Reckitt Benckiser Group plc

Ladies and gentlemen, thank you for standing by and welcome to the RB first quarter trading update conference call. At this time all participants are in a listen only mode. After the speaker presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 on your telephone. I must also advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Head of Investor Relations, Mr. John Dawson. Please go ahead.

Thank you Sabina and good morning everyone. Welcome to Harvey's Q1 Trading Update. With me here today are Lakshman, our CEO, and Jeff, our CFO. As a reminder, as the operator has already said, this call will be recorded and available for replay later on today. As usual, we'll go through our normal prepared remarks and then go straight to questions and answers. So with that, let me pass you over to Lakshman for his opening remarks.

Thank you John. Good morning everybody and welcome to our first quarter trading update conference call. We hope all of you are safe and healthy. We meet at an unprecedented time. It would be fair to say that none of us have ever lived through such extraordinary circumstances. Our thoughts and gratitude are with the doctors, nurses and healthcare workers and the innumerable others around the world who are fighting at the front line to make a difference. We are grateful to our customers, suppliers and partners who are doing everything feasible to serve consumers and the communities. I am grateful for the extraordinary work being done by my colleagues across RB worldwide while respecting everything that is needed to stay safe and well. It is indeed a privilege to lead them. I hope you all had a chance to review our first quarter statement. I have three messages for you this morning. First, we have made an encouraging start on our journey to rejuvenate sustainable growth at RB. We are managing the unprecedented environment presented by COVID-19 as well as possible, with a strong focus on the welfare of our teams and working closely with our partners and customers. And finally, while we have started the year well, we face an uncertain outlook. At this early stage of the year, we expect to perform better than our early expectations, but would caution against being too positive, as there are many uncertainties ahead. Let me first start with where I left off over two months ago in our full year results for 2019. In February, we set out our plans to rejuvenate sustainable growth at R&B. Our objective is to rebuild a strong growth and earnings model and outperform with mid-single digit organic revenue growth, mid-20s margins, and 7% to 9% EPS growth. At that time, we outlined in detail how we would achieve this with a temporary margin reduction and an enhanced multi-year productivity program. Taken together, these allow us to invest around two billion pounds in principally growth-led initiatives in three phases that will initially establish consistent performance, then build revenue momentum. and finally achieve sustained outperformance. From a strategic point of view, we have started our journey well with a strong focus on executing our plan during this transformational period. One that lays the foundations for our success in the future. As we laid out in February, we are a good house in a great neighborhood. There are four trends that are shaping our business, which are brought into even greater focus with what is happening around us today. First, urbanization and global warming continue to drive hygiene as the foundation of health. Pressures on state-funded healthcare are driving demand for self-care to release pressure on health systems. Sexual health and well-being are big societal issues that are growing demand for effective protection and related products. And an aging and growing population is driving demand for infant and adult nutrition. At the same time, technology and e-commerce are changing the way consumers know what and how to buy and where to look for information and for advice. With this as background, we articulated our purpose. Why we at RB exist is to protect, heal, and nurture in the relentless pursuit of a cleaner and healthier world. We recognized we would organize the business into three global business units, hygiene, health, and nutrition, while China and our e-commerce business and digital RB, each with specific playbooks and focus. I am pleased with the progress during this transformational period, investing in our people, brands, and operations, improving delivery performance, and increasing productivity. While there may be changes to the pace and sequence of some of our investments, as we focus on doing what is right to serve the market's needs at this time, our destination is clear. We are showing encouraging progress to us becoming a great house in a great neighborhood. We remain on track to have our new organization largely in place by the 1st of July and to deliver the expected benefits of our strategy in the medium term, sustained mid single-digit organic revenue growth and mid 20s margins by 2025. Moving on to COVID-19, Our newly announced compass, purpose and fight have never been more relevant in these unprecedented times. Our response to COVID-19 is guided by our purpose to protect, heal and nurture in our relentless pursuit of a cleaner and healthier world. A purpose that has been embraced by the organization at all levels. Despite the significant pressures presented by COVID-19, our global teams have worked around the clock to ensure continuity of supply while prioritizing the safety of our employees, partners, customers, and the communities where we live and work. This is a uniquely challenging and uncertain time. The exceptional demand has resulted in some customers and consumers facing shortages of some of our products. RB has responded with its typical can-do attitude, ramping up production in a few cases to multiples of what we produced last year around the world. Streamlining our SKUs and working with customers and suppliers to overcome significant barriers while incurring additional costs and investing with agility in the supply chain. I'm incredibly grateful to all our employees and also to our partners and customers for their patience as we work tirelessly to protect the front line and increasing supply to meet the unprecedented demand. Our strong brand portfolio provides RV with a unique position to help build healthier communities with a portfolio that includes not only leading brands such as Getol and Lysol, which break the chain of infection, but also Mucinex, Lemsip, Durex, Nurofen, Strepsils, as well as our nutrition and our vitamins, minerals, and supplements portfolio. As our company embraced our purpose, we took up our commitment around our fight, our fight for access. We launched our RB Fight for Access Fund in March. Through this, We will invest the equivalent of 1% per annum of our adjusted operating profit in a wide range of initiatives, working with partner organizations to help frontline health workers promote behavior change and help communities. Our fund has already been mobilized to meet the urgent needs, including a £6 million investment to the frontline health workers and new mothers in Wuhan, China. a $2 million commitment in the USA to support the Center for Disease Control Foundation, the donation of Dettol, Lysol, and Harpic products in India, and the partnership in Africa to distribute products to 22 countries, and with UNAIDS to distribute products to HIV-positive patients. On behavior change, the Dettol India Hand Wash Challenge with TikTok has reached nearly 88 billion views to date. And the COVID-19 myth busting website has reached over 1 million views. These compliment the many local initiatives that have led to significant community involvement and support for health services around the world, like the National Health Service in the UK. We have made an additional commitment of over 8 million pounds of COVID-19 cost savings through the R&D Fight for Access funds in support of local initiatives and communities. Turning briefly to our performance in the first quarter. Clearly, we have started the year strongly with like for like growth up 13% and consistent growth from both hygiene and health. We have also seen improving market share trends and delivered strong growth in e-commerce where we have benefited from our technology platforms and stronger customer relationships. as well as our focus on execution and customer service improvements. Looking at our performance in more detail, the impact of COVID-19 has been different in each market, reflecting our product mix and the timing of government actions, particularly around movement restrictions. The brands most positively affected by COVID-19 are Dettol and Lysol, where high penetration and frequency of use has led to exceptional and sustained growth. Given their exposure, this has mainly benefited North America, parts of Europe, and some of our developing markets, including China, where Dettol has a strong presence, and India. Higher penetration has also benefited several of our vitamins, minerals, and supplements products, where we have seen exceptional growth across North America. We have also seen strong growth from our OTC portfolio, as customer service has improved. Although the proportion that is pantry loading is probably higher, and we expect that to unwind over time. Several brands, including Durex, saw overall demand fall. Although for Durex, we saw a strong shift to e-commerce as a result of purchasing behavior and demand changes under lockdown conditions. Overall, as expected, our IFC and business declined 2% on a like for like basis in the quarter. As expected, developing market revenue declined, particularly in March, as the business lapped a stronger Q1 in 2019 when the business progressively improved product availability after the manufacturing disruption in H2 2018. And as we are going through a planned super premium product transition in China. Trade through Hong Kong was also weaker than a year ago, reflecting the ongoing unrest together with significant COVID-19 effects on cross-border traffic. In China, the restocking in 2019 made for a tough comparator, but adjusting to this, ISCN would have delivered encouraging growth in the mainland, consistent with positive consumer optics. North American growth was led by A particularly strong barge as consumers dealt with the impact of COVID-19, including some pantry loading, and in Lysol, some penetration increase. In IFCN, growth was strong for both Enfamil and Efamigen, although we do expect some pantry unloading in this category. Finally, looking at e-commerce, we saw exceptional growth with our direct sales to consumers and platforms up over 50%, and our total growth e-commerce sales now over 10% for the first time in Q1. Turning to our outlook for the balance of the year. We have seen strong consumer demand, particularly in March and April, but the split between defensive buying and high levels of underlying consumption is unclear. At this stage, it is uncertain how quickly this will change in the months ahead. Improved penetration and usage particularly for products like Dettol and Lysol may well sustain, although we will likely see some unwinding of pantry load as we work our way through the crisis. The near-term operational challenges to meet additional demand and handle lockdown conditions with the associated costs are also likely to continue for some time. As a result, after an encouraging start, we now expect our performance to be better than originally expected, However, the outlook for the balance of 2020 remains uncertain, with significant COVID-19 challenges across our markets. We expect to incur higher operating costs, particularly in our supply chain, as we keep our people safe, mitigate disruptions, and serve the needs of consumers. We continue to make progress on the implementation of our new strategy. We're investing in capacity to meet growing demand. We're also investing to capitalize on new growth opportunities as they emerge. However, we will need to adapt and rephrase some of our initiatives into the second half and we'll be in a better position at mid-year to refine expectations and update our transformation plans. Looking to the medium term, our outlook for sustained mid-single-digit organic revenue growth and mid-20s margin by 2025 remains unchanged. Thank you for your attention. We remain committed to serving our consumers and communities as well as we possibly can during these unprecedented times. I would like to thank once again our people, our customers, our suppliers and our partners who are working tirelessly to make that happen and thank all those at the front line who are keeping us safe and confident of a successful future. And with that, I'll hand you back to John and to open the call up for any questions. Thank you.