Reckitt Benckiser Group plc

Good morning, everyone. Welcome to Rekord's full-year 2021 results presentation. Before we start, I'd like to draw your attention to the usual disclaimer in respect of forward-looking statements. Today, we have our CEO, Lachman Narasimhan, and our CFO, Jeff Carr. They will present a review of our 2021 results, our outlook for 2022, and progress on our transformation journey. Following the presentation will be the usual Q&A session. And so now, without any further ado, I'd like to introduce our CEO, Latchman.

Thank you, Richard. It's great to see you all this morning and thank you for joining us. Two years ago, we established our strategy to return Reckitt to sustainable mid-single digits growth and mid-20s operating margins. We're making good progress on this journey and I look forward to sharing this update with you today. I have three key messages for you this morning. Firstly, we have seen strong momentum in 2021, outperforming our own expectations on revenue growth. We have a more competitive business. This positions us well to deal with a difficult operating environment while delivering further revenue growth in 2022 and a return to operating margin expansion. Secondly, we have made good progress in actively managing our portfolio to position the business for higher growth. And finally, we have a much stronger business than we did two years ago. We have better executional muscle, a more resilient supply chain, and a bigger and better innovation pipeline. We have a strong leadership team in place, Our performance driven culture builds on our past and is evolving to support our future. I am therefore very comfortable that we are firmly on track to delivering our medium term targets. Before we go into these messages in more detail, I will quickly run through today's agenda. I'm going to provide you some 2021 highlights. Car, our CFO, will then come up here and take you through our 2021 results in more detail, plus our 2022 targets. And then I will finish by giving you an update on our strategic progress and why we feel comfortable with our direction of travel to deliver our medium-term goals. So with that, let's get started. We exit 2021 with strong momentum. We delivered a strong like-for-like growth rate of 3.5% on the back of an exceptional and unprecedented 2020 performance. This enabled us to deliver a two-year stack growth of 17.4%. A few highlights. 62% of our core category market units by revenue are either gaining or holding share. and for the recent quarter all three of our global business units were in share growth territory overall. We still have work to do in certain areas but overall I am pleased with our progress. We have made a step change in our engagement with customers with retailers now recognizing Reckitt as top tier in nearly half of our markets as measured by the Advantage 2021 survey. A year-on-year improvement of 20 percentage points. This also tells me that while we still have some work to do, it is encouraging to see that our efforts and focus are enabling us to build much closer relationships with our valuable business partners. And we have made strong progress on sustainability. I'm very pleased to announce that we hit our 2030 target of a 65% reduction in carbon emissions nine years early. This is part of our wider sustainability ambitions, which we launched in March 2021, and is a key milestone in our journey towards our net zero goal by 2040, which has been externally recognized. Our performance in 2021 was broad based. 70% of our portfolio, which is less impacted by the dynamics of COVID, grew mid single digits in 2021. And in fact, they grew within this mid single digit range each quarter in 2021. We are now a stronger business than we were two years ago. We have built up our capabilities across the company, and this is now translating into our top line performance across many of our brands. Given our performance over the last two years, I feel very good about our momentum as we enter 2022. I will now hand over to Jeff to take you through our financials for the year in more detail and our 2022 outlook and targets.

Well, good morning, ladies and gentlemen, and thank you, Laxman. As Laxman mentioned, we finished 2021 with strong momentum. The fourth quarter, like-for-like revenues were up 3.3%, giving us a good start as we look towards 2022. For the full year in 21, like-for-like revenue grew 3.5%, an excellent performance, as Laxman mentioned, on top of the almost 14% growth in 2020. Volumes grew in the year, 0.6%, and for the full year, the price mix was up just under 3%. Our hygiene business unit grew 7.5% on a like-for-like basis and is now up 27% versus 2019. Our health business unit was flat in the year, but this is an excellent performance, recovering from a 10% decline in the first half due to the lack of a cold and flu season in 2020. Nutrition grew 0.6% in the year with IFCN growing 3% like for like and VMS declining high single digits. I'm now going to focus on the group performance excluding IFCN China and I'm sure you will all know that we sold that business and it completed in September 2021. Net revenue grew at constant exchange rates by 3.3%. and at actual rates they were down 2.1% due to a foreign exchange headwind of over 5%. Gross margin at 58.5% was 200 basis points lower than 2020 and I'll go into more detail on the next page but gross margins were stronger in the second half at 58.9% compared to the 58.1% in the first half of the year and this is despite the strengthening of cost of goods inflation as we went through the year. Brand equity investments were favorable in the year by 60 basis points. Now this is largely due to the fact we had 90 basis points of productivity delivery in the year. This included buying synergies as we bought back together the media buying of our three business units. We also invested in technology to more rigorously measure the returns on media activities. Additionally, we have now in-sourced services such as digital and media production as we build in-house capabilities and this has resulted in costs being reclassified from BEI into other costs. Adjusted operating profit at $2.9 billion is down 2.6% vs. last year at constant rates. and operating margins were 22.9% down 160 basis points from 2020. Now the second half margin of 23.1% was up 40 basis points from the first half which was 22.7%. On this next page I'm going to focus a little bit on the 200 basis point decrease in gross margin. During the year our cost of goods inflation accelerated and finished at 11% versus 2020. This is ahead of the 8% to 9% that we guided at the half year. This is inflation net of any hedges or fixed term contracts that we had in place. At this level, inflation impacted margins by over 400 basis points. In addition, sales mix was negative for the full year, less so than at the half year, Thank you very much. Thank you for joining us. So this implies around 500 basis points of impact without mitigations. But clearly, we do have a strong series of mitigating actions. These include pricing and revenue growth management, ongoing productivity, the phasing out of transformation costs, improved sales mix, and the elimination of IFCN stranded costs, all of which gives us confidence in being able to deliver margin growth So moving on, our hygiene business unit grew 7.5% on a like-for-like basis. You can see on this chart that there was considerable volatility quarter by quarter. This largely was the result from changes in Lysol. Lysol grew strongly in the first half and declined as expected in the second half of the year as we reached tougher comparatives. in total Lysol revenues are up around 90 percent since 2019 and inherent in our guidance we expect Lysol to decline in 2022 as we comp the extremely strong performance in the first half of 21. the growth profile of the business unit is much more consistent excluding Lysol with strong growth throughout the year from finish airway cabanish and many of our other key brands. Adjusted operating profit was $1.4 billion down 6.9% versus 2021 at actual exchange rates or 1.3% at constant rates. Adjusted operating profit margin at 23.7% remains very strong in absolute terms but down versus the first half with higher commodity costs in the second half not fully offset by productivity and pricing actions. For health for the full year, revenues were £4.6 billion, and like-for-like revenues were basically flat, down 0.1%, and as I said earlier, this was a strong second half of the year. The fourth quarter, in fact, health grew 17.5%, and OTC grew over 40%, following strong market share gains and a positive start to the 2021-22 cold and flu season. Dettol like-for-like revenues declined low double digits in the full year, but as stated in that recent capital markets day, Dettol sales have stabilized at around 40% above 2019 levels, and we now expect Dettol to grow low single digits in 2022. Intimate Wellness grew mid-teens in 2021, mid-teens, I mean, that's quite a performance, led by our flagship brands, Durex and KY. Adjusted operating profit margins recovered strongly if you recall 21.8% in the first half of the year to 25.5% for the full year. Nutrition like for like net revenue grew 0.6% to 2.3 billion pounds with IFCN growing 3% within that mix. The U.S. infant nutrition business actually was particularly strong, growing over 5% in the year. As I've previously mentioned, VMS declined high single digits, but this is primarily a result of the reduced demand for airborne, following exceptionally strong growth in 2020. Excluding airborne, the remainder of our business grew strongly in double-digit growth. Nureva, for example, continues to develop as a leader in the brain category and sales revenues doubled in 2021. Adjusting operating margins for the nutrition business were 15.5% in the year unchanged on 2020 and that's both years excluding IFC in China. We expect nutrition margins to benefit in 2022 from the elimination of stranded costs related to that disposal. In addition to our reported operating profit numbers, the IFCN China business lost 67 million in the year, including 40 million of exit costs incurred immediately prior to the sale of the business. If we move on to the next chart. Now turning to earnings per share. Adjusted EPS was 288.5 pence in 2021. That's down from 327 pence in 2020. Now the majority of the movement in EPS was due to foreign exchange and IFCN trading in 2021 versus 2020 and the IFCN exit costs I previously mentioned. Excluding these three items, EPS was down just 1.7%. Net finance expenses Thank you. Now I'm very pleased with our free cash flow at 1.3 billion pounds and cash conversion at 61%. Included in this reported free cash flow is over £200 million of one-time costs and tax charges related to the sale of IFC in China. Excluding these items, free cash flow would have been at £1.5 billion. And in addition, in 2021, it was obviously impacted by the exceptionally strong 2020, with free cash flow in that year at £3.1 billion. And as we said at the time, this was driven by strong working capital inflows of 0.9 billion in 2020. And we stated last February that we expect an element of that working capital inflow to correct in 2021. And we did in fact see a working capital outflow of 356 million in the year. Our balance sheet continues to strengthen with net debt moving from 9 billion to 8.4 billion pounds. and this is largely the result as you can see on this chart from the net cash inflows from M&A activities. Now let's turn to our outlook for net revenue in 2022. As we've mentioned we're expecting like-for-like growth of between one and four percent while exiting the year with mid single-digit growth. Quarterly revenues over the last two years have been impacted and been more volatile because of COVID. But these impacts will normalize during 2022. And this chart explains why we're confident that our investments, nearly a billion pounds in total, are paying off and driving the delivery of our midterm targets. First, the majority of our brands, and this is the 70% of our portfolio that we've talked about, are already traveling at mid single digit growth rates. And we expect this to continue in 2022. Next, we have Lysol and Dettol, our world leading disinfection brands. These are at different stages in the cycle, as Laxman will show later, with Dettol stabilized now at around 40% growth versus 2019 base and poised to grow low single digits in 2022. Now, Lysol will be still annualizing peak sales in the first quarter of 2022. Therefore, we expect Lysol to decline in the current year. Before stabilizing and heading back onto a growth path. And finally, our cold and flu brands were negatively impacted in the first half of 2021 and they will grow significantly in the first half of this year before normalizing in the second half. It's very early in the year, but our first quarter has started well with strong demand for infant formula in North America and a strong start to the cold and flu season. So in summary, for 2022, we see like-for-like net revenue growth of between 1% and 4%, and mid-single-digit growth of 70% of our portfolio offset by uncertainty related due to COVID, primarily in Lysol. We're targeting growth in adjusted operating profit margins from a base of 22.9%, and this is despite the significant inflationary pressures. We'll be applying appropriate pricing and net revenue growth management actions in 2022 to offset these pressures, and we will continue to deliver in our best-in-class productivity program. As I mentioned, finite life transformation costs will phase out in 2022, and additionally, the margin of our health business unit is expected to benefit from an improved mix due to the stronger cold and flu seasons. So thank you, and now let me hand back to Laxman.