Reckitt Benckiser Group
Summary
- Reckitt Benckiser Group Plc engages in the manufacture and trade of health, hygiene and home products.
- The company brands available in nearly 200 countries. The company's brand includes Dettol, Lysol, Mortein, Harpic, Vanish, Durex, Veet and many more.
- During June 2022 Reckitt’s Mead Johnson Receives FDA Approval To Import Infant Formula.
Company Overview
Reckitt Benckiser Group Plc (US:RBGPF, LSE:RKT) engages in the manufacture and trade of health, hygiene and home products. Reckitt operates in over 60 countries around the world.
Recent Developments
Reckitt’s Mead Johnson Receives FDA Approval To Import Infant Formula1
June 15, 2022 – Mead Johnson today received confirmation of import approval by way of an enforcement discretion letter from the United States Food and Drug Administration (FDA) to import the equivalent of 66 million 8-oz servings of base infant formula powder from Reckitt’s Tuas, Singapore, facility between now and November.
Reckitt will work with the Administration and Operation Fly Formula to ensure formula reaches families as quickly as possible. This additional supply would represent the biggest contribution yet from any manufacturer in solving the continuing infant formula shortage in the United States.
Financial Highlights
Group net revenue of £13,234 million grew by 3.5% on a LFL basis in 2021, reflecting volume growth of 0.6% and price/mix improvements of 2.9%. Performance was driven by strong growth in Hygiene, particularly in North America. Lysol saw good growth off the back of an outstanding 2020, as core consumption remained strong, and the company gained further penetration in the laundry sanitiser segment. Total net revenue at actual exchange rates was down 5.4%, reflecting net M&A impact of -3.8% and foreign exchange headwinds of 5.1%.2
Adjusted gross margin (excluding IFCN China) was 58.5%, (2020: 60.5%) a reduction of 200bps. The reduction in gross margin was principally driven by c.11% cost inflation, partially mitigated by productivity initiatives (+250bps) and pricing and mix (+80bps).
Adjusted operating profit (excluding IFCN China) was £2,944 million (2020: £3,216 million) at an adjusted operating margin of 22.9% (2020: 24.5%) in line with its guidance of 22.7-23.2%. The reduction of -160bps was principally driven by gross margin (-200bps) partially offset by productivity efficiencies in BEI spend (60bps).
Adjusted operating margin (including IFCN China) was 21.7% (2020: 23.6%). As previously communicated, IFCN China experienced challenging trading throughout the nine months of ownership in 2021, as well as c.£40 million of exit costs incurred just prior to the transfer of the business which diluted adjusted operating margin in 2021.
The IFRS operating loss was £804 million (2020: £2,160 million profit). The IFRS operating loss in 2021 included a pre-tax loss of £3,353 million in relation to the strategic review and disposal of IFCN China and pre-tax losses of £234 million from the sale of Scholl and EnfaBebé brand in Argentina.
Total adjusted diluted EPS was 288.5p in 2021 (IFRS: -4.5p loss per share), 11.8% lower than 2020 due to the lower adjusted operating profit and the adverse impact of foreign exchange.
Free cash flow was £1,258 million in 2021 (2020: £3,052 million). As expected, this was lower than the prior year due to the partial unwind of significant working capital favourability experienced in 2020. Capital investment to support its growth and margin ambitions was £441 million, 3.3% of Group net revenue.
Net debt ended the year 2.6x adjusted EBITDA (2020: 2.4x adjusted EBITDA).
Brands
The company' brands available in nearly 200 countries3
- Clearasil
- Enfa
- Finish
- Lysol
- Veet
- Dettol
- Air Wick
- Durex
- Calgon
- Mortein
- Cillit Bang
- Nurofen
- Nutramigen
- Strepsils
- Woolite
- Vanish
- Harpic
- Airborne
- Move Free
- Neuriva
Hygiene
The Hygiene GBU represents 45% of Group net revenue, with around 80% of the portfolio from developed markets. The company's six core categories account for more than 80% of total net revenue and its largest three – surface disinfection, auto dishwashing and air care – each deliver consumer sales of over £1 billion.
The company's brands are leaders in their categories, with each of its largest brands a top-three player globally. Lysol is the largest disinfectant brand in the world having added nearly 28 million new households since 2019; Finish, the leading auto dishwashing (ADW) detergent brand globally, is improving the standard and efficiency of dishwashing and empowering consumers to conserve water; and air care holds number one or two positions in over 80% of the markets in which the company operate.
Health
The Health GBU represents around 35% of total Group net revenue. Reckitt is present in over 130 markets across the world with a balance of revenue from developed and developing markets.
The company's portfolio is well diversified across four key categories, all of which have strong growth prospects for household penetration and premiumisation. In aggregate, over-the-counter (OTC) and germ protection account for 70% of Health net revenue. Next in size is intimate wellness with high growth potential. Personal care is an important scale-builder in its portfolio in many markets which the company grow and invest in selectively. All four categories have an attractive earnings model, with the highest margins generated in OTC and Intimate Wellness.
Nutrition
The Nutrition GBU represents 20% of Group net revenue, with 60% from developed markets – primarily North America.
Approximately 81% of revenue is from its IFCN business. The US is its largest market, generating about half of IFCN revenue. This business has performed consistently well since being acquired as part of Mead Johnson in 2017. Since 2018, it has averaged nearly 5% growth as a result of continued strong execution and innovation. The company's focus in IFCN is now increasingly centred on replicating this performance in ASEAN and Latin America – the other two major regions within IFCN. Although market structures, and its positioning within them, are different to the US,
Geographical Presence
Reckitt operates in over 60 countries around the world. 64% of revenue is currently derived by developed markets – primarily North America and Europe. However, continued growth in the middle classes in many developing markets such as India and China will improve affordability of premium products, and is likely to support overall revenue growth over time.
US
The US is Reckitt’s largest geographic market, with revenue in 2021 of over £3.8 billion, representing 30% of Group revenue, excluding IFCN China.
Reckitt brands in the US, including Airborne, Air Wick, Enfamil, Finish, KY, Lysol and Mucinex.
Around 5,300 employees work in the US business. Reckitt has three R&D centres and six manufacturing locations. US-made brands include multiple category leaders, among them Lysol, where the company lead the US surface protection category. Reckitt is number two in laundry additives with Finish, number two in the cough and cold category with Mucinex, and number three in air care with Air Wick. The company's infant follow-on nutrition, Enfamil, is the number one brand recommended by paediatricians.
Total US revenue has increased by over 20% since 2019. Led by the increased demand for Lysol, growth has been driven by consumer-centric innovation and improved relationships and execution with its key customers such as Walmart and Dollar General – both of which gave it a supplier of the year award during 2021.
CHINA
China represents 5% of the total Group following the disposal of the IFCN business. Having averaged double-digit growth in recent years, it is now the Group’s fourth largest country market.
Reckitt has operated in the Chinese market since 1916 with headquarters in Shanghai. The business operates across three GBUs, with approximately 3,500 employees and five manufacturing facilities. Reckitt has recently invested around £90 million in the Taicang factory to support China Dettol and Durex growth.
Reckitt’s largest brands in China are Durex and Dettol which represent more than 70% of the China business revenue. Other brands include Finish, Lysol, Harpic and the more recently launched Neuriva – all of which the company expect to show double-digit percentage annual growth over the coming years.
INDIA
India is Reckitt’s second largest market, with revenue in 2021 of over £800 million, around 6% of Group revenue, and the comapny expect to double this by 2030.
The comapny has entered the market with Dettol in 1940, the company play across multiple categories, with Dettol, Harpic, Vanish and Veet each leaders in their respective segments. Today, Indians spend a relatively low proportion of their income on consumer staples. With the equivalent spend some 30 times greater in the US, there is substantial headroom for growth.
