TIDMRB.
RNS Number : 6232Q
Reckitt Benckiser Group PLC
22 October 2019
22 October 2019
SLOW Q3. BUILDING RB FOR THE LONG TERM
Q3 2019 Trading Update - Reckitt Benckiser Group plc (RB)
Q3 YTD 2019
GBPm LFL(1) Reported GBPm LFL(1) Reported
IFCN 737 +7.2% +11.8% 2,253 +3.9% +7.3%
OTC 496 -6.8% -3.7% 1,371 -5.3% -3.9%
Other Health 726 -2.5% +1.3% 2,173 -1.8% +0.2%
-------------- ------ ------- --------- ------- ------- ---------
Health 1,959 -0.3% +3.6% 5,797 -0.6% +1.8%
Hygiene Home 1,326 +4.5% +7.9% 3,728 +3.3% +4.6%
------ ------- --------- ------- ------- ---------
Total 3,285 +1.6% +5.3% 9,525 +0.9% +2.9%
------ ------- --------- ------- ------- ---------
Highlights
* LFL growth in Q3 of +1.6%. Growth consisted of volume
-1% and price / mix +3%.
* LFL performance in Health in Q3 was -0.3%, after
lapping the supply disruption in the IFCN business in
the prior year. An underlying decline of around -4%
reflects improving but continued share loss and
cautious retailer purchasing ahead of the 'flu
season.
* LFL growth in Hygiene Home in Q3 of +4.5%. Continues
to deliver consistent and sustainable underlying
growth in-line with market of around +3%.
* Full year 2019 net revenue growth target reduced to
0-2% (LFL), reflecting the reduction in retailer
inventory levels of seasonal products in Q3 and the
inherent uncertainties of the season and associated
stocking.
* Full year 2019 adjusted operating margins expected to
see a modest decline as we continue investment behind
brand equity initiatives, building a more resilient
business and increasing front-line capabilities.
Commenting on these results, Laxman Narasimhan, Chief Executive
Officer, said:
"RB's performance in Q3 was disappointing. We delivered another
quarter of consistent growth in Hygiene Home. Our Health business,
despite good market growth and stable consumer offtake, delivered a
weak net revenue performance. This was primarily due to issues in
the US and China. In the US, we saw more cautious retailer seasonal
purchasing patterns. In China, IFCN continues to face challenging
market conditions.
This performance is a reflection of an extended period of
significant change and disruption in the company. I am prioritising
execution and operational performance as a matter of urgency. I
have made it clear within the organisation that any activities that
detract focus and attention from improving our operational
performance, be paused.
I have lowered our revenue outlook for the full year 2019 to
reflect the combination of a weak Health performance in Q3 and
inherent seasonal uncertainty in Q4. We expect a modest margin
decline in 2019 as we will continue our investment in the brands
and the business to build RB for the long term.
Stepping back from current trading, I see confirmation of the
reasons why I joined RB: we play in high-growth categories, with
strong, market-leading brands, anchored in purpose; we have strong
capabilities in innovation and e-commerce and we have an
organisation full of owners who act with speed and agility.
The issues I have seen facing the business are clear and
addressable. I am confident we can restore RB to the levels of
performance that it is capable of achieving, and build a
purpose-driven, responsible company. Our focus will be on:
restoring performance credibility, bringing simplification and
focus, driving commercial execution, unleashing our people and
delivering a strong financial model.
I firmly believe that we have significant potential, with an
outstanding set of brands in structural growth categories. I look
forward to providing a more detailed update on the business, and
our plans to restore long-term sustainable performance, in February
with our FY19 results."
(1) Refer to basis of preparation on page 5. Unless otherwise
stated, all growth rates are expressed in constant currency.
Operating Segment Review
Health 61% of Net revenue
By Category Q3 YTD 2019
GBPm LFL(1) Reported GBPm LFL(1) Reported
IFCN 737 +7.2% +11.8% 2,253 +3.9% +7.3%
OTC 496 -6.8% -3.7% 1,371 -5.3% -3.9%
Other Health 726 -2.5% +1.3% 2,173 -1.8% +0.2%
Total 1,959 -0.3% +3.6% 5,797 -0.6% +1.8%
By Geography Q3 YTD 2019
GBPm LFL(1) Reported GBPm LFL(1) Reported
North America 464 -12.3% -6.8% 1,334 -6.8% -1.0%
Europe / ANZ 514 +3.5% +4.9% 1,501 -0.1% -0.5%
DvM 981 +4.1% +8.6% 2,962 +2.2% +4.4%
Total 1,959 -0.3% +3.6% 5,797 -0.6% +1.8%
-- Category growth in the consumer health markets we serve
remains in the +3-5% range, in line with our medium-term
expectations.
-- Q3 total Net Revenue was GBP1,959m, a LFL decline of -0.3%
with volume decline of -3% and price / mix of +3%. The quarter
benefitted from a weak comparator as we lapped the GBP70m impact of
the IFCN supply disruption in Q3 last year. Excluding this impact,
underlying performance was around -4%.
-- We also experienced lower than expected channel inventory in
the US in the quarter. This was principally due to more cautious
purchasing patterns by retailers ahead of the upcoming 'flu season
and some reduction of inventory in the IFCN category. Our updated
targets for this year assume that we and our retail partners
continue to operate at these lower levels.
IFCN (Infant Nutrition)
-- The IFCN segment delivered LFL growth of +7.2% in the quarter
bringing the YTD LFL performance to +3.9%.
-- The most recent market growth readings are below our
medium-term expectations of +3-5% as we see growth moderating in
China due to the decline in birth rates in 2017 and 2018.
-- North America continues to drive strong share improvement,
underpinned by innovation, good in-market execution and success in
new channels. The quarter did see some inventory destocking by
retailers, which impacted the net revenue performance.
-- In Greater China, after adjusting for the lapping benefit of
last year's supply disruption, we saw a decline in the quarter. We
continue to lose some share in an increasingly competitive market,
which is in low single digit growth. The decline in birth rates in
2017 and 2018 is now hitting our stage 3 business - a large part of
our portfolio in China.
-- We have programmes in place to broaden our premium offerings
to consumers, to improve our presence in channels and locations
where we have been less present. We expect to maintain investment
levels in the face of both the loss of revenue from last year's
supply disruption, and from the tougher market place.
-- In LATAM and ASEAN the performance remains mixed, and a focus going forward.
OTC (Over the Counter / health relief products)
-- The OTC segment delivered LFL decline of -6.8% in the quarter
and a YTD LFL decline of -5.3%.
-- Mucinex share continues to stabilise following the lapping of
increased private label availability through last year, and Mucinex
Nightshift is showing early encouraging signs. However, cautious
purchasing patterns by our retail partners ahead of the upcoming
'flu season heavily impacted our net revenue performance in the
quarter - for both Mucinex and some of our smaller brands like
Delysm.
-- Nurofen, Gaviscon and Strepsils are delivering market share
growth. Excluding seasonal stock related movements in brands such
as Delsym, we saw an improved performance in our local OTC
brands.
Other Health (Wellness and Health Hygiene brands)
-- The "Other Health" segment delivered a LFL decline of -2.5%
in the quarter and -1.8% on a YTD basis.
-- Dettol and Durex returned to growth in the quarter but are
still below both historic run rates and the rates of growth these
brands have the potential to deliver.
-- On Dettol, we delivered an improved performance in India but
saw continued highly price-competitive conditions in Africa, Middle
East and parts of ASEAN, for some parts of our range.
-- On Durex, the competitive pressures in China remain. At our
half year announcement we outlined our plans to bring innovations
to market.
-- In VMS, market growth is strong and our market shares remain
stable. However, a combination of channel destocking and some
seasonality in retailer purchasing patterns in the US, led to a
weak revenue performance in the quarter.
-- Scholl saw improving trends in Europe, as our strategic
re-focus on the foot health segment continues. This has been a
driver in the better performance of our European health care
business in the quarter.
Geographic
-- North America delivered a weak quarter despite continued
share growth in IFCN and stabilising share in Mucinex. We saw
cautious buy in by retailers in both Mucinex and VMS ahead of the
upcoming season, and some IFCN channel destocking.
-- Europe / ANZ has seen an encouraging return to growth helped
by improving trends in Scholl. Growth has been broad based across
countries and brands.
-- DvM grew by +4.1% in the quarter benefitting from a weak
comparator from lapping IFCN supply disruption in the prior year.
The implied underlying decline of approximately -3% reflects IFCN
performance in China plus continued subdued growth in Dettol and
Durex.
Hygiene Home 39% of Net revenue
By Geography Q3 YTD 2019
GBPm LFL(1) Reported GBPm LFL(1) Reported
North America 432 +0.8% +6.4% 1,183 +1.5% +7.4%
Europe / ANZ 566 +3.5% +5.0% 1,610 +2.0% +1.3%
DvM 328 +11.3% +15.5% 935 +8.1% +7.1%
Total 1,326 +4.5% +7.9% 3,728 +3.3% +4.6%
-- Category growth remains in line with our medium-term expectations of +2-3%.
-- Q3 total Net Revenue was GBP1,326m, with LFL growth of +4.5%,
comprising +1% volume and +3% price / mix. Growth (and price / mix)
benefitted from the positive impact of the favourable resolution of
long-standing litigation in LATAM. The underlying performance of
the BU in Q3 was around +3% and broadly in line with market
growth.
-- Growth was broad-based across both our regions and brands
with all of our powerbrands in growth.
-- In North America Air Wick delivered innovation led growth
with the continued success of our Essential Mist Diffuser and the
launch of seasonal electrical devices. After a slow, seasonally
impacted Q1, Lysol has had another quarter of good growth helped by
the performance of its Laundry Sanitizer innovation.
-- Europe / ANZ performance delivered strong LFL growth of +3.5%
with all powerbrands delivering growth in the quarter. Finish
continued its successful geographical roll out of our Quantum
Ultimate Clean & Shine innovation. Air Wick also saw good
innovation led growth from Essential Mist.
-- Developing Markets LFL growth of +11.3% benefitted from the
impact of a favourable litigation outcome in the quarter.
Underlying growth was underpinned by Harpic penetration gains in
India, a strong performance from Mortein, aided by a good season
and continued growth, and from Finish in China.
Other Matters
Korea HS Issue
The HS issue in South Korea is a tragic event, with many parties
involved. We continue to make both public and personal apologies to
victims.
Lung Injury Categorisation
The status of the South Korean government's lung injury
categorisation is outlined in the table below:
Round Total Applicants Category Category Oxy RB Assessment
HS injury assessed I & II I & II users completion
applicants for lung percentage - category (expected)
injury I & II(2)
1 361 361 174 48% 140 Completed
------------ ----------- ---------- ------------ ------------ --------------
2 169 169 53 31% 46 Completed
------------ ----------- ---------- ------------ ------------ --------------
3 752 669(3) 84 13% 76 Completed
------------ ----------- ---------- ------------ ------------ --------------
Round 4
is open
4 5,296(1) 4,417 173 4% 155 indefinitely
------------ ----------- ---------- ------------ ------------ --------------
Total 6,578 5,616 484 9% 417
------------ ----------- ---------- ------------ ------------ --------------
1. Round 4 remains open to applicants. The number of applicants
shown in the table are the applicants set out on the KEITI website
as at 11 October 2019.
2. Both sole Oxy RB users and users of multiple manufacturers'
products, including Oxy RB.
3. All of the remaining unassessed Round 3 applicants have
withdrawn their applications.
Asthma and Toxic Hepatitis
There have been no further developments on Asthma or Toxic
Hepatitis since the 2019 Interim Statement.
Category 3 Lawsuit
On 18 September 2019, a Korean appellate court overturned a
lower court's decision and awarded damages of KRW 5 million
(approximately GBP3,200) to an Oxy RB HS user who had been
classified as category 3 claimant. The Korean government classifies
HS claimants into 4 categories depending on the degree of causation
between their lung injury and HS exposure. Prior to this decision,
only category 1 and 2 HS claimants had been recognised as victims
entitled to damages, with category 3 claimants being considered to
have only a "possible" connection between their lung injuries and
HS exposure. The appellate court became the first to rule that
category 3 plaintiffs can be entitled to damages from HS
manufacturers. RB Korea disagrees with the court's ruling and has
appealed to the Supreme Court. There are currently 326 category 3
claimants classified by the Korean government. We are currently
unable to quantify the liability for category 3 claimants, if any,
at this juncture.
Details of existing provisions and contingent liabilities
relating to the HS issue can be found in our 2019 Interim
Statement.
Financial Position
There has been no material change to the financial position of
the Group since the published 2019 Interim Statement. In Q3 we paid
$1.2 billion of the $1.4 billion Indivior related settlement
announced on 11 July 2019 and disclosed in our 2019 Interim
Statement. The balance is expected to be paid in Q4.
2019 Targets
We have revised our 2019 revenue targets to reflect the weak
Health performance in Q3, the inherent uncertainties of the season
and associated retailer inventory levels. Revised margin targets
reflect continued investment behind brand equity building
initiatives, building a more resilient business and increasing
front-line capabilities despite weaker revenue growth.
We are therefore targeting:
- LFL Net Revenue growth of 0-2%* (previously 2-3%), and
- Modest adjusted operating margin decline in 2019 (previously flat).
* YTD LFL net revenue growth is +0.9%. The full year target
range of 0-2% arithmetically implies a Q4 range of between -3% and
+5%. We do not expect either extreme to occur.
Basis of preparation and non-GAAP measures and terms
Like-for-Like ("LFL") growth excludes the impact on Net Revenue
of changes in exchange rates, acquisitions, disposals and
discontinued operations. LFL growth also excludes Venezuela.
Constant exchange rate adjusts the actual consolidated results
such that the foreign currency conversion uses the same exchange
rates as were applied in the prior year.
For YTD 2019 the difference between LFL growth and Reported
growth related to exchange rate differences with the exception of
the following impact of acquisitions: Other Health +0.2%, Total
Group +0.1%.
Adjusted Operating Profit excludes the impact of exceptional and
other adjusting items.
This announcement contains inside information.
For further information, please contact:
RB +44 (0)1753 217800
Richard Joyce
SVP, Investor Relations
Patty O'Hayer
Director, External Relations and Government Affairs
Finsbury +44 (0)20 7251 3801
Faeth Birch
Financial Public Relations
Cautionary note concerning forward-looking statements
This announcement contains statements with respect to the
financial condition, results of operations and business of RB (the
"Group") and certain of the plans and objectives of the Group that
are forward-looking statements. Words such as 'intends', 'targets',
or the negative of these terms and other similar expressions of
future performance or results, and their negatives, are intended to
identify such forward-looking statements. In particular, all
statements that express forecasts, expectations and projections
with respect to future matters, including targets for net revenue,
operating margin and cost efficiency, are forward-looking
statements. Such statements are not historical facts, nor are they
guarantees of future performance.
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 that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements, including many factors outside the Group's control.
Among other risks and uncertainties, the material or principal
factors which could cause actual results to differ materially are:
the general economic, business, political and social conditions in
the key markets in which the Group operates; the ability of the
Group to manage regulatory, tax and legal matters, including
changes thereto; the reliability of the Group's technological
infrastructure or that of third parties on which the Group relies;
interruptions in the Group's supply chain and disruptions to its
production facilities; the reputation of the Group's global brands;
and the recruitment and retention of key management.
These forward-looking statements speak only as of the date of
this announcement. Except as required by any applicable law or
regulation, the Group expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change
in the Group's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
LEI: 5493003JFSMOJG48V108
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END
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