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.

Thank you, Jeff. I want to now give you a quick update on the progress we have made over the last couple of years and how we have been building a stronger business. As a quick recap, our strategy is centered around addressing four of the world's largest problems. And these problems address how can hygiene be the foundation for health? How do we enable consumers to self-care at a time when health systems are under pressure? How do we support intimate wellness and eradicate the menace of sexually transmitted diseases? And how do we provide enhanced nutrition for infants and for the increasing number of seniors in society? We also capitalize on two major shifts. The broad and rising impact of digital on consumers and on their journeys. and sustainability as we realize new opportunities while making the world cleaner and better. Addressing these four problems and capitalizing on these two major shifts puts us in a very large total addressable market. We play in very strong and attractive categories and we do so with trusted market leading brands that consumers love. These categories of long term structural growth characteristics which enable us with strong brand building, innovation and execution to grow sustainably at mid single digits over the medium to long term. As we have talked about before, we see four organic growth drivers which will enable us to achieve our mid single digit growth target. These are penetration, Market Share, New Places and Channels, as well as New Spaces and Adjacencies. So let's move to each of our growth drivers, where I will provide just a few examples of what we've achieved. Starting with penetration. Turkey has one of the highest dishwasher penetrations, and it continues to grow. In 2021, our penetration grew by over 300 basis points. Our Finnish brand is the market leader in Turkey and it now reaches around 11 million households as we continue to build penetration through our targeted media campaigns and strategic alliances with dishwasher manufacturers. In India, we have continued to build penetration of our liquid hand wash and antiseptic liquids. As we all seek to keep our families safe in these unusual times, good hygienic practices are the foundation for health and these have never been more important. and Uriva, our brain supplement brand, continues to build penetration and grow the category by reaching more new consumers. We doubled our sales in Uriva in 2021. On market share, as we stated in our R&S earlier today, 62% of our top category market units or CMUs gained or held share in 2021. I want to share a few specific CMU successes with you now. In the U.S., Lysol grew share significantly in 2021. This success was driven in part by a back to school campaign in August and September. Our U.S. nutrition business grew share in both our core formula and the specialty formula segment. And in India, our focus on increasing our points of distribution over the past couple of years has helped us gain over 200 basis points in market share in 2021 for Durex. I have covered penetration and market share. A great measure that points to both is our share of distribution globally, which increased in 2021 by 110 basis points in the markets in which we measure. On new places, our Finnish business in emerging markets has grown around 80% since 2019. We've established Finnish in a number of very nascent markets, which, whilst individually small at the moment, have significant long-term growth potential. India, for example, has seen a four-fold increase in dishwashers since COVID, a country where we have the market-leading brand in auto dish. Our nascent but fast-growing VMS business in China has made strong progress in 2021. MoveFree has now become a meaningful brand there and is a market leader in joint health. and we continue to make progress with our unique product Neuromol, our combination of ibuprofen and paracetamol into one tablet, which we rolled out in Brazil during the course of this year. We continue the strong progress we are making with the expansion of our OTC brands in select geographies based on our regulatory work and by connecting our local heroes like Pico and Luftal in Latin America to global platforms. In new spaces, we have successfully launched Dettol TruCream, our first plant-based disinfectant, which has quickly established itself as one of the larger eco-brands in the UK. In the US, we have been very successful in capitalizing on the strong equity of Lysol by moving into the adjacent category of laundry sanitizers. We see a significant growth platform in this space and have been very pleased by its initial success. Our global business solutions, GBS business, has further developed its channel and geographic footprint through partnerships. We have achieved strong share growth in the sub-sectors that we have focused on. However, we do not play in many of the large sub-sectors beyond travel and hospitality, which have significant headroom. And as a consequence, we are partnering with operators such as Diversi, A leader in the development and delivery of hygiene, infection prevention, and cleaning solutions. This will enable us to expand the distribution of our trusted hygiene brands into more end markets for the protection of staff, clients, and customers. We have just spoken about our four growth drivers which are foundational to our organic growth expectations. I would like to specifically address our two big disinfectant brands, Dettol and Lysol. We immersed ourselves with consumers asking two important questions. Will improved hygiene behavior habits stick? And second, what will happen to Lysol and Dettol as we learn to live with COVID for a more sustained period of time? The first point to be clear about is that Dettol and Lysol, as Jeff said, are in different places across markets. Dettol is further ahead in its normalization, while Lysol is anchored in a highly germ-sensitive US market with very high levels of household penetration. Our global research shows that 80% of consumers say that they will maintain their new habits post-COVID. This has barely changed. Thank you for joining us. These consumer observations are consistent with what we have seen in Tetol and Lysol. In both cases, we have focused on drivers of consumption in the core as well as sought to broaden the shoulders of these two trusted brands, which have driven significant growth over the last two years. Given the markets that they are in and consumer attitudes and behaviors in those markets, they have achieved this growth in different ways. On Dettol, if you look at the left hand side of the slide, you will see that we have broadened the base of Dettol over the course of the last two years through expansion into new places and spaces. Specifically, disinfectant spray and laundry sanitizer were nascent parts of the Dettol portfolio in 2019, but we have seen strong growth over the past couple of years. Disinfectant spray is now 3.5 times bigger This combined with our entry into 38 new markets has contributed over £100 million to revenue growth. But the real difference in debt all is that in our key developing markets such as India and China, we have seen a step change in penetration, with many consumers using the brand for the first time. We continue to see significant headroom opportunities in core debt all markets. and as a result, we are focused on driving distribution and in educating consumers in new habits. On the right hand side of this slide, you can see that after a sharp rise in 2020, our revenue has stabilized over the last couple of years at a level of around 40% above 2019. In fact, as Jeff said, Dettol is back in growth in Q4 of 2021. We feel confident We will be able to sustain a significantly higher level of absolute revenue versus 2019, primarily due to the significant penetration opportunities we see in debtor markets, along with our work in broadening the shoulders of the debtor franchise. And as Jeff said earlier, we are now targeting growth for debtor in 2022. Let's now turn to Lysol. Our primary focus in Lysol is in driving the core, both with investments in strengthening the already strong equity of Lysol, but also in driving consumer awareness and behavior, like the back to school campaign I mentioned earlier. We have gained 700 basis points of share since 2019. Our US consumer research also shows that the heavy Lysol users are the heart of the franchise. These heavy users tend to be both vaccinated and germ sensitive across demand spaces. These heavy users drove a majority of our core consumption growth in the U.S. They also increased their purchases of additional units in Lysol's adjacencies. Like Dettol, we have been active in broadening the shoulders of Lysol over the past couple of years, and this continues to remain a big opportunity for us. Lysol has seen over 250 million pounds of additional contribution from new spaces and places, including the uplift in laundry sanitizer and the global business solutions business, which did not exist in any meaningful manner before the pandemic. Contribution from new market entries is solid. We see real strong traction in markets like Mexico, the Philippines and Spain, which create a new tranche of growth markets for us and confidence in our expansion success models, which we are also using to refine our approach in some other markets. We do expect some normalization of Lysol in 2022 as the world adjusts to living with COVID, but the work we have done to broaden the shoulders of this iconic brand, our strong share gains, the anchor we have with heavy users who trust in Lysol, all give me confidence that when we do see some stabilization, Lysol, like Dethol, will be at significantly higher levels over 2019. I've walked you through our organic road drivers. I have commented on our views on Lysol and Dethol. I would now like to talk to you briefly about the fundamental changes that we have made over the past two years across six areas to build a stronger, better business. Core to our success is the strength of our brands. We invest heavily behind them, both in terms of insights, innovation, understanding preference, driving distribution, and driving behavior change. We have adopted a category-led approach to our brands and identified new demand spaces for future growth. We have invested in and seen strong growth in the equity of our brands in 2021. I am very proud A number of our brands won Effie Awards in 2021, the Effies being the pinnacle of brand and marketing recognition anchored in performance. Just a few examples from the Middle East and North Africa region. Dettol won a Gold Effie Award. During the height of the pandemic, the Dettol team focused on not just advertising, but also educating, acting and empowering our consumers. Through our campaign, to fight and protect the little things we love so that we can keep enjoying them. Durex won an award through its Everyday Celebrations campaign, celebrating the big and small events that happen in our lives. And finally, I would like to play you our Finnish video, a Gold Award Effie winner in our Middle East, North Africa, as well as in our European regions that ran across many markets and highlights that we still waste millions of tons of water pre-rincing dishes. But we all agree that water is too precious to waste.

Water. A gift that our kingdom has always treasured. that we now take for granted. Not so long ago, the lives of our forefathers depended on it. They searched it out. Learned to preserve it. Savored it. Cherished it. Built their lives around it. Yesterday, every drop mattered. But today, we waste over 100 liters of water every time we hand wash our dishes. Enough! Use a dishwasher that uses 90% less water than hand washing. Will you keep our legacy alive? Will you preserve our greatest gift? For the generations to come, For the future. Promise?

As inspiring as we do, as we recognize the importance of shaping sustainable consumer behavior through our long-term brand building. Our category-led demand space models and our investment in science platforms come together in our innovation pipelines. Our innovation pipeline is stronger than ever and 50% larger than last year. In January of this year, we launched our latest finished quantum all-in-one innovation in sustainable packaging, which provides deep, clean, and sparkling shine without the need for a pre-rinse. We are leveraging the strong equity of Mucinex in the U.S. to launch Mucinex InstaSoothe for our soul-throat relief, clinically proven to numb pain faster. and Infant Nutrition, we are launching Enfamil Enspire Optimum, our closest ever formula to breast milk, which contains up to five times the amount of key ingredients found in other formulas. A key focus for us over the past two years has been improving our relationships, our reliability and our overall service delivery to our customers. Our commercial execution is significantly stronger and this has helped us increase our share of total distribution points, which increased by 110 basis points in 2021. Earlier, I mentioned our Advantage 2021 retailer survey results. We still have work to do, but I am pleased that our efforts and focus are enabling us to build much closer relationships with our valuable business partners. And it goes beyond statistics. Our customers are recognizing our efforts with their own awards, and we've listed just a few here. Moving to our investment in capabilities and starting with supply, we were making fundamental improvements across our supply chain. One of the tangible improvements is in quality. With a strong improvement in the quality of our supply chain and our products, we are seeing good reduction in both the costs associated with non-quality and our time taken to test and release our finished goods from our factories. We are building a very strong muscle in e-commerce. We now have e-commerce capabilities in every market in which we operate. Excluding our business in IFC and China, e-commerce is now 12% of our group net revenue, and we have bold ambitions to get to 25% by the mid-2020s. And we will do this through partnership with our key stakeholders, such as Amazon, where we are collaborating to share best practices, expanding into new spaces, and innovating to keep our brands on Amazon relevant to our consumers. Our brands are rated, on average, 4.2 stars on Amazon and we have grown share in our categories on Amazon. Additionally, we have four different operating models in e-commerce. We're investing to continue to make our technology platforms and supply for e-commerce even more robust. One additional highlight is the digital native brands or capabilities Thank you for joining us today. 1.1 billion of productivity savings over the past two years have been delivered and they made up over 14,000 individual initiatives that we monitor track and assess progress in ranging from direct procurement on raw and packed materials right to the end of the value chain with revenue growth management we're increasingly embedding these behaviors and practices into our organization to become business as usual We are ahead of our plan on the targets we established and we've increased our ambition to hit two billion pounds in four years. As a performance driven company, we embed sustainability into everything that we do. We've developed a sustainability calculator to determine our environmental footprint on each product we make and measure ourselves on the level of revenue we make for more sustainable products. We also hold ourselves to account on our level of greenhouse gas emissions and absolute carbon in our operations, as well as contributing to building a fairer society through our fight for access fund. We have recently released our social impact report, and we are significantly ahead of target on the commitment we made to donate the equivalent of 1% of our operating profit to causes and communities. I'm pleased to tell you that we've been recognized as a sustainability leader after being listed in S&P Global's 2022 Sustainability Yearbook Gold Class Distinction. The Gold Class is only awarded to companies in the top 1% of the industry and is based on the company's Dow Jones Sustainability Indices score. Only two companies in our industry household products managed to achieve gold class in 2022, one of them being Reckitt. We have been active managers of the portfolio as we repositioned the company to its higher growth. In 2021, we divested our low growth brands of IFC in China and Argentina, as well as Scholl, along with the proposed sale of E45. and we made a strategically important move into the world's largest pain management market with the acquisition of a great topical analgesic brand called BioFreeze. So this has been a busy year for us as we have turned over 9% of our portfolio while remaining fully focused on the organic growth drivers of our business. The BioFreeze team have done a great job in building an outstanding brand and expanding distribution in the past few years as evidenced by strong double-digit growth over three years. But there is huge potential for further expansion. Consumer penetration for BioFreeze is low at around 5% and well below the segment penetration of 31%. And the segment penetration is well below the pain category penetration of 82%. The BioFreeze brand has a unique franchise. Thank you very much. All of these strategic imperatives are underpinned by the work we are doing to inspire our talent and evolve our culture. We have a terrific senior team, energized by the transformation, enabled by a more systematic approach to talent management. The unique culture at Reckitt is one of the most important building blocks of our future. We are a company which has always been run by owners And this remains firmly embedded within the DNA of the business. Over half our employees own shares in the company. Culture is shaped by behaviors. I have talked to you at length about our leadership behaviors on previous occasions. We own, we create, we deliver, and we care. We have engaged the organization extensively on these behaviors. They build on the success of the past while enabling the future. Some examples. Over 30,000 colleagues are now actively engaged in inclusion activities. We have made great progress in creating a more inclusive workplace and our LGBTQ plus community feel far more supported in bringing their true selves to work. Over 75% of our employees are already feeling the positive impact of our leadership behaviors Thank you for joining me today. This sets us up well for further revenue growth in 2022 and operating margin expansion. Secondly, we have made strong progress in actively managing our portfolio to position our business for higher growth. And finally, we have a much stronger business than we were two years ago. I am therefore very comfortable that we are firmly on track to delivering our medium-term targets.

and with that Jeff and I will be glad to take your questions let me just say we're going to start with questions in the room so if you put up your hand we'll pick you out and please state your name and please limit your questions to two parts I know we sometimes get multiple parts and then we'll go to questions via the telephone in due course so please put up your name we'll start to

Martin? I've got two straightforward questions, one sort of grand strategy and one a bit geeky I'm afraid. The grand strategy question is, it won't escape your attention there's a lot of corporate action in the OTC space, GSK spin, J&J spin etc. How are you thinking about that and do you want to be a player in consolidation or a victim? Sorry, it's very good, actually. You said the finite left transformation costs were phasing out. There's been some debate whether they're partially phasing out this year or fully phasing out.

Okay. Well, that's a... Why don't I start with the easy one? No, they'll be fully phased out this year. So the transformation program we said would go over a kind of two... We're very pleased with our portfolio. We have plans in our business that will get us to mid-single digits growth and mid-20s margin. So we're very good about the progress we're making.

Clearly, what's happening in the world outside is there's a lot of corporate action, as you have rightfully said. I think some of these things in the consumer health space, I think will just take a lot of time to fully play itself out. So my team and I are fully focused on delivering our plan and focused on ensuring that we do everything we can to hit our medium-term goals of mid-single digits growth and mid-20s margins.

Go ahead. Sorry, I should have given better instructions. Sorry, we have to have an education course on the use of the microphones in the room.

Morning, Lakshman. Morning, Jeff. It's Guillaume Delmas from UBS. Two questions, if I may. The first one for you, Jeff, on the 2022 margin outlook. Could you provide some granularity on the margin bridge for this year? So I get that you have a 500 basis points input cost headwind. You're going to mitigate part of that, but I would still assume gross margin down compensated by a decline in other and BEI. So any granularity on this would be helpful. You also mentioned in the press release that it's going to be back-end loaded, so should we assume some margin decline in the first half of the year? And then my second question, it's on the tension between like-for-like sales growth and your medium-term margin target, mid-20s by 2025. Because you showed in your presentation, Laxman, all the opportunities for Reckitt in terms of penetration gains, in terms of white space opportunities. So why facing almost the risk of curtailing your investments and your organic sales growth by pursuing this medium-term margin target? Wouldn't you be better off dropping the margin altogether and try and accelerate your organic sales growth further?

Thank you. Let me start with 2022. I'm not going to get into too much detail, but I would start by saying what we're projecting is margins will grow. And I went through in the presentation the kind of levers that we have in place in 22. A lot of those levers are levers which affect gross margin, not just pricing, pricing, revenue management, but also a considerable part of the productivity program. In 2021, pretty much 50% of the COGS inflation was offset by productivity, and I think that's a good rule of thumb to work forward to going forward. So within our guidance, we're not Thank you very much. We will continue to invest in our brands. We'll continue to invest in our businesses. You did see BI go down in 21, but I explained what the reasons were behind that in 2021. So I think in terms of and then in terms of the first half, second half, I'm not going to get into specifics. All we said is the growth will be more weighted towards the second half, both in terms of like for like revenues, but also in terms of margin growth and. For like-for-like revenues, that's not least because the first half in Q1, we have a huge comp in terms of hygiene, but also in terms of margin. Our pricing actions in 2022 will be being implemented as we go through the first quarter, and there'll be pricing actions into the second quarter.

On your second question about the medium-term targets, as you know, we've been very disciplined about what we are trying to do. we are fortunate that we are in very attractive categories that have attractive margins and um... the mix of business is going to play to our strengths over time uh... just given what we are in a way we see the growth and the kind of investments that we are making our intention is to invest in order to drive growth so when we see opportunities to grow we will clearly make investments but one does in a very disciplined manner so we don't see any need uh... to get away from our medium term targets because we see opportunities In productivity, we see opportunities in continuously driving further efficiencies, so growth is obviously a very big and important element, but we're going to be very disciplined about how we get there. And I think the category mix, the category presence and the mix we have really plays to our strengths.

Next question, and please use the microphone and introduce yourself. Please go ahead, come back.

Morning, Jeremy Fialkow, HSBC. A couple of questions from me. First one is, can you talk a bit about the visibility that you've got on costs at the moment? So just how much you're hedged through the year, how much you're covered, and that mid-teens number, what the variables relating to that are. And then secondly, can you talk a bit more about the nutrition margins? So 15.5% is obviously a very long way I think you went on record saying that the U.S. margins were in the 20s, which obviously we can do the maths on what that means for the rest of the division. So can you talk a little bit about what you think a kind of sustainable margin for that business is and do you think there's quite a lot to go for on that side? Thanks.

Should I handle the visibility? We have either through hedging. or through kind of contracts in place, probably around about 50% of our cost of goods is covered for 2022. Now what we're saying is including that, and I'm not gonna break out the difference between hedged versus non-hedged, but including that, those contracts and those hedges in place, we see cost of goods inflation going to the sort of low teens in 2022. Now it's highly volatile, lots happening, Both geopolitically, fuel price, oil prices and such forth. But that's where we currently stand. I think on nutrition margin, let me just say it's important that we address the stranded costs that were left from the IFCN China sale. This nutrition business obviously includes BMS, which had some specific one-time costs that were incurred in 2021. And so we are confident we'll see margins improve. As we go, I'm not going to give you a target for nutrition, but we will see margins improve and move over time closer back to the group average margins. Sorry, go ahead, yeah. I'll try and keep it in order.

Thank you, morning. Tom Sykes from Deutsche Bank. Just firstly on the top-line guidance. Is Lysol the biggest swing factor in the 1-4% and when do you envisage Lysol actually getting back into growth or stabilizing please? And then there's been some commentary that it's a short cold and flu season and I just wondered whether you could make some comments on that and maybe where you think inventory levels are, where we are with the sell-in versus the sell-out and perhaps where your Innovation is benefiting you in cold and flu, please.

I think the first question, yes, Lysol is the biggest swing factor. And we expect that over the course of this year, Lysol will normalize. We can't give you a precise month, quarter, whatever. Over the course of this year, we will see that. And we will see, by the way, changes over quarter by quarter as we go. But really the expectation is this year it will normalize. What I feel good about is all the things we have particularly on broadening the shoulders of the brand and the activity we are seeing in market in order for that to happen and for good about the expansion into additional categories with the Lysol brand, the countries and so on. So I think to me that's the swing factor over the course of this year. In terms of the cold and flu season, I think just a couple of things I just want to correct. One is I know we look at a lot of data that exists out there around things like ILI and so on The challenge with some of these statistics, particularly over the course of the pandemic, is that they're a bit decoupled from actual events because there are a lot of people not going to doctors and not going into clinics in order to report themselves. So one has to take some of that data with a pinch of salt, particularly with what we see on the transactional side. If I look at the inventory levels, they are normal. There's no excess. Clearly, if you had... Thank you very much.

My first is actually a follow-up on Lysol. I wondered if you could give us a bit of a flavour for the exit rate so far for the start of 1Q in terms of how sales are trending. And in answer to your previous question, you said that's the big swing factor. If we use that as the swing factor, I guess you could assume Lysol sales down in a range of 10% to 30%. Is that a reasonable set of parameters for this year? And then my second question is on Portfolio Review, I think you said that you've changed 9% of the portfolio roughly in two years. Is that the right sort of level of change for a business like yours on a two-year basis or should we expect that magnitude to slow going forward? Thank you.

Shall I take the Lysol question, Maxman? I think that's a reasonable range in terms of the 10, did you say 10 to 30? 30 is probably at the but we will see double digit decline in Lysol during 2022 and obviously as we talk about a exit rate of this year of mid single digit growth we're looking at all of the brands contributing to growth and we're not given a specific forecast of when Lysol will start growing again but inherent in that In that guidance is you'd expect contributions from one of our, if not our biggest brands. But that range of numbers that you've talked about, I think 30 is at the high end, but certainly within that range. And I think in total, Lysol did grow last year, but obviously it was declining and we've said double digit declines for this year. So I wouldn't get into the current run rate any more than that.

I think your second question about is the 9% the number that one should think about over the next couple of years. We don't have such numbers, to be frank. I think we are active managers of the portfolio, but I think we've taken a lot of actions and we feel good about those actions because they do position our business in high growth spaces. We're always on the lookout for if there's another buy freeze or asset like that, we would obviously consider it, but we don't really have any targets to tell you that it's a 9% number.

Okay, maybe, go ahead, yeah. We'll come back to the last question in the room in a second.

Yes, good morning, gentlemen. Thank you for taking my questions. I just wanted to throw it out there. Obviously, the elephant in the room, which is the IFCN business, there's been reports on the press that you may be considering whether you are the right holders for that asset. So, wondering if you can And then the other one is on Finnish Airwick, some of these other brands that may have benefited from people spending more time at home. We're now all back into offices. Do you see some potential headwinds for some of those hygiene brands in 2022? Have you factored any of that in the guidance? Thank you.

I think on the first one, you know, we don't comment on speculation. We're pleased with the overall portfolio that we have. If I look at our nutrition business and you look at the performance of the business, I'm separating from VMS, by the way, which, as you know, was lapping a very high sales increase in Airborne. So you take Airborne out, the VMS business did very well. I mean, you know, strong double digits growth other than for Airborne, which is lapping a big number. So if you look at the nutrition business, and as Jeff has pointed out, it grew 3% last year. We're off to a strong start this year as well. So I think we feel good about it. We feel the US has grown at mid-single digits growth for the last many years. The margins are very attractive. Our business in Latin America has stabilized. We know that we have a margin improvement opportunity there. We also know it's the same thing in the case of ASEAN. So I think looking across the board, our nutrition business

is performing well and uh... you know don't make any comment on any speculation that you might have yeah i mean we on on on the other brands we continue to see those brands growing the airwicks and the finishers and and and and and certainly of course we take into account any any factors now the the million dollar question is is to what degree people return to the office and I think we all agree probably it's not a 9-5, 5 days a week. It's going to be some sort of hybrid going forward in the future. So we take that into account, of course, in our planning.

Just one thing I'd say, the penetration opportunities for those brands is very high still. And we see both what's happening online, what's happening in homes. And so I think we see a play there for that as well.

So we'll take the last question in the room and then we'll go to the telephones.

Thanks so much. It's Alicia Forey with Investec. Two questions. The first one, I wonder if you could talk about the pricing environment that you're seeing thus far in 2022. What percent of the pricing that you hope or plan to take for the year have you got in the bag already? And then secondly, I think you said you're moving the VMS business into health and out of the nutrition area or division. I wonder if you could talk about what you hope that move will achieve for both VMS and for nutrition. Thank you.

Well, the first one, our pricing plans are proceeding much as we have planned. I think we have pricing in North America that is going through, pricing in Latin America that has gone through. We're obviously very conscious of competitiveness and how we ensure brands are competitive. But the pricing plans for North America, the first wave, have certainly gone through. There will be more that come in subsequent waves over the course of this year. I think we see that in the developing markets, largely, we've seen the pricing has gone through. In Europe, we're still working through the pricing environment in France and Germany. But the rest of it, I think we feel good about. So that's the nature of what we have on pricing. To get to your second question on VMS, that business has traditionally been focused on North America and China. And in a lot of ways it was representative of the way it was organized and how it was run. We see a major opportunity for that business in various other parts of the world. And we needed a growth chassis that would actually drive it. The health chassis provides us the ability to frankly scale it and scale it faster. The regulatory environment for VMS is different from that for OTC. and we see lots of growth spaces and lots of growth potential for that business which is why we have in fact made that move.

Okay, operator, I hope this works. I'm going to try and take questions from the telephone. So could we have the first question in line on the telephone please?

Of course, just as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypads. If you choose to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question today comes from Celine Panutti of JP Morgan. Celine, please go ahead, your line is open.

Good morning, thank you for taking my question. My first one is coming back on the 1 to 4% guidance. And should we expect that there would be volume growth within that? Obviously there is the impact of Lysol, but I'm referring whether you would expect some pressure on volume from raising prices, some elasticity that some of your competitors are talking about. And then my second question is on consumer health. There has been, well, clearly some of your competitors are looking at scaling businesses. You have been adding Biofreeze. At the same time, the exit of IFC in China probably weakens some higher capabilities in China. How do you see consumer health going forward? Is it really about concentrating in few geographies and capabilities, or do you think that scale will be important? Thank you.

Did you hear the second question?

No, I think the second question was more about strategically how do you see the growth from consumer health geographically and such forth. I think the first question was about volume growth. Selina, I would say, and it's quite difficult on the telephone, I'm just indicating to the guys in the back, it's really difficult at this point to talk about precisely pricing and volume because obviously we're in this The consumer health business has three parts. It has Dethol, it has OTC, and it has Intimate Wellness.

The intimate wellness business is a global business, and we're strong in a few geographies, but the growth potential we have across the world is very large. In addition, our ability to expand what we do in intimate wellness is very high too, which really underpins the high single-digit growth that we have in intimate wellness. Our expectations at OTC, as you know, have been a 2% to 4% growth avenue for us. What we are seeing is a combination of expanding what our brands do in OTC, the ability for us to take our local jewels and link it back to our global platforms. We're bringing science platforms as well as consumer insights to drive new innovation. And we're also seeing global opportunities in terms of growing these brands through either in licensing but also just through expansion, the Neuromall expansion in Brazil. is a very good example of that. That part of it, the global expansion of some of the OTC is obviously slower than what it might be in some of the other categories that you might see. The third on debt hole, it is really about driving penetration in many of our markets, particularly the emerging markets where as you know it goes through the pharmacy channel in some cases and so that business is one where it's about penetration increase and how we drive it. For us, China is very important. It's a business where we have a very good intimate wellness business, a very good business with debt hall. And as you know, the Chinese regulations are changing as well with regard to what happens in OTC. So future growth potential there is clear.

Okay. Let's take the next question. Hopefully, if we're struggling to hear you, it's not a great line. But let's take the next question from the telephone, please.

Thank you. Our next question comes from Ian Simpson of Barclays. Ian, please go ahead. Your line is open.

Thank you very much. Firstly, I wondered if you could talk at all about your Philippines IFCN business. It's a pretty fast growing market. It's basically a duopoly with you and Nestlé. Can you give us any color on your performance there as it feels that we haven't heard much on that for a while? And then secondly, I appreciate you don't want to get dragged down the rabbit hole of decomposing Your guidance, but just when I think about price mix this year, now you're guiding incremental COGS pressures this year to be modestly higher than they were last year. Given that you took 2.9% price mix in 21, would it be reasonable to expect price mix in 22 to be kind of comparable with or slightly above 21 price mix? Given the worsening input cost headwinds, or are there other specific factors we should be keeping in mind? Thank you.

Let me hit the second one very quickly. I think the answer is yes. Yes, we would expect the price mix to be higher than the level in 2021. Again, not going to get dragged into how much higher. But you've seen everything in terms of the consumer price indexes in various countries, so we would expect it to be higher.

On the Philippines business, thank you for asking the question. It's obviously a growth market for our infant nutrition business overall. We've had a few challenges in that market, but the team has done a great job in fixing those. And what we're seeing now is growth is back, and we're seeing new innovation go in. Thank you very much.

Next question please.

Our next question comes from David Hayes of Society Generale. David, please go ahead, your line is open.

Thank you, good morning all. If I can come back to the costs and investments, I guess in two parts. So the first part, just on the BEI down 90 bits in the second half, which you talked about before, jet run efficiencies and changes. but I guess two parts to the question but what is that the kind of level we should be thinking about in 22 on your basic case budgets and I guess more specifically on the second half that we've just seen were there projects that dropped out that go into 22 because the reason I'm asking that is obviously input costs were higher than you thought towards the end of the year but you still hit the margin target so was there some costs that you avoided or were you able to get very quick pricing in the last couple of months of the year And then the second part of the question, just in terms of cost versus investments, you gave the number, I think, about 1.1 billion of the labor cost savings. I just wonder, can you give the number of investment against that equivalent number? I think it was running at something like 900 million, you said, at the first half stage. And I guess when you talk about the 2 billion, I'm not sure you've ever given a number of The first question was in relation to generally BEI and what happened to BEI specifically in the second half and how did we manage I think what I heard is how do we manage to hit the margin and

For the full year, having seen COGS inflation accelerate during the course of the year. And the second question was in relation to productivity versus investments. Maybe if I start with the productivity and investments. I think we were tracking the investments and talking about a specific pound investment in the business during the transformation phase and the investment phase that we were going through. We've come through that phase and those step change investments really finished in the first half of this year. So I don't think it's helpful to continue to talk about what additional investments we're making in the business. The productivity program contributed 700 million this year. I think what it's fair to say as we look to 2022, the productivity program will be more weighted towards funding Thank you very much.

Thank you for joining us.

A hundred million pounds in absolute terms more than in 2019. A hundred million pounds more investment into our BEI. As a percentage that's come down, but we've also delivered significant productivity savings. As I mentioned, just bringing back together the media buy that had been split between health and hygiene. Those types of actions have delivered significant productivity and we saw 90 basis points of productivity in that media, in that BEI line in 2020-2021. So I know it's difficult to be precise but we're not cutting the investments and the effectiveness of the investments in our business. and then in terms of the margins you know we saw inflation increase from we guided eight to nine percent cost of goods inflation at the half year and we ended up at 11. The levers we had to pull is yes you know we had pricing coming through in the second half of the year which I think was one of your questions and we you know we modified that as we saw the inflation coming through and we also stepped up our productivity goals I mean the 700 million in in 20 Thank you and our next question comes from Pinar Arjun of Morgan Stanley. Pinar, please go ahead, your line is open. Good morning. Two questions.

Do you see any threats from private label this year and next? What gives you confidence that consumers will not trade down from your brands? And then the second one, Lakshman, you've brought quite a few external talents to the leadership team in recent years. Any key learnings or different perspectives the company has got from these executives? Thank you.

Thank you for that. The first one on private label, very good question. We obviously watch this very carefully. Our brands are premium. They're well invested in. Really what we have to ensure that we're doing is bringing in real preference from a consumer perspective. And I think you have to recognize as well that the cost inflation pressures are also hitting private label. So I think you're going to see that too play itself out. and we feel good about that. We feel good about the brands, the strength, the investments we are making end-to-end. So we feel good about that and we've actually obviously looked at this very closely. The second one on the external talent coming in, you know, we have a combination of terrific leaders in the first three layers of the company. They include people from the outside and I think you've met many of them as part of our Investor Day as well as we have internal talent that we've promoted as we go through this. and I think it really builds it together what we've said before this the strength of the culture of the past but we are clearly evolving it for the future what these people bring is they bring a respect for the past but they also bring new ways of thinking about the business in ways that are you know triggering new growth ideas for us and building new capabilities for us and so as we look at strengthening some of these capabilities we've had people come into functions In that case, is there any final questions in the room? In that case, Laxmo, why don't you?

Well, I wanted to close with the three messages that I thought I'd leave you with.

and I hope you'll take away from this. First, we've seen strong momentum in 2021. We've outperformed our own expectations of revenue growth. We have a more competitive business and 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. The second message is 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. Better execution muscle, more resilient supply chain, and a better, bigger 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. I just want to make one scheduling comment. As you know, we've been doing investor seminars Thank you again for your engagement. Thank you for your investment in our company. We deeply appreciate you joining us this morning.