Q1 2019 Trading Update
|
|
Q1
|
|||
|
|
£m |
LFL1
|
FX |
Reported
|
|
IFCN |
758 |
+5% |
+3% |
+8% |
|
OTC |
470 |
-9% |
0% |
-9% |
|
Other |
707 |
0% |
+1% |
+1% |
|
Total Health
|
1,935 |
0% |
+1% |
+1% |
|
Hygiene Home
|
1,222 |
+3% |
-1% |
+2% |
|
Total |
3,157 |
+1% |
0% |
+1% |
|
Highlights · LFL growth in Q1 of +1%. Continuing momentum in Hygiene Home. Slow start in Health as expected. · LFL performance in Total Health was flat. Progress in IFCN USA and China was offset by seasonal weakness in OTC and a mixed result from Other (Wellness and Health Hygiene) brands. · LFL growth in Hygiene Home of +3%. Continued momentum with strong performances from Finish, Vanish and Harpic. · We remain on track for the full year net revenue target of +3-4% LFL with growth to be H2 weighted. · RB2.0 remains on track. |
Commenting on these results, Rakesh Kapoor, Chief Executive Officer, said:
“As expected, Q1 saw a slow start to the year, especially in OTC. We expect to see improving growth in the remainder of the year, particularly in H2.
Our health business unit (BU) was impacted by the unusually weak cold and flu season across US and several European markets and associated retailer inventory movements. While our seasonal products declined, Nurofen and Gaviscon delivered good growth from a combination of recent innovations and quality base products. Our IFCN business delivered a good Q1 (+5%), with innovation led momentum continuing in the US and further progress in China.
E-commerce backed by strong investment, continues to perform well with 10% of net revenue coming from these faster growing channels in our Health BU.
Our Hygiene Home portfolio continues to perform strongly (+3%) from the executional focus of a dedicated business unit. Finish, Vanish, Harpic and Veja all performed well, driven by innovation-led growth. This more than offset some weakness in Air Wick and Lysol which faced tough comparators.
Restoring outperformance in our Health BU remains our top priority as we target innovation-led growth, invest and outperform in e-channels, invest behind the equities of our brands, and build a more resilient business.
RB2.0 remains fully on track and we reiterate our 2019 targets of +3-4% LFL net revenue growth and adjusted1 operating margin to be maintained.“
|
Operating Segment Review |
Health 61% of Net revenue
|
By Category |
Q1
|
|
By Geography |
Q1
|
||||
|
|
£m |
LFL1 |
Reported
|
|
|
£m |
LFL1 |
Reported
|
|
IFCN |
758 |
+5% |
+8% |
|
North America |
420 |
-11% |
-5% |
|
OTC |
470 |
-9% |
-9% |
|
Europe / ANZ |
505 |
-2% |
-4% |
|
Other
|
707 |
0% |
+1% |
|
DvM
|
1,010 |
+5% |
+6% |
|
Total |
1,935 |
0% |
+1% |
|
Total |
1,935 |
0% |
+1% |
· Growth in the consumer health markets we serve slowed to the lower end of our +3-5% medium term expectations, due to seasonal factors and lower growth in the China infant nutrition market.
· Q1 Net Revenue was £1,935m, a flat LFL performance versus the prior year. Volume was -4%, reflecting the seasonal OTC weakness and retailer destocking. Price/mix was +4%, reflecting action taken in response to cost pressures and trade spend initiatives.
· We have more to do to deliver sustained, top of market level financial performance and expect to see improved results in H2.
IFCN (Infant Nutrition)
· The IFCN segment delivered +5% LFL growth in Q1, a strong performance. Market growth has slowed due to lower birth rates in China in 2017 and 2018.
· Growth was driven by a strong performance in North America behind the continued success of Enfamil Neuropro, and a strong performance from Nutramigen, our hypoallergenic formula. Our e-commerce channels continue to drive strong growth.
· In Greater China, supply of our product remains tight as we work our way back from the manufacturing disruption in Q3 last year. The position is improving steadily, with our Australian supply facilities now in operation. We remain focused on driving innovation, increasing consumer choice and improving distribution in lower tier cities with innovative partnerships and plans in place to launch new products in the specialist Mum & Baby channel.
· Performance in other markets remains mixed.
OTC (Over the Counter / health relief products)
· Our OTC category declined on an LFL basis by -9% in Q1, driven primarily by seasonal factors, associated retailer destocking and some share loss in Mucinex to private label competition.
· As we exited the quarter, we saw increased incidences of cold and flu in March, improved share performance, and retailer stocks back in line with consumer offtake.
· Our brands which are less impacted by seasonality outperformed the market. Nurofen performed well with continued success from innovations, including the 24-hour medicated plaster. Gaviscon saw continued success from our Double Action formulation and further expansion in DvM.
Other Health (Wellness and Health Hygiene brands)
· Our Wellness and Health Hygiene brands delivered a mixed quarter with a flat performance.
· Dettol grew in both developed and emerging market areas, with good performances in India, Middle East, Indonesia, China and the UK behind a combination of penetration building initiatives and the relaunch of our personal wash products.
· Our VMS brands had a weak quarter with our more seasonal, multi-vitamin brand Airborne experiencing declines in the US. This more than offset growth in Move Free, where we continue to see good results in China.
· Scholl had a weak quarter as we continued to implement a refocus of the brand. Innovation, resource allocation, and more activation has been redirected to our core foot health segment. This has caused a further reduction in “gadget” sales, more than offsetting growth in our “problem-solution” product portfolio. Gadgets now represent less than 15% of the Scholl portfolio as we build a more sustainable foot health brand and restore growth.
E-channels
· Revenue through e-channels grew by 25% in the quarter, reaching 10% of total Health Net Revenue.
· Commensurate with consumer purchasing and shopping preferences, our brands within the sexual wellbeing, IFCN and VMS categories represent the highest exposure to e-channels.
· Growth was broad-based across channels, with particularly strong performances in key market place channels and D2C.
Hygiene Home 39% of Net revenue
|
By Geography |
Q1 |
||
|
|
£m |
LFL1 |
Reported
|
|
North America |
376 |
+2% |
+8% |
|
Europe / ANZ |
535 |
0% |
-3% |
|
DvM
|
311 |
+9% |
+5% |
|
Total |
1,222 |
+3% |
+2% |
· Category growth remains within our medium-term expectations of +2-3%.
· Q1 total Net Revenue was £1,222m, with LFL growth of +3%, comprising -1% volume and +4% price/mix. The softer volume was predominantly due to strong comparators with the previous year, particularly in Lysol in the US. Price/mix was strong, driven both by our focus on premium innovation and by pricing to offset inflationary and exchange rate headwinds.
· Our performance in the quarter continues to see benefits from increased focus under the RB 2.0 operating structure, with broad-based growth across most developed and all emerging market areas.
· North America delivered +2% LFL growth in the quarter. Lysol was slow as it lapped a strong seasonal comparator. This was more than offset by strong performances from our latest innovations, such as Finish Quantum Ultimate, Air Wick Essential Mist and other local brands.
· The flat performance in Europe reflects our decision to focus on innovation, while being selective in price / promo activities in a tough trading environment.
· DvM delivered another quarter of strong growth at +9% LFL. Growth was broad-based as we continue to unlock penetration opportunities and drive strong in-market execution in auto-dish, toilet care, fabric treatment and surface cleaning. This focus is driving good growth in Finish, Harpic, Vanish and Veja (Brazil).
· E-business continued steadily with 30% growth in the quarter, reaching 4% of net revenue, notably driven by the US, China and India.
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Financial Position |
There has been no material change to the financial position of the Group since the published Annual Report and Financial Statements 2018.