TIDMRB.
RNS Number : 8773T
Reckitt Benckiser Group PLC
18 October 2017
18 October 2017
CHALLENGING ENVIRONMENT, REORGANISING FOR GROWTH
Results at a glance Q3 % change % change YTD % change % change
GBPm actual LFL* GBPm actual LFL*
exchange exchange
Net Revenue - Group 3,206 +30% -1% 8,223 +20% -1%
Net Revenue by Segment
-ENA 1,693 +1% -3% 4,882 +6% -3%
-DvM 793 +1% +3% 2,495 +11% +3%
-IFCN 720 n/a n/a 846 n/a n/a
Net Revenue by Category
-Health 1,589 +83% -2% 3,386 +43% -2%
-Hygiene 1,063 +2% +1% 3,259 +9% +1%
-Home 482 -2% -4% 1,394 +5% -3%
-Portfolio brands 72 +18% +8% 184 +3% -7%
--------------------------- -------- ---------- --------- -------- ---------- ---------
* Like-for-like ("LFL") growth excludes the impact of changes in
exchange rates, acquisitions, disposals and discontinued
operations, and local legislative changes
Highlights: Q3 and at constant rates unless otherwise stated
-- RB base business -1% LFL in Q3, affected by the impact of
known issues and a continued challenging market environment. Total
Q3 continuing growth +30% benefitting from positive FX impact and
the acquisition of Mead Johnson Nutrition (MJN).
-- MJN +1% pro-forma LFL in Q3 benefitted from strong market
growth in China and some customer stocking in the US.
-- RB base business YTD -1% LFL. We are targeting a flat LFL
performance* for the RB base business. We are progressing well and
continue to target "-2% to flat" for MJN on a pro-forma basis.
-- Full integration of MJN and creation of a new operating structure from Q1 2018.
-- Creation of two focused, P&L accountable, Business Units
(BU's) - RB Health and RB Hygiene Home
Commenting on these results, Rakesh Kapoor, Chief Executive
Officer, said:
"Q3 was a soft quarter as we experienced both the tail end of
known issues, and the impact of a continuing challenging market
environment. Our underlying performance was in line with current
market growth of around 2%. MJN had a better quarter, in particular
in Greater China. Given these moving parts, we are now targeting
flat full year LFL net revenue for the RB base business. MJN is
progressing well against our reiterated H2 target of "-2% to
flat".
We have made great progress over the last five years, as we have
transformed our Group into one where consumer health now represents
more than half of our business. The acquisition of MJN closed
earlier than planned and good progress has been made in preliminary
integration. Today we effectively have two management teams in a
number of our markets - both MJN and the base business. MJN
provides us with both critical mass in consumer health and a
fantastic opportunity to look at RB not just today, but where we
want it to be in ten years time. We are working to create two
focused, agile and fully accountable Business Units - RB Health
(incorporating MJN) and RB Hygiene Home, effective from Q1 2018. I
will lead the new Health business directly and Rob De Groot, who is
currently our head of ENA, will become President of the Hygiene
Home business, reporting to me.
I am very excited about our medium and long-term prospects. We
expect strong growth trends in the broader consumer health category
in the medium term, and our new organisational structure will
provide us with a platform for growth and outperformance. The two
Business Units will together form one RB - a single company devoted
to delivering on our mission of creating healthier lives and
happier homes - as well as positioning RB to deliver superior
shareholder returns for years to come."
Operating Segment Review - Continuing Operations
-------------------------------------------------
Q3 2017 GBP'm Like-for-like* GST** Net M&A*** FX Reported
--------------- ------ --------------- ------ ----------- ---- ---------
North America 657 -2% - - +2% -
Rest of ENA 1,036 -3% - - +5% +2%
------ --------------- ------ ----------- ---- ---------
Total ENA 1,693 -3% - - +4% +1%
DvM 793 +3% -2% +1% -1% +1%
IFCN 720 n/a n/a n/a n/a n/a
--------------- ------ --------------- ------ ----------- ---- ---------
Total 3,206 -1% -1% +29% +2% +30%
--------------- ------ --------------- ------ ----------- ---- ---------
YTD Sept 2017 GBP'm Like-for-like* GST** Net M&A*** FX Reported
--------------- ------ --------------- ------ ----------- ---- ---------
North America 1,850 -1% - - +9% +8%
Rest of ENA 3,032 -4% - - +9% +5%
------ --------------- ------ ----------- ---- ---------
Total ENA 4,882 -3% - - +9% +6%
DvM 2,495 +3% -1% +1% +8% +11%
IFCN 846 n/a n/a n/a n/a n/a
--------------- ------ --------------- ------ ----------- ---- ---------
Total 8,223 -1% - +12% +9% +20%
--------------- ------ --------------- ------ ----------- ---- ---------
* Like-for-like ("LFL") growth excludes the impact of changes in
exchange rates, acquisitions, disposals, discontinued operations,
and local legislative changes
** Adjusts for the impact of the Goods and Service Tax (GST)
implemented by the Indian Government from 1 July 2017.
*** Reflects the net impact acquisitions and disposals.
Note: due to rounding, these tables will not always cast.
We signaled in July that we expected a significant impact on
supply from the cyber-attack in Q3. We estimate that supply
availability reduced sales by about 2% in the quarter. There are a
number of ways in which the cyber disruption has impacted supply. A
protracted period required to restore some of the support systems,
especially in our health factories, led to a backlog in a finely
balanced supply system, with which we have still not fully caught
up. A change in distribution arrangements in one major market
during the period of the cyber-attack led to a period of
misalignment within our S&OP process. In India we were unable
to update the core operating system of many of our distributors for
the GST changes for much of July. These disruptions gave rise to a
loss of shelf space and promotional slots - and a consequent loss
of sales.
ENA Q3: (-3% LFL) YTD: (-3% LFL) (60% of net revenue)
-- North America declined by -2% in the quarter. Amopé was again
materially lower. Supply issues associated with the cyber-attack
left us unable to satisfy a growth in Mucinex demand. In-market
performance remained strong with both share gains and strong
consumer offtake. Finish had a strong quarter with growth in
premium SKUs and additives underpinned by BEI activities.
-- Russia had a stable quarter with strong growth in Durex and
Gaviscon, offset by supply related issues with Nurofen.
-- The rest of ENA had a weak quarter. Weakness was centred in
the UK and ANZ, caused by the combination of supply constraints and
challenging market conditions. This more than offset growth in
Germany, Poland and Southern European markets.
DvM Q3: (+3% LFL) YTD: (+3% LFL) (30% of net revenue)
-- Strong, double digit growth from China in Q3, driven by
Durex, Dettol and Move Free. Finish also performed well following
the launch of our new All-in-1 compact tablets.
-- India reported revenue was flat. Customer stock levels were
low heading into the quarter due to the GST regulation coming into
force in July. Supply of inventory was then delayed in July due to
the cyber-attack, which resulted in lost sales. Underlying demand
was strong.
-- Turkey had a strong quarter, as did Pakistan and Indonesia.
-- We saw continued significant market weakness in Middle East
and tough competitive conditions in Brazil.
IFCN (10% of net revenue)
-- Infant Formula and Child Nutrition (IFCN) total net revenue
was GBP720m in Q3 and GBP846m for the period between completion of
the acquisition and 30 September 2017.
Category Review - Continuing Operations
----------------------------------------
Q3 2017 GBP'm Like-for-like GST Net M&A FX Reported
----------- ------ -------------- ---- -------- ----- ---------
Health* 1,589 -2% - +84% +2% +83%
Hygiene 1,063 +1% -1% - +2% +2%
Home 482 -4% - - +2% -2%
Portfolio 72 +8% - - +10% +18%
----------- ------ -------------- ---- -------- ----- ---------
Total 3,206 -1% -1% +29% +2% +30%
----------- ------ -------------- ---- -------- ----- ---------
YTD Sept 2017 GBP'm Like-for-like GST Net M&A FX Reported
--------------- ------ -------------- ---- -------- ----- ---------
Health* 3,386 -2% - +34% +11% +43%
Hygiene 3,259 +1% - - +9% +9%
Home 1,394 -3% - - +9% +5%
Portfolio 184 -7% - - +11% +3%
--------------- ------ -------------- ---- -------- ----- ---------
Total 8,223 -1% - +12% +9% +20%
--------------- ------ -------------- ---- -------- ----- ---------
* Health now includes the Infant Formula and Child Nutrition
(IFCN) business.
Health Q3: (-2% LFL) YTD: (-2% LFL) (41% of net revenue)
-- Growth was impacted by Scholl / Amopé and supply shortfall
associated with the cyber-attack. Underlying growth was in line
with slightly subdued category growth rates of about 3%.
-- Durex saw double digit growth in both Rest of ENA and DvM,
reduced by North America as we lap the rollout of KY Duration
Spray. The recently acquired Hypermarcas sexual wellbeing brands
performed ahead of plan.
-- Strong growth in Gaviscon, led by our Double Action
formulation, and our VMS brands, led by Move Free sales in China.
Mucinex saw strong demand, offset by supply constraints.
Hygiene Q3: (+1% LFL) YTD: (+1% LFL) (40% of net revenue)
-- Strong growth in Finish, in both North America behind premium
SKUs and in additives. In DvM growth included the launch of our new
tablets in China, and penetration growth in other emerging
markets.
-- Dettol had a weaker quarter as its largest market, India, saw cyber disruption.
-- Harpic, Lysol and Mortein saw improved performances versus
the previous quarter. Veet saw softness in a number of markets as
we lapped the rollout of the successful precision trimmer
innovation.
Home Q3: (-4% LFL) YTD: (-3% LFL) (17% of net revenue)
-- Air Wick saw an improved performance in Q3 versus the
previous quarter with recent innovations such as Air Wick Pure and
ViPoo performing well.
-- Vanish had a weak quarter, due to both competitive and pricing pressures.
Portfolio Brands Q3: (+8% LFL) YTD: (-7% LFL) (2% of net revenue)
-- Portfolio Brands no longer include Food and mainly comprise
Laundry Detergent, Fabric Softeners and certain sales to
institutional customers. Conditions in the highly competitive
laundry categories remain difficult. The phasing of institutional
sales remains volatile.
Pro-forma Performance of Mead Johnson Nutrition ("MJN")
------------------------------------------------------------
Q3 2017 $'m Constant* FX Reported
------------------------ ---- ---------- ---- ---------
Asia 477 +4% -1% +3%
North America / Europe
(ENA) 308 -3% +1% -2%
Latin America 163 +1% +1% +2%
Total 948 +1% 0% +1%
------------------------ ---- ---------- ---- ---------
YTD September 2017 $'m Constant* FX Reported
------------------------ ------ ---------- ---- ---------
Asia 1,361 -2% -2% -4%
North America / Europe
(ENA) 906 -3% 0% -3%
Latin America 478 +0% -2% -2%
Total 2,745 -2% -2% -3%
------------------------ ------ ---------- ---- ---------
*Constant growth has been calculated on an MJN "constant dollar"
basis which excludes the impact of changes in foreign currency
exchange rates.
Asia (50% of MJN Net Revenue)
-- +4% growth at constant rates in Q3.
-- Good growth in Greater China, driven by strong volume market growth in mainland China.
-- The macro trends and channel shifts continue as expected with
growth in imported Enfinitas and Enfamil and new e-commerce
channels, outweighing the decline in locally manufactured Enfamil
and offline cross-border sales between Hong Kong and China.
-- MJN brands sold in China have received regulatory
registration from the China Food & Drug Administration for sale
following the regulation changes in January 2018.
-- Philippines also had a strong quarter offsetting weakness in
Thailand and some other smaller markets.
North America / Europe (ENA) (33% of MJN Net Revenue)
-- -3% reduction at constant rates in Q3
-- The US saw volume improvement versus previous quarters, due
to both a stabilising share of new infants and customer stock
increases.
-- Pricing in the US turned negative as both the benefit from
prior year price increases were lapped, and the recently
re-tendered California WIC contract commenced under its new
terms.
Latin America (17% of MJN Net Revenue)
-- +1% growth at constant rates in Q3
-- Mexico delivered strong, volume-led growth with increased investment in medical detailing.
-- Other Latin American markets remain mixed
Reorganising for Growth
We have made significant progress during the past five years on
portfolio transformation, in particular more recently with the
acquisition of MJN and the sale of our Food division. Consumer
health now represents, on a pro-forma basis, more than 50% of our
total business.
The MJN acquisition completed on 15 June, a quarter earlier than
expected. We have been running it initially as a separate division
as we deepen our understanding of the infant formula and child
nutrition (IFCN) category.
The initial integration is progressing well. We are now pleased
to announce the next phase. We plan to combine the IFCN division
with the health and some hygiene brands, to form the Health
Business Unit (BU). The home and other hygiene brands will form the
Hygiene Home BU. Each BU will be focused on and fully end-to-end
accountable for its business - from innovation, through brand
development and supply to the customer.
RB Health
- Rakesh Kapoor will be President of the RB Health Business
Unit, in addition to his role as CEO of RB Group.
- RB Health will represent approximately 60% of group Net
Revenue and include Enfamil, Nutramigen, Nurofen, Strepsils,
Gaviscon, Dettol, Mucinex, Durex, Veet, Scholl, Megared, Airborne,
Move Free, Digestive Advantage and Clearasil.
RB Hygiene Home
- Rob de Groot will be President of the Hygiene Home Business
Unit, reporting to Rakesh Kapoor, and will continue to sit on the
Group Executive Committee. Rob is currently Executive Vice
President for RB Europe and North American (ENA).
- RB Hygiene Home will represent approximately 40% of group Net
Revenue and include Air Wick, Finish, Calgon, Cillit Bang, Harpic,
Lysol, Mortein, Vanish and Woolite.
The two Business Units will together form one RB - a single
company devoted to delivering on our mission of creating healthier
lives and happier homes.
We remain committed to delivering the GBP200m fixed cost
synergies previously announced in respect of MJN, and the GBP450m
cost of integration. We do expect the new organisation will have
somewhat higher total fixed costs in individual markets, in
particular in 'go-to-market' costs.
We will provide further details around this reorganisation at
our full year results presentation in February 2018.
Financial Position and Other Matters
There has been no material change to the financial position of
the Company since the published 2017 Interim Statement, with the
exception of the completion of the sale of our Food division. The
proceeds from this sale, $4.2bn, have been used to pay down a
portion of our term loans.
We provide an update to certain matters raised in our 2017
interim statement as follows:
Contingent liabilities
Humidifier Sanitiser ("HS") Issue
Since the half year, the following updates have occurred:
- The Government has assessed a further tranche of round 3
applicants (round 3.4) and the first tranche of round 4 (round
4.1). Details are set out in the table below.
- Oxy RB has expanded its compensation plan for Oxy HS category
I or II users identified in Round 3 to include the further 15
victims who were categorized in tranche 3.4.
- Oxy RB made a payment of KRW 67bn (GBP45m) to the government
Special Relief Fund set up for the benefit of certain HS victims
and users, funded through contributions by HS manufacturers and
ingredient suppliers.
- Round 4 remains open and the applicant numbers are reported on
the Korea Environmental Industry & Technology Institute (KEITI)
website. The number of applicants reported as at 29 September was
4,570.
- A damage relief committee set up by the Ministry of
Environment (MOE) announced a recognition standard for asthma
caused by HS, based on the increased incidence of asthma in HS
users. No detailed underlying data has yet been made available.
The status of the four rounds of applications established to
date is as follows:
Round Total applicants Applicants Category Cat I&II RB Oxy Assessment
Assessed I & II percentage users - completion
Category (expected)
I & II**
------ ----------------- ----------- --------- ------------ ---------- ------------
1 361 361 172 48% 139 Completed
------ ----------------- ----------- --------- ------------ ---------- ------------
2 169 169 51 30% 44 Completed
------ ----------------- ----------- --------- ------------ ---------- ------------
3 752 657 76 12% 55 Dec 17
------ ----------------- ----------- --------- ------------ ---------- ------------
3.1 165 38 23% 35
------ ----------------- ----------- --------- ------------ ---------- ------------
3.2 188 19 10% 18
------ ----------------- ----------- --------- ------------ ---------- ------------
3.3 99 3 3% 2
------ ----------------- ----------- --------- ------------ ---------- ------------
3.4 205 15 7% 15
------ ----------------- ----------- --------- ------------ ---------- ------------
4 4,570* 1,009 TBD TBD TBD Dec 17
------ ----------------- ----------- --------- ------------ ---------- ------------
4.1 1,009 76 8% 70
------ ----------------- ----------- --------- ------------ ---------- ------------
* Round 4 remains open to applicants. The number of applicants
shown in the table is as set out on the KEITI website as at 29
September 2017.
** both sole Oxy RB users and users of multiple manufacturers'
products, including Oxy RB.
In 2016 a provision was made for certain costs arising as a
result of the HS issue, including costs arising from compensating
Oxy HS category I and II victims classified within Rounds 1, 2 and
3 of the Korean Centre for Disease Control (KCDC) classification
process.
In addition, there are a number of further costs / income
relating to the HS issue that are either not able to be estimated
or quantified or are considered not probable at the current time,
including those relating to Round 4 applicants, potential
recognition of victims of HS related asthma injuries, and costs
associated with the wider HS issue. Further details of these
contingent liabilities are set out in note 13 to our interim
statement.
Indivior / RB Pharma related matters:
As noted in Note 9 of our Interim Statement 2017, the Group
remains involved in ongoing investigations by the US Department of
Justice (DoJ) and the US Federal Trade Commission and related
litigation proceedings by certain state attorneys in the US arising
from certain matters relating to the RB Pharmaceuticals (RBP)
business prior to its demerger in December 2014 to form Indivior
plc and may incur liabilities in relation to such matters.
These investigations and related proceedings are continuing and
we are in active discussions with the DoJ. As a consequence of
these discussions, we recorded a charge of GBP318 million at 30
June 2017 within our discontinued operations line.
The Group remains committed to ensuring these issues are
concluded or resolved satisfactorily but we cannot predict with any
certainty whether we will be able to reach any agreement with the
DoJ or other parties who are involved in any other investigation or
in the related proceedings. The final cost for the Group may be
materially higher than this reserve.
2017 Targets
We are targeting:
- Flat full year LFL(1) Net Revenue for the RB base business, and
- "-2% to flat" Net Revenue(1) for MJN in H2 on a pro-forma basis
(1) At constant exchange rates, excluding the impact of
acquisitions, disposals, discontinued operations and local
legislative changes.
For further information, please contact:
Reckitt Benckiser
Richard Joyce
SVP, Investor Relations, Communications
& External Affairs
Patty O'Hayer
Director, External Relations and Government
Affairs +44 (0)1753 217800
Brunswick (Financial PR)
David Litterick +44 (0)20 7404 5959
LEI: 5493003JFSMOJG48V108
Cautionary note concerning forward-looking statements
This document contains statements with respect to the financial
condition, results of operations and business of RB and certain of
the plans and objectives of the Group with respect to these items.
These forward-looking statements are made pursuant to the "Safe
Harbor" provisions of the United States Private Securities
Litigation Reform Act of 1995. In particular, all statements that
express forecasts, expectations and projections with respect to
future matters, including trends in results of operations, margins,
growth rates, overall market trends, the impact of interest or
exchange rates, the availability of financing to the Company,
anticipated cost savings or synergies and the completion of
strategic transactions are forward-looking statements. By their
nature, forward-looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that will
occur in the future. There are a number of factors discussed in
this report, that could cause actual results and developments to
differ materially from those expressed or implied by these
forward-looking statements, including many factors outside Reckitt
Benckiser's control. Past performance cannot be relied upon as a
guide to future performance.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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