Reckitt Benckiser reports LFL net revenue decline of -1.2%

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Reckitt Benckiser Group PLC (LON:RKT) has announced its final results.

Adjusted¹			IFRS
Unaudited £m	2023	vs 2022²	Unaudited £m	2023	vs 2022²
Full Year
Like-for-like (LFL) net revenue growth³		+3.5%	Net revenue	14,607	+1.1%
Hygiene		+5.1%	Hygiene	6,135	+2.9%
Health		+5.0%	Health	6,062	+1.2%
Nutrition		-4.0%	Nutrition	2,410	-3.6%
Gross profit margin	60.0%	+220bps	Gross profit margin	60.0%	+220bps
Operating profit	3,373	-1.9%	Operating profit	2,531	-22.1%
Operating profit (constant FX)³		+0.9%
Operating profit margin	23.1%	-70bps	Operating profit margin	17.3%	-520bps
Diluted EPS	323.4p	-5.4%	Diluted EPS	228.7p	-29.6%
Free cash flow	2,258	+11.2%	Cash generated from operating activities	2,636	+10.0%
Cash returns to shareholders⁴	1,546	+23.8%
Q4
LFL net revenue growth		-1.2%	Net revenue	3,561	-7.0%

1. Adjusted measures are defined on page 27.

2. All growth rates are presented on an actual basis, except for LFL net revenue growth and where separately noted.

3. LFL net revenue and adjusted operating profit growth is measured on a constant exchange rate basis (see page 27).

4. Cash returns to shareholders represents dividend paid during the year plus cash returned to shareholders through share buybacks.

Commenting on the results, Kris Licht, Chief Executive Officer, said:

“2023 was a year of progress for Reckitt. We delivered a good trading performance in Health and Hygiene. Nutrition began rebasing and held market leadership in the US. Our innovation platforms proved that they can deliver meaningful growth through premiumisation, household penetration and category creation. We drove our gross margins back to historical levels, increased investment behind our brands and innovation and launched our fixed cost optimisation programme. We generated strong free cashflow and significantly increased cash returns to shareholders, enhanced by our new, sustainable share buyback programme.

The organisation is fully focused on executing the strategy which I outlined in October, including strengthening our product superiority, optimising our fixed cost base and improving our in-market execution.

While our performance in Q4 was unsatisfactory, we look to 2024 and beyond with confidence. We target another year of mid-single-digit growth in Health and Hygiene, driven by a more balanced contribution from price, mix and volume. We expect Nutrition to return to growth late in the year. We will continue to invest in, and harness the growth from, our strengthened pipeline. We will advance our fixed cost optimisation programme, and we will further increase cash returns to shareholders, aiming to double what we returned in 2019.”

FY Highlights:

· A year of continued progress, focused on executing on our strategy, revenue growth, driving product superiority through innovation, increased investment behind brands and cash returns to shareholders.

· Innovations delivering, including Lysol Air Sanitiser, Finish Ultimate Plus All-in-One, Mucinex InstaSoothe, Dettol Laundry Pods and Enfamil NeuroPro, driving category growth and premiumisation.

· Group LFL net revenue growth of +3.5%. For the full year, growth was broad-based, with mid-single-digit growth across Hygiene and Health at +5.1% combined. Nutrition declined by -4.0% as the US laps the prior year competitor supply issue. Our strong performance in the first three quarters was partially offset by a weaker fourth quarter.

· Group reported net revenue growth of +1.1%. LFL growth of +3.5% offset by FX headwinds of -2.1% and a net M&A impact of -0.3%.

· Gross margins returned to historic strength. Gross margin of 60.0% (+220bps) returns to historically strong levels, which funded increased investment behind brands (BEI +13.2% on a constant FX basis).

· Adjusted operating profit margin of 23.1%. Expansion of +10bps when adjusting for US Nutrition competitor impact last year. -70bps on a reported basis.

· +24% increase in cash returns to shareholders. A full year dividend of 192.5p (+5%) and £0.2bn from initial share buyback programme enabled by strong free cashflow generation of £2.3bn (+11.2% versus 2022).

Q4 Performance

· Like-for-like (LFL) net revenue decline of -1.2%, led by growth of +5.2% across Hygiene. Health declined -2.0% driven by the phasing and shape of the cold and flu season. Nutrition LFL net revenue declined -14.8%, as our North America business continued to rebase due to lapping of the prior year competitor supply issue, in addition to the voluntary recall of Nutramigen.

· Late in our year end close process we identified, through our on-going compliance procedures, an understatement of trade spend in two Middle Eastern markets related to the fourth quarter and prior quarters of 2023. As a result, our full year net revenue performance was £55m lower than previously expected which is fully reflected in our Q4 results (adjusted operating profit impact of £35m). Following investigation, we concluded a small group of employees had acted inappropriately and we are taking necessary disciplinary action. We are confident this is an isolated incident specific to these two markets and does not impact our 2024 outlook and medium-term goals.

Other

· Full year IFRS operating profit of £2,531m (2022: £3,249m) including IFCN goodwill impairment of £810m reflecting higher interest rates and changes in the regulatory environment.

2024 OUTLOOK

Our outlook is as follows:

· We are confident in the year ahead and expect LFL net revenue growth of +2% to +4% for the Group, with mid-single-digit growth for our Health and Hygiene portfolios.

· We expect a mid- to high-single-digit decline for our Nutrition business as it continues to rebase in the first half of the year and returns to growth late in the year.

· We expect adjusted operating profit to grow ahead of net revenue growth.

· Revenue and profit growth will be second half weighted as we lap high OTC comparatives from Q1 last year and will see the majority of the rebasing of our US Nutrition business in H1.

Other technical guidance

· Adjusted net finance expense is expected to be in the range of £300m to £320m (2023: £247m).

· The adjusted tax rate is expected to be 25-26% (2023: 25.2%).

· Capital expenditure is expected to be 3-3.5% of net revenue (2023: 3.1%).

GROUP OVERVIEW

Net RevenueUnaudited	£m	Volume	Price / Mix	LFL¹	Net M&A	FX	Actual
FY 2023	14,607	-4.3%	+7.8%	+3.5%	-0.3%	-2.1%		+1.1%
Q4 2023	3,561	-4.3%	+3.1%	-1.2%	-0.1%	-5.7%		-7.0%

1. Adjusted measures are defined on page 27

Group net revenue

· Group net revenue of £14,607m grew by +3.5% on a LFL basis in the year, reflecting price / mix improvements of +7.8% and a volume decline of -4.3%. Our Hygiene brands delivered broad-based growth (+5.1%) across our brand portfolio with improving volume trends throughout the year. Health growth (+5.0%) was led by our OTC and Intimate Wellness portfolios, and Nutrition declined (-4.0%) as the US lapped the prior year competitor supply issue.

· Total net revenue on an IFRS basis was up +1.1%, reflecting net M&A impact of -0.3% and foreign exchange headwinds of -2.1%.

· 44% of our Core Category Market Units (CMUs) held or gained share, with 47% in Hygiene, 46% in Health and 37% in Nutrition (weighted by net revenue).

· E-commerce net revenue grew by +9% in 2023 and now accounts for 15% of Group net revenue.

· Q4 LFL net revenue growth was -1.2%. Price / mix improvements were +3.1% and volume declined by -4.3% with further sequential improvement in Hygiene (-2.6%). Health volumes (-2.2%) remained robust but were impacted by seasonal OTC declines. Nutrition volumes (-14.3%) declined due to the rebasing of our US business, and category-led volume declines in Developing Markets.

· In Q4 our Hygiene GBU grew +5.2%, led by Lysol and Finish. Our Health GBU declined -2.0%, with growth across our Intimate Wellness, VMS and non-seasonal OTC portfolios more than offset by high seasonal comparatives in our cough, cold and flu OTC portfolio. Nutrition declined -14.8% as the US business continues to rebase as it laps strong prior year comparatives.

· Late in our year end close process we identified, through our on-going compliance procedures, an understatement of trade spend in two Middle Eastern markets related to the fourth quarter and prior quarters of 2023. As a result, our full year net revenue performance was £55m lower than previously expected which is fully reflected in our Q4 results (adjusted operating profit impact of £35m).

Group operating margins and profit

· Adjusted gross margin was 60.0% (2022: 57.8%), an increase of +220bps, driven by pricing and productivity efficiencies – predominantly across revenue growth management and procurement. These levers more than offset inflation of mid-single digits in the year.

· Brand equity investment (BEI) increased by +13.2% (+£0.2bn) on a constant FX basis as we invest behind innovation launches and the long-term strength of our brands. BEI percentage of net revenue was up +130bps to 13.1% (2022: 11.8%).

· Adjusted operating profit was £3,373m (2022: £3,439m) at an adjusted operating margin of 23.1% (2022: 23.8%), -70bps lower than prior year, with gross margin expansion offset by increased brand equity investments and inflation-led cost base increases. When excluding the one-off benefits of circa 80bps in 2022 related to US Nutrition, adjusted operating profit margin grew +10bps.

· IFRS operating profit was £2,531m (2022: £3,249m) at an operating profit margin of 17.3% (2022: 22.5%). This was impacted by the IFCN goodwill impairment of £810m (2022: £nil), reflecting higher interest rates and changes in the regulatory environment. Refer to Note 6 for further details.

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EPS and dividends

· Total adjusted diluted EPS was 323.4p in 2023 (2022: 341.7p), -5.4% below 2022 as higher adjusted operating profit at constant exchange rates was more than offset by adverse foreign exchange and a higher adjusted effective tax rate in 2023. Total IFRS diluted EPS was 228.7p (2022: 324.7p).

· Full year dividend increased by 5% to 192.5p (2022: 183.3p) per share, in line with our policy to deliver sustainable dividend growth. The final proposed dividend is 115.9p (2022: 110.3p) per share.

Free cash flow

· Free cash flow was £2,258m in 2023 (2022: £2,031m) a +11% increase year on year driven by an improvement in net working capital.

· Net debt ended the year 1.9x adjusted EBITDA (2022: 2.1x adjusted EBITDA).

OPERATING SEGMENT REVIEW

Hygiene – 42% of net revenue in 2023

Net RevenueUnaudited	£m	Volume	Price / Mix	LFL¹	Net M&A	FX	Actual
FY 2023	6,135	-6.0%	+11.1%	+5.1%	–	-2.2%		+2.9%
Q4 2023	1,531	-2.6%	+7.8%	+5.2%	–	-6.7%		-1.5%

Operating Profit (Unaudited)	£m	Constant FX (CER)¹	Actual
Adjusted Operating Profit¹	1,236	+4.7%	+1.8%
Adjusted Operating Profit Margin¹ %	20.1%		-30bps

1. Adjusted measures are defined on page 27

Full Year Performance

Hygiene net revenue grew +5.1% on a LFL basis to £6,135m for the full year. Innovation-led pricing and favourable mix (price / mix +11.1%) were the key drivers partially offset by volume decline of 6%. Importantly, our volume trend substantially improved quarter by quarter throughout the year. Net revenue growth was broad-based across all major brands delivering positive LFL net revenue growth and total Hygiene market share momentum improving in Q4 driven by continued momentum in Auto Dish (Finish). We successfully launched innovations in most categories that improved consumer delight, delivered more premium solutions for our consumers and grew penetration, in line with our category growth strategy.

47% of Core Hygiene CMUs (weighted by net revenue) gained or held share during the year.

Within Auto Dish, our market leading brand Finish, grew low-double digits LFL net revenue and grew market share driven by the successful launch of our new super premium tier, Finish Ultimate Plus All-in-One, delivering more superior solutions to consumers and driving premiumisation in the category.

Lysol returned to growth in the year driven by strengthened brand equity and the broadening of the brand’s shoulders with continued strong growth in Laundry Sanitiser expanding household penetration and the recent creation of the Air Sanitisation category with the launch of Lysol Air Sanitisers in the US, the first and only antimicrobial product approved by the EPA that kills 99.9% of airborne viruses and bacteria while eliminating odours.

Adjusted operating profit for Hygiene at £1,236m was up +4.7% on a constant FX basis and +1.8% on an actual basis. Adjusted operating profit margin was 20.1%, down -30bps. Strong gross margin expansion was offset by increased investment behind innovation launches and brand building initiatives, and inflation-led fixed costs.

Fourth Quarter Performance

Hygiene net revenue grew +5.2% in the quarter on a LFL basis, with price / mix improvements of +7.8% and an improving sequential volume performance of -2.6%. Auto Dish (Finish) and Disinfectants (Lysol) were the key growth drivers in the quarter, led by premiumisation in Finish and broad-based growth across all Lysol segments. Lavatory Care (Harpic) and Pest (Mortein, SBP, Aeroguard) delivered strong growth in the quarter.

Health – 42% of net revenue in 2023

Net RevenueUnaudited	£m	Volume	Price / Mix	LFL¹	Net M&A	FX	Actual
FY 2023	6,062	-0.3%	+5.3%	+5.0%	-0.6%	-3.2%		+1.2%
Q4 2023	1,507	-2.2%	+0.2%	-2.0%	-0.1%	-6.0%		-8.1%

Operating Profit (Unaudited)	£m	Constant FX (CER)¹	Actual
Adjusted Operating Profit¹	1,690	+6.3%	+2.5%
Adjusted Operating Profit Margin¹ %	27.9%		+40bps

1. Adjusted measures are defined on page 27

Full Year Performance

Health net revenue grew +5.0% on a LFL basis to £6,062m for the full year. This reflected price / mix improvements of +5.3% and volume decline of -0.3%.

46% of Core Health CMUs (weighted by net revenue) gained or held share during the year.

Our OTC portfolio grew low-double digits on a LFL net revenue basis behind a combination of both volume and price / mix growth. Nurofen, Strepsils, Gaviscon and Biofreeze all grew-double digits, driven by innovation launches, premiumisation and pricing actions, brand whitespace expansion (Biofreeze Overnight Relief in the US and Nurofen Liquid caps into a number of European markets), as well as some retailer inventory rebuilding in Europe in Q1. Mucinex delivered low-single-digit growth which laps a very strong and earlier cold & flu season in Q4 2022. Mucinex added a new medicated throat spray to its Instasoothe product range, further extending its presence in the $1bn US sore throat market.

Intimate Wellness delivered high single-digit growth in the year. Growth was broad-based across Europe, following the rebranding of the product range during 2022. Our portfolio in China benefitted from the end of COVID-related lockdowns and innovation, including Durex Fetherlite, our new hyaluronic acid condom with water-based lubricant providing a natural moisturisation experience. Growth was also strong across LATAM, and India where we increased total distribution points share during the year by around +400bps.

Dettol declined mid-single digits in the year, with a mixed performance across markets. A number of markets delivered growth and market share gains, underpinned by innovations, including an extension of Dettol Cool in India, Dettol Washing Machine Cleaner and Dettol Laundry Pods in China. However, growth was offset by declines in ASEAN due to category weakness and specific in-market challenges. The actions taken during the second half of the year to address these challenges have driven an improved performance in Q4.

Adjusted operating profit for Health at £1,690m was up +6.3% on a constant FX basis and +2.5% on an actual basis. Adjusted operating margin was 27.9%, an increase of +40bps, with gross margin expansion more than offsetting increased investment behind our brands and inflation-led fixed cost increases.

Fourth Quarter Performance

Net revenue declined by -2.0% on a LFL basis in the quarter with price / mix improvements of +0.2% and volume decline of -2.2%. As expected, our cough, cold and flu related OTC portfolio declined high-single digits as we lapped an early and strong season in Q4 last year. Dettol declined by low double-digits with growth in India more than offset by high comps in China and declines in the Middle East. These declines were partially mitigated by double-digit growth in our Intimate Wellness and VMS portfolios, and mid-single-digit growth in our non-seasonal OTC portfolio.

Nutrition – 16% of net revenue in 2023

Net RevenueUnaudited	£m	Volume	Price / Mix	LFL¹	Net M&A	FX	Actual
FY 2023	2,410	-10.0%	+6.0%	-4.0%	-0.1%	+0.5%		-3.6%
Q4 2023	523	-14.3%	-0.5%	-14.8%	-0.1%	-3.0%		-17.9%

Operating Profit (Unaudited)	£m	Constant FX (CER)¹	Actual
Adjusted Operating Profit¹	447	-22.4%	-22.5%
Adjusted Operating Profit Margin¹ %	18.5%		-460bps

1. Adjusted measures are defined on page 27

Full Year Performance

Nutrition net revenue declined -4.0% on a LFL basis to £2,410m for the full year. Volume declined -10.0% due to the lapping of peak market shares in the US from the competitor supply shortage in the prior year and category-led volume declines in LATAM and ASEAN. Price / mix improvements were +6.0% with pricing actions partially offset by more normalised trade conditions in the US.

37% of Core Nutrition CMUs (weighted by net revenue) gained or held share during the year.

IFCN US net revenue declined high-single digits on a LFL basis in the year with non-WIC market shares rebasing during the second half as we lap the prior year competitor supply issue. Throughout the year, we maintained our leading volume and value market share position in the non-WIC stage 1-3 segments where we operate. Our Enfamil brand remain the number one recommended infant formula by paediatricians in the US.

Our Developing Markets business declined mid-single digits with category-led volume declines partially offset by premiumisation and growth in both the specialty and adult segments. A reduction in our transitional service arrangement (TSA) contract manufacturing volume relating to our disposed China business, contributed around 60bps to the year-on-year decline. LATAM grew mid-single digits, offset by market challenges across certain ASEAN markets.

Adjusted operating profit for Nutrition at £447m was down -22.4% on a constant FX basis and -22.5% on an actual basis. Adjusted operating margin was 18.5%, down -460bps, reflecting the year-on-year volume deleverage as we lap the competitor supply issue in the US, and negative mix as we lose the benefit from WIC sales in states where Reckitt does not hold the government contract.

Fourth Quarter Performance

Nutrition net revenue declined by -14.8% on a LFL basis in the quarter. This performance was driven by double-digit decline in North America due to lapping the impact of the competitor supply issue in the US. We exited the year with a non-WIC value market share in the low 40s. This compares to an average value market share for 2023 of around 47%.

Developing Markets declined high-single digits with growth in LATAM more than offset by category weakness across certain ASEAN markets.

The Q4 net revenue was negatively impacted by approximately -200bps due to a returns provision made in respect of the voluntary Nutramigen recall in late December.

Performance by Geography

Net RevenueUnaudited	£m	Volume	Price / Mix	LFL¹	Net M&A	FX	Actual
FY 2023
North America	4,919	-4.9%	+5.7%	+0.8%	-0.1%	-0.9%	-0.2%
Europe / ANZ	4,849	-3.4%	+11.6%	+8.2%	-0.5%	-2.6%	+5.1%
Developing Markets	4,839	-4.6%	+6.5%	+1.9%	-0.2%	-3.1%	-1.4%
Total	14,607	-4.3%	+7.8%	+3.5%	-0.3%	-2.1%	+1.1%
Q4 2023
North America	1,217	-6.7%	+1.1%	-5.6%	-0.1%	-5.0%	-10.7%
Europe / ANZ	1,193	-4.8%	+9.2%	+4.4%	–	-5.9%	-1.5%
Developing Markets	1,151	-1.4%	-0.5%	-1.9%	–	-6.5%	-8.4%
Total	3,561	-4.3%	+3.1%	-1.2%	-0.1%	-5.7%	-7.0%

1. Adjusted measures are defined on page 27

North America LFL net revenue grew +0.8% for the full year. Our Hygiene brands grew mid-single digits offset by a broadly stable performance in Health and our US Nutrition business declined as we lap the competitor supply shortage in the prior year. In Q4 North America saw strong growth in Lysol which was more than offset by further US Nutrition rebasing and tough comps in our seasonal OTC portfolio.

In Europe / ANZ LFL net revenue grew +8.2% for the full year, with broad-based growth across Western European markets and Turkey. From a category perspective, growth was led by Finish and our OTC portfolio.

Developing Markets LFL net revenue grew +1.9% for the full year. China, India and LATAM saw good growth in both Q4 and the full year. The Middle East declined in both the full year and Q4. ASEAN declined due to specific in-market challenges but saw improved volume trends improved in Q4 due to pricing actions taken in certain key Dettol markets.

FY 2023 RESULTS PRESENTATION TODAY

There will be a results presentation for analysts and investors at 08:30 GMT which will be held at The Auditorium, Bank of America, 2 King Edward Street, London, EC1A 1HQ.

To attend in person, please email your details to [email protected] to register.