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.