Reckitt Benckiser Group plc

Kirsten Chapman – Lippert/Heilshorn & Associates Bruce Wood – President and CEO Joe Baty – EVP and CFO

Michael Gallo – CL King Nick Genova – B. Riley & Co.

Damien Wacowski – Gabelli

Thank you, Shimika. Thank you all for joining us this morning for the Schiff Nutrition International Fiscal 2010 Second Quarter Results Conference Call.

By now you should have received a fax or e-mail of the press release. But if you have not please contact us at Lippert/Heilshorn & Associates at 415-433-3777 and we will forward a copy to you immediately.

As a reminder, this call may contain forward-looking statements. The risks of which are the same as those described in the Safe Harbor language in the press release and those detailed in the company’s SEC filings.

Actual results may differ materially from those described during the call. With us today from management are Bruce Wood, President and Chief Executive Officer; and Joe Baty, Executive Vice President and Chief Financial Officer.

It is now my pleasure to introduce to you Mr. Wood.

Please go ahead, Bruce.

Thank you, Kirsten, and good morning. Seasons greetings and welcome to our fiscal 2010 second quarter earnings call.

In the second quarter we continued to focus on our long-term goal of profitable growth on our branded and private label businesses while exploring new organic and external growth opportunities. We were encouraged with the second quarter results.

Net sales increased nearly 14% overall versus the prior year quarter, driven by particularly strong performance on our branded business, coupled with a solid increase on private label. At the same time we experienced significant improvement in gross margin percentage and operating margin versus the prior year period and continued to generate solid positive cash flow within the quarter adding to our already strong financial position.

During the quarter the overall supplements category demonstrated robust growth in a mass market as consumers appear to have embraced supplements as an economic and effective means of staying healthy in the tough post-recession environment. At the same time the joint care category was soft in the last three months as measured by IRI, reflecting the absolute high prices of joint care supplements, the availability of cheaper OTC alternatives and the absence of any strong positive media on the benefits of joint care supplements, in particular.

Nevertheless, we were pleased with the performance of our branded joint care business overall and our flagship Move Free brand in particular. Move Free recorded a net sales increase versus the prior year quarter as we continue to implement marketing support programs to both maintain and build upon Move Free’s loyal consumer base.

We continued our comprehensive support programming in the form of national TV advertising and FSI coupon support supplemented by loyalty reward promotions and grassroots public relations efforts targeted at both consumer and professional audiences. As anticipated in our first quarter call, we introduced the new product Move Free Energy [ph] into test with a major customer during the late second quarter.

Move Free Energy is a liquid concentrate that offers the dual benefits of improved joint comfort and increased energy in an easy to take non-tablet delivery form. It’s too early to assess this new product’s performance and we'll be monitoring Move Free Energy’s market test progress going forward.

We continue to be pleased with the sales performance of Schiff MegaRed Krill Oil. Our entry in the fast growing Omega-3 category.

During the second quarter with raw material supply issues now behind us, we were able to replenish the existing retail pipeline and expand distribution with both current and new customers. We also resumed our comprehensive MegaRed marketing support programming, including national TV and print advertising, FSI couponing and customer specific promotions.

With the strong brand building program in place MegaRed appears to be creating a loyal consumer base. With respect to other organic growth initiatives we are continuing to evaluate growing supplement subcategories with a view to identify and high potential new product opportunities.

At the same time we remain focused on growing our private label business on a profitable basis. We believe the increased interest in high quality private label products among major retailers provides us with the opportunity to expand our private label program although we expect this to be a more realistic goal for fiscal '011.

Finally, we're continuing to explore M&A opportunities and are encouraged that the deal flow remains relatively robust compared to several years ago. Our top-line is growing.

We're solidly profitable and we possess a strong balance sheet and a sizable readily available credit facility. We’re well-positioned to execute on the right acquisition when and if we find it as well as compete aggressively and support our branded and private label initiatives.

Now, I'll turn the call over to Joe for his comments.

Thank you, Bruce, and good morning and happy holidays to everyone. Earlier today, we announced our fiscal 2010 second quarter and six months year-to-date financial results.

Fiscal 2010 second quarter net sales overall increased approximately 13.7% to $53.8 million from fiscal 2009 second quarter net sales of $47.3 million. Branded net sales increased approximately 15.4% quarter-over-quarter.

Overall joint category sales reflected a quarter-over-quarter increase. And our MegaRed business also experienced net sales growth from the benefit of expanded quarter-over-quarter distribution and incremental distribution in new accounts.

Aggregate branded sales amounted to $39.4 million and $34.1 million respectively. Private label sales were $14.4 million for the quarter compared to $13.2 million for the prior year quarter.

Gross profit as a percentage of net sales was 45.1% for the fiscal 2010 second quarter compared to 37.2% for the fiscal 2009 second quarter, primarily reflecting increased branded sales and stability in raw material costs. Total operating expenses were approximately $14.8 million or 27.5% of net sales for our fiscal 2010 second quarter compared to $13.1 million or 27.8% of net sales for our fiscal 2009 second quarter.

As a percentage of net sales selling and marketing expenses decreased to approximately 16.4% for the fiscal 2010 second quarter, again primarily due to the significant increase in sales for the quarter. The approximate $1.2 million increases for other operating expenses in the fiscal 2010 second quarter as compared to the prior year period is primarily due to an increase and recognized management incentive costs, resulting from significant improvement in year-to-date financial results and the complete year forecast for fiscal 2010 and forward.

Reported operating income was $9.5 million for the fiscal 2010 second quarter compared to operating income of $4.5 million for the fiscal 2009 second quarter. The reduction in other income versus the prior period primarily reflects an overall lower investment yield on liquid assets.

The effective tax rate for the fiscal 2010 second quarter was 37.3% compared to 38.3% for the fiscal 2009 second quarter. As reported diluted net income per share was $0.20 for fiscal 2010 second quarter compared to net income per share of $0.10 for our fiscal 2009 second quarter.

Net sales were $102.3 million and $95.1 million respectively for the six months ended November 30, 2009 and 2008. Year-to-date branded net sales were $75.2 million and $66.6 million respectively.

For the six months period diluted earnings per share were $0.36 and $0.22 respectively. In regards to the balance sheet, working capital decreased to $88.9 million at November 30, 2009 from $92.2 million at May 31, 2009.

The reduction includes $2.4 million decrease in cash and short-term investments. Net cash flows from operations of approximately $13.7 million for the first six months of fiscal 2010 were more than offset primarily by a special dividend payment of $14.4 million and capital expenditures of $1.3 million.

Long-term liabilities consist primarily of accrued dividend and accrued management incentive costs. Stock-based compensation expense amounted to approximately $0.4 million and $0.1 million respectively for the fiscal 2010 and 2009 second quarters and $0.9 million and $0.2 million for the respective six months period.

Depreciation expense was approximately $0.8 million and $0.8 million respectively for the second quarters and $1.5 million and $1.6 million for the respective six months periods. Capital expenditure initiatives approximate $3 million for fiscal 2010.

Regarding fiscal 2010 and our current forecast we believe net sales for fiscal 2010 will increase in the mid single-digit percentage range as compared to fiscal 2009, driven by overall branded growth. We are pleased with year-to-date growth in our joint category and MegaRed branded businesses and we are forecasting increases in these categories for the second half of fiscal 2010 as compared to fiscal 2009 as well.

However, while our private label sales for the second quarter reflected an increase versus the prior year quarter we are currently forecasting the overall private label business to be down on a full year-over-year basis. The overall impact of private label has wins and losses maybe negative to our top-line results for fiscal 2010.

However, the business we gave up in the second half of fiscal 2009 was overall cash flow negative. Furthermore, we continue to pursue as opportunities avail themselves new private label business and we expect to realize growth long-term.

The expected increase in branded business is subject to the impact of ongoing competitive pricing pressures as well as the effectiveness of our branded marketing initiatives including promotions, advertising, product differentiation efforts and other considerations. Subject to my comments regarding both branded and private label sales we are forecasting growth profit margin in the 39% to 42% range.

The margin achieved for the fiscal 2010 second quarter results in an increase to our previous forecast. The increase is primarily due to the increase in branded sales, overall raw material price stability for fiscal 2010 and a lower mix of private label sales.

MegaRed supply issues were substantially resolved during the second quarter. For fiscal 2010 overall we forecast selling and marketing costs to approximately 16.5% to 17.5% of net sales and other operating expenses to approximate $21 million to $23 million, a range which now includes the potential impact of performance-based management incentive plans.

We are currently forecasting a lower double-digit operating margin for fiscal 2010. We believe fiscal 2010 second half financial results including sales and operating margin will reflect in improvement versus the prior year comparable period but second half results are expected to be lower than first half financial results.

Actual results for fiscal 2010 may vary and are subject to among other considerations, competitive conditions and factors previously noted in our public filings. Our forecast will most probably change is fiscal 2010 continues to play out.

Again, thank you for listening and now I will turn the time back to Bruce Wood, our President.

Thanks, Joe. To sum up, we remain confident about our near-term and long-term prospects and expect to strengthen our financial and competitive position over the balance of the fiscal year.

We're also committed to delivering value to our shareholders as was demonstrated by the special dividend of $0.50 per share paid out at the end of our fiscal '10 first quarter. We and our Board continue to actively evaluate how we can continue to build shareholder value going forward.

Thanks for listening today. And Joe and I are now ready for your questions.

Hi, good morning. Congratulations on a very good quarter.

My question is around gross margins; obviously, you had a terrific performance in the second quarter over 45%. I was wondering as you look at the back half of the year given the expectation that private label maybe down as a mix percentage I was wondering if there's anything particular that you are seeing that would suggest that a decline from the current second quarter levels or is just the inherent volatility that you've seen in the margins over the last few quarters, caused you to have some conservatism towards that, that new expected range.

Thank you.

Good morning, Michael. Good question.

Fair question. Let me respond this way.

First, as far as anything particular we're planning for potentially some significant ramp-up in promotional activity in the back half, especially as Bruce referred to the joint care category, where the IRI results have been soft. We believe that that could lead to some significant competitive pressures and so we're trying to factor that into our expectations for the gross margin in the back half.

Beyond that hopefully we're on the cautious side, but obviously the upper end of the range of $0.42 is very close to what our year-to-date gross profit margin is. So, it would be pretty easy to think of 42% margin, which is still a very good margin obviously to your business is something like it, may continue in the back half of the year.

Again, the range for the year is we say today is 39 to 42. We certainly hope that we under promise and over deliver.

Having said that however there is certainly expectation that there's going to be some significant competitive pressures in the back half. Those numbers materialized to the level that we're anticipating.

Certainly, there could be some upside on the gross profit margin or we could be in the upper end of the range.

Right. How much was the MegaRed sales in the second quarter?

What was that sales year-over-year?

We haven't yet disclosed or broken out MegaRed sales in and of itself. Some point in the future maybe we will do that.

I will say that on a quarter-over-quarter basis factoring in a low base for the prior second year quarter MegaRed sales were up substantially. However, it was influenced somewhat by pipeline fail in certain new accounts and expanded distribution in certain key accounts.

Okay, great. Thanks a lot.

Yeah, hi, guys. Following up on some of the joint care commentary what’s your long-term view of that category?

Do you envision some of the positive pres that you guys seen in the past years coming back or is that a category that’s going to, that’s pretty mature at this point and you guys envision it’s going to be a battle for market share? And if that's the case what kind of success have you had in recent quarters from a market share perspective?

Nick, good morning. It's Bruce.

I think the second scenario you outlined is probably the near-term scenario that we would foresee that of pretty much an aggressive dog fight for market share. The category has matured.

And of course our efforts continue to be to innovate within the category. But it has become more difficult to do that and we don't at this point foresee dramatic new studies on a horizon that would add some tailwind to the category.

So, basically we are doing what we believe a brand leader should, continue to look for the appropriate innovations, and do so only when they're meaningful. And continue to cultivate an intense loyalty amongst our consumers to try to offset some of the price competition, and as noted in my prepared comments we do that, not only with traditional national advertising but also other mechanisms where we can reach on a more personal basis to cultivate that loyalty.

And then speaking of innovation within the category on your new Move Free product that the Move Free Energy product understanding that it's still in test and that there is no guaranty that it will be successful, but if you do and up going forward that product can you talk a little bit more about what you envision the product being in terms of what the target market would be your advertising strategy and is it going to be position on shelves in the same area as your existing Move Free products or is it going to be located in a different area?

Taking the last question first, likely to be positioned in the joint care sections of our major customers. Certainly, that’s where it is in the test customer at the current moment.

And one of the reasons for the test is to determine the extent of which we can expand the Move Free franchise beyond people that may have either problems taking pills because there's a number of people we know that have that problem and would enjoy having an alternative that is easier to swallow literally. And also whether it has the potential to extend the target group younger because of the energy benefit that it delivers for, say, more active people, not just folks, who are somewhat limited in their movements because of joint problems.

So we're feeling our way. We're certainly going to take the time to make sure that we research it properly and that it expands the franchise and it is a good example and I think an important innovation in the category.

Okay. And then last question on the Schiff Infinity D product, is there any update on potential timing of relaunch on that?

As noted, we continue to look at fast growing categories and certainly the demarket is in that mode right now, continues to be again with a heavy, heavy tailwind of positive pres deservedly so because of the grade clinicals. And we are still recalibrating our initial effort and we would expect that at some point we will be in a position to reenter.

I won’t be more specific than that though.

Okay. Thanks, guys.

Thank you.

Thank you.

Hi, good morning, Bruce and Joe. Congratulations on good results.

A question on more of an update on MegaRed and how it’s doing in Walmart. It looks like it’s obviously doing well, it looks like, it’s what behind the stronger growth margin in the second quarter, but are you expanding it to more doors within Walmart?

And then beyond MegaRed I know you touched on this a bit in your prepared remarks but you have innovation in the joint care category which makes sense, but what's the next thing, innovating within the current categories? What’s in the pipeline next?

Good morning, Damien. It’s Bruce.

And thanks for the good wishes on the quarter. The status on MegaRed continues to be positive, and certainly, we now are in Walmart and not yet at what I'd call 100% distribution in Walmart, and that is definitely an opportunity that we can’t either confirm or deny at this point, but we certainly believe that it is meeting certainly our hurdles as far as velocity is concerned in Walmart.

So we've been able to expand to other doors as well and continue to see positive turns at this point. So there appears to be the strong repurchase component to and therefore a loyal consumer base to the brand regardless of outlet.

As far as other innovation I'll limit my comments to the focus that we have on high growth categories, D being, certainly a good example, MegaRed is an end market example because of the growth of fish oil, there are other subcategories in the specialty segment that are of interest as well and I don’t want to be more specific than that, but we believe our pipeline is pretty solid and as we present products to the marketplace we'll certainly keep you informed.

Bruce, when you talk about pipeline you mean your own R&D pipeline?

Correct.

Not the M&A pipeline? I mean no (inaudible).

Okay.

Strictly [ph] not inorganic. Enough [ph] initiatives there, Damien.

And have you disclosed how many Walmart has? If you include Sam’s [ph] what has, over 4,000 doors in the U.S.

Have you disclosed how many you're in currently? And is there a sort of a timing and a deadline as to where they decide whether or not they want to continue to expand beyond the certain number of doors?

We haven't disclosed that, so we prefer not to at this point. And Walmart makes its own decisions in terms of updating its modular program and that tends to happen in the spring time.

So certainly we like (inaudible) answers I can’t be any more certain than that.

Okay. And if I can one more thing, just going back to your comments regarding marketing spending in the joint care category including TV and (inaudible) and you said royalty promotions, any of these new approaches or have you always done this you just maybe step up how much of it you do?

We continuously invested in TV advertising and print historically and a lot of free standing insert or FSI couponing. Those are standard tools of the trade so to speak.

But more recently we have engaged in different kinds of loyalty, building promotions, where consumers can accrue points through the purchase of products and get rewards from increasing their royalty by increasing their purchases over the years. So there's that component that is more recent addition to our quiver [ph] of marketing arrow so to speak.

And as I also noted we reach out on a more grassroots basis to consumer and professional audiences as well and that is a program that continues to evolve and has been more recent, say, the last couple of years as opposed to say over the past five years.

Thanks and happy holidays.

Thank you. Same to you.

Thank you, Shimika. Once again thanks for your interest in Schiff today and best wishes for a happy, healthy and peaceful holiday season.

Good day.