Company Name: Reckitt Benckiser Market Cap: 32,863.50 Bloomberg Estimates - EPS Company Ticker: RB/ LN Current PX: 4568.00 Current Quarter: N.A. Date: 2013-02-13 YTD Change($): +689.00 Current Year: 2.618 Event Description: Q4 2012 Earnings Call YTD Change(%): +17.762 Bloomberg Estimates - Sales Current Quarter: 2452.000 Current Year: 10080.417 Q4 2012 Earnings Call Company Participants • Rakesh Kapoor • Adrian N. Hennah • Heather Allen Other Participants • Rosie A. Edwards • Jeremy D. Fialko • Celine Pannuti • Harold P. Thompson • James Edwardes Jones • Eduardo Santos • Robert R. Waldschmidt MANAGEMENT DISCUSSION SECTION Rakesh Kapoor Right. Are we ready to start? So good morning, everyone, and thank you very much for coming for our 2012 full-year results presentation. I have two people on the stage with me. I'd like to first introduce Heather Allen, who's been with Reckitt Benckiser for 17 years, with a very illustrious career spanning many general management assignments in category also. And now she's heading our global category organization, a job that she took over from me nearly two years ago and one that she's going to show the passion for our innovation as she talks about it later in the presentation. I also have Adrian Hennah, who's obviously not very new to many of you people, although he's new of course in Reckitt Benckiser. When he came into the company in January, first day of January, I said, Adrian, you know, don't worry too much about the full-year results presentation. I'll lead with the whole thing, including the financial parts, and he very bravely but at the same time very worried looked on his face when I told him I'll look up to the financial side, also looked very, very worried. And I'm not still sure whether he looked worried because I would do such a lousy job at it or he looked worried because I would do such a brilliant job at it. But he's been brave nevertheless. And welcome to you, Adrian. Right. So let's get on to the first topic, which is three key messages that I have for all of you. The first message is that we are making progress in shaping this business for out-performance in this decade. We are shaping the business for out-performance in this decade. And this is not just about how we've made health and hygiene focus drive the business growth harder. You've seen that in our results in 2012 and we hope to continue this focus in health and hygiene over the next years. But it's also about how we are shaping our organization for out-performance. There's a lot of change that has happened in 2012 in the organization, and by the creation of two area organizations in emerging markets versus the one that we had before. But more tellingly, I would say, what we have done in Europe and North America, and I know 12 months ago a lot of people had a puzzled and quizzical look on their faces when I talked about Europe and North America needing to become a growth area for us. And I said this is not just a challenge for us as an organization. It's a challenge for the industry. How do we eke out growth in Europe and North America? And I said rather than wait for Europe and North America to come back to Page 1 of 21 Company Name: Reckitt Benckiser Market Cap: 32,863.50 Bloomberg Estimates - EPS Company Ticker: RB/ LN Current PX: 4568.00 Current Quarter: N.A. Date: 2013-02-13 YTD Change($): +689.00 Current Year: 2.618 Event Description: Q4 2012 Earnings Call YTD Change(%): +17.762 Bloomberg Estimates - Sales Current Quarter: 2452.000 Current Year: 10080.417 growth from a market point of view, we've got to make sure that we do the things that are going to make that happen and we've created an organization structure which is of course leaner, which is faster, which is much more responsive to what is happening out there. And I'm really very pleased that we managed to eke out 1% growth in Europe and North America for some time actually. And I think that's very pleasing. And then, of course, shaping the business for tomorrow also in terms of some of the things that we've done more recently: creating platforms of health in Latin America when we had none, creating a platform for health in China where you've seen from the press release this morning, we have created now and I'm going to talk to you about briefly about that, and then of course creating a platform for VMS, which I will show you later is a very interesting part of the world that we never managed to participate in and something that we should. So, I think shaping the business for tomorrow is something that we are very pleased on the progress we've made. The second thing I'd like to tell you all as a message is that we are committed to doing the right thing for this business for the long term. We are not going to take shortcuts to doing the right things. And our promise to put £100 million in BEI investment as an example of what we said we would do. And that's something that we've delivered on; we delivered more than £100 million in BEI actually in 2012. And then the third message I have for you is that when I laid out the strategy, we said there are a number of things we want to do to make this happen, and I just told you I believe that we are fully on track on this strategy and perhaps a little ahead of where we said we would be at this point in time. So these are the three major messages I have for you before I get into the financial top lines, which basically are we delivered in a year a 5% like-for-like growth, both excluding as well as including RBP. We had, actually, a very strong second half of gross margin expansion just the way we thought we would have, of 140 basis points in the second half leading to a 50 basis points improvement in gross margin, which together with a number of other things, including tight management of fixed costs, resulted in a operating margin expansion which we are very happy about. And then, clearly, the working capital management and the tight control on cash continues to be very good in this company. And as a result of all of these things, we've had a dividend increase of 11% in the second half, totaling £0.78. So, these are the top lines. And if you look at it in some kind of a trend, we've delivered 5% like-for-like. Exchange actually played quite a significant role in our net income, as you saw. There was a 300 basis point impact just from exchange this year, quite significantly adverse, both in terms of euro and also in the number of emerging market currencies. And, really, that was the story actually from a like-for-like on actual versus constant point of view. Right. Here's a simple chart on RBP. And I want to make one point very clear. You guys basically – you guys, I don't want to point fingers here. But generally speaking, the market focus is on the left-hand side of the chart. That's what the predominant focus of the market is, like when is the generics coming, how many will they be, what impact will you have, what's going to happen to your Citizen Petition? Let me just tell you, inside the company we focus on the right-hand side of the chart. That's where our focus is. So, really, there is a big difference between where you guys are focused versus where we are focused because really on the left-hand side, we can't control. There's no control that we have on the left-hand side of the chart. We don't decide when genetics will come in. We don't decide the outcome of the Citizen Petition and, actually, I don't have anything new to tell you. What I would tell you is that we are focused really on the right-hand side, working very hard to make sure that we can provide patients access to better treatment, and better treatment is a sublingual film. It's better because we know that the [ph] pay is (6:49) better, the consumers prefer it, they stay longer on treatment, it costs less to the payors. It's better because it's also safer, as we just demonstrated some time ago. That's what we are focused on. And the second bit is we are focused on – is that we are creating, we are creating a more sustainable business here and we need to invest behind the pipeline for this business. I think some time ago we exposed you to some of the pipeline projects that we had, and I said to you at the time of the Q4 conference call that we will be raising our investment in clinicals in this business and we will continue to do so also in 2013. Page 2 of 21 Company Name: Reckitt Benckiser Market Cap: 32,863.50 Bloomberg Estimates - EPS Company Ticker: RB/ LN Current PX: 4568.00 Current Quarter: N.A.