Reckitt reported underlying revenue of £12.9bn, excluding the sold Chinese Infant Nutrition business (IFCN China). This was up 3.3% on a constant currency, like-for-like basis (LFL) and was ahead of expectations. Performance was driven by improved pricing and sales mix, though volumes also rose slightly.
Excluding IFCN China, underlying operating profits fell 2.6% to £2.9bn. That was largely due to cost inflation in the region of 11%.
The group's targeting LFL revenue growth between 1-4% for 2022. Despite CEO Laxman Narasimhan warning of "an unprecedented inflationary environment", operating margins are expected to grow.
The board has proposed a final dividend of 101.6p.
The shares rose 4.6% following the announcement.
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Our View
Markets had a positive reaction to Reckitt's full year results, likely due to the fact margins are still expected to grow in 2022 despite stacking cost inflation pressures.
Whilst the incredible demand for the Lysol and Dettol maker's products in 2020 continues to taper, demand looks like it will remain elevated (compared to pre-pandemic levels). That adds weight to the argument that heightened hygiene awareness is here to stay, which would make for a long-term revenue bump. Sales growth of just 3.3% doesn't sound like much, but when you consider the fact that Covid-related pantry-stocking was in full-force in 2020, any growth at all is impressive.
The pandemic added wind to Reckitt's sales just as it was looking for ways to propel sustainable, long-term sales and profit growth. Digital marketing has lowered the barriers to entry for launching a new brand, leading to an influx of market-share-stealing smaller companies and fierce price competition.
Deep pockets should give the group an edge - cooking up superior products is what supports brands' premium price tags, which should ultimately underpin margins. Reckitt seems to be making genuine headway on improving supply chains and stock availability already - both crucial if you want to grow sustainably. Meanwhile a growing online presence means ecommerce now makes up roughly 12% of total revenue, reflecting an 85% increase from 2019. Long term, this could allow the group to bypass retailers - helping boost Reckitt's share of the pie.
Reckitt's spent the last couple of years improving and sharpening its proposition and the portfolio's undergone a hefty shakeup. The group's offloaded the Scholl brand, entered the US pain treatment arena and plans to sell its E45 business for £200m. We're relieved to see the back of the Chinese Infant Child Nutrition business, with the sale completing last September. There's no getting away from the fact this was a major strategic hiccup, with the net proceeds of £1.3bn a tiny fraction of what the group paid for the business.
Net debt was reined in slightly but is still higher than we'd like, although not unmanageable. It's an area we'd like to see improve in the short to mid-term.
The pandemic meant Reckitt items became a must-have in households all over the world, and management's done a good job leveraging that tailwind to create a refreshed business. As we've seen across the broader industry, cost inflation will continue to weigh on results throughout 2022. This could see the share price wobble in the near-term, although the longer-term growth story is still intact in our view.
Reckitt Benckiser key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Full Year Results (all figures LFL and at constant currency unless otherwise stated)
Hygiene (45% of total sales) reported revenue growth of 7.5%, to £5.9bn. That reflected volume growth and improved price/mix, with Lysol sales growing in the high single digits. Underlying operating profit fell 1.3% to £1.4m, as higher raw material costs weighed on margins.
In Health (35% of total sales), revenue was broadly flat at £4.6bn. A 2.1% volume decline, due to lower Dettol sales, were almost entirely offset by a 2.0% improvement in price/mix. A weak cold and flu season and higher costs meant underlying operating profits fell 5.5% to £1.2bn.
Excluding IFCN China, revenue in Nutrition (20% of total sales) was up 0.6% to £2.3bn. Volume declines were more than offset by a 5.5% improvement in pricing/mix. Underlying operating profits grew 2.4% to £356m. The disposal of IFCN China completed on 9 September 2021, costing around £40m in exit costs.
Free cash flow declined from £3.1bn in 2020 to £1.3bn, that was expected given the favourable working capital environment seen the prior year. The group ended with net debt improving to £8.4bn, from £9.0bn in 2020.
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