Reckitt Benckiser Group plc

Good morning everyone. Welcome to Reckitt's half-year 2022 results presentation. Before we start, I would 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 half-year results, our updated outlook for 2022, and provide some further proof points of our transformation journey. Following the presentation, we will do the usual Q&A session. We will take questions from the room, followed by written questions via the webcast. So for those of you who have joined online, please feel free to submit your questions via the questions tab near the top of your screen. And now, without any further ado, I'd like to introduce our CEO, Lachman Narasimhan.

Thank you, Richard. It is great to see all of you this morning. Thank you for joining us. Transcription by CastingWords Jeff will then take you through our half year results in more detail, plus our updated 2022 targets. And then I will finish by giving you an update on our transformation progress. I have three key messages for you this morning. Firstly, we have made a very strong start to 2022, outperforming our own expectations on both revenue growth and operating margins. This outperformance is broad-based across our GBUs and our geographies. Secondly, our transformation is already delivering results. We have a much stronger business than we had three years ago. We have better executional muscle. Many of our innovations that were in the pipeline are now launching across our markets. And we have a great leadership team in place. I'm very pleased to say today that we are raising both our full year revenue and margin expectations. And our transformation is not just on track, it is already delivering mid-single digit revenue growth. And thirdly, our resilient business is driven by a strong earnings model. We operate in categories with a significant runway for long-term growth. We have trusted market-leading brands. Our performance-driven ownership culture builds on our past and is evolving to support us in our future. We therefore have a business which, through our transformation, is well invested in, competitive and resilient. Rekit has undergone a lot of change over this period amidst some extremely difficult conditions. It is a testament to each and every one of my colleagues at Rekit who have stepped up and delivered no matter what challenges we have faced. And the results show the impact of their work. And I thank them for what they have done. I will now provide you with a few highlights for H1. Our like-for-like revenue growth in Q2 was 11.9%. Our growth was broad-based across our GBUs and was driven by a combination of both strong underlying momentum as well as some positive short-term factors. Our earnings model benefited from positive mix and outstanding performance from our productivity program as well as responsible pricing, all of which contribute to delivering an adjusted operating margin of 25.6%. This represents 290 basis points of margin expansion versus the first half last year. Again, some of this expansion is due to one-time and short-term benefits, but overall, this is a very good performance in difficult conditions. Our market share performance, our overall business continues to grow share on a weighted basis, both year-to-date and in the quarter, and I am pleased with our progress. C.F.A. Lysol, which reflects a lapping of a branded competitor's distribution challenges in wipes last year. Second, Dettol India, which reflects a comparator for the peak of the Delta variant. And third, Dettol China, which reflects short-term entry into the category of adjacent market players during the Omicron lockdowns. Our e-commerce business grew 25% like-for-like in Q2, which means for the half we grew by 19%. E-commerce constitutes 13% of our group net revenue and we remain focused on our goal of e-commerce constituting a quarter of our total business by 2026. Our productivity muscle is world-class and it is deeply embedded inside the company. We have delivered over 370 million pounds of incredible savings in the first half and I believe we can get close to our 2 billion target by 2023, a year early. It is this, along with our strong portfolio and operating leverage, which puts us in a position to deliver mid-20s operating margins sustainably in the medium term. I will now hand you over to our CFO, Jeff Carr, to take you through our financials in more detail and our upgraded expectations for 2022. Jeff.

Thank you, Laxman, and good morning, ladies and gentlemen. As Laxman said, net revenue was extremely positive in the quarter, up 11.9% on a like-for-like basis and in the half, 8.6%. Importantly, volumes grew 2.2% in the quarter and 1.2% in the half. And there's a couple of factors in here in terms of the volumes. Obviously, Lysol volumes were lower, but we also had the offsetting effect of higher U.S. IFCN volumes. Just to take the noise out, if you exclude these two factors, volumes elsewhere in the group were up 7% in the quarter. Price mix grew by 7.4% in the half, helped by trade spend efficiencies, a favorable mix related to higher OTC sales, and the benefit of additional WIC IFCN sales in the U.S., for which Reckitt will not incur rebate claims from the government. Excluding these factors, gross pricing grew at a responsible 6% level. C.F.A. Thank you very much for joining us. But just excluding Lysol, the Lysol reset, the rest of the business unit grew at 8.9%. Health, like for like, net revenue was up 24.2% in the quarter, with OTC up over 60%, albeit versus a very weak comparative period in 2021. But again, the growth was broad-based. What was really pleasing was to see Dettol returning to growth in the quarter in line with our expectations. As I look at nutrition, like-for-like revenue growth was up 26.8% in the quarter, partly driven by the market conditions in the US, but we also saw healthy growth in LATAM and ASEAN. If we were to adjust for the impact of the US infant formula market disruption, we estimate that group like-for-like net revenue growth would have been up 8.6% in the quarter and 6.2% in the half. In the period, net revenue grew by 9.8% at actual exchange rates or 7.5% at constant rates to £6.9 billion. Last year's numbers have been adjusted for the disposal of IFC in China, but not the smaller disposals such as Shawl and E45. Adjusted operating profit, as I mentioned, is up 20% at constant exchange rates to £1.8 billion, primarily due to the leverage benefits with BEI and other costs broadly flat on last year. So let me spend a little bit of time going through the group margins. Because of the extraordinary work from our record colleagues, our gross margin for the half was in line with last year at 58.1%. This is an exceptional performance in the current market conditions. Gross margins benefited from three key factors. First and most importantly, our best-in-class productivity program. Total productivity initiatives in the half delivered some £370 million of savings, with the majority of those savings impacting gross margins. Second, as I mentioned, we had a price mix of 7.4% with a responsible gross price increase of 6%. Thank you very much. This was slightly lower in the first half due to more favourable hedge positions and we expected to be slightly higher than that, almost 20% in the second half. Let me explain some one-off temporary factors also included in these results. First, we have a gain of 59 million pounds from the sale of surplus land in Asia and that has an 85 basis points benefit to the group margin in the half. And second, our profit margins for our nutrition business unit are abnormally high due to the high volumes delivering significant leverage across the BEI and other costs. Taking these factors into account, brand equity investment was slightly up in absolute spend terms, as you saw on the previous chart, but we delivered benefits of leverage driving 100 basis points of margin improvement. Other costs were also flat in absolute terms. So together with the impact of leverage and the profit on the sale of land, we see 190 basis points margin improvement in this area. This all adds across to a 290 basis point increase in adjusted operating profit margin at 25.6%. So moving on. Hi-G net revenue was 2.9 billion in the half, with like-for-like net revenues down 6%, and these numbers are clearly impacted by Lysol sales, which peaked in the first half of 2021. As we've said, Lysol is down around 30% in the first half, but this is very much in line with expectations. As I mentioned earlier, excluding Lysol, hygiene growth was broad-based with like-for-like net revenue growth of 6.3% in the half and 8.9% in the quarter, with double-digit growth for key brands like Finish, Vanish and Harpic in the quarter. Adjusted operating profit margins were 21.6% down 400 basis points versus 2021, again reflecting the greater mix impact from Lysol in the first half of last year. So moving on to health, net revenue was £2.8 billion with like-for-like growth of 22.4% in the half and 24.2% in the quarter. Volume growth continues to be strong, 15.3% in the half and up 15.1% in the quarter. And price makes 7.1% and 9.1% respectively for the half and the quarter. And this benefited from again favorable sales mix from OTC which as I mentioned grew 60% and a half. But again the growth was broad based. Dettol and Durex were up mid single digits. BEAT and VMS strong double digit growth. And Biofreeze was growing in line with our internal plans. C.F.A. Thank you very much. www.cdc.gov.uk Adjusted operating profit at £345 million includes the one-off land sale in Asia with a profit of £59 million. And adjusting for this, we would see margins of around 24%, reflecting the strong leverage benefit with the higher sales delivery. So moving on to EPS, we've seen growth of 25% in the half, from 142.6 pence to 178.6 pence, with the vast majority, as you can see on this chart, of that coming from the operating profit improvement. Financing costs and tax were broadly flat year on year. and we have an FX tailwind of around 4% or 6 pence per share, largely due to the strengthening of the dollar to the pound. Free cash flow improved year on year by £207 million to £727 million. Cash conversion at 57% was a little lower than expected due to adverse working capital movement of £592 million in the half. Inventories were a significant factor and we took inventory higher as we took steps to protect the supply chain and secure certain raw material and ingredients during the half. Although net debt increased slightly from 8.4 billion to 8.6 billion, again due to the stronger US dollar, the key leverage ratio of net debt to EBITDA was reduced to 2.4 times. As I look to the outlook for the full year, we've increased our expectations for life-revenue growth to a new range of 5-8%. Compared to where we were in February, we've increased expectations across the board. On the 70% of our portfolio less sensitive to COVID, we've moved our expectations from mid-single digits to high single-digit growth. Now of course, we have significantly increased expectations for IFCN. However, we've also increased expectations from the other brands in this group, which includes Finnish Durex Vanish, for example. So as you can see, very broad base growth. Lysol and Dettol are performing exactly as expected and as we flagged in February. While Lysol was down 30% in the first half, We expect Lysol to be flat to only slightly down in the second half of the year. And it was in September 2021 that we first said Dettol will grow in 2022. And this very much remains on track, as you've seen with growth in the second quarter. In relation to Mucinex, Strepsils and Lemsip, we projected double digit growth in February. and these brands are obviously some of the key drivers in our OTC performance which grew over 60% and therefore we are raising our expectations on these brands for the full year. So finally in terms of 2022 C.F.A. We now expect 7% tailwinds from foreign exchange translation to impact our earnings per share in the year and the remaining guidance remains unchanged. So thank you and now let me hand back to Laxman.

So I'm going to now give you a strategic update. We've built a very strong presence over decades in hygiene, health and nutrition. It puts us in a privileged position to address four of the world's largest problems with our unique portfolio of brands. Firstly, how can hygiene be the foundation for health? Secondly, how do we enable consumers to self-care at a time when health systems are under massive pressure? Thirdly, how do we support intimate wellness and eradicate the menace of sexually transmitted diseases? How do we provide enhanced nutrition for infants and for the increasing number of seniors in society? Addressing these four problems and capitalizing on digital and sustainably puts us in a very large total addressable market. With such important ambitions, our purpose, our fight and our compass guide our journey. Many of our iconic market leading brands are ranked either one or two, either globally or in the markets in which they serve. These have the equity to be thought leaders and drive category leading growth across demand spaces. and we are now delivering mid-single digit growth on a sustainable basis. You have seen our total company growth rates for both the quarter and the half which have delivered at least in the mid-single digit range. This total company performance is underpinned by 70% of our brands less impacted by COVID, which for six consecutive quarters have delivered in this mid single digit range or higher. The categories in which we play, the large total addressable market and our trusted market leading brands drive our mid single digit growth aspirations. It is this ability to grow mid single digits by delivering attractive gross margins that is the key to our earnings model. I have talked before about our growth drivers of penetration, market share optimization, new spaces and new places. The fuel for these drivers is innovation. I told you in the past we had a much larger pipeline than before, and now I will take you through some of the innovations which have progressed from pipeline to launch. Starting with Autodish, finish is growing high single digits this year. C.F.A. Our Airwick scented oils have launched a number of new light and fresh sub-ranges with new devices and bigger pack sizes. These innovations have helped us grow market share as we lap high comparatives in air care. Moving to bathroom and sanitation, earlier this year we launched our new Harpic Power Plus 10X Max Clean in India, which has a 20% more viscous formula and provides better cleaning performance with superior results. Harpic Power Plus 3 and in pest, we've recently launched in Australia an insect repellent with 100% plant-based active ingredients. This non-chemical application provides protection from mosquitoes for up to six hours. Our pest business has delivered high single-digit growth this year so far, with further upside in a large addressable market. Turning to health and our Neurofen brand, The team has delivered some exciting innovation and launches as we grow the shoulders of this iconic and trusted brand. In Australia, we have launched an on-the-go solution with Neurofen Meltlets, which provides quick and convenient pain relief that melts in your mouth. We've also rolled out Neurofen 12-hour pain relief, the first 12-hour pain relief in the Australian market aimed at body pain sufferers needing longer duration relief. In the UK and Brazil, we continue to make strong progress with Neuromol, a unique combination of ibuprofen and paracetamol. And in Germany, a relatively new market for Neurofen adult, we have launched a white space expansion initiative into adult analgesics with Neurofen liquid caplets, providing a unique point of difference to the local category, addressing both speed and duration of pain relief. Turning to Delsim, our cough relief brand in the U.S., we have undertaken a complete restage and repositioning of this brand to focus and win with younger millennial families, including a new design rollout, improved shelf presence, and brand appeal. This restage is driving strong share gains for Delsim this year. Moving to our intimate wellness portfolio, we launched our latest new Durex polyurethane innovation in China. Our softest polyurethane condom providing superior comfort, fit and sensation. and in the U.S. we have relaunched our Queen V range of feminine intimate wellness products. Our first vaginal microbiome or microbiome friendly range that bridges the feminine hygiene and sexual well-being categories to create a true intimate wellness destination. I'm tremendously excited about our potential in the intimate wellness category. And whilst we are starting from small beginnings with Queen V, I believe we have a significant runway for long-term growth with our unique portfolio of brands. In personal care, we've just launched our new VEAT Intimate Kit for Men, our first dedicated men's intimate hair removal product, which has already achieved the number one positions on Amazon and in a number of countries for this category. and in vitamins, minerals and supplements, we've just launched our NuReva Sleep Range to support restorative sleep and help improve sleep quality. In nutrition, we have innovations across our core, specialty and adult ranges. On our core ENFA range, we launched our Enfamil Serenity Innovation, designed with easy-to-digest proteins and probiotics. We've also launched our latest NeuroPro product, which now contains a blend of human milk oligosaccharides that provide additional immune support. In specialty, we have Enfamil A+, the only formula aligned to global expert guidelines for macro and micronutrients to support growth, weight, and neurodevelopment of preterm influence. and in adult, we have Roda ProVital in both Vietnam and Indonesia, a product which works to strengthen immunity defenses and activate immune responses. You have seen a number of examples of innovation which broaden the shoulders of many of our brands and which provide a larger base on which we expect to grow sustainably in the future. If you look at Dettol, it has maintained an absolute revenue of around 40% above pre-pandemic levels. This is driven first by very strong penetration gains, the highest, as Kantar puts it, of any consumer brand in the last decade. We also see incremental consumption as we learn to live in this endemic COVID environment. Additionally, revenue from core innovation, rollouts to new places and innovating in new spaces are all building these broad shoulders of the brand and a larger base from which to grow. I have previously mentioned that we had a very strong innovation pipeline in Dettol and we are now rolling these innovations out in multiple markets. We've included a whole number of examples on this slide. But in the interest of time, I will highlight just a few, all of which celebrate the distinctive germ kill positioning of the Dettol brand. Firstly, a new space. We are rolling out Dettol 4-in-1 laundry sanitizer pods in China, highly rated by consumers for their germ protection, cleaning power, color protection, and softness to clothes. Thank you very much. With such a strong innovation program coming to market and significant penetration potential in many developing markets, I feel excited about both the low single digit growth we expect to drive this year and the long term mid single digit growth as we look to the future for the Dettol brand. Let's turn to Lysol. In the U.S., we are seeing consumption levels track 50 to 65% ahead of pre-pandemic levels each week. This is sellout. Our revenue performance reflects sell-in and can be impacted by trade spend initiatives or fluctuations in retailer inventory levels. C.F.A. Firstly on consumption, we do continue to grow penetration and have made good progress in encouraging our heavy users to buy more than one Lysol product as improved hygiene practices remain. Our actions on broadening the shoulders of the brand have been extensive. I have talked previously about the entry we have made into the laundry sanitizer market, a new space for us. Thank you very much. Thank you very much. C.F.A. Obviously, we could see some fluctuations at Q3 where we did see a delta spike last year. But given the actions we have taken to broaden the shoulders of Lysol, as well as the positives that come from both the back-to-school season, as well as the coming cold and flu season, we have built a significantly larger sustainable base from which we will grow over the medium term. We have seen excellent growth in the first half from our OTC brands. Thank you for watching. But again, I'm really proud of the work our teams around the world have done to broaden the shoulders as well of our OTC brands as we look across demand spaces. And this has happened over the last couple of years to create a sustainably large base on which to grow. In Gaviscon we've invested in additional lines and have 60% more manufacturing capacity versus 2019. In Mucinex, we reshaped our manufacturing network to also increase our production capacity by around 35%. We have expanded into new spaces and places. For example, stretching the equity of Mucinex in the US into the sore throat category with Mucinex Instastooth. We've increased distribution in Europe by launching into grocery channels across the EU. and I've already talked about the innovations and new places and spaces we've recently entered with Neurofen. So our cold and flu brands will have seasonality, but we are also growing our non-cold and flu brands, thereby broadening our portfolio. I can say with confidence that we have a stronger business with increased penetration in market shares in most spaces and places than ever before. Thank you very much. which will drive other parts of our earnings model. Core to our success is the strength of our brands. We invest heavily behind them, both in terms of insights, innovation, understanding, preference, 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 the first half of 2022, and I'm very proud that a number of brands have won awards this year, including Kantar's Brand of the Decade Award for Dettol. A key focus for us over the past three years has been improving our relationships, our reliability, and our overall service delivery to our customers. Thank you very much. Our customers are recognizing our efforts with their own awards and we've listed just a few here. We continue to build muscle in e-commerce with capabilities in every market in which we operate. We are partnering with our key stakeholders such as Amazon to share best practices, expanding into new places and innovating to keep our brands on Amazon relevant to consumers. We're also reinventing our tech stack and how we collaborate at the front end across sales and marketing to shape and drive demand. Our world-class productivity program has seen rapid and deep deployment across the company. For example, from a standing start, our record production system has been rolled out across our factories around the world. Our productivity program cuts across all functions and everything that we do. We have made a great start to the year with £370 million of savings realized in the first half. We are well positioned to get to our £2 billion cumulative plan before the end of next year. This helps us fund our growth drivers, build our capabilities, invest in innovation, all while delivering margin expansion. Let me give you a couple of examples of our 14,000 initiatives that we manage in a coordinated fashion across our entire network. C.F.A. Our second example is within cost of goods sold, where we changed the packaging of our finished dishwasher cleaner product from full-foiled blister packaging to a carton with small blister pocket packs to both reduce cost and improve sustainability. This was launched in one market and will be scaled over the course of 2022 to others. It is ideas like these that accumulate to 14,000 initiatives and build to our 2 billion in productivity goal. On ESG, we continue to move from risk management to opportunity creation across the whole sustainability agenda as outlined in our recent ESG investor event that we held in May. Finally, we have been active managers of the portfolio as we repositioned the company towards higher growth. In 2021, we divested our lower growth brands from our infant formula business in China as well as in Argentina. We also divested Scholl along with the sale of E45 and DermiCool, which we completed earlier this year. 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. The BioFreeze team has been busy integrating into the company, resolving some early supply challenges that we had and following through on our aggressive growth plans. We have multiple innovations planned. We've already launched our new overnight relief patches which are performing well. We are launching a new We Go On campaign to increase consumer awareness combined with an aggressive in-store display program in order to maximize trial. And we are looking to expand into new places. We are launching in France under the BioFreeze name and in a number of other markets using the established brand names of local heroes. Before I wrap up, I want to give you an update on a very important topic which is our culture. The unique culture at Reckitt is one of the most important building blocks for our future. We are a company which has always been run by owners, and this remains firmly embedded within the DNA of our business. Around 50% of employees at Reckitt are also shareholders. However, our culture is shaped by our leadership behaviors. C.F.A. Thank you for joining me today. We have four clear growth drivers, which are underpinned by category-driven brands, expansive demand spaces, and innovation and execution to drive penetration category expansion. We have an attractive earnings model with high gross margins, reflective of market-leading brands, reinforced by strong brand building, innovation and execution, funded by productivity. Thank you very much. I want to finish by reiterating the key messages I opened today with. Firstly, we have made a very strong start to 2022, outperforming our own expectations on both revenue growth and operating margins. This outperformance is broad based across our global business units and our geographies. Secondly, our transformation is already delivering results. And thirdly, our resilient business is driving a strong earnings model. We operate in categories with a significant runway for long-term growth. We have strong, trusted market-leading brands. Our performance-driven ownership culture builds on our strong past and is evolving to support our future. We therefore have a business which through our transformation is well invested, competitive and resilient. Thank you for joining us this morning and with that Jeff and I will be glad to take your questions.

Go ahead.

Good morning, Laxman. Good morning, Jeff. Guillaume Delmas from UBS. Two questions for me and one point of clarification. The first question is on US IFCN. You talk about exiting 2022 with a stronger and larger business. So could you shed some light on what underpins your confidence you will be able to retain some of the market share gains you've achieved this year? And at this stage, would you have any concerns about a potential change in the structure of the market with potentially some new entrants? And all in all, on US IFCN, is it fair to say that the message this morning is that you do not expect a full reversal of the benefit you're going to get in 2022? My second question is on benefits. Brand equity investments down 100 basis points in the first half. Lakshman, you alluded to some productivity savings there, but what's driving this full decline? Is it a shift from advertising to promotion or maybe a different way to ask the question as The first half margins are clearly better than your own expectations. Would you be looking at stepping up investments if you can in the second half, or it's about making strong progress towards your mid-20s target? And finally, very quickly, the point of clarification is on hygiene. CMUs holding or gaining shares went from 78% when you updated us in April to 41% today. You mentioned wipes for Lysol, but should it come just be Lysol wipes driving this decline? So any color on this would be helpful. Thank you.

Let me just take all three questions. Before we had this situation with supply in the U.S. from one of our competitors' factories, we had a business in the U.S. that was growing at mid-single digits. It was a business that had already reached market leadership in the specialty part of the business. And it's a business that actually had tremendous innovation and strengths, particularly as we look at how we interact with our consumers to drive growth. So clearly this is a very strong business and it clearly fit with our portfolio overall in terms of its growth and in terms of its overall margin profile. We have had a significant competitor supply issue and we fully expect our competitor to be back and running shortly. But if I would say this, this is a business that we've invested in. This is a business where Enfamil is the number one recommended brand. It's a business that we've built the capabilities to compete vigorously. And yes, we fully expect our competitors to regain more share. Thank you very much. The second thing I would say to you is your second question of brand equity investment. Let me tell you what it reflects. First of all, it reflects productivity gains. We've talked a bit about this, that we're now buying together, we're buying better. So that has resulted certainly in savings in terms of what we're spending on our brand equity. Our absolute spend in brand equity is higher this year than it was last year. And clearly we're benefiting from some of the leverage benefits that you get with some of the volume you see in IFCN where we haven't had to advertise as much from what we've had to do before. Now having said that, you've also got to recognize that the productivity example, what you see there is the fact that we've brought capabilities in-house in several areas as part of our productivity program. So digital as an example, where we're actually creating communications in-house. Now when you do that, what happens is that the spend for that doesn't show up in the BEI line, it shows up in other costs. So we're seeing that shift take place as well. So I think it's a combination of multiple factors that tells you why is our BEI, first of all, on absolute level spending more, but overall what you also see is some of the costs in terms of how we incur it showing up in the way that it plays to the P&L. Lastly, your question, point of clarification. First of all, I'm very pleased with our market share progress. If you look at it from a standpoint of month to date, quarter, annual, very good progress overall. What you see there is truly a reflection of how we define category market units. So in a category market unit, the way we've got it in here, the priority ones that we focus on, it's a binary measure. You could either be gaining or gaining and holding, or you could be losing. And remember, hold is a plus minus 0.2%. So it's really, you know, very overwhelmingly on gain versus loss. In the case of Lysol, if you look at all the subcategories of Lysol, we have gained share. But if you look at wipes, we have lost share as the competitive supply has come back online. As a consequence of that, the entire category market unit of Lysol swings for the U.S., swings from gain to loss because of the way we've defined this. We expect this to normalize over time. We are pleased with the consumption we're seeing, the 50 to 65 percent that we're seeing just in terms of consumption growth relative to where we were pre-pandemic. We're pleased with the level of innovation and the performance of the innovation. We're pleased with what we're doing on the go. We see further upside to it, particularly in terms of penetration and growth. So overall, the conditions look good. But this is a swing that will play itself out over time.

Morning. Tom Sykes from Deutsche Bank. Morning, Steve. First, on the phasing of investments, you're obviously quite profitable at the moment. How much of those incremental investments in the second half do you feel you need to make? How much are extras that you can make now that you're generating extra profitability? How do we think about the phasing of those investments into the first half of 2023? Thank you very much. Shared across the different divisions or should we expect some divisions to provide disproportionate upside to the medium term margin? Trying to think about how high could you further push the health margin versus say hygiene etc. So is the margin improvement skewed in any way? Thank you.

Let me make one statement and then hand it over to Jeff Bullen as well to comment on this. So firstly, I think building a little bit, Jerome, on your question, I just want to be clear that we recognize fully that the primary goal for us is to drive sustainable top-line performance. That's a non-compromise. And so we will make the investments, and Jerome, this links a bit to your question as well, we will make the investments that we believe are appropriate for us to drive top-line performance because that is at the core of what we are trying to do. Now, obviously, we are benefiting from a variety of other things, including MIX and the productivity program, which is incredibly strong, that can help us do that. So with that, Jeff, perhaps you want to comment on both the investment-facing question as well as Tom's second part of the question around medium-term.

Well, I think on the phasing of investments, there's nothing dramatic. But as you look at our CFCs, our fixed costs in the first half of the year, they were flat on last year. Now, clearly, with inflation coming through, we continue to invest in the transformation. We would expect to see some growth in total fixed costs this year, but that will come just more in the second half. You asked if it's things that we could spend or needed to spend. We're always reviewing each of the investments. and certainly on BEI if I look at the overall pattern clearly we haven't spent so much BEI in nutrition in the first half we will probably increase that spend in the second half so there will be a slight phasing it's nothing dramatic but it just adds to one aspect of why we should be a little cautious about reading too much The productivity benefits are spread across all three GBUs and all three GBUs work tremendously hard and need to achieve those in order to fund their own initiatives and maintain their margins. Clearly there's a lot of pressure on hygiene at the moment and I expect all three GBUs will be working very hard but hygiene will be doubling down Thank you very much.

Just a follow up, I suppose, backing it out. I mean, would you still expect that the health margin can still push higher than it is? I mean, obviously, there's maybe some gearing on the expansion in debt hole sitting within health as you've moved into white spaces, etc.

I think traditionally, if you look over the last several years, 2021 being an outlier. C.F.A. Thank you very much.

We will invest in the health business like we have in 10% compound annual growth rate over the course of the last three years. We'll make the investments we need to in terms of driving growth. So that will not be a compromise.

A couple of questions from me if I may. Firstly on the margins. So when I think about the moving parts on the margin in the second half, you're presumably going to have pressure on COGS and raw material inflation as hedges roll off. BEI is going to be up. Fixed cost is going to be up. You've got tougher mixed comps in OTC. So I'm not asking to get too specific about it, but should we mentally be thinking

So you're not looking for two specific guidance? No, no, look, let me just tell you, be very clear. The great results that we're delivering today means that our expectations for margins for the full year will increase. We're our expectations that net revenue will increase for the full year. We've increased guidance for both. We also expect a strong upgrade and a growth in EPS. So I just focus on the strength of the numbers that have come through today. Now, do I expect this level of first half margin to be replicated into the second half? No, because we have some significant benefits Nutrition, obviously the leverage we get from that and the land sale which I mentioned and we've clearly highlighted and separated out. In terms of the general direction for the second half of the year, we are probably facing the peak of the cost of goods inflation during the second half of the year. It's hard. I wouldn't read across into that for 2023. We're not given guidance for 2023. But as I look at the future curves for many of our commodities, I mean, palm oil is a good example, very much off the peaks. But clearly, for the second half of this year, we expect inflation to be close to 20%, which will be a challenge. Now, we have a great productivity program. We continue to look at taking responsible pricing. and we'll continue to make sure that our business model works so that we can fully invest in our brands for future growth. There are some various items that we've identified in terms of margin and second half but I'm not going to get into specific half on half guidance. The guidance that we've given is that we'll see margins improve and I don't think there's many CPG companies who are saying they can improve margins in 2022 versus 2021 and to me that's the positive, that's the sign of the resilience of our business model and the strength of the business model.

Thanks very much, and I've also now found my microphone, so I don't need to shout. Good. And then just changing tack slightly, I was intrigued, the commentary around launching OTC into the grocery channel across the EU, if I heard that, or was that a more General Health Reference I think the comment on the expansion was for broader health.

Secondly, on BioFreeze, what we've got there is we have overcome all the integration challenges we've had. And if you look at the business in recent times, it's performing very well. And we've got lots of growth potential for this business outside of the U.S. as well. But we clearly did have early integration challenges that we've worked through. And the business is back on track in terms of doing what it said it would do.

Great, thank you.

Okay, if we've got no more questions from the audience, there's a few questions online. So first question is from Jeff Stent at BNP. He says, you commented that you are already delivering sustained mid-single digit revenue growth. Can we therefore assume that this implies you expect to deliver mid-single digit growth in 2023?

Let me take that. We had a long, a mid-term ambition to deliver mid-single digit, top-line growth. And we judged that as an outperformance in the categories that we're in. What we've seen in the presentation today is for the last six quarters, we've been consistently at mid-single digits or ahead of mid-single digits when you take out the more COVID impacted brands and the variations that's driven. So as we look forward, for sure, we're now in a run rate where we target mid-single digits. Now, I don't think any business can guarantee that that's what they're delivering, but that's the mode that we're in. That's where we're at. As we look to 2023, clearly nutrition will normalize in 2023, and that's why in my presentation I showed Thank you very much. Thank you for watching.

Okay, thanks, Jeff. I guess sort of linked to that is a question from John Ennis at Goldman Sachs. He's referring to the 2022 growth outlook slide, slide 18. He says for 70% of the portfolio not impacted by COVID, the growth outlook has been upgraded to high single digits from mid single digits. Can you maybe explain the key drivers of that step-up? Is it largely driven by pricing changes versus your original forecast? And is it concentrated within any specific brands that you could highlight, obviously excluding US IFCN? In this context, are there brands where you've rethought about the mid-single-digit growth run rate algorithm?

Clearly... We are seeing stronger performance in that classification of other brands and that excludes the two disinfection brands and the three OTC brands that we pulled out and IFCN USA. So what's happening, I believe, which is the majority of our business, what's happening is a consequence of the investments we've made over the last two and a half years, the transformation program that we've been on. What we're seeing is a significant improvement in sales execution, a significant improvement of innovation and the rate of innovation, a significant improvement in terms of supply chain support to help support that sales execution. So throughout the business we're seeing strength. Now yes pricing is also benefiting some of the comps that you see this year but not at the expense of volume. We see volume growth as being important as well and we particularly mentioned one KPI which was if you look at Lysol which is down significantly, IFCM which is up significantly, The volumes for the rest of the business in this quarter were up 7%. So clearly volume growth is specifically important. So I think the consequence of why we've been able to upgrade that majority of our business, and it's across the board. If you look at finish, it's doing extremely well as we roll out our new product range. If you look at vanish, bouncing back really well from a tougher first half of 2021. www.cdc.gov.uk Now, that doesn't necessarily mean we continue to high single digits. We've given the guidance of mid-single digits, and we feel comfortable with all of the tools at our availability that mid-single digits is deliverable.

Okay, thanks, Jeff. This has sort of been discussed, but I'll ask anyway. So, David Hayes from SockGen, were there any specific reasons that brand investment was less high in first half and accelerates in the second half? Is Russia a big part of that? Any other reasons for the H1, H2 phasing?

I think I've answered the question. The only thing I would just say on the Russia situation is of course we're not advertising in Russia at all.

Okay, great. Thanks.

Again, absolute pound spend. It was actually slightly up. As a percent, because of the leverage, it comes down. IFCN is a part of that. Russia is a part of that. But I think we've answered the question.

Got it. Okay. So there's a few questions from Chris Pitcher, so you might want to have your pencils ready. So you reiterated the target of 25% of sales from e-commerce, but are there structural consumer operational and margin benefits? Is there a risk that it just becomes another transactional and therefore any benefits are quickly competed away? Can you offer an enhanced consumer experience that cannot be offered in store? That's the first question. Second, how much did China lockdowns and Russia adversely impact intimate wellness growth? Thirdly, are you still taking share with your PU innovations in China a year after launch? Fourthly, you mentioned circa 20% COGS inflation H2 due to favourable hedges rolling off. What level are you covered for in H2 2022 and H1 2023? Have you seen some softening in the average price across your main commodities? And in short, basically, when do you expect to see peak commodity pressure? Is it H2 22 or is it H1 2023?

Chris, thank you for all those questions. Let me start with the first one, which is the e-commerce 25%. We do not find e-commerce as dilutive to our overall growth. Thank you very much. Thank you very much. The second question was on the lockdown and the impact on intimate wellness. The lockdown in China did have an impact on intimate wellness. In fact, we saw a decline in intimate wellness in China because of the lockdowns. And it is the reason it is performing amidst single digits growth. Clearly, Russia has also had an impact on that. But overall, I would say the lockdown has had an impact on the intimate wellness business. The thing about e-commerce and intimate wellness, just to give you one example of how this works, because I think you had a question around how does it really work. The consumer in this category is looking for a variety of things. They're looking not just for product, but they're looking for engagement and they're looking for experiences. And if you start looking at the direct consumer relationships we are building with the investments we're making in digital, There's no question that what we're building is stronger franchises. Clearly we have e-commerce, but we also have the digital relationships we're building. And we're going to continue to do that in many of our franchises. Intermittent wellness is a great example of that. Privacy is a key area of concern. We have pack sizes and products that are different that we offer online than potentially what you might offer offline, which certainly helps with the kind of drop sizes we need for e-commerce, but it also helps us build bigger and broader franchises with our consumers. So those two questions just around how you think about the independent wellness business is an example of how we're thinking about digital and e-commerce more broadly and is really the underpinning of the kind of growth rates people see. If you go to the OTC area, clearly acute is a big area of concern. And we're shortening delivery times and finding ways for us to make products available where we can, obviously regulatory-wise do it, in order to ensure we can meet consumer needs from acute as well as from chronic care with what we do with OTC digitally. So those are examples of how we see this play out across the spaces we're in. Jeff, you want to talk about calls?

I was just going to mention the PU question because I happened to be looking at the numbers yesterday. The PU launch is ahead of our internal plans. It's doing very well. And what's reassuring is we're taking share from PU players. It's not as cannibalizing to the Durex brand. So we're very pleased with the PU launch and it's going very well.

By the way, the opportunity set for that across a variety of other markets is also large. And we have the ability to do that too. We haven't fully obviously done that yet.

Cost of goods, yeah, 20% in H2 2022. Is that the peak, or do we see softening in 23? Clearly, we're not necessarily planning for softening in 23. We have to plan, and it's a very volatile world. but we do look at the forward curves which I'm sure a lot of people are looking at and there are some signs that as you look at certain commodities in the futures that there is weakening potentially as people look towards more recessionary or less growth in the markets so if you look at dairy, if you look at palm oil, if you look at tin, various commodities there are signs that we're coming off the peaks and But at the same time, CPI is going to remain a key challenge going through 2023. I think labor inflation, logistical inflation, you're going to still see significant cost pressures in 2023. Would it be off these peaks of 20%? Well, I think we all hope so, and I think there is some evidence to suggest that is the case. In terms of our hedge position, we have about 65% to 70% of the second half already covered, and that's through a mixture of three facts. One is we have fixed contracts in place for certain suppliers, which might be a 12-month fixed contract that we put in place. Secondly, we may have taken hedges for certain commodity items, and those are typically three to six months out. We don't really go that much further out than three to six months. and secondly we have inventory on hand which obviously gives you some protection so for the second half we have around about 65 to 70 percent fixed for the first half 23 I'd say we have very little fixed at this a much lower percentage fixed so relatively modest amount Got it, thanks.

Okay, a couple of questions from Alicia Forry at Investec. So firstly, what's behind the LATAM and ASEAN nutrition strength in H1? Have they finally turned the corner? And then secondly, Lysol has obviously seen a bit of reduction in retailer inventory levels in H1. Do you think you're done with the destocking or do you expect some to continue into H2?

So the first one, LATAM and ASEAN, I think first of all, The divestment of the China business has given the team a lot more mental share, if I could say, to focus on what's happening in Latin America and in ASEAN. We know it's a turnaround, and what the team has done is really focused very hard on it. I'm very pleased with the progress. Together, we're growing high single digits. We're seeing share gains in every country except for one. But we know what the issue is in the one, and we're working to fix it. It'll take some time. So I think what you're seeing there is much better execution, innovation clearly working, and also pricing being taken as we work through what's going on in those markets. So I'm very pleased with their progress.

I'm very pleased with what the teams have done as far as LATAM and ASEAN go with regard to the formula.

On the retailer destocking issue, as you can see, scans are higher than sell-in. And I'm focused on scans. As we get back to school, as we focus on setting up for the cold flu season, that's the focus of the team, and that's where we're spending time on, really. We fully expect there will be some further destocking. We're not fully through with it yet. But we fully expect some of that is there. And, by the way, it's built into our expectations for the year.

Okay, thanks. Almost done. A couple of questions from Pinar at Morgan Stanley. So first one is about productivity. So productivity savings appear to be running ahead of expectations. Why is that and what gives you the confidence that Reckitt can reach a sustainable EBIT margin of the mid-20s in a world that's very different from what it is when or what it was when the target was set? And then her second question is... As your leverage comes down, how do you think about cash returns to shareholders such as buybacks?

Let me take the first one and Jeffrey can take the second. On the productivity question, the great thing about this company is that it actually takes ideas and rolls them out across the company at great scale. It's frankly quite uncommon to see that you put a productivity program in place like our record production system and in the course of three years it's absorbed, adapted and goes into every factory across the network. So that, by the way, gives you an ability to share insights and learnings across the entire company. A revenue growth management program, when we started working on it three years ago, it's now covering 80% of the revenue of the company. And again, the speed at which this is done is actually really impressive, given what's been going on in the world outside. And that is the culture of this company, the ability for this company to be really agile, absorb things and scale them up quickly. C.F.A. and so what that gives for us it gives us the ability over time to look at that number and say do we believe these ideas can in fact persist because they're firmly embedded in the business and there's lots of ideas that are coming up even as we speak that's what drives the 14,000 initiatives that are being done this is a game of inches and the team is fighting executionally this game of inches to get the savings that we can get in order to both lower costs through efficiency On the question of leverage.

Well, look, two and a half years ago, we sat here and asked shareholders permission to invest in the business. You're seeing the benefits of that investment come through, and we're seeing our EPS now recover back to those levels, which gives us permission to then go forward with a dividend policy, which we can start thinking about growth in dividend going forward. That's the priority. Beyond that, if we have surplus funds, we've said and we've been very clear, we'll return those funds to shareholders as and when we see that. Obviously, that's after any growth initiatives, any M&A opportunities. But if the funds are surplus beyond that and our leverage comes beyond the sort of targets that we've set with an A fund, A-level credit rating, then we will look at returns at the appropriate time.

Great, thanks. And that's a good segue, I guess, into our last analyst question that comes from Karel Zaweti at Kepler Chevro. He's got two questions. First one is, you've been more active with selling assets than acquiring new brands. Given the work done, how do you look at the balance M&A and disposals going forward? Does the balance sheet allow for more sizable deals than just a few hundred million? That's the first question. And then the second one is that we play in premium part of the market with most of our brands. How do we see the impact from lower consumer confidence and stress on budgets? Where do you expect no or more pressure on your brands? What are the learnings from 2008 to 2009 for Reckitt? Although I understand you both were not here at that stage.

Well, firstly, on the M&A question, we're very pleased with our portfolio. We clearly look at all deals, big, medium, and small, and we have points of view on them. We haven't felt any compelling reason to act at this point. So I have no further comment really on M&A other than to say that it's something we consider and we look at, and if it's appropriate, we will move. On your second question on lower consumer confidence, Brands have, as you know, a high gross margin. And they're clearly brands that have, you know, the brands are very deeply anchored with consumers and it clearly benefits the consumer seeing them. As you go back in time and look at how we've performed over the course of downturns, it is very important for us to ensure that we have a franchise that consumers can participate in. So we're very clearly focused on ensuring we have the right price points, the right price packs across channels, and that we're giving consumers choice so they can participate in the franchise, irrespective of the economic conditions externally. That is something this team does really well. Obviously, with our revenue growth management investments we've made, we've built a muscle in order for us to extend it even into that. We're going to be very watchful about how we take responsible pricing, what impact it has on volume, what are price gaps versus private label or against local brands, and we will do what is appropriate to ensure we're competitive, obviously, in the context of us being differentiated. Thank you very much.

Any final questions from the room?

Let's try this again. So you talked about how Lysol flat or slightly negative in the second half. You also sound pretty happy about how Hygiene X Lysol is going. Clearly that had a strong performance in the second quarter then. Would it be reasonable to expect Hygiene growth in Q3 and Q4 then, given the sort of setup? Just trying to get a sense on that. Thank you very much.

I think you saw the Lysol numbers in Q1, Q2 clearly coming back from high single digits down to down 2.5% and I think that trend should continue as you see Lysol normalizing. So I think I'm not going to commit to a specific C.F.A. Thank you very much. C.F.A.

You've got obviously the Delta lap that comes in Q3. At the same time, you have back to school coming in and you've got the preparation for the cold flu season. And if you look at the early results, so to speak, from Australia, it's going to be a... Thank you very much. Thank you. Thanks everyone.