Reckitt Benckiser Group plc

We have a special presentation to kick off day three at Cagney. It is my pleasure once again to welcome Reckitt back to the conference. Though the company's leadership joined us virtually during the pandemic and sponsored an amazing lunch last year, it has been over 15 years since we last heard from the company in person. Moreover, after a seamless management transition over the past year, this is the first time that Chief Executive Officer Chris Licht and CFO designate Shannon Eisenhardt are appearing together at the same time at the same stage. We are both lucky and extremely flattered at the occasion. Now, through the eyes of many in the room as consumers, we know record strong brands like Lysol, Mucinex, and Finish that we've increasingly turned to to keep us healthy, safe, and clean over the past few years. At the same time, North America represents just one third of the company. So there's a great big world to explore through a record. I'm gonna turn it over to Chris to bring it to life for us. So Chris, welcome to Cagney.

Thank you, Tim, for that warm introduction and welcome back to Cagney. And good morning, everyone. Thank you for attending our record Cagney presentation. For those of you who I have not yet met, I am Chris Licht. I started with Reckitt just about four years ago as the Chief Transformation and Chief Customer Officer. I then ran our global health business for three years, and in October, I took on the role of CEO of this great company. Today, I'm joined by our CFO-designate, Shannon Eisenhardt, And together, we're going to talk to you about our journey to deliver value creation with attractive and enduring returns to shareholders. But before we start, I would like to share with you a quick video about Reckitt. I hope that video highlighted to you the portfolio of excellent brands that we sell here in the US and elsewhere. We've put a number of these products in our goodie bag, which I hope you take with you after the presentation. Before we move on, I would like to draw your attention to the usual disclaimer in respect of forward-looking information. Also, we have not yet published our 2023 results, and so any financial information that Shannon and I share with you today will not include any full year 2023 data or 2024 guidance. What I will talk about is our medium-term outlook. Reckitt has a rich 200-year heritage, and today we have a unique portfolio of brands which consumers love and trust and rely on to protect, heal, and nurture. We have either launched new brands ourselves or have acquired brands over time across our portfolio and geographic footprint. We are a global business with operations across six continents. We have around 40,000 employees across the globe, and we sell over 30 million products every day, which generates net revenue of over 14 billion pounds, or as we would say here in the States, around $17 billion. A lot has happened over the past four years since I joined Reckitt. We have seen significant volatility, many opportunities and challenges, both across markets and across our business. Today, Rekit is at an exciting place. I'm going to take you through the highlights of our key priorities and expectations for the future of our great company. Rekit today is a strong and competitive business. We have an inspiring purpose and a unique entrepreneurial culture which is fit for the future. Our brand portfolio is excellent and it serves as the foundation for enduring value creation. We have an opportunity to further sharpen and improve execution and optimize our fixed costs. Given our strong cash flows and healthy balance sheet, we are now accelerating returns to shareholders. This provides us with the attributes for Rekit to return to leading total shareholder returns. Now let me address each of these in turn. Our purpose is clear and compelling. Our brands and products do good. and enable us to protect, heal, and nurture in the pursuit of a cleaner, healthier world. Our distinct culture is purpose-driven, entrepreneurial, fast-paced, and action-oriented. Our people are driven to outperform, and I'm delighted with their passion and their energy throughout the business. And at the heart of our culture is doing the right thing always. Our culture defines who we are. We have an ownership culture, and our leaders demonstrate a strong sense of accountability. Everyone at Reckitt sees and feels that. This accountability and ownership is so evident in times of crisis. We saw unprecedented demand for Lysol during the recent pandemic, and our people worked tirelessly to deliver for consumers. More recently, the US infant nutrition market saw some significant supply disruption. Our teams from the US and internationally work 24 seven in conjunction with the US government and close coordination with our retail partners to provide 40% more safe, high quality formula to help the US address these shortages. Our culture is continuously evolving, and we place greater emphasis on care than we did in the past. We embed sustainability into everything we do, and we've become a more diverse company. Our desire is to be an even more inclusive company, providing a work environment where uniqueness is embraced and inclusion is a lived experience. I do believe our culture is a special asset that we will harness and continue to evolve as a source of enduring competitive advantage. Let's now turn to our categories and our brand portfolio. We operate in categories with significant and long-term runways for growth. Category creation, household penetration and premiumization can fuel our growth for decades to come. Let me give you a few examples. The growth of self-care, including OTC, is fueled by heightened consumer interest, increased disposable incomes and the need to migrate to greater self-care as populations age. In emerging markets, OTC is in fact still a nascent category with significant and long-term growth runway. Auto Dish is a good example of category creation, household penetration, and premiumization, all of which contribute to an extremely attractive long-term growth outlook. Intimate wellness remains a high growth attractive category fueled by increased consumer interest, normalization, and engagement. Significant innovation and product premiumization give us confidence that this category will also enjoy attractive long-term growth. Laundry additives is an excellent example of category creation. where we continue to see long-term growth opportunity as more and more consumers discover the benefits of these propositions. On average, we expect the medium-term growth of our categories to be in the region of 3% to 4%, and as market leaders, we expect to exceed this. We have an excellent portfolio of market-leading brands. More than 70% of our brands on a net revenue basis occupy market-leading positions in their respective categories with a high level of consumer trust and affinity. Nothing demonstrates the strength of our brands and their ability to stretch and expand better than our three-year growth rate, which has been sector-leading. As a result, at the end of 2022, we were a 3 billion pound larger business than just three years ago on a like for like basis. Today, we bring our best tools to bear to delight consumers and grow our categories. We can only gain superiority when we leverage data-driven insights and bring new scientifically grounded innovation to our consumers. We have invested in both our digital and machine learning capabilities. We connect consumer contextual, behavioral, and demographic data to map where to play and how we win. Our robust R&D capabilities embed science and superiority into our products, backed by the foundational work we do across our nine science platforms. Let me give you a few examples. The field of the microbiome and the impact on human health, animal health, and the environment is vast. The microbiome, that is the microbes that live in us, on us, and around us, is also enabling entirely new growth areas. At Reckitt, we have six targeted areas anchoring our microbiome science platform. Let me highlight a few of those examples. The baby biome. The precious first 1,000 days of life. Research clearly shows that seeding a healthy infant microbiome has lasting health benefits in the areas of allergy and immunity. We use that science in our infant formula product innovation. There's the built environment biome, the microbes around us. It is this understanding which helps us innovate in areas such as laundry sanitizer and bio-based disinfection. And it demonstrates the clear relationship of hygiene as the foundation for health. In total, what makes the microbiome science platform so powerful is how the science cuts across all of these areas. and the connections we can make between them to help with better insights and utility for future innovation. In the area of polymer science, another one of our platforms, we are focused on using novel film technology to lightweight packaging, as well as including post-consumer recycled polymers in areas like Finnish and Infamil. And it's also about the product inside. We use polymer technology in our auto dish innovation, enabling us to release the right ingredient into the wash at the right time. At Rekit, we embed sustainability in all of our product development because sustainability matters to consumers, to customers, and to us. A unique enabler is our sustainability calculator. It measures the impact of a new product versus existing products, so our R&D and marketing teams can evaluate critical design decisions, taking account their environmental impact in contribution to our sustainability ambition. This goes hand in hand with delivering superior products in a creative economics. We look at reformulation, packaging, ingredients, and consumer use, illustrated by this dashboard. There are always benefits and drawbacks to innovations and we weigh the impact of our decisions carefully. We want consumers to trust our brands and their environmental footprint. I talked earlier about our categories, our brand portfolio, and how category creation, household penetration, and premiumization can fuel our growth for decades to come. Let me give you a few examples of what I'm talking about. Lysol took the power of germ kill into the laundry aisle a few years ago with the launch of Lysol laundry sanitizer. specifically designed to sanitize laundry and kill 99.9% of bacteria that regular washing leaves behind. Leveraging the strong equity of the Lysol germ kill promise into this new category has created an attractive proposition for all. For our customers, we helped premiumize the laundry aisle. as Lysol laundry sanitizer increases retailer revenue per wash by 45 cents. For our consumers, it helps cut the chain of infection in the home. And for Reckitt, it creates a meaningful and long-term runway for growth. While it's already a $260 million category in the U.S., the household penetration levels today are barely above 10%. there is significant headroom for growth and penetration here. Sticking with Lysol, in June of 2023, we created another new germ kill category with our new Lysol air sanitizer. Traditional air fresheners only freshen the air, and the traditional disinfectant sprays only kill viruses and bacteria on surfaces. That's what makes Lysol air sanitizer a first of its kind product in the air care category. We've worked closely with the EPA to produce the only antimicrobial product that kills 99.9% of both airborne viruses and bacteria while eliminating bacterial odors in the air. Have a look at our ad that explains Lysol air.

Viruses, bacteria? Air fresheners are no match for them. Introducing new Lysol Air Sanitizer. It helps protect your family from coughs and sneezes and eliminates odors in your home. It even has three fresh fragrances to choose from. Unlike air fresheners, one spray kills 99.9% of viruses and bacteria in the air. Because scent can't sanitize, Lysol can. Welcome to the future of air. New Lysol Air Sanitizer.

With the launch of Lysol Air Sanitizer, we are creating a new category, and we are accelerating Lysol's growth. Turning to Autodish, where Finnish is the number one brand globally, we enjoy clear market leadership positions in Europe and in emerging markets. We are not market leaders in the US, and we've seen significant competition from our leading branded competitor. We made a commitment four years ago to significantly step up our R&D investment to improve product superiority in our franchise. This investment is now delivering returns as we leverage our polymer science capabilities which I talked about earlier. More than 50% of our Autodish portfolio now utilizes superior thermal forming and cycle sync technology. Our new Finish Ultimate Plus ad highlights just what an efficacious product we now have in the U.S. market.

Introducing Finish Ultimate, engineered for the ultimate clean in the toughest conditions. Dry burnt-on stains, old dishwashers, very hard water, even when you skip the rinse. Its new CycleSync technology releases the right ingredient at the right time. And Finish Ultimate breaks down stains, cuts grease, and boosts shine for the ultimate clean, even in the toughest conditions.

Following the European launch of Finish Ultimate Plus in early 2023, we've driven both premiumization in the auto dish category as a whole and seen some good market share gains. We launched this product in the U.S. in the back half of last year, and we hope to achieve similar results in due course. An example of where we're utilizing the combination of our science and strong brand equity to enter new categories for one of our brands is the large $1 billion U.S. sore throat category. We identified a gap in the sore throat market. Consumers suffering from severe sore throat wanted a trusted brand delivering a medicated solution to minimize disruption to their busy day. We've combined the strong and trusted equity of Mucinex with the science from our global Strepsils sore throat platform to launch Mucinex Institute, a highly efficacious medicated pain reliever that delivers powerful numbing relief. Since launch, we've gained 6% market share in the US sore throat category, and we believe that we have a long runway for growth as we premiumize the segment with this superior and efficacious solution. Don't trust my word for it, here's Mr. Mucus to tell you all about Instasuit.

Now I want to give you an example of how we're premiumizing nutrition with superior science.

Enfamil NeuroPro contains critical ingredients to drive brain superiority and immunity, including MFGM. This superior proposition is enabling us to both premiumize the value per infant nutrition basket for our retailers and the category, while driving better health and cognitive outcomes for consumers. That was a brief insight into our categories, our brands, and why we believe we can sustainably outperform through category creation, household penetration and premiumization. However, to achieve this ambition, we must have the infrastructure and the capabilities to win in our core markets. We have a scaled global footprint across developed and emerging markets. We've seen strong broad-based growth across both and enjoy significant scale benefits in major strategic growth markets such as the US, China, and India. These markets taken together contribute to 40% of group net revenue and around 55% of our growth over the last three years. This scale in our manufacturing and go-to-market networks enable us to partner effectively with customers and continue to grow the distribution of our brands. When coupled with our excellent brand portfolio and strengthened innovation pipeline, this creates the opportunity to rapidly scale and execute consumer preferred propositions around the world. I'm going to briefly dive deep into three key strategic markets. starting with the U.S., our largest market and just under a third of our total business. We have a focused and high-quality portfolio of market-leading brands, including Lysol, Finish, Mucinex, Enfamil, and Airwick. We have grown this business at a three-year compounded growth rate of 8.6%. We have a robust local supply network with six plants, enabling us to locally produce over 50% of what we sell in the US. We aim to increase local supply in the US in the years to come, and we will be more responsive to the constantly changing consumer demands in this market. We've also focused on customer service in the US. We have increased our relative share of distribution in recent years and significantly improved our position in the Kantar Power Ranking Survey of retailers, up four places last year. We still have work to do to improve these scores and our service levels, but we have a strong leadership team, an excellent go-to-market system and supply capability, and we're well positioned in this important US market. India is another strategically important market for us. It is now the world's most populated country with significant growth potential for our health and hygiene categories. India represents around 6% of our total group and benefits from an excellent portfolio of market-leading brands. In particular, it is our largest Dettol market, and Dettol is one of the most trusted and iconic brands in all of India. We have grown this business at a three-year compounded growth rate of 9%. In India, we are almost exclusively locally produced and our supplier organization delivers 98% service levels consistently. We have delivered strong and sustainable growth in India and more recently improved our distribution capabilities, doubling our direct coverage of customers. Now turning to China, which is around 5% of group net revenue. Our portfolio is currently centered around two key brands, Durex and Dettol. In addition, we have a number of exciting brands with significant penetration potential, including Finish in the Autodish category and MoveFree in the VMS category. We've grown this business at a three-year compounded growth rate of 15%. We have a strong go-to-market capability, particularly across digital platforms with 14% of our sales now made through the live stream channel only. We've also adopted a more local approach to supply in China as we seek to be more responsive to consumer demand. Currently, 80% of our sales are locally produced with excellent service levels. I hope this provides some color as to why I believe we have the right to win in our key markets. With the combination of market leading brands, the right go to market capabilities and a robust and increasingly localized supply chain. I would now like to share with you the driving logic behind the Reckitt portfolio and how it creates value. I've just reflected a bit on the attractive categories in which we operate in our excellent portfolio of brands. As we go forward, I will consider this portfolio through three clear principles, which will govern our organic and inorganic capital allocation. Number one. A brand or a business must enjoy a clear long-term runway for growth, not just for a few years, but a truly long-term runway to belong in our portfolio.