82    81 PLG Grand-Nord SAS  PLG SAS 81  57      58   Germany   88 Bunzl Großhandel GmbH 85  87   85 Bunzl Holding GmbH  85      Protemo GmbH 88 Hong Kong Bunzl Asia Limited       MCR Safety Asia Company Limited  Hungary     Ireland       Israel        Subsidiary undertakings Registered office address Italy  100    100  101 Malaysia  102 Mexico   108   104   108      107  103   111     103   105   110   112 Morocco  113 Netherlands  121  123  115  118  117  122    120  114  124   New Zealand    125  127  128    127      128         Norway Art Trading AS 131 Culina AS 131  132  132  130 Peru  133  133 223Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Subsidiary undertakings Registered office address Puerto Rico  134 Romania Bunzl Romania SRL 135 Singapore    137  137 Slovakia  138 Spain  147  141  142    148  148  141  144    143  145  141  140 Switzerland Bunzl Holding Switzerland AG 150  151  152 MMH Holding AG 151 Weita AG 150   Turkey  153  155      154 United Kingdom    157      Aggora Group Ltd   Aggora Limited     Bodyguard Workwear Limited            Bunzl Holding GTL Limited     Subsidiary undertakings Registered office address                Bunzl Overseas Holdings Limited  Bunzl Pension Trustees Limited      Bunzl Properties Limited       Catered 4 Limited      Continental Chef Supplies Limited        Guardsman Limited  Henares Limited   Howper 800 Limited      157 Lee Brothers Bilston Limited          Parmelee Limited 158 Portabottle Limited  Portabrands Limited          The Porta Group Limited  Tornado Gloves Limited 158 Tornado Holdings Limited 158                      United States  177    177       Related undertakings continued Bunzl plc Annual Report 2021224 SHAREHOLDER INFORMATION CONTINUED Subsidiary undertakings Registered office address  177  177    177            177  177  177  177  177      177  177    177            177        177  173  177  177     170 John Tillman Company      177     Masteragents LLC 177  174  174   174        170        177  177  172 Subsidiary undertakings Registered office address     177 SAS Safety Corporation    170  178   Tingley Rubber Corporation  175  177  177  171 Uruguay  180 Other shareholdings Registered office address  Felelossegu Tarsasag               225Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Registered office address Key  1  2  3  4   5    7  8    10  11  12  13  14   15      17   18       20    21   22   23  24  25    27   28      30   31  32   33   34 Registered office address Key   35     37   38      40   41   42   43   44    45      47  48     50  51  52  53  54  55    57  58                          Bunzl plc Annual Report 2021226 SHAREHOLDER INFORMATION CONTINUED Registered office address Key      70   71   72  73   74  75    77  78     80   81  82  83   84  85    87  88                             100  101   102   103 Registered office address Key    104   105       107   108     110   111   112   113  114  115    117  118    120  121  122  123  124   125    127  128     130  131  132  133  134   Romania 135    137  138 227Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Registered office address Key     140   141   142   143   Spain 144   145     Spain 147   148    150  151  Switzerland 152  Turkey 153   154  155      157   158                                 Registered office address Key   170   171   172   173   174    175      177   178      180  Bunzl plc Annual Report 2021228 SHAREHOLDER INFORMATION CONTINUED Financial calendar 2022 Annual General Meeting 20 April Results for the half year to 30 June 2022 30 August 2023  February      July  January Analysis of ordinary shareholders    Size of holding Number of shareholders % of issued share capital   2  441 4  180 13  40 8   73  100 Registrar  The Pavilions Bridgwater Road      Investor Centre     •  •  •  •  •     Dividend payment by BACS          BACS and who have registered a valid email address with the     Dividend reinvestment plan         American Depositary Receipts     Telephone Citibank +1 781 575 4555   Shareholders may if they wish have their dividend payments     229Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS Share dealing      ShareGift Sometimes shareholders have only a small holding of shares       Shareholder security        Independent auditors  Corporate brokers  Citigroup Company Secretary   York House 45 Seymour Street London W1H 7JT     Forward-looking statements       Bunzl plc Annual Report 2021230 SHAREHOLDER INFORMATION CONTINUED Five year review   2021  2020 £m  £m  £m 2018 £m 2017 £m Revenue        623.3       10.7              – – – –  –  568.7              equity holders 442.8      Basic earnings per share 132.7p      Alternative performance measures †  752.8       698.2       542.5      Adjusted earnings per share 162.5p             231Bunzl plc Annual Report 2021 FINANCIAL STATEMENTS                  Bunzl plc Annual Report 2021232 Bunzl plc Annual Report 2021 Visit our new website at bunzl.com Bunzl plc York House 45 Seymour Street London W1H 7JT