Bunzl plc (BNZL) Earnings Call Transcript

Welcome to the Bunzl Insight event focus on Continental Europe. My name is Alberto Grau. I'm the Managing Director of Continental Europe. I'm hosting this event from this fantastic experience center in Arnhem, in our facility of retail and industry in the Netherlands. I joined the group 14 years ago, as an MD in Spain. And in 2018, I moved my family to answer them to run our Continental Europe business. I have with me today, Wilbert. Wilbert was part of the management team that sold the business back in 2005. And in 2018, since then, he's running successfully the Bunzl Retail & Industry business. He's one of the executives with the best commercial capabilities that I've ever seen. So he will explain afterwards how we add value to our customers. I've got Eric. Eric Joined us 2 years ago. He was running the digital innovation at ERIKS. ERIKS was a B2B industrial supply distributor. And he's an example of the high-caliber talent that we look to join the group with shared values and with entrepreneur background. He's helping me to drive the digital transformation now here in Continental Europe. Both are a good example of the high quality of expertise of the people in leadership roles here in the group. We have together 50 years of combined experience at Bunzl. Today, we will give you insight into the Bunzl's growth model and how we have applied successfully in Continental Europe. How our value-added solutions and customer propositions drive sustainable returns and our success acquisition growth strategy and the future opportunities in this area. So by looking at the Continental Europe growth track record, we see that since 2004, we have delivered a strong revenue growth. We have multiplied by 5 the size of the business, a 10% compound annual growth rate. Organic growth has been responsible of 1/3 of this growth. So thanks to our value-added offering, which enhance the relationship with our customers and make them stickier, elements like expertise, sustainability, global sourcing capabilities have been absolutely key to make this happen. Acquisition growth has contributed 2/3 to this growth and acquiring good businesses and help them and support them to keep growing has been also very relevant. So in this period, our operating profit has grown by 13% CAGR and our operating margin by 320 basis points, mainly driven by great performance, operational excellence and good portfolio management. We put the first flag in Continental Europe back in 1994 with the acquisition of Hopa Disposables. It was a family owned successful business engaged in the distribution of food service packaging. And supplies for the hospitality sector. But it was in 2005 when Continental Europe became a dedicated business area. At that moment in time, we have 8 -- have presence in 8 countries. We normally classify our acquisitions in 2 categories: anchor acquisitions and bolt-on acquisitions. Anchor acquisitions are those that allows us to enter into a new country or a new sector. Bolt-on means expanding into an existing sector. So since -- until 2005 the majority of the acquisitions were anchor acquisitions entering into new countries. However, since 2005, we have accelerated our growth not only expanding into new countries, but more importantly, expanding in existing countries. So since 2005, we have acquired 56 companies out of the 66 we have acquired since 1994. Today, we have presence in 16 countries through 52 operating companies across our 6 core market sectors. We have 5,600 colleagues, 2,000 of them are focusing on engaging with customers and supporting them and providing them value-added and expertise. We supply our customers for more than 100 locations. Bunzl leaders and with their teams have response about the drivers of our growth. They are responsible of this good track record because they have the market intelligence, they have the customer relationships, they have the local knowledge to understand the dynamics in the markets in which they operate, and we've built a strong and capable management team. Today, almost 50% of the managers in Continental Europe, ex-owners are coming through acquisitions. This has helped us to make what we call the secret sauce, which is the mix between the ex-owners with these founders mentality mindset, and executives with wider corporate experience. And this is a powerful combination. In a centralized organization, I think it's absolutely key to have high-caliber people running the local business with these entrepreneurial minds. So acquisitions has been a great source of talent and employees from the acquired companies have a good opportunity to grow their careers within a bigger company, but also ex-owners have the best place to keep doing what they did in the past with the autonomy, but with the autonomy of the past, but with the support of the global scale. So retaining and developing these people, the people that we bring through acquisitions is absolutely key. One example is Wilbert. We focus on operating at a local level to serve individual customers need because our customers, even if they are global, they operate locally. And we are decentralized, and we have this commercial agility. So we capture value from being decentralized with this agility. But at the same time, we have the global scale. And global scale backs our local approach by providing financial support to invest in sustainability to bring great people to invest in digital technologies. We're providing as well operational expertise to allow the businesses to make -- to be more efficient. We normally consolidate to integrate back office, for example, within different companies, within the same country or if it makes sense, we can consolidate business or consolidate warehouses. For example, since 2010 we have relocated and consolidated 47 warehouses into fewer and more efficient locations. And finally, the acquisition support. I mean our central team, corporate development team, help our local business to execute and close acquisitions. So we are very experienced in managing this balance between the centralized and global scale support. But the benefits of the scale along with the autonomy and the freedom is a fantastic selling point when we approach potential targets to acquire. In summary, this strong growth track record with the entrepreneurial leadership team in a decentralized organization, enhanced and supported by the global scale, we are very well diversified by geography and by market sector has resulted in a very resilient business that generated last year GBP 2 billion. It is important to mention that our low by customer concentration helps maintain high margins. So we delivered strong returns while we see significant opportunities for growth organically and by acquisitions. So before I hand over to Wilbert, I just wanted to remind you that we provide products and solutions that go beyond the unit cost of the product. And this is key for our value creation. Our customers are medium large customer, and we work closely with them to help them to solve their real challenges. So our customers, we are expert in our field, and they rely on us because of this knowledge, we codevelop with them. We innovate with them to find the right solution to each specific need. It is important for you to know that we provide essential products for our customers to operate. Without our products, our customers, they cannot run their businesses. In the car industry, they call these type of products, line stoppers. So elements like expertise, reliability, and high fill rates are absolutely key for our customers and are central elements in our value proposition. Now we are going to talk about the value-added solutions and how this drives value to us and to our customers. And to do this, we will focus in on Wilbert's business. Over to you, Wilbert.

Yes. Thank you, Alberto. So now I want to show you how the added value services we provide to our customers have driven great returns in our business. I am the MD for Bunzl Retail & Industry, which is one of the 8 operating companies in the Netherlands. We supply a wide range of business-critical nonfood essentials to various end customer markets. I was part of the leadership team that sold the business back in 2005 and since then, we have completed 2 bolt-on acquisitions, Janssen Packaging in 2015 and recently, AFL Group. Today, the business has a revenue of around GBP 130 million and has delivered constant organic profit growth. Critical for achieving this growth is that customers trust us to be able to supply them with their essential products, We are in an extension of their strategic team. Our value-added proposition goes beyond just the delivery of products. A product can be substituted, but our concept is second to none. Knowledge, expertise and product innovation is cemented in our sourcing. We have 33 category specialists and category managers and over 400 relationships. This is key to being able to bring the right solutions to our customers. Innovation is key. We consolidate orders in a very efficient way. For example, our top 10 customers order on average 728 SKUs. And today, over 80% of all the orders we received from customers are received digitally. We make things easy for them, and we deliver reliably. These essential products have to arrive at the customer at the right time regardless of the challenges in the supply chain. And so far this year, we have made 99% on-time in full despite the global supply chain challenges. This demonstrates the strength of our commitment. These elements are the basis of the proposition we provide to our customers. Truly understanding our customers and their challenges is danky to be able to provide solutions they really value. This drives our growth and returns. Firstly, we built close and long-lasting relationships with them. On average, our top 20 customers are with us for 17 years and our senior sales team for over 12 years. We have a strong connection with the decision-makers, and we have become very relevant to them. We make sure that we understand their challenges and provide solutions, and therefore, we held in-depth interviews with both of their decision makers. And we are able to analyze customer challenges in detail and use the data to offer the best possible solutions. We also hold regular in-house workshops to train their teams. We are a highly innovative business, working closely together with customers and suppliers. We co-create and develop with our customers and suppliers. The value of this is demonstrated in the high proportion of packaging made from alternative sustainable materials, approximately 65% of our product range. Sustainability is a key strategic pillar for Bunzl and a key differentiator for our customers. And our innovation cycle goes that fast that every single year, 25% of our product range is being renewed. One such innovative solution is endless cardboard. This addresses the problem of a customer who was using generic poorly sized boxes for their products. And this has generated a lot of excess waste in cardboard and the deliveries were poorly optimized as we were delivering boxes that contain too much air in it. The endless cardboard solution, which you are going to see later, was reducing the air in the boxes with over 30% and automation was saving the customer on labor cost. To protect our innovative solution, we went into an exclusive 3-way agreement with a machine supplier and the customer. And the total savings mount up to 1/3 of the packaging spend and 1/3 of the carbon footprint. We are excited to help our customers with a sustainability journey. But what's in it for Bunzl? Through these kinds of innovations, we increased our share of wallet with the customer at higher margins, win new business rapidly and increase customer stickiness. Another great example is CEVA Logistics, a large third-party logistics company in the Netherlands. It's a customer for 16 years already, but it has been accelerating in the last couple of years. Previously, there are 100-plus warehouses, where sourcing products themselves using hundreds of suppliers, including Bunzl, but the management of CEVA had no control on their packaging, spend poor product availability and no support on their sustainability targets. So we went in 2017 into a master agreement. Bonds are becoming their sole supplier for over 1,000 SKUs in 12 different product categories across all their warehouses. Through innovation, we have saved them significant amounts of costs and carbon emissions, by using our Bunzl scale and expertise. The availability of products has gone up significantly to almost 100%. They rely on us for our packaging expertise. And we even partner with them to leverage their customer base whilst fueling our own organic growth. And they have regarded the video and what you're about to see is how they experience working with us. [Presentation]

So we have proven that if you add the right value for your customer, you can double your profit in 5 years' time, and that's exactly what we did. And we will continuously focus on innovation to keep on delivering these impressive growth rates. Thank you very much. So now, Eric will tell you more about the way we use digital solutions to enhance our value proposition and increase customer stickiness.

Thank you very much, Wilbert, and good afternoon, everybody. I'm very happy with this opportunity to tell you more about our digital transformation journey. And as Alberto already mentioned, I joined Bunzl 2 years ago. And what I noticed from day 1 is the eagerness of local management to use technology to improve customer relationships, to make our operations more efficient and also to anticipate fast on a market that was changing faster and faster. So that's good. That is the fundamental of a digital transformation. What I also saw is the fact that every company has different needs. Mostly based on different stages of maturity, but also on different market dynamics, and that's okay. We just need to take that into account. But what we also have is this one thing that bonds all the different Bunzl companies. We are all distribution companies. So the business model and the main processes, they are the same. And what I see in every company where I come is that pragmatic down-to-earth execution-driven mindset. And that's something that we can work with. So what we did is we talked to all the local managers, and we ask them what digital solutions could have the biggest impact on your local strategic plan. We gathered all that information, and that was our basics. And what we then did to help them to build local road maps and also to monitor progress, we grouped all those initiatives and ideas in 3 different buckets. Bucket #1 contained all the customer-facing projects. So all the projects and initiatives that are around the ease of doing business with Bunzl for the customer. So it's things like elimination of potential friction points. It's about self-service solutions for the customers, but also how to facilitate easy communication and collaboration. So all these initiatives, they can have a direct impact on our organic growth but mostly on our customer retention because also the more we can integrate into the process of our customers, the stickier our relationship and our concept will become for those customers. The second bucket contained all the initiatives that were around operational efficiency. So how can we make our processes more effective, efficient, reliable but also flexible so we can anticipate fast and even faster changing market circumstances. One project I would like to mention there is a move that we are doing from the traditional, rigid monolithic systems to the best-of-breed solution. So for every core process, want to have the best digital solution in the market. But then we need to glue it together through a very flexible API architecture so that we can easily connect those. Because by doing this, we allow all our local opcos to make use of best-in-class technology easily connected to their local ERP. And because of that, the fact that we have 34 different ERPs, it does not hinder us anymore. We can flexibly link them to each other, and it will also allow all our companies to make use of those best-in-class solutions that they normally would not be able to afford or implement. So that's a very important project for us. The third bucket contains all the projects that are around data analytics and new insights. And when you look internally in Bunzl, it mostly means focusing on the right things through effect-driven decision-making. But if you look at our customers, it's about creating new value by bringing new insights to the customers, and that could even lead to new business models or new business concepts. What we see in every company is that they need a different blend of initiatives in those 3 buckets. And by creating a community and creating transparency over all those different projects, what we now see is that people start to share their experiences, but also start to copy. And that's very important to make our digital transformation scalable and we see that this approach works within Bunzl. Bunzl companies like to learn from each other, but mostly try to reuse what somebody else already has invented. So this makes it for us scalable. I do not want to go deep in technology today, but we want to show you some examples of digital solutions, so you have a flavor of what kind of projects we are running. The first 1 it's around web shops. And we have more than 50 web shops out there, each focusing on a certain customer behavior in a certain local markets. And the web shop shows all the products that we sell in that market. It gives all the product information. It shows the net prices for the customers, stock availability, alternative products and customers can then buy online and pay immediately through credit cards or they can take the traditional payment terms that they already have in the offline channels. But for the bigger customers, this does not work. They've got complex buying processes, and we need to integrate in their processes to add value. So for those customers, we built brand shops. And let me explain this with an example from citizenM. citizenM is a fast-growing hotel chain in Europe and America and we supply all of their hotels. When one of the hotels want to place an order, they don't have to look for the web shop of Bunzl. In their own intranet, they've got a link. They just click it and then automatically, they see a web shop that's adapted for them. It's with a citizenM logo, it's with their colors, and they can only see the products that have been pre-listed for their hotel. So it's super easy for them to find the right products and just order it saying what quantity they need, press enter and it's done. What happens then is we then take that order, but we feed it first in the procurement system of citizenM. And there, they do the authorization flow. They do the cost allocation and then they send order in a digital format back to Bunzl. We then process it and we deliver the right products to the right hotels. So what actually happened here is that citizenM outsourced their entire procurement system to Bunzl worldwide. And what we then give them is full compliance to the assortment that we pre-discussed with central purchasing and link that with our worldwide logistics and also we feed them with information about the usage per hotel for them, it's a complete solution. The aim for citizenM is to manage the entire supply chain worldwide for all the essentials with one FTE, and they depend on Bunzl to do all the rest. So that's what this project is all about. For Bunzl, this means it's a fast-growing account and with a very good lock-in because we go very deep in their processes. And at the same time, due to that compliance to the preregistered article list, we can also avoid any contract spill locally in the different hotels. So it's a clear win-win. In the next example, we even go 1 step further. This is a project with PostNL. And PostNL is a mail and parcel cooperation and their core business is to collect and to drop parcels. Our parcel has products and they need to be protected in an envelope or in a box. So what PostNL wanted to do, they wanted to give extra value to their customers, and they also wanted to offer those packaging materials. But PostNL is not a specialist in packaging. They are also not a specialist in distribution. So they reached out to Bunzl and they asked whether we could set up a partnership there. So what we did is we built a web shop for PostNL in their logo, in their colors, and we integrated it in their website. So the PostNL customers, they think they're shopping at PostNL. But we maintain the platform, we do the category management, we do the buying, the stocking and the picking and then PostNL will collect the products and they will drop it at the customers. So we've got a clear win-win here because PostNL now can give an extra value to their customers. And for Bunzl, we can leverage on the customer base of PostNL and reach out to their market. So PostNL actually does the marketing for us, and we can sell directly. PostNL is so happy with this project in Holland that they recently also rolled it out to Belgium. It's a new country for us. It's a new language for this web shop, but it went very fluently. The 2 next examples, they are more about data and insights. And on purpose, we took 2 examples around sustainability because sustainability is so important for Bunzl and for our customers. As you probably know, we have labeled most of our products according to their ecological impact. And based on that information, we can make reports, we can make simulations, but also suggestions to our customers to reduce their product footprint. We're not going to present that today because we already presented this solution previously, but we will take a similar solution. And this goes in about when we ship the goods from our warehouses to the facilities of our customers. So it's about the delivery emissions or the Scope 3 sustainability projects. So let me tell you -- let me show you the example that we have in Spain with the carbon footprint efficiency tool. It was actually a solution that we already had in the U.K. So we copied it, but we adapted it for the needs for the Spanish markets. And we also certified it officially so that all the outcomes would also have real value for our customers, and they could also lean on that information. So what we did is we met all the delivery routes between our warehouse and the facilities of our customers. And in this case, in this example, it was a big restaurant chain in Spain. With that restaurant chain, we have about 2,000 deliveries a year, and about 15% of those deliveries were for orders less than EUR 60. So it's a lot of emissions for a very small package. But just by making those reports by making it feasible and by talking to the customer, they wanted to reduce that footprint. And they changed their behavior, and they started to combine small packages into a bigger one. And what we see already after 6 months is a reduction of 10% of the emissions of the CO2 footprint. So that's a good result that we already have in a short period. But also for Bunzl, it's very good because now we have a higher average order value, and it means that we can improve our logistics and our picking and packing. So what we often see here is that contribution to a better world goes hand-in-hand also with an improvement of our processes. So it's a win-win. The last example that we want to show is an example from France, from PLG. It's about industrial laundry service. So imagine, midsized hospitals, hotels, et cetera, who do their own laundry. They've got some industrial laundry machines. They got barrels or bottles with detergents and with disinfection product. And then in the middle, there's dosing system that will inject the right liquids into the laundry machine during the washing procedure. Now what we see in reality is that often the customer has to do a rewash because the quality of the laundry is not good enough. And it can have different reasons, but they have to do a rewash, and that means losing time, under capacity of the machines, too much water because of 2 washes and also too much electricity. So what our colleagues from PLG did, they did set up an experiment to put sensors into the dosing system so that remotely we could monitor what's going on. And when we see that something is going wrong, we could immediately reach out to the customer to do the necessary things and it could be like changing the barrel or whatever. Or if the dosing system needs maintenance, then we could immediately plan scheduled maintenance. And what we saw is immediately the number of rewashes went down. So the quality of the washing went up, the customer is saving time, the customer is saving money. What does that mean for Bunzl? Again, it's a sticky model. We don't just deliver the products. We monitor the quality of their activities. It also creates independence for us for the different detergent brands. What we also see is a higher consumption because the customers who are not putting enough disinfection products into the laundry washing procedure meaning that the quality was not good enough. And what we also see is that we have 3x less maintenance that we have to do because now we only need to go there physically when we really need to do maintenance. So again, a clear example that contributing to a better world goes hand-in-hand with operational improvements to the model and also a growth driver for Bunzl. These were some examples just to give you a flavor about the kind of digital projects that we are running within Bunzl. And I will give the word back to Alberto, who will talk about the growth opportunities for Bunzl Continental Europe based on our acquisition strategy.

Thank you, Eric. Well, we have seen with these examples, the strength of our business, and now we will talk about the opportunity through acquisitions. So this slide gives, sorry -- this slide gives the, yes, technology is good. Yes, this slide shows the scale of the opportunity for growth we have in Continental Europe based on the size in revenue in each market compared to the GDP in each specific market. And having as a benchmark our business in U.K. and Ireland. So just by matching the rate of revenue, GDP that we have in our business in U.K. and Ireland, we could almost triple the size of Continental Europe. So it's a massive opportunity to grow. The right-hand map shows a fuller breakdown of the markets -- of some markets where we have the opportunity to at least double the size of the business. And the blue bubble means reflects the size of the marketing revenue. The green bubble is the size of the opportunity. And looking at the 3 of the largest economies in Europe, we can see that in Spain, we could be 2x larger in Germany, where we have recently acquired a company that has allowed us to double the size of the business, we could be 8x larger. And in Italy, we could be 15x large. So it's a huge opportunity to grow in Continental Europe by acquisition according to this model. This diagram, you might be familiar with this diagram because it shows highlights the sectors we are in the countries where we have presence. So when we see the opportunities to grow through acquisition, we see mainly 3 roads. The first 1 is filling the white spot in the diagram because only -- we have only 2 countries, Netherlands and Switzerland with operation across all 6 sectors. So a huge opportunity just by filling the gaps. Second, is increasing the share in those sectors where we are in, in the countries where we have present, right? So it would be graphically to making these dots bigger. And here, I will give you some color with some examples in the 3 main businesses we are having in Continental Europe. France represents 30% of the total revenue in Continental Europe. We are the leading player in the Cleaning & Hygiene sector. However, we have significant opportunity to keep consolidating our safety business, also to increase our presence in the health care, which is limited today. In the Netherlands, with a more, let's say, balanced portfolio of market sectors, our clean and high-end business represent less than 50% of our business in the Netherlands. So a huge opportunity to increase our presence there. And we are seeing a growing opportunity as well in what we call a specialist packaging. In Spain, we are the leading player in the cleaning & hygiene sector, but is so fragmented that this is still a further opportunity to keep consolidating that market and also to increase our presence in the health care sector, where we have only 1 company today. And the third avenue is to enter into new countries. So what we call distribution really countries, and we highlight here 4 of them, which are Poland, Sweden, Portugal and Finland. Acquisition pipeline is driven by our local MD. So the majority of the generation is not local. We build long-term relationship with our potential targets. So it can take years for a deal to materialize. But during this process, we build progressively trust and this emotional connection, which is absolutely key and relevant for a family owned business to sell their company. They -- during this period, they understand the value of joining bands. So managing pipeline is a key topic in our management review meeting. So we monitor frequently the pipeline and the engagement with all the targets. And today, what we call the active pipeline is made of 150 targets with a combined revenue of almost EUR 8 billion. They are medium-term time frames. So most of these companies today are not for sale, but they will be for sale in the midterm, right? And beyond that active pipeline, we have a big, big list of other potential targets. In the last Capital Markets Day, we showed you 2 successful acquisitions. One was Technopak in Spain and other Derivative Clearing in the Netherlands. I'm going to explain to you today, I'm going to show you another 2 good examples of successful acquisitions. The first 1 is Multiline. We only say that there are 3 main reasons for our family-owned business, a good family-owned business to sell their company. One is a lack of succession. The second is divorce, the third is death. In this case, was the death of the owner could trigger the acquisition back in 2003. So at that time, we had 2 small companies in Denmark. And Multiline was the leading player in the foodservice. So acquiring Multiline, we enhanced our position significantly in Denmark, we were -- we become the #1 in foodservice, and we had a very strong platform to grow going forward. So this company has leveraged the Bunzl scale by investing heavily in sustainability, but also in digital technology has used very well the sourcing capabilities in Asia to develop strong own brands that has delivered higher margins. And all-in-all, it's a good example of a company that has benefited from being part of Bunzl delivering a strong organic growth, which has been complemented by 5 small bolt-on acquisitions, which has enhanced their value proposition and the competitive advantage in the market. So since 2003, Multiline has grown 10% CAGR its profit. The second example is also -- this is a fascinating company. We acquired in 2014. In this case, was the lack of succession, the reason for selling the company. This was the leading player in the foodservice -- sorry in the food we are -- protective food we're a distribution business in the Netherlands with a great brand and good opportunities to grow. So by acquiring this company, we enhanced our position in our safety business after the acquisition back in 2011 of Majestic. This is a company that does the same as Multiline has leveraged on the Bunzl scale investing in technology and taking advantage of the sourcing capabilities in Asia. Today, it's an agile customer-centric organization with strong digital capabilities and fairly committed to sustainability. In fact, we have founded the Circular Footwear Alliance, which is -- which promotes the collection of the huge when they are at the end of the useful life, dismantle them and use the recycled material to manufacture new shoes. They have the goal that by 2025, all the rents will be manufactured at least by 50% of recycled material. So it's another good example of highly profitable business growing double digits profit since the acquisition. And now, as I mentioned before, we made a significant step in Germany by acquiring HYGI.DE. It's a brilliant fast-growing company. It's the leading online B2B distributor of cleaning and hygiene products. With a revenue last year of GBP 92 million, this acquisition has provided a significant scale now in Germany. But what is most important, we have a strong platform to grow, and we have acquired digital capabilities. But I want to hear from them why they joined the group. [Presentation]

I think this video reflects very well how we approach the acquisition and the value we added to the acquired company. So just to conclude today, I think our great record of growth demonstrates our capacity to grow sustainably and profitably. We are highly diversified and a resilient business, which adds value by solving our customers' problem. And this put us in a very well positioned to keep delivering strong returns going forward. We have a huge potential to grow organically and through acquisitions. So I'm very optimistic, and we do believe that the sky is the limit. So now we are going to take your questions. [Operator Instructions] Okay. We are going to take the first question. [Operator Instructions]

Our first question comes from Sylvia Barker from JPMorgan.

A couple of questions for me. Given it's a very diverse region, I was just wondering if you can talk a little bit about sales and incentives as well. So firstly, on sales, you have so many different avenues where you can grow even in the 3 larger examples that you highlighted in France, the Netherlands, in Spain. So how is your sales function organized? How do you prioritize which types of customers to go for and how they incentivize people, are they country by country, are they organized by vertical, et cetera? And then secondly, in terms of the regional MDs, what are the incentive metrics for those as well?

Thank you, Sylvia. So when we talk about incentives, I'm going to start with -- by the end, our local MDs, local management are incentivized by organic profit growth, ROACE and they have personal objectives. So this is common across the area and this is also common across the group. In terms of incentivizing sales people, the salespeople and probably will -- can add to that incentivized by growing gross margin in cash terms and in percentage terms as well. And in terms of type of customers and our type of customers are medium large customers. So customers that are buying more than GBP 50,000 a year represents 80% of our sales, right? So to engage with these customers, we normally have key accounts manager and then we have a category management in the purchasing department to help them innovate and codevelop and develop products, but also customer service to provide the expertise, to providing report and always this is backed always with technology. We try to provide them with the technology specifically in those pain points and does not added value transactions. So like making order or knowing what is -- how is the status of a specific order, for example, right? So if you, Wilbert, would you like to add a little bit more about that.

I think it's exactly the same in the Netherlands, as you explained.

Okay. And maybe just -- could I just follow up quickly on that. So how does pricing work, I guess with these customers? And because obviously, this is a very profitable business for Continental Europe as a whole and the margin has actually improved very impressively over time. So they're very bespoke projects. How do you think about pricing these?

Yes, I think pricing is local. Our fragmented customer base put us in a good position in terms of bargaining power. And perhaps, Wilbert, if you can give some color.

Yes, we had so much value that, for example, for the smaller customers, there's no discussion at all. We just increased prices when necessary. And with the bigger customers, we are in close contact, and we have contracts on a quarterly base to adapt prices when necessary.

Anvesh Agrawal, Morgan Stanley.

Three questions. First, just on the sustainable product. Can you just comment on the average pricing on those products? Are they materially higher than the regular products? And are you able to maintain the same level of margin on the replacement product, if sustainable products replaces the existing product. Number two, clearly, some very interesting examples around the value-added services. Again, maybe some comment around how much that helps in terms of the pricing negotiation. I mean, are you able to charge more for some of the digital services or data analytics you provide? And then finally, just on the M&A, given such an integral part of the story. Has anything changed recently from a pricing perspective given the interest rates going up and presumably the multiples coming down in the private market?

Wilbert, you take probably the...