Reckitt Benckiser Group plc

Good morning everyone and welcome to Rekit's Q3 trading update. Jeff, our CFO, is going to take you through a brief overview of our Q3 performance and then we will move to Q&A. But before we do that, I'll hand over to our new CEO, Nicandro Durante, who will say a few words. So, Nicandro, over to you.

Thank you, Richard, and good morning to everyone who has dialed in. Before you go through our Q3 trading update, I want to take this opportunity to introduce myself and to provide you with a few messages. I have been at the board of Racket in an unaccepted capacity for over eight years, so I already know the business very well. It has been a privilege to work closely with the board and executive team over this time to shape Racket's strategy as we deliver our purpose, which is to protect, heal, and nurture in the relentless pursuits of a cleaner, healthier world. It is a strategy that I fully endorse. Our brands can make an authentic and meaningful impact to the world whilst delivering an attractive growth analysis model. I am very happy to now step into the CEO role for a period of time as we seek a long-term successor. Since taking up my new role, I have made a conscious effort to focus my time out in the markets with our people Seeing first-hand how they execute in-store with our customers. I have visited a number of manufacturing sites and art centers and met many of our leaders. It has been a delight to see the energy and passion of our teams from around the world as they make our brands better and stronger every day. What I would say is our company is in great shape. We have strong momentum and record is well positioned to compete and win in the market and to outperform our peers. The continued execution of this strategy is therefore my priority to drive sustainable mid-single-digit growth with adjusted operating margins in the mid-20s by the mid-2020s. Our Q3 and year-to-date results are a testament to the strength and resilience of our business. and the hard work and commitment of every one of our talented people. My focus will be on furthering the good momentum that the team has already built. In particular, invest and leverage our large innovations where scale and returns are the greatest. Review where we can unlock barriers to higher growth. Drive the continuation of our productivity and efficiency programs and drive improved Thank you for joining us today. and our 2022 full years results early next year. Finally, I know that you are very interested in the seal search. All I can tell you at this point is that a thorough process is ongoing and you update us as and when appropriate. I will now hand over to Jeff to take you through our Q3 numbers in further detail. Jeff, over to you.

Well, thank you, Nicandro, and good morning, everyone. Our Q3 performance further demonstrates that our strategy is delivering broad-based growth across our portfolio of market-leading brands. We delivered a strong performance with life-for-life growth of 7.4% in the quarter, and that's 8.2% on a year-to-date basis. We also continue to see good market share momentum with 63% of our core CMUs either growing or holding share on a year-to-date basis. Given the inflationary environment, growth in the quarter was more weighted to price and mix, a combination of both which was up 12% in the quarter. Actual consumer pricing was in the high single digits in the quarter, with the balance being driven by a positive mix mainly related to IFCN and trade spend efficiencies which have been across the group. We continue to mitigate unprecedented Program, and implementing responsible pricing where appropriate. Volume was down 4.6% in the quarter. However, excluding the impact of Lysol volumes, overall volumes remained resilient across the business and were down 1% in the quarter. Overall, Q3 was another quarter of mid-single-digit like-for-like net revenue growth For the 70% of our business, which has been less impacted by COVID. And by the way, this is also true when excluding the positive impact of the competitive supply issues in our North American IFCM business. And this is the seventh consecutive quarter of mid single digit growth demonstrating the underlying resilience and strength of our business. And this has only been made possible by the exceptional contribution from our colleagues across all of our regions in these challenging times. Let me cover each of the GBUs in a quick way. In hygiene, like-for-like net revenue declined 1.2% in the quarter. Now this reflects a 3.3% growth when excluding a mid-teens decline in Lysol. So while Lysol was down in the quarter, this was driven by tough comparatives where we saw a spike in consumption in August and September of last year, due to the outbreak of the COVID Delta variant. The periodic decline in Lysol is an improvement versus the first two quarters of the year. And I'm pleased that we continue to see strong consumption around 50 to 60% above pre-pandemic levels. Driving the increase in consumption, we continue to see increased hygiene habits among our core users. and a strong contribution from our growth into adjacent categories. For example, laundry sanitizers continue to perform very well with penetration levels in the US now reaching over 10%. We expect year-on-year comparatives to continue to improve for Lysol into the fourth quarter. In the rest of hygiene, we delivered robust growth. However, we're seeing some softness in more discretionary categories such as air care. I'm particularly pleased to see double-digit growth across our Finnish franchise. This is a testament to the investment we're making in innovation, including the launch of our Finnish Quantum all-in-one range. In health, we delivered another quarter of growth and outperformance. Our OTC brands continue to lead the way. with around 20% growth in the quarter due to strong consumption and market share gains. Dental Lite for Lite net revenue remains well above pre-pandemic levels and although Q3 revenue was slightly down year-on-year, we continue to expect low single-digit growth for the full year at around 40% above pre-pandemic levels. Our intimate wellness portfolio delivered double-digit growth in the quarter, driven by strong growth in many European markets resulting from improved execution and distribution gains. China revenues were lower in the quarter due to the ongoing COVID-related lockdowns. Within nutrition, we see the trends from the first half of the year continuing. We continue to see a good turnaround in our ASEAN and LATAM businesses, with strong market share performances across both regions. In the US, we delivered revenue growth of over 40% in the quarter. This included, obviously, the temporary competitor supply, the benefit from the temporary competitor supply issues, which added approximately 20% to our total nutrition business growth in Q3 and 18% on a year-to-date business. Looking ahead to the fourth quarter, as you will likely be aware, the competitor supply issues are starting to normalize. And we therefore expect the market dynamics in the US infant formula to return to normal by the end of this year. So stepping back and looking at the current macroeconomic environment, we clearly have challenging times ahead. And with continued high inflation, we do expect some impact in more discretionary categories, as I mentioned, such as air care. It's also clear that with higher energy costs, it will be a tough winter for consumers, especially in Europe. However, it's important to remember that we operate in categories where trust and efficacy are of high importance. Consequently, elasticities have been relatively low for the majority of our portfolio of brands. And moving to the full year targets, we remain on track to deliver against expectations from the year. On net revenue, we've raised the lower end of our range, and we now expect to deliver between 6% and 8% like-for-like net revenue growth for the full year. On margins, we reiterate our target of growth in adjusted operating profit margins for the year. As I previously detailed at the half year, second half margins will reflect higher inflation, more normalized margins in our nutrition business, and higher levels of investment versus the first half of the year. So to summarize, our business remains resilient, delivering a further quarter of broad-based growth and market share momentum. We've now seen seven quarters of mid-single-digit growth, with 70% of our business less impacted by COVID. And that's also true adjusting to the temporary uplift in our US IFCM business. While market conditions are challenging, particularly in Europe in the near term, However, our performance here today gives us confidence that we'll deliver our 2022 revenue and margin targets. As Nicandro said, we remain fully focused on executing on our strategy and we remain firmly on track to deliver our medium term targets of mid single digit like for like net revenue growth and the mid 20s margins by the mid 20s. With that, we're now happy to take any questions you might have. Thank you.

As a reminder, if you'd like to register a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. And please ensure you're unmuted when speaking.

Thanks, Jordan. OK, so we've got a list of questions waiting. So the first one on the line is Guillaume Delmas from UBS. Go ahead, Guillaume.

Thanks, Richard. And morning, Nicandro and Jeff. So two questions for me, please. The first one is on hygiene, because excluding Lysol, the divisions like for like sales growth significantly decelerated sequentially. I think we were nearly at 9% in Q2 and it was 3.3% in the third quarter. So wondering if you could highlight the main reasons behind the slowdown above and beyond airwake. and also curious to hear if you have seen some down trading, changes in private label market share development, maybe some delisting in hygiene in Western Europe in particular. And then my second question for Nicandro, it's on the group's strategy. Because Nicandro, you mentioned you were focused on continuing to execute on Reckitt's strategic path, so delivering that mid single digit like for like sales growth So should we interpret this as a clear signal that the board and of course the leadership team are backing the group's current strategy? So maybe for the next few years, I mean until we get to the mid-20s, we should not anticipate major changes to the group's strategy. Thank you.

Why don't you take the first, that question first, and I'll come back to that.

Let me talk a little bit about the strategy. Listen, this strategy was lined up around two to three years ago with full endorsement from the board. And I fully endorse this strategy, as I said at the beginning of my speech. I think that we need to focus more and more on delivering this strategy through innovations, through fantastic execution with our talented people. I think that that should be the focus of the company in the years to come. I see no reason for changing that. I think that we are in stage in the company that's all about great execution with our powerful brands through our pipeline of innovation. And we have a great pipeline of innovation coming to 2023, so I'm pretty optimistic that we can deliver our targets mid-long term.

Just coming back to, Guillaume, your question on hygiene. The data I have is that if you look at X Lysol, in the quarter we mentioned the hygiene like for like, X Lysol was 3.3%. If I look on a year-to-date basis, it's 5.3%. There is a little bit of a slowdown there, but it is largely related to the Airwick and the Aircare category, really. It's not really a market share issue so much as a category slowdown. So it's not quite as dramatic as you pointed out. It is from 3.3% down from a year-to-date number of 5.3. That obviously was higher in the first half, slightly higher in the first half. But I'm not particularly worried. We've seen good performances here. For example, in Finnish, where we mentioned double-digit growth in the quarter, like-for-like revenue growth in the quarter. So a strong performance on Finnish, strong performance in Harpic, and also in Vanish in the quarter. So all in all, the Lysol number, we talk about ex-Lysol because the trends in Lysol are still normalizing. The Lysol number was significantly improved sequentially from around minus 30% to minus 15%. And we expect that sequential improvement in Lysol to continue in the fourth quarter as we normalize the business.

Can I add something about the down trading? Because you raised the point of down trading here. In general, we are not seeing any material down trading by consumers in our categories. We should not forget that consumers in general, they value, they want value for money. and effective products, not just low-priced products. So we haven't seen any material down trading. Yeah.

Thanks, guys. Thanks, Neil. So now next on the line is Ian Simpson from Barclays. Ian, go ahead.

Morning. A couple of questions from me, please. I just wondered if we could dive a little bit into Finnish. Clearly, you're sort of happy with the performance there. Just looking at the Nielsen data, it seems to suggest that in Europe and the US, you underperformed the category pretty meaningfully, but that doesn't appear to match with your own comments around double-digit growth and how happy you are with the brand. So I just wondered if there was an explanation there in terms of channel shift within finish or anything like that, or whether it's just patchy Nielsen data and we shouldn't pay it too much attention. And then secondly, in terms of CEO recruitment, I understand that you're a little bit limited as to what you can say, but I wondered if you could give us any idea of timeline and when you thought you might have a little bit more for us in terms of CEO and just wondering how long that process would take. Thank you very much.

Let me start with Finnish. Finnish Revenue was strong in the quarter as we said and that's largely on the back of the innovation that we've been making with the thermoform technology that we've been rolling out and we've been replacing our hard pressed tablets with thermoform product and that's evident in the quantum all-in-one range. That's clearly a superior product. It's premiumized in the category. and we're very pleased with the overall performance now having said that um market share in the us is not where we want it to be so we we are down in terms of market share in the us against an incredibly strong brand but we have plans in place it's early in in the relaunch of the uh the innovation we have strong plans in place and we believe and that we will make good progress as we continue to innovate and continue to thrive with Thermoform technology. So we're happy with the performance today. There's more to be done, especially in market share in the US. If you look at Europe, we had some issues with one or two customers as we put through price increases and that affected temporary market share issues. Overall, we're very pleased with our market shares in Europe. and also with our total revenue. So you're not wrong, the market share isn't perfect. We have some room to go, especially in the U.S., and I think that's a key battleground for us.

I'm not sure whether Nielsen picks up Australia, New Zealand, emerging markets, Eastern Europe. So obviously we're looking at the total picture there. Sorry, Nicandro, CEO.

Regarding the CEO, the process is underway. We are reviewing internal candidates and benchmarking external candidates. We will provide a fuller update on when and when is appropriate, but I cannot provide you a specific timeline because the process will take time. I'm here in order to give the board and the company the timing to find the right person to run the company. I think that the chairman has mentioned before that the process may take 9 to 12 months, but we don't have any timing for that. But we will take the time that's necessary to find the right person to steer the company for the future.

Okay, thanks Ian. Next on the line we've got Bruno Montaigne from Bernstein.

Hi, good morning. My first question is on those numbers you quote about Lysol and Dettol versus pre-COVID. I think you said about 50% higher for Lysol. Can you just clarify, does it include the benefit of pricing, or is that really a consumption volume weighted number? And on that, I think from quarter one already you talked about normalization, stabilization in these Lysol and Dettol related brands. But if I take pricing out, and it's not just Lysol that's down materially still this quarter, but Dettol and Volume still seem to be materially down as well. So if you were to define normalization or stabilization as stable volumes, You know, when do you expect you'll be closer to that, you know, if we use that? And the second one, I think you just said before, you don't see any signs of down trading and I sort of agree the price analysis don't look too bad. But surely there ought to be some places. If I just look at Nielsen Europe, I know it doesn't include Australia, Richard, but clearly there still seem to be market share losses to private labelers, private labelers gaining. So if you were willing to really scratch hard, Where do you start seeing potentially some signs of down trading by consumers to private label or other cheaper brands? Thank you.

Hey Bruno, thanks a lot for your questions. First of all, let me take Dettol, because Lysol and Dettol are in slightly different phases of their normalization. So let me take Dettol first. We said in September 21 that we saw Dettol Stabilizing at around 40% revenue over the pre-pandemic levels. And that is a revenue number that we've never really discussed the volume position. And we continue to see those types of levels around 40%. We expect to finish this year around 40% up versus 2019. And I think considering we give that guidance in September, that's pretty consistent. What we also said at the time is we expect Thank you very much. at around 50% to 60% in the US point of sales increase versus our pre-pandemic levels. We continue to see that performance. And obviously, as we work through the peaks from 2021, we're starting to normalize versus last year. As I mentioned on the call, down 30% in the first half, around 15% in Q3. And we expect that progression We're very pleased with that overall performance. Now within that, there are some areas winning and losing. I mean, Lysol Wipes in the US, for example, has been soft in terms of shares. We had a major competitor which had patchy on-shelf performance in 2021. It's also a category which is a bit more commoditized with private label. But overall, we see strong share gains on the most important parts of the category, like LDS, Lysol Disinfectant Spray. And into the new areas of the brand that we're moving it, laundry sanitizer, we're very pleased with the performance. So all in all, those have been revenue targets. I'm not going to dissect those by volume. But we do see Lysol and Dettol normalizing. We expect 2023 to be a relatively normal year where we won't be talking about the peaks and troughs of prior years, but we'll be back onto a consistent basis where we can talk about underlying performance. In terms of down trading, you're right to pick out Europe hygiene as one area where there have been some market share gains. Generally, that's been more against the commoditized type of categories like laundry detergent and fabric softeners. and in markets like Spain, which are very strong private label markets, we do see a slight shift in European hygiene to a few basis points to private label. But equally, we see private label losing share in the U.S., for example. We've been gaining share versus private label in the U.S. So net-net, as Nicandro said, there's no Thank you, Jeff.

But if I just may follow up, I understand the guidance was always on a nominal basis, but if you say sort of Lysol is still declining at mid-teens, let me make that minus 15%, you probably have 10% pricing if it's the same. So I would still suggest minus 25% volumes in there. And similarly then for Dettol, Surely the volume picture matters as much. I understand the top line. And surely when you're in double-digit volume declines, that may suggest that kind of normalization of hygiene habits still has a long way to go. Would you not agree with that?

I don't agree that the normalization has a long way to go. I think when you look at the new initiatives, when you look at the stickiness of the hygiene habits with our core users, and when I mean only time will tell if we are able to stabilize these two brands but we are in an exceptional time in terms of cost of goods inflation and pricing and clearly you know I said at the beginning of this year that the growth would be more price driven than volume driven in 2022 but I think that's a temporary thing I don't think Thank you, Jeff.

Good morning everyone and thank you for taking my two questions. The first one is on input cost headwinds. So you're guiding to high teens for this year and I was just wondering if that was a subtle change to the H1 results when you expected 20% inflation in H2 versus 10% in H1. I just trying to understand if cost inflation will be closer to 25% or so in H2 rather than the 20% you indicated at the H1 result. And then my second one is on nutrition. You stated in the release that you expect to exit the year with normalized sales volumes and margins. I was just wondering if you can clarify what you mean by normalized. I guess I'm trying to understand how much of the 18% benefit that you realized on the vision or growth from the competitor issue, how much of that you expect to retain by the end of the year and into 2023. Thank you.

First of all, on input costs, I hope there's no misunderstanding because we haven't It should be totally consistent with the half year. And what we said at the half year and what we're repeating is that for the full year we see high teens commodity cost inflation. The number we quoted at the half year was 15% for the first half which implies closer to 20% for the second half. That's exactly in line with what we're seeing. And by the time we entered the second half, we had something like 80% of our costs pretty much fixed through forward buying contracts or hedging. So that hasn't changed at all. What I also said is I expect the second half of 2022 to be the peak of commodity inflation. And I think based on prices we're looking at into 2023, that's true. That's not to say 2023 is going to get easy. Prices are still high, much higher than if you go back to 2021 or 2020. But the peak of the inflation, I would say, seems to be in the second half of this year. The other challenge for 2023, as we look forward to it, is that CPI inflation, labor inflation, has yet to come through the system. So we expect that to be more impacted in 2023. But in regard to the input costs, We've tried to be consistent, high teens for the year, slightly higher in the second half than it was in the first half. In terms of how we see nutrition coming out, I mean, I can't really see a few words about that.

We expected that, we see already in the shelves in the U.S., competitor spread coming back. We expect to be normalized by the end of the year. We think that there will be, the assumption that we have today is that there will be full supply for the competition at the end of the year. So when I say next year is going to be a normalized year, it's going to be normal competition. Regarding your question about retention, well, we'll do our best to retain as much as possible consumers to our brands. Our brand is quite in a strong position nowadays. It's number one brand choice by the physicians in the United States nowadays, which is a great place to be. You know, generally when a mother already has a baby with a certain brain, they stick with the product. So we expect to retain. I cannot give you any guidance for next year about the retention rates, but we expect to be stronger than we were before the out-of-stock situation happened in the United States. How strong? Well, we will be as strong as possible. We are going to work very hard. to keep our brand with the leading positions that we have nowadays. But I know as well that the competition is going to work very hard on the other side, so we have to wait and see. But I expect to be next year in a much stronger position against where we were before the out-of-stock situation with the competitor happened.

Great, thank you very much for that.

Right, next on the line we've got Jeremy Fiocco from HSBC. Jeremy, are we on?

Hi, morning, a couple of questions from my side. First of all, can you talk about pricing and kind of like where you are in the process of actually putting the price rises that you need in order to restore the margin structure of the business? Roughly how much more do you think you need to put through when you think that process might end based on where costs are at the moment? and then secondly can you just talk a little bit more about the growth of your inf business x the the us a mid-single digit doesn't seem um such a rapid rate of growth given the um in fact there's still plenty of pricing around uh so perhaps you could talk a bit about some of the dynamics in those sort of non-us markets thanks let me uh start on on pricing jeremy um

You'll have seen on our price mix numbers that our pricing has increased in the third quarter and we were relatively low in quarter one with some acceleration in quarter two. So we have had quite significant pricing come in through the course of the second and third quarter. And obviously that will help us get to the position we need to be. and by the end of the year now because we've implemented that pricing in the course of the year we'll get quite some significant carryover for that price into the into the start of next year i'm not going to get into what other pricing we're going to do during the course of 2023 but i would just emphasize the fact that where first place we look is internally with our productivity program to make sure that we can and so on. We have a best in class productivity program which will keep our foot very much to the gas and continue to deliver against which will allow us to be really responsible in terms of any pricing we might have to take in 2023. On IFCN, what I would just say is that our market shares are very, very strong. In fact, in all of our significant geographies, we're gaining market share in Latin America and in ASEAN, with one exception. That's in the Philippines, and we have a strong program to get the Philippines back on track. And therefore, I think the number we quote in the press releases is well over 90% of our CMUs in nutrition are gaining or holding share. So I think our share performance is very strong in those markets. You know, since Record bought me Johnson, this is the first time we've really seen revenue growth in the Asian markets and I'm very pleased with that. The reason that we've been able to do that is the fact that we exited China and it's given us the opportunity to really focus Thank you very much for your time. David Hayes from SockGen on the line. Go ahead, David. Thanks, Richard.

Good morning all. Hi, Nick Andrew.

Good to see you back on one of these calls. So two for me, one on input cost inflation for next year and one on U.S. nutrition. So just on the input cost Inflation for next year. I'm picking up on a comment that I saw in the headlines, Jeff, that you made, I think, in a media call this morning that staff costs inflation would be the biggest element of inflation for next year, which I guess if you take staff costs as a base, assume that could be up as much as 10 percentage points, that'd be about 200 million sterling extra inflation. So if I apply that to cost of goods sold, that would imply that inflation outlook for cost of goods sold is maybe 3.5%, 4% tops. Is that the way that you're talking about it in some of those absolute numbers? Just trying to understand that comment and contextualize. And then the second question on U.S. infant formula. Congratulations on winning the Texas WIC contract. I think that started on the 1st of October that you took it over. So just a question on that and whether you saw inventory building in that state as it switches from Abbots to U.S. Thank you very much, David.

I think what I said is what I meant to say and I'll go back and check my exact wording but what I meant to say is we haven't seen much staff cost inflation come through yet so it will be a challenge for next year. I don't think I meant to imply it would be a bigger absolute cost inflation than commodities so I think staff costs we haven't really seen the inflation come through the system yet so I was flagging that whilst The commodity costs will be off their peaks. There will be other pressures such as staff costs starting to come through. I wasn't trying to get into a situation where I was comparing the absolute increase in staff costs to commodity costs. Whilst commodities are coming down, the absolute levels are still elevated compared to 2021. We're tracking many commodities, including things like ocean freight, and they're coming off their peaks. But that still is at a higher level than 2021. So just to be clear, I was flagging that staff costs and CPI would still be a driver of inflation next year, but not comparing the absolute numbers amongst the two. I don't have a lot to say on weak contracts in terms of, you know, The Texas bidding, we're pleased to take that on board. There was no significant inventory impact in terms of our performance, so I don't think that had any impact on the quarterly performance of IFCN in total. In the normal course of business, we have contracts come up and we're keen to bid for them and we'll try and be competitive and hopefully win more than we lose.

Thank you.

Thanks David. Right, next on the line, Celine Panutti from JPMorgan. Go ahead Celine.

Thank you so much. Good morning Nick, Andrew, Jeff and Richard. Thanks. So my question is on, you said you were firmly on track for your mid-term targets of mid-single digit growth and mid-teens margin by mid-20s. I wanted to understand When you look at that versus the challenges of the current environment, what sort of visibility you have in 2023? Or in other words, we know that in 2023 there will be the impact of the nutrition normalization. If I put this aside, what's the visibility on 2023 versus the environment that you mentioned on some challenges, for instance, in healthcare or maybe a bit of a softer demand and the ability to deliver on that. I presume, and that will be my second question that's related, if I think about the margin performance this year, which you say will be up and was strongly up in H1, how much of a drag of the TAF comparison we should think about as we look into 2023? Thank you.

Let me take those and first of all say I'm not going to get into specific guidance on 2023 but the reason I can say that we're firmly on track is that we have a lot of leaders that we can pull in order to develop our margins back to the levels and we're confident on the resilience of the business overall. Air care is a category where we see some softness but general such as finish for example in auto dish I see really resilient brands and when I spoke in September 2021 about the path to the mid-20s margins what I pointed out at that time was that most of that comes from developing our top line and the leverage that we get on our fixed costs we invested in fixed costs in 2020 and 2021 and that brought our margins down The fact that we're now growing on the top line will get that leverage and that will be part of the way to driving us to those mid-term targets. Of course, in addition to that, I'm very pleased with the outperformance that we've had on our productivity program as well. And that remains a key part of the program. I mean, there are still significant efficiency opportunities that I see here at Reckitt. to improve performance and drive productivity. So the combination of those, I feel very confident that we are on track for those mid-20s targets. But of course, no one's denying that we're going to face challenging times. These are incredibly challenging times for all businesses. We just need to continue to perform and outperform our peers and deliver in line with the external environments. And I think we can continue to do that and have good In terms of the 2022 margins, the best way that you can look at it is if you just take, I'll leave it for you to do the calculation, if you take the average margins of nutrition from 2021 and look at the margins that we're going to deliver in 2022, take the delta, that's the best way that you can estimate the upside. that we've enjoyed from the fact that although we haven't put pricing through in nutrition in the U.S., the fact that our margins have grown is purely due to the leverage of the extra volume that we've been selling and the extra performance that we've had whilst that competitor has been off the shelf. So that's the best way that you can do that calculation and come up with an estimate of the normalization. And maybe I'll get more specific on that

Thank you very much for your time today and I look forward to working with you in the future.

And then just to come back on to the volume aspect, given that the volumes by region, when you look at them in Europe and the developing markets, have seen a sort of 7% to 9% swing quarter to quarter, and obviously the developing markets number is down by 7%. In volume terms, and I know you reference in the report Lysol and Dettol, but the price mix is the same in developing markets in Q3 versus Q2, but your volumes have had an 8% sort of swing in terms of the year-on-year growth. So are you happy with the price elasticity you're seeing outside of North America? and have we seen the lows in terms of the volume growth or do you think that volumes could actually get worse? Thank you.

Let me start on the blue question. In terms of our own capability, we've been investing in our supply chain significantly over the last two and a half years. So you've seen our OTC numbers were up significantly over the last three quarters. and I expect that we'll be able to meet demand. In terms of what sort of flu season we expect, we've seen basically strong flu season in Australia. Sometimes we take that as an indicator of what to expect in North America, but consumption of our cold and flu medications remains very strong. I don't see any reason not to believe that there's going to be a fairly strong cold and flu season and we're ready for it and obviously that includes selling in over the September-October period for readiness for that which tends to peak in January-February time frames. We haven't seen massive changes in inventory so there's been no significant I think coming to the developing markets and volumes again I think you just have to not get carried away with one quarters performance so are we particularly worried about Price Elasticity. No, I think generally when we look at our overall performance and look at the full year performance, our volumes on a year-to-date basis remain pretty strong and positive for next Lysol and next US IFCN impact. Obviously, we did have a tougher A tougher period in Q3 in, for example, Dettol in Asia, and we're addressing that. We have specific plans in place to address that. As we mentioned, Durex in China, we had a tougher period, partly due to continued COVID effects. And so in the longer term, no, I don't see particularly concerning around price elasticity. Our brands are generally In premium categories with strong margins and you know they're highly efficacious brands which as we see recessions, as we've learned from recessions in the past, we remain, the majority of our brands remain very resilient so we expect that to continue.

Thanks Tom. Right, next on the line we've got Martin Deboe from Jefferies. Go ahead Martin.

Morning everybody. Just a quick build on Tom's question about cold and flu and just some of your commentary Jeff. Clearly a very strong result in Q3 in OTC ahead 20% and you seem to suggest that's market growth and market share related but the Nielsen in the US seems to be showing offtake as sort of pretty flat year on year. So can I just sort of ask the question again how much of that 20% performance in Q3 was sell-in Based on the numbers, I'm looking at very little.

I think if I look at our total cold and flu performance, it remains very strong across all the brands. I go through brand by brand Strepsils, Mucinex. If I look at Neurofen, if I look right across the brands, we see strong offtake both in Europe and in the US. So I'm a little surprised if you're saying you don't see point of sales data which supports that. And by the way, our market shares for Mucinex are at very, very high levels, which is usually the case. We gain market share when There is a real cold and flu issue because we know our brand is more efficacious than the competition. So I don't see any softness in terms of offtake. Right across our cold and flu brands we are performing well in terms of consumption and I expect that will continue. Now the comps, of course OTC we were quoting plus 60% in the first half of the year. The comps will get less because clearly we're up against fairly strong comps in the second half and certainly in the fourth quarter we had fairly strong comps in terms of OTC. So the comps will certainly soften as we go on because we are going against tougher comparatives. The first half of the year, as you recall, there was practically no cold and flu season. We had a pretty good second half of the year and we had a pretty strong fourth quarter in terms of OTC. So we'll be comping that in the fourth quarter this year. But inventory builds we measure and we look at very carefully. We haven't seen any significant inventory build.

Okay, thanks Martin.

Okay, very useful. Thank you.

Thanks Martin. So moving quickly on, we've got Chris Pitcher from Redburn. Go ahead, Chris.

A couple of questions please. Could you give a bit more colour on the contribution to Lysol sales from the global business services division and new markets, whether that contribution is up on what it was last year? And then secondly, on the US infant nutrition, are you able to give a split of year to date what has been We have developed a strong

GBS, Global Business Services, Professional Business, which is focused not just on Lysol but on Dettol and other brands. The contribution to growth this year is not positive and that's largely because of the volume that we put through in the U.S. with the peaks at the beginning of 2021 and during the Delta variant in 2021. So the volumes in 2021, especially in the professional business, were very strong and we've come off that, but we still have a much bigger business than we started in 2019 and we still see growth going forward into 2023. For this year, it's negative, but that's largely because of the fact that the COVID In terms of IFCN, we have gained both in the WIC business, but also in the non-WIC business. And clearly, we're Our competitor hasn't been able to supply WIC in their WIC markets. We have filled that gap and been fully rebated for it. Now, we will lose that business quite quickly once the competitors are able to supply into those markets, and that will be a significant margin impact, which is why I've said we've had – it's one of the key drivers why we've had beneficial margins in 2020. Thank you for joining us today. But if they don't want to switch in those markets and they're a WIC customer, they'll have to go to a fully priced product, which will be difficult for them. So there'll be some challenges there. But I'll go back to what Nicandra was saying. When we measure our market shares, we measure the non-WIC market shares and we expect to continue to be strong. We're in a better place than we started this, as Nicandra said. We now have the number one doctor recommended brand in the U.S. That's an important KPI for us. And, you know, there's going to be a significant battle coming up where the competitor looks to get back their market shares. But we're up for that and we expect to perform well in 2023. We won't be comping the numbers that we had this year. Clearly we'll give some of that back on revenue and margin. Thank you.

I was just going to say, can you confirm that nutrition is an ongoing part of the strategy? I know there was some conjecture earlier in the year about a potential divestment, but that seems to have been put to one side. Looking forward to next year, it's very much part of your planning. I'm mindful of what you can say.

Well, I would just say we have three GBUs, three global business units, and they're all core to our strategy. Thank you. I don't know, Nikandar, do you want to add anything?

No, I'm saying we are running the business and we are going to run the business the most possible way. We don't talk about those things for the future, but we have three business units, as Jeff rightly said, and you are trying to get the most of it.

Okay, cool. Thanks, Chris. Right, we've got five minutes and three more questions. So next question is from Pinar again, Morgan Stanley.

Hi, thanks for taking my questions. I have three quick follow-ups. I have three quick follow-ups to the debate so far. The first one is, can you please share with us what the volume decline would have been if you also adjusted it to exclude the US IFCM benefit in addition to Lysol? And what are some of the areas driving this volume decline? For example, do you have anything to call out in nutrition? The second follow-up is, which categories other than air care would you categorize as discretionary? And what gives you comfort that demand for those products, rather than market shares, but demand for the products? will stay resilient in the months ahead as the cost of living continues to bite. If I can squeeze a really quick third one, a small one on the financing costs, I believe around 20% to 25% of your financing is in floating rates. How should we think about that as we head into 2023? Thank you.

I'll try and answer quickly, but the volume we talked about, ex-Lysol, is down 1%. Thank you very much. Our challenge and what we're up for is to make sure we innovate into those categories to get growth. And that's what we'll be doing. We have a strong innovation pipeline, both for BMS and air care, which should allow us to gain market share and to grow. And ultimately, the key measure is how we perform versus our peers. And that means winning in each of our key categories. Market share becomes important in these times. and I'm pleased to see that the number of CMUs gaining and holding shares has grown in the third quarter versus where it was at the half year. Finally on financing costs, you're right to say that we have about 20% of our debt which is floating and about 80% which is fixed. I think that's a good strategic position to have as a treasury policy but clearly that means that as interest costs go up That 20% floating will incur greater charges and 20% of around 8 billion debt is still quite a lot of debt. Now that won't affect 2022 because we're still operating within the guidance we gave for interest costs in 2022, but clearly it will be a challenge for 2023. I think most of our peers as well will see increased financing costs which we'll have to manage as part of one of the leaders that we manage as we develop our earnings per share expectations. You know, those costs will go up and we need to manage that.

Cool. Thanks, Bernard. Right, on to Carol Duetti from Capital Chevrolet. Go ahead, Carol.

Yeah, good morning. Thanks for taking the question. I have two quick follow-ups. The first one is on the innovation agenda for next year. You already mentioned a couple of times strong agenda. Most of the time your innovations are rather premium. Is that still going to be the case in 2023 or will you also be willing to look at some more value innovations particularly for difficult markets as Europe? And the other thing I spotted was e-commerce growth was just 5% in the quarter. Is there a specific reason behind that? Is that for example China lockdowns just looked quite light actually? Thank you.

Well, the first question about innovation, yes, we are looking at innovation in different price points for next year. There are products, for example, in the air cab that are coming at the beginning of next year, but the whole concept is to bring new innovation, a premium position, and then you can drive down the innovation that's in the market in different price points. It's going to be a strategy to meet consumer demand and consumer needs in different price points. No doubt about that. That's necessary. Regarding e-commerce, listen, it's very difficult to be hung up in a specific quarter to look at the position of e-commerce. But of course, the lockdown in China had an effect because e-commerce is quite an important tool in China and had an effect in our numbers. But if you look at nine months, the results are extremely solid. and I don't see this slowing down. I think that you continue this path of very good performance for the year, for next year. We are very optimistic about our e-commerce performance.

Okay. Thanks, Carol.

Thank you.

Final question. We've got Ian Simpson back again. So, Ian Simpson, go ahead for the final question.

Thank you. Thank you very much for taking another question from me. I wondered if you could talk a little bit about capital structure. I think on my numbers you're going to finish this year below two turns net debt EBITDA for the first time in six years. I wondered if you could give any indication as to at which point you might consider capital returns to be appropriate. And then I just wondered if you could talk a little bit about Thank you very much for joining us. I'm just wondering how we should think about the pricing dynamics through the next 6-12 months, I guess. Thank you very much.

Well look, Ian, very quickly on the pricing and retailers. It's never easy to take pricing and we try everything we can to make sure that we look at every other option in terms of driving productivity to avoid taking pricing. We have taken pricing during the course of this year. Some of that will roll into next year because it was Thank you very much for joining us. Capital returns. Let me just say I'm pleased with the overall cash generation and performance that we've had, which has been driving down our net debt. The fact that we're bringing our net debt down starts giving us more options. However, I think you have to be cautious about the expectations for the end of this year because with the dollar at the level it is, we have a significant portion of our debt in dollars, so therefore we have more debt Then we have earnings dollar denominated, and that will therefore have a negative effect on our net debt to EBITDA versus where it would have been on a constant rate. So that will have an adverse effect on the net debt to EBITDA due to FX. But overall, we continue to generate cash and get our balance sheet in a better shape. And as we get our balance sheet in a better shape, it gives us more options. And it's a bit early to talk about capital return. Thank you very much. Thanks everyone. Have a good day. Bye bye.