Reckitt Benckiser Gp -Q3 2018: Trading Update

· LFL growth in Q3 of +2%. Continued momentum under RB 2.0, with growth in base Health and Hygiene Home businesses of +4% LFL. Total growth was negatively impacted by -2% (£70m) from a temporary manufacturing disruption at our European IFCN plant.
· LFL performance in Total Health was flat, comprising IFCN of -6% and Rest of Health of +4% driven by continued strong growth in OTC and improving trends in Wellness and Health Hygiene brands.
· LFL growth in Hygiene Home of +4%. Continued momentum with strong performances from Finish, Air Wick and Lysol in ENA and Harpic in DvM.
· We remain on track for the full year net revenue target of +14-15% (total constant), implying LFL revenue growth at the upper end of +2-3%.


Commenting on these results, Rakesh Kapoor, Chief Executive Officer, said:

"Q3 was another quarter of progress, with continued momentum and growth under our new RB 2.0 organisational structure.  Our base Health and Hygiene Home businesses each delivered +4% LFL growth in the quarter, against a backdrop of mixed market conditions, demonstrating the strength of our brands, innovation success and early signs of RB 2.0 benefits.  Although encouraging, we remain focused on further improving our growth trajectory. 

Our IFCN business delivered a strong performance in North America, with the launch of our recent innovation, Enfamil NeuroPro, and progress in new channels.  We also remain firmly on track to deliver the medium-term targets we communicated at the time of the MJN acquisition.

The quarter was impacted by a temporary manufacturing disruption at our European IFCN plant.  This affected sales to a number of markets, occurred during a period of unusually high market growth and before our new facilities in Australia were operational and able to diversify our supply chain.  The disruption was resolved and supply restored before the end of the quarter, although we do expect some residual impact in Q4 and into 2019.

We have sufficient momentum and progress in our business to absorb this temporary manufacturing disruption.  We therefore reiterate our 2018 target of +14-15% total net revenue growth at constant rates."

·       Growth in the consumer health markets we serve remains in the upper half of our +3-5% medium term expectations.  As previously flagged, we have more to do to deliver sustained, top of market level financial performance.

·       Q3 total Net Revenue was £1,891m, with LFL growth of +4% in the base health business with growth coming equally from volume and price mix.  LFL growth was flat for the BU as a whole due to the impact of the IFCN temporary manufacturing disruption.  Volume was -1% and +1% price/mix. 

IFCN     (Infant Nutrition)

·       The IFCN segment delivered a -6% LFL decline in Q3, and a YTD pro-forma growth of +3%.

·       During the quarter we experienced a temporary disruption in manufacturing at our European IFCN plant. This impacted the supply of certain products to a number of our markets outside North America, resulting in approximately £70m lower revenue than expected in the quarter. 

·       The IFCN business currently operates through a concentrated supply chain, with markets relying on a small number of manufacturing facilities that are licensed to produce for that market. Significant investment has been made to increase capacity within our supply chain, including new facilities in Australia, which will become fully operational before the end of 2018.  The current sourcing arrangements, combined with strong market growth in parts of Asia, has caused us to operate with unusually low levels of inventory at our warehouses.  This confluence of events has led to a material impact to the IFCN revenue from the manufacturing disruption. 

·       Sales to consumers were less impacted in the quarter, as inventory within the channel helped mitigate the supply disruption from the factory.  We expect, however, that some consumers will not be able to purchase some MJN products beyond Q3 while channel restocking takes place.  We are working to minimize this impact as on-shelf availability is restored. 

·       Underlying trends in the category and in-market performance remain strong.  YTD market growth is at the upper end of +3-5% although we see growth moderating in China due to the reduction in birth rates.    

·       North America revenue continues to improve.  We are seeing better share performance with innovation (Enfamil NeuroPro) and success in new channels. 

·       We see significant value-creation opportunities within this category and remain firmly on track to deliver the synergies and other objectives which we communicated at the time of our acquisition of MJN.

OTC     (Over the Counter / health relief products)

·       The OTC segment delivered LFL growth of +6% in the quarter and a YTD LFL performance of +6%. 

·       We saw broad-based growth across our powerbrands.  Recent innovations like our Nurofen medicated plaster, providing 24-hour relief in a single patch, are performing well.  Many regional brands such as Lemsip (UK), Delsym (US), Tempra (Mexico) also saw good growth.

·       Mucinex had a solid quarter driven by sell-in ahead of the cold and flu season in the Northern Hemisphere in Q4, with the recent Mucinex Fast Max Cold & Flu "All in One" innovation helping to mitigate the impact of share loss in our 12-hour cough and congestion range from the re-entry of private label variants.

Other Health    (Wellness and Health Hygiene brands)

·       Our VMS brands delivered strong growth in the quarter, behind Airborne - new formats, improved in-store execution and channel expansion, and Move Free following the launch of Move Free Ultra 2in1 for faster comfort and long term joint support.

·       Dettol had a strong quarter in India with the Clean India campaign continuing to drive penetration.  Growth was also strong in China. However the Middle East, whilst no longer a significant drag, remains weak. 

·       Durex in China delivered strong growth behind the relaunch of our Featherlite ultra-thin condoms and pleasure gels. 


·       North America delivered a strong quarter due in particular to the good performances of IFCN, Mucinex and our VMS brands. 

·       Europe remains weak due in particular to the IFCN temporary production disruption. 

·       DvM delivered strong, high-single-digit growth in the base health business in Q3, which was more than offset by declines in IFCN, particularly in Asia.

Hygiene Home                        38% of Net revenue

·       Category growth remains at the lower end of our medium-term expectations of +2-3% with a continued challenging pricing environment in developed markets.  We have made modest share gains.

·       Q3 total Net Revenue was £1,229m, with LFL growth of +4%, comprising +2% volume and +2% price/mix.  Pricing in developed markets remains tough, although with some slight signs of improvement during the quarter.  We continue to see pricing in emerging markets.

·       Our performance in the quarter reflected some slight outperformance versus the market with improved focus and execution under the RB 2.0 operating structure, and a small positive impact from lapping last year's cyber-attack.

·       North America delivered +5% LFL growth in the quarter, with strong performances from Lysol as well as innovation-led growth in Finish and Air Wick.

·       The performance in Europe reflects the difficult pricing environment across the continent and also macro challenges in Turkey. 

·       DvM delivered another quarter of double-digit growth.  Brazil had a good quarter with strong growth in both Veja and Vanish.  India also had a strong quarter with Harpic following the introduction of our Harpic Swachh Bharat (Clean India) pack.  This new format is aimed at making Harpic affordable to every Indian household.