Reckitt Benckiser Group Plc (RBGPF.PK)

Q2 2010 Earnings Call

July 26, 2010 08:00 am ET


Colin Day - CFO

Bart Becht - CEO


Mark Christensen - Morgan Stanley

Celine Pannuti - JPMorgan

Susanne Seibel - Barclays Capital

Pablo Zuanic - Liberum Capital

Rosie Edwards - Goldman Sachs

Eamonn Ferry - Exane BNP Paribas

Gustavo Pifano - Gabelli & Company

Warren Ackerman - Evolution Securities

Xavier Croquez - Cheuvreux

Debra Aitken - Bryan Garnier

Alex Smith - Nomura

Simon Marshall Lockyer - Jefferies

Richard Taylor - Morgan Stanley

Chas Manso - Evolution Securities


Good morning and welcome to Reckitt Benckiser first or half year presentation with results. I'm going to give you a quick overview and then I'm going to handover to Colin Day our CFO who will take you through the details of the results after which I will come back to take you through our key initiatives for the second half and then I'm going to make some final comments about SSL, the subject on which we will take very, very few questions because we are bound by the takeover code.

So don't take it as rude, we simply cannot answer practically any question on this subject. So quick summary, total business continues to perform very strongly, you've seen the result. Reckitt Benckiser Pharmaceuticals the half year performance was fully inline with the full year financial targets. We believe this is a very strong performance considering we set the targets in the context of a market growth rate of 4% and on year-to-date basis the market growth rate barely makes to 2%. So net we are now growing at over double the global market growth rate.

We also will see from Colin's presentation that the cash flow generation remains strong, interim dividend per share will be increased by 16 (percent) to 50p and we will be reiterating the full year 2010 targets clearly assuming the market growth rate doesn't drop further. So the total business continues to perform strongly with net revenue growth of 6% at constant rates at half year and net income up 18% at constant rates also at the half year. On a by area basis, I'm going to make some comments on the market growth rate, first and then, discuss the underlying performance.

In Europe, at the time we set the targets, the market growth rate was close to 4%. Currently, the market growth rate for Europe is running at less than 1%. Therefore, the performance within Europe is largely driven by the virtual absence of market growth and heavy promotional spend rather than market share movements. The heavy promotional spend we believe is paying off as year-to-date market share movements in the area on a volume basis are de minimis and therefore, results are very much driven by market growth or the absence thereof, as well as promotional spending.

In North America, and Australia and New Zealand, at the beginning of the year, we had a market growth rate of over 3%. Right now, there is no market growth in North America, and Australia and New Zealand combined. So the 4% growth should be seen against that market backdrop. So clearly, we've had substantial market share gains in particular and franchises like Lysol and Mucinex in North America and the other key factor which is playing a role is we have somewhat less promotional spend in North America to explain the top line growth rate.

In developing markets, there is no change to the underlying market growth on a year-to-date basis. We are still looking at a market growth which is in the high single digits. And so, you can see that our market growth rate of 19% is practically double the underlying market growth rate. It also the highest growth rate we have ever reported on developing markets and 19% for sure is the highest growth rate in developing markets within the industry.

This brings us to the base business, at the time we set the targets. The market growth rate was around 4% like I said before, currently the year-to-date growth rate is barely 2%, so the 5% growth rate is pretty much more than double the current market growth rate, which brings us to Reckitt Benckiser pharmaceuticals which you can see, it continues to perform very nicely. Clearly we would be coming back to the question of generics later and then you can see here on the right hand side the total company growth rate of 6%.

On a by category basis, let's start with Health & Personal Care. First-half year, growth of 7%. Q2 was back into the double-digit growth rates, which is very encouraging; this is clearly a key driver for total company growth. As you know, in Q1 we got hit by poor cold and flu season so it is very encouraging to see that in the second quarter we backed to double-digit growth which is very much driven by Dettol, Nurofen, Strepsils, and Gaviscon our key franchises.

Fabric Care is largely explained by Europe. This is very much of a European driven business. Clearly, here we have seen lower market growth rates, as well as heavy promotional spend which largely explains the negative minus 1%. In terms of market share, there is a small loss in fabric, if we want to discuss Vanish, just on Vanish in particular, the market share loss is than a percentage point on a market share which is close to 50 on a volume basis. So the market share loss is quite de minimus in the big scheme of things. Surface Care, good growth, driven by Lysol, Dettol and Harpic, as well as local brands like Veja in Brazil, good performance. Home Care, 8% growth, good growth in both Air Care as well as Pest Control. Air Care is very much driven by the innovation of Aqua Mist as well as Air Wick Freshmatic. Pest Control very much driven by the Mortein auto spray and doing very well. Dish washing, solid market share performance, net revenue growth somewhat held back by increased promotional spends in this category. That gives you a quick snapshot of the categories. Colin is now going to take you through the financials.

Colin Day

Good morning, it pretty much covered the category and the geography in the market. But I thought I just give you a sort of snapshot, not any of the numbers but how we see the trends. Probably many of you have already figured out by now that there is an air of predictability for ones with a better word, with the performance Q2 isn't that dissimilar to Q1.

If you went back and looked at last year, you'll see that's not that dissimilar to Q4 last year or Q3. And if you look at the reiteration of the targets, you'll probably think that it won't be much different for Q3 and Q4 if the market growth rates hold, which at this point in time we have no reasons to believe that won't be the case.

So, just to make the point, you can see the Q2, up 6, half year up 6 or profits up 17, 17 and net income 18, 18. There is a positive FX effect, you can see the number like I, and we don't expect the FX effect too dramatically change because it's all average going forward. It's because as most of you know, it's Dollar and Euro. So from the FX standpoint, that's not going to be anything other than slightly a positive factor, but from a constant growth rate, there is an air of stability and rather unstable and uncertain times certainly in Europe and to an extent, North America.

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