Reckitt Benckiser Group plc

Good morning, everyone, and welcome to Reckitt's full year 2022 results presentation. Before we start, I'd like to just draw your attention to the usual disclaimer in respect of forward-looking statements. Now, we have five members of our global executive committee presenting to you today, following which they'll be happy to take any Q&As that you may have. So without any further ado, I'd like to introduce our CEO, Nicandro Durante, to kick things off.

Thank you, Richard, and welcome, everyone. Thank you for joining us. Three years ago, we started our journey to rejuvenate sustainable growth at record. We continue to make strong progress on this journey, and I look forward to sharing this update with you today. Today, I will start by running through some key questions, messages, and Jeff, our CFO, will then take you through our results. plus our 2023 targets. Then after a few brief insights from me, our three global business unit presidents will talk to you about highlights from 2022 and our focus for 2023. For those of you who might not have met yet, we have Volker Kahn, our president for hygiene, Chris List, our president for health, and Pat Sly, our president for nutrition. Once we have wrapped up, We'll be delighted to take any questions you may have. A lot has happened over the last 12 months. There have been significant geopolitical events and we have all faced inflationary conditions unseen for many years. For Racket specifically, we have also seen unprecedented demand for a number of our products, causing more pressure on our supply chain. Normalization of our disinfection business as we left tough COVID comps and, of course, the departure of our CEO, Laxman Arashma. I am therefore pleased that 2022 was a year of delivery and momentum for records. We delivered a year of strong revenue growth and profit delivery and free cash flow. And given the health state of our balance sheet, I am delighted that the Board has approved a 5% increase in our total dividend for 2022, with the aim of delivering sustainable dividend growth in future years. Underpinning this financial delivery were further executional improvements across our supply chain. Whilst we deliver a strong 2022, it is important to reflect on the journey we have taken over the last three years, following the announcement of our strategy to rejuvenate sustainable growth at Rekord. We have always operated in categories of a significant runaway for long-term growth. We trusted market-leading brands. An investment has been made to make Racket more competitive, more resilient, and to strengthen our pipeline with science-backed, consumer-led innovations. As a result, Racket has delivered a best-in-class three-year like-for-like revenue kaga. But before we proceed any further, I know you are keen to understand more about the progress on the appointment of a longer-term CEO. Listen, this is an important process. It needs to be taken with due process and diligence as we find the best person to take this great company on the next stage of this journey. We continue to make good progress and expect to be able to provide some news during the first half of this year. I will now provide you with a few highlights from 2022. Like-for-like revenue growth in Q4 was 6.2%. For the year, we delivered like-for-like revenue growth of 7.6% and adjusted operating margins of 23.8%, or around 23%, excluding a temporary mix and volume leverage benefit from the competitor supply issue in our U.S. nutrition business. This was a very stable and resilient performance in the face of very high inflationary pressures. The revenue margin delivery, combined with some forex tailwinds, enabled us to deliver adjusted EPS of 341.7, being a growth of over 18%. and with strong cash flow generation and healthy balance sheet, the directors recommend a 5% increase in our total dividend. This results in a dividend per share of 183.3 P for the year. I will now hand over to Jeff to take you through our financials in more detail and our outlook for 2023.

Good morning, ladies and gentlemen, and it's a pleasure to see so many of you in person. And thank you, Nick Andro. As you can see, total revenue at actual exchange rates grew by 12.5 percent to 14.5 billion pounds. As you mentioned, like for like revenue grew 7.6 percent for the year. And this was a year, of course, when this was weighted towards price growth. The impact of price and mix for the year was 9.8% and volumes for the year were down 2.2%. And as we've of course discussed during the course of this year, the negative volumes being largely a consequence of Lysol rebasing from the peak levels of 2021. Like for like net revenue growth in the quarter was 6.2%. With improving trends in hygiene, which returned to growth in the quarter, and a strong performance in health and nutrition. The price and mix effect at 12% was consistent with quarter three, and group volumes were down 5.8%, similar to quarter three, but with weaker China intimate wellness and stronger comps in health, which as Nick Andrew mentioned, on intimate wellness, we expect to improve in 2023. Versus 2019 for the three-year like-for-like net revenue growth was 28%, with volume and price driving this growth, not just price. As Nicandra stated, we're now bigger, a stronger business, and we'll continue to grow now from this expanded base. I'm very pleased that adjusted operating profit reached £3.4 billion, up 9.2%, Thank you very much. which was down 70 basis points to 57.8%. Now there's a lot of moving parts here but in summary our pricing action favorable mix especially due to a stronger OTC sales and our excellent productivity initiatives meant we recovered some 90% of the cost of goods inflation during the course of the year and with pricing action stronger in the second half of the year This really positions us favorably as we look to 2023. Brand equity investments were up 5.7% at actual rates and essentially flat at constant currency. And BEI as a percentage of net revenue was down 80 basis points. Now this was due to reduced investment in Russia and the fact we did not increase our BEI spend in proportion to net revenue growth in two key areas, US nutrition and for our cold and flu products. Elsewhere, BEI was generally in line with 2021 as a percentage of net revenue. Fixed costs or other costs, as we show here, were up 4.7% at constant exchange rates to 3.2 billion pounds. The leverage impact from the stronger top line growth meant that as a percentage of net revenue, fixed costs were 80 basis points lower than last year at 22.2%. All of this flowing down to adjusted operating margins of 23.8%. Now separately, let me just refer to the situation in the US related to the infant formula market. This had a significant impact on top line growth and on our adjusted operating profit margins. Breaking this out, we believe the benefit on like for like net revenue growth was approximately 2.5% in the year and the impact on adjusted operating profit margins in 2022 was approximately 80 basis points. Now I'd like to go through each of our three global business units in turn, starting with hygiene. Hygiene net revenue was 6.0 billion pounds for the year. and like for like net revenue was down 3.1%. And as you're aware, this includes a decline of around 25% in the year for Lysol. The remainder of the portfolio grew in the year 5.1%. And as you can see from the chart that we're showing here, the sequential improvement in the quarterly year on year Lysol performance has resulted in an improvement in hygiene business unit such that we saw a return to growth in the fourth quarter with 1.3% like for like net revenue growth. Now, importantly, Lysol net revenue is around 45% higher in 2022 than 2019. And we expect a stable performance in 2023 versus 22, eliminating the recent COVID volatility that many of you have commented on. Cost of goods inflation had a more significant impact on hygiene than our other two business units. Consequently, despite pricing and a strong productivity performance, adjusted operating profit at 1.2 billion pounds was down 18% at constant exchange rates and at a margin of 20.4% down 330 basis points. So turning to health, Again, net revenue was 6.0 billion pounds coincidentally. Like-for-like growth for the year was 14.7% and 6.7% for the quarter with much stronger comps in the fourth quarter of last year. Volume growth was strong, up 6.5% for the year with the impact of price and mix of 8.2% for the year of course benefiting from favorable sales mix from OTC, which grew over 35% in the year. But growth was broad-based. Intimate wellness was up mid single digits, BMS up high single digits, and Dettol sales were broadly flat in 2022 versus 21. With respect to our BioFreeze acquisition, Due to increased discount rates resulting from the current macroeconomic conditions and a short term category slowdown, we've recognized this year an impairment charge of 152 million pounds. However, we remain excited by the growth opportunity with BioFreeze. And after a slow start in the first half of 2022, we've seen sustained growth and market share gains in both H2 of last year and at the beginning of this year. and our growth plans remain in line with our original expectations. Adjusted operating profit at 1.6 billion pounds was up 24.3% on a constant foreign exchange basis and margins at 27.5% were up 290 basis points, again reflecting the benefit of the positive OTC mix. So moving on now to nutrition, Net revenue for the year at £2.5 billion was up 19.4 basis points on a like for like basis in the quarter and 22.9% for the year, with the US being up around 40% in the year. Importantly, our developing market business, unaffected by the US market disruption, grew mid single digits in the year with market share improvements across all key markets. Excluding the benefit from the competitor supply issues in the US, like for like net revenue grew, would have grown by around 5% in the year. The impact of price and mix was 14.8%, which reflects also a mixed benefit from a higher proportion of non-WIC sales in the US compared to WIC sales. Gross pricing actions across all regions for nutrition in the year was around 8%. And as previously communicated, we did not proceed with planned price increases in the US once we learned of the competitor recall in February 22. Adjusted operating profit margin at 23.1% was up 710 basis points and this reflects our turnaround and improvement in our earnings model in the developing markets plus the positive leverage benefit from the US nutrition impact during the year. The impact as I mentioned of which was 80 basis points on a group basis to group adjusted operating margins. Now very quickly, it would be wrong not to mention our productivity program and you've seen the benefit of that truly coming through Our best-in-class program continues to deliver with efficiencies of £800 million during the year, enabling us to achieve our target of £2 billion of efficiencies by the end of 2022, a year earlier than our original target. Our productivity muscle remains firmly embedded within the DNA of Reckitt and will continue to drive our earnings model in the future. and in 2023 we expect to deliver efficiencies of over 500 million. So let me move on now to EPS. EPS has grown 18.4% from 288.5 pence to 341.7 pence with significant contribution coming from the strong earnings delivery this year and we also benefit of course from a positive foreign exchange rate due to the relative strengthening I'm very proud and very pleased to say the free cash flow improved year on year by £773 million to £2 billion in the year. Primarily, of course, driven by our strong operating performance. Cash conversion was 83%, a significant improvement on the prior year. Now, COVID has caused some volatility in our cash flows. But I now feel we have returned to a more normalized position with working capital at a sustainable level at around minus 11% of net revenue and we're confident of delivering strong future cash flows and high cash conversion in the coming years. Overall, it's been a strong performance across the board in 2022, but I'm very pleased that our balance sheet also continues to strengthen. with net debt moving from 8.4 billion pounds to just under 8 billion. And that's despite a negative 500 million movement due to foreign exchange rate movements, specifically with the US dollar. This improvement in net debt underpinned by strong free cash flow has enabled us to deleverage to 2.1 times adjusted EBITDA from 2.6 times. So turning to our view on capital allocation, we basically are maintaining our position in terms of the priorities that we previously communicated, with the exception of dividends. After a few years of holding the dividend flat, we're now proposing to increase our total dividend by 5% this year, with the intention to sustainably grow dividends in future years subject to any significant internal or external factors. And this reflects the strength of our balance sheet and our confidence in the cash generating potential of our business as we look to the future. So finally, let's turn to the outlook for the year. For net revenue, we target continued momentum with mid single digit like for like growth for the group, excluding the impact. of the competitor supply issue in our nutrition business in 2022, which as I mentioned was approximately 2.5% on 2022 like for like net revenue performance. Our targets include a return to growth in our disinfection portfolio from the current performance of around 40% larger base versus pre-pandemic levels. We expect record cost inflation in 2023 to moderate with single digit increases and we have the benefit of the heavy lifting on pricing already implemented with significant carryover now into 2023. Therefore, we expect adjusted operating margins to be in line or slightly above 2022 levels when excluding the one-off benefit of circa 80 basis points related to U.S. nutrition. Within the guidance, we expect to significantly increase BEI support to support our exciting innovation program. In the medium term, we expect adjusted operating profit to grow ahead of net revenue. And this means we remain on track to achieve mid 20s margins by the mid 20s. So thank you. And now I'm going to hand back to Nicandro.