21st Oct 2014 07:42
LONDON (Alliance News) - British consumer goods giant Reckitt Benckiser Group PLC Tuesday said sales growth slowed in the third quarter, held back by slower hygiene sales in emerging markets and slower sales growth in its health division, but reiterated its full year targets for both revenue and margin growth and said it now expects to demerge the pharmaceuticals business before the year end.
Reckitt Benckiser said like-for-like sales, excluding its pharmaceuticals unit, were up 3% in the third quarter on a constant currency basis.
The maker of products including Strepsils cold remedy, Nurofen pain relief and Durex condoms, reported net revenue of GBP2.37 million for the third quarter, up 2% at constant exchange rates, but down 7% at actual rates. In the year-to date, revenue of GBP7.04 billion is down 7% at actual exchange rates, but up 3% at constant currency.
Reckitt Benckiser was the worst-performing stock on the FTSE 100 early Tuesday, as third quarter sales growth came in below analyst expectations. Analysts were expecting like-for-like sales growth in the quarter to be between 3.3% and 3.7%, excluding RB Pharmaceuticals.
It said like-for-like growth including its pharmaceuticals unit was up 2% in the third quarter, although it said strong growth in Russia, Africa, Middle East and Turkey, was offset by slower markets in South East Asia and Latin America.
"RUMEA [Russia, the Middle East and Africa] delivered an excellent performance with improved operational effectiveness in Turkey and Africa. Despite slow market conditions, ENA [Europe and North America] delivered a strong quarter, particularly across all key European markets. Weak markets across South East Asia and Latin America contributed to weak growth in the LAPAC areas," said Chief Executive Rakesh Kapoor in a statement.
The LAPAC region includes Latin America, North Asia, South and South East Asia and Australia and New Zealand.
In the year-to-date, like-for-like sales are up 3% at constant currency, and up 4% excluding RB Pharmaceuticals, buoyed by what it said was a strong performance from its consumer health division.
Sales declined at actual exchange rates in all its divisions, hit by currency fluctuations, particularly a strong British pound.
"Looking ahead, our objective remains to deliver growth which outperforms our markets, although conditions will remain challenging. I continue to expect that the strength of our brands and the quality of our innovations will deliver our full year revenue targets, at the lower end of the range of 4%-5% (ex RBP). We also reiterate our expectation of continuing margin expansion in the second half (ex RBP)," Kapoor said.
The company also said that it expects its pharmaceuticals unit to be demerged before the end of 2014.
"The operational and financial separation of RBP, appointment of the new board and other activities associated with the demerger are progressing well," said Reckitt.
Back in July, Reckitt Benckiser announced its plans to spin-off its US-based pharmaceutical business within the next 12 months in a bid to let that division deliver long-term value as a stand-alone business, leaving the consumer goods giant to focus purely on its health and hygiene divisions. It said the de-merged unit will be listed on the London Stock Exchange.
The unit's main drug is heroin addiction treatment Suboxone, but it has started to see sales decline due to competition from generic rival treatments and pricing pressure.
Reckitt Benckiser said Tuesday that in the year to date, total net revenue from RB Pharmaceuticals was GBP505 million, down 8% at constant exchange rates.
"The underlying volume growth in prescriptions in the US continues to be strong with low double digit volume growth in line with recent market trends," the company said in Tuesday's statement.
"Whilst there continues to be clear patient and physician preference for Suboxone Film, as we have always said, this increased competition in the US market place is expected to drive continued pricing pressure, and further share loss in more price sensitive payors," it added.
Earlier this year, Reckitt posted a higher first-half pretax profit but said revenue growth in the period was held back by currency fluctuations and lower market growth in a number of countries, including weak consumer sentiment in the US.
Looking forward, the consumer goods giant said it was expecting market conditions to remain challenging in the second-half, particularly in the US and some emerging markets.
Analysts at Barclays forecast group sales growth of 4.3% for the full year at constant currency, versus the company's guidance of between 4% to 5% excluding RB Pharmaceuticals.
"Our organic growth expectations reflect emerging markets' slowdown... we believe RB's core margin will benefit from a structurally enhanced product mix, driven by the health division," the Barclays analysts said in a recent research note.
Reckitt Benckiser said Tuesday that sales growth so far this year in its health division were driven by its so-called "powerbrands", including Scholl, Nurofen, Gaviscon and Durex, boosted by innovatiosn and new roll-out programmes.
Its hygiene division suffered from slower sales growth, as it said that division is more exposed to emerging markets than other categories and its performance to date reflects the slowdown its has seen in a number of our emerging market countries.
Its home unit posted like-for-like sales growth of 4% in the third quarter on a constant currency basis, and were up 1% in the year-to-date.
Reckitt Benckiser shares were down 2.1% Tuesday morning at 5,010.00 pence.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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