20th Apr 2011 12:00
Reckitt Benckiser A World Leader in Household, Health and Personal Care 20 April 2011 STRONG START TO 2011 FULL YEAR TARGETS CONFIRMED Results at a glance Q1 % change % change £m actual exchange constant exchange Net revenue 2,283 +14 +15 - Like-for-like growth +5% * Operating profit - 492 +7 +9 reported Operating profit - 530 +15 +17 adjusted ** Net income - reported 355 +2 +4 Net income - adjusted * 384 +10 +12 * EPS (diluted) - 48.3p +2 reported EPS (diluted) - 52.2p +10 adjusted **
* Like-for-like ("LFL") growth excludes the impact of changes in exchange rates, acquisitions and disposals.
** Adjusted results (including % change figures) exclude exceptional items (seepage 2). There was an exceptional pre-tax charge of £39m in Q1 2011 relating tothe acquisition of SSL International plc, of which £38m is included in reportedoperating profit and £1m is an exceptional finance cost. There were noexceptional items in Q1 2010.
Highlights:
* Total net revenue growth of +15% (constant exchange) to £2,283m. LFL growth
+5% (+4% ex-RBP).
* Gross margin unchanged versus Q1 2010, at 59.5%: adjusted operating margin
+20bp to 23.2%.
* SSL integration on track: cost synergies of £11m delivered in the quarter.
* Adjusted net income +10% (actual exchange, +12% constant): adjusted diluted
EPS of 52.2p (+10%).
* Net working capital of minus £1,000m, a £100m improvement versus year-end
December 2010.
* Net debt of £1,647m, £364m lower than the 31 December 2010 level.
Commenting on these results, Bart Becht, Chief Executive Officer, said:
"Reckitt Benckiser got off to a strong start in the first quarter of 2011.Like-for-like net revenue growth of +5% was driven by the success ofinnovations, such as the Dettol No Touch, and continued excellent performancein Developing Markets. RBP is making very good progress with moving more of itsbusiness into the patent-protected Suboxone sublingual film. By the end ofMarch, the film had captured a 37% market volume share and represented 35% ofthe total RBP U.S. net revenue in Q1. The integration of the SSL business is well on track to deliver the targeted cost synergies and net revenue growth in2011.With net revenue growth of +15% and adjusted net income growth of +12% for thetotal Group in the quarter (both at constant exchange), these results positionus well to achieve our FY 2011 financial targets of +12% net revenue growth and+10% adjusted net income growth (both at constant exchange), and with that to deliver another year of above industry-average growth." Basis of Presentation and Exceptional Items
The results include the business of SSL International plc ("SSL") from 1 November 2010, the date of acquisition. Operating profit is not separately disclosed for SSL as, in the view of the Directors, it is not practicable to identify its operating profit due to its integration into the commercial infrastructure of Reckitt Benckiser.
Where appropriate, the term "like-for-like" describes the performance of the business on a comparable basis, excluding the impact of acquisitions, disposals, discontinued operations and foreign exchange.
Where appropriate, the term "base business" represents the Europe, North America & Australia and Developing Markets geographic areas, and excludes RBP and SSL.
Where appropriate, the term "adjusted" excludes the impact of exceptionalitems. There was an exceptional pre-tax charge of £39m in Q1 2011 mainlyrelating to integration and transaction costs arising from the acquisition ofSSL. This exceptional pre-tax charge is reflected in reported operating profit(£38m, of which £1m relates to transaction fees) and net interest (£1m, beingfinancing costs associated with the acquisition). There were no exceptional
items in Q1 2010. Detailed Operating Review: Total Group
Q1 net revenue increased +14% (+15% at constant exchange) to £2,283m, with LFLgrowth of +5%. SSL contributed £203m net revenue in the quarter, representing aLFL growth rate of -3% versus the comparable quarter in 2010 owing to theimpact of aligning SSL's trading practices with those of RB.The gross margin was unchanged versus Q1 2010 at 59.5%, with mix benefits and apositive transaction impact from foreign exchange being offset by higher inputcosts. Total marketing was higher, and pure media spend rose +6% (+7% constant)to a level of 10.9% of net revenue. Within this, pure media spend on the basebusiness was unchanged at 12.6% of net revenue. Operating profit as reportedwas £492m, +7% versus Q1 2010 (+9% constant), reflecting the impact of anexceptional pre-tax charge of £38m in respect of the acquisition of SSL. Costsynergies from the acquisition of SSL amounted to £11m in the quarter. On anadjusted basis, operating profit was ahead +15% (+17% constant) to £530m: theadjusted operating margin increased by +20bp to 23.2%.
Net finance expense was £6m (Q1 2010: net finance income of £3m), of which £1m is an exceptional charge in respect of financing costs associated with the acquisition of SSL. The tax rate was 26%.
Net income as reported was £355m, an increase of +2% (+4% constant) versus Q12010: on an adjusted basis, net income increased 10% (+12% constant). Dilutedearnings per share of 48.3 pence rose +2% on a reported basis; on an adjustedbasis, the growth was 10% to 52.2 pence. Q1 2011 Business Review
Summary: % net revenue growth
Q1 2011 Like-for-like Acquisitions & Exchange Reported Disposals* Europe +0% +17% -4% +13% NAA +2% +3% +0% +5% DvM +14% +9% +2% +25% Group ex-RBP +4% +11% -1% +14% RBP +23% - -4% +19% TOTAL +5% +10% -1% +14%
* Reflects the acquisition of SSL
The Business Review below is given at constant exchange rates.
Europe 45% of net revenue
Q1 2011 net revenue increased +17% to £1,028m, with LFL growth of +0%. Stronggrowth in Health & Personal Care and a more modest improvement in Surface Careand Home Care was offset by weakness in Fabric Care, with a relatively flatresult in Dishwashing. The strong performance in Health Care came behindNurofen and Strepsils, both of which benefited from such recent initiatives asStrepsils Warm and Nuromol in the UK, as well as a more normal incidence ofcold/'flu versus Q1 2010. In Personal Care, the continued roll-out of theDettol No Touch Hand Soap System delivered an encouraging early result. Dettoland Harpic contributed to the growth in Surface Care, while such newinitiatives as the Air Wick 100% natural propellant spray supported theperformance in Home Care. The decline in Fabric Care was primarily due toweakness in Laundry Detergent in southern Europe. Vanish, while still downyear-on-year, is showing an improving market share trend.
Adjusted operating profit increased +9% to £220m; the adjusted operating margin was -130bp lower at 21.4%, partly due to the inclusion of SSL.
North America & Australia 24% of net revenue
Q1 2011 net revenue increased +5% to £553m (+2% LFL). Growth came from Health &Personal Care, Dishwashing and Food. In Health & Personal Care, Mucinexbenefited from a good performance in Mucinex DM (an expectorant-coughsuppressant combination variant), as well as a more normal incidence of cold/'flu compared to Q1 2010. The increase in Dishwashing was led by Finish Quantumand All-in-1 tablets and gel packs. Growth in Food largely came from theconsumer brands of French's Yellow Mustard and Frank's Red Hot Sauce, and wasboosted by additional marketing activity.
Adjusted operating profit increased +20% to £126m; the adjusted operating margin was +290bp higher at 22.8%.
Developing Markets 24% of net revenue
Q1 2011 net revenue was ahead +23% (+14% LFL) to £546m, with good growth acrossall regions. Health & Personal Care increased largely as a result of thecontinued excellent performance of the Dettol personal care range, with Veetand Strepsils also strong contributors. In Fabric Care, Vanish delivered astrong result helped by increased marketing investment, while Dettol and Harpicwere the key drivers in Surface Care. Growth in Home Care came largely in AirCare.
Adjusted operating profit increased by +31% to £85m. This resulted in a +100bp improvement in the adjusted operating margin to 15.6%.
Pharmaceuticals 7% of net revenue
Q1 2011 net revenue increased +23% to £156m. Growth came from the impact of thebuy back from Merck of the Suboxone rights in Europe and Rest of the World andcontinued solid growth in the U.S. In the U.S. the recently-launched andpatent-protected Suboxone film variant continued to grow, and by the end ofMarch had captured a 37% volume share of the market for buprenorphine-basedproducts used for opioid dependence. Despite the lower price of the filmvariant compared to the Suboxone tablets, net revenue in the U.S. business grewby +7% to £115m, of which the film generated £40m.
Operating profit for the total RBP business increased +21% to £99m. The operating margin was down by -210bp to 63.5%, due to the materially lower margins of the new film variant and lower margins in the acquired business in Europe and Rest of the World.
Suboxone has data exclusivity in Europe until 2016; in the U.S., Suboxone lostthe exclusivity afforded by its Orphan Drug Status on 8 October 2009. As aresult of the loss of exclusivity in the U.S., up to 80% of the revenue andprofit of the Suboxone tablet business might be lost in the year following thelaunch of generic competitors, with the possibility of further erosionthereafter.On 31 August 2010, the Group announced that it had received approval from theU.S. Food and Drug Administration for its New Drug Application to manufactureand market Suboxone sublingual film. Suboxone sublingual film ispatent-protected until 2020 and is patient-preferred. As the Group is rapidlyconverting Suboxone tablets to the sublingual film, there is a short-termdilutive impact on net revenue and operating profit: however, due to the film'spatent protection, this conversion much better protects the medium andlong-term earnings stream from the Suboxone franchise in the U.S. Hence, in theevent of generic competition to the tablet, the Group expects that the Suboxonesublingual film will materially mitigate the impact of generic tablet launches. Q1 2011 Category Review (at Constant Exchange Rates)
Health & Personal Care. Net revenue increased +46% (+13% LFL) to £758m, with Durex and Scholl together contributing £172m in the quarter.
The increase in Healthcare was largely the result of a strong performance forMucinex, Nurofen and Strepsils, supported by new initiatives such as StrepsilsWarm, and also benefiting from a more normal incidence of cold/'flu compared toQ1 2010. In Personal Care, there was excellent growth for the Dettol personalcare range both in Developing Markets, and in Europe where the continuedroll-out of the No Touch Hand Soap System delivered a very encouraging earlyresult.
Fabric Care. Net revenue declined -6% to £375m, largely driven by a weak performance in Laundry Detergents in southern Europe. Vanish in Europe, while still down, is showing an improving market share trend.
Surface Care. Net revenue grew +3% to £363m. Growth came from the Dettol/Lysol ranges, with Max Power and Power Plus liquid toilet cleaners supporting a strong performance for Harpic.
Home Care. Net revenue rose +1% to £283m. The result was supported by the launch of Air Wick 100% natural propellant spray in Air Care, and Mortein automatic spray in Pest Control.
Dishwashing. Net revenue increased +1% to £235m, with continued growth in Finish Quantum and All-in-1 tablets partially mitigated by a weaker result in dishwashing Additives.
Other. Net revenue increased to £44m, largely due to the inclusion of certain brands from the acquisition of SSL.
Total Household and Health & Personal Care. Net revenue was ahead by +15% (+4% LFL) to £2,058m.
Pharmaceuticals. Total net revenue for the Group's Subutex and Suboxoneprescription drug business grew +23% to £156m, with adjusted operating profit+21% to £99m. Within the Pharmaceuticals division, the U.S. business generatednet revenue of £115m. Suboxone film continued to grow and had captured a 37%market volume share by the end of March, generating net revenue of £40m in thequarter. In Europe and Rest of the World, the result was helped by the fullinclusion of a number of countries from 1 July 2010, as a result of themajority of sales, marketing and distribution rights to thebuprenorphine-containing products Suboxone, Subutex and Temgesic being boughtback by the Group.
Operating profit for the total RBP business increased +21% to £99m. The operating margin was down by -210bp to 63.5%, due to the materially lower margins of the new film variant and lower margins in the acquired business in Europe and Rest of the World.
Food. Net revenue rose +6% to £69m. This growth was driven by a very good performance for French's Yellow Mustard and Frank's Red Hot Sauce, and was boosted by additional marketing activity. Adjusted operating profit was £16m (+14%).
Financial Review Basis of preparation. The unaudited financial information is prepared inaccordance with IFRSs as adopted by the European Union and IFRSs as issued bythe International Accounting Standards Board, and with the accounting policiesto be applied in the financial statements for the year ending 31 December 2011.These are not materially different from those set out in the Group's 2010Annual Report and Accounts.
Constant exchange. Movements in exchange rates relative to sterling affect actual results as reported. The constant exchange rate basis adjusts the comparative to exclude such movements, to show the underlying growth of the Group.
Net working capital (inventories, short-term receivables and short-term liabilities excluding borrowings and provisions) improved by £100m to minus £ 1,000m, due to further improvement in payables.
Net debt as at 31 March 2011 was £1,647m (31 December 2010: £2,011m), a decrease of £364m in the quarter, reflecting free cash flow generation during the quarter.
Restructuring charge. A total pre-tax exceptional charge of around £250m isexpected to be incurred in respect of the acquisition of SSL and furtherreconfiguration of the enlarged Group, of which approximately £216m relates torestructuring and c.£34m is transaction costs. In FY 2010, there was anexceptional pre-tax charge of £104m, reflected in reported operating profit (£101m, of which £22m related to transaction fees) and net interest (£3m, beingfinancing costs associated with the acquisition).For the full year 2011, an exceptional pre-tax charge in the region of £150m isexpected to be incurred, of which around £4m will be exceptional financingcosts. In Q1 2011, an exceptional pre-tax charge of £39m was incurred, of which£38m is reflected in reported operating profit (of which £1m relates totransaction fees) and £1m is included in net interest.Contingent liabilities. The Group is involved in a number of investigations bycompetition authorities in Europe and has made provisions for suchinvestigations, where appropriate. Where it is too early to determine thelikely outcome of these matters, the Directors have made no provision for suchpotential liabilities.The Group from time to time is involved in disputes in relation to ongoing taxmatters in a number of jurisdictions around the world. Where appropriate, theDirectors make provisions based on their assessment of each case.
On 23 February 2011, the Group received a civil claim for damages from the Department of Health and others in the United Kingdom, regarding alleged anti-competitive activity involving the Gaviscon brand. The claim is under review and although it is at an early stage, the Directors do not believe that any potential impact would be material to the Group financial statements.
Post balance sheet events. Further to an announcement on 13 December 2010, on11 April 2011 the Group confirmed that it had received the necessary regulatoryclearances and had completed the acquisition of Paras Pharmaceuticals Limitedin India. 2011 Targets
The Q1 2011 results position the Group well to achieve its FY 2011 financial targets.
For the Group excluding SSL, the target is for +4% like-for-like net revenue growth, with profit growth ahead of that.
For SSL, the Group is also targeting around +4% net revenue growth on alike-for-like basis (base: £762m): in addition, the Group is aiming to add 50%of the £100m cost synergies to the 2010 profit level. An exceptional pre-taxcharge in the region of £150m is expected to be incurred in 2011, of whicharound £4m will be exceptional financing costs.For RBP, the Group continues to target further market share growth for the filmvariant. At this time, the Group has no new intelligence as to the timing ofpotential generic competition to the Suboxone tablets in the U.S.Taking all of the above into consideration, the targets for the total Groupremain +12% net revenue growth (base: £8,453m) and +10% adjusted net incomegrowth (base: £1,661m*), both at constant exchange. These targets exclude thepotential impact of generic competition to the Suboxone tablets in the U.S.,and will be adjusted downwards in the event that generic competition emerges.
* Adjusted to exclude the impact of exceptional items.
For further information, please contact:
Reckitt Benckiser +44 (0)1753 217800 Joanna Speed Director, Investor Relations Andraea Dawson-Shepherd
SVP, Global Corporate Communication & Affairs
Brunswick (Financial PR) +44 (0)20 7404 5959
David Litterick / Teresa Bianchi
Cautionary note concerning forward-looking statements
This document contains statements with respect to the financial condition,results of operations and business of Reckitt Benckiser and certain of theplans and objectives of the Group with respect to these items. Theseforward-looking statements are made pursuant to the "Safe Harbor" provisions ofthe United States Private Securities Litigation Reform Act of 1995. Inparticular, all statements that express forecasts, expectations and projectionswith respect to future matters, including trends in results of operations,margins, growth rates, overall market trends, the impact of interest orexchange rates, the availability of financing to the Company, anticipated costsavings or synergies and the completion of strategic transactions areforward-looking statements. By their nature, forward-looking statements involverisk and uncertainty because they relate to events and depend on circumstancesthat will occur in the future. There are a number of factors discussed in thisreport, that could cause actual results and developments to differ materiallyfrom those expressed or implied by these forward-looking statements, includingmany factors outside Reckitt Benckiser's control. Past performance cannot berelied upon as a guide to future performance.
The Group at a Glance (Unaudited)
Quarter ended 31 March 2011 2010 £m £m Net revenue - total 2,283 2,003
Net revenue growth - like-for-like +5% +6%
Net revenue growth - constant +15% +6% Net revenue growth - total +14% +5% Gross margin 59.5% 59.5% EBITDA - adjusted* 570 493 EBITDA margin - adjusted* 25.0% 24.6% EBIT 492 461 EBIT - adjusted* 530 461 EBIT margin 21.6% 23.0% EBIT margin - adjusted* 23.2% 23.0% Profit before tax 486 464 Net income 355 348 Net income - adjusted* 384 348 EPS, basic, as reported 48.9p 48.3p EPS, adjusted and diluted* 52.2p 47.5p
* Adjusted to exclude the impact of exceptional items.
Group balance sheet data 31 March 31 December 2011 2010 £m £m Net working capital * (1,000) (900) Net debt (1,647) (2,011)
* Net working capital is defined as inventories, short term receivables and short term liabilities, excluding borrowings and provisions.
Shares in issue Millions 31 December 2010 725.9
Issued or transferred from Treasury 0.3
31 March 2011 726.2
Group Income Statement Analysis (Unaudited)
Quarter ended 31 March 2011 2010 % change £m £m Net revenue 2,283 2,003 +14 Cost of sales (925) (812) Gross profit 1,358 1,191 +14 Net operating expenses (866) (730) Operating profit 492 461 +7 Operating profit before exceptional items 530 461 +15 Exceptional items (38) - Operating profit 492 461 +7
Net finance (expense) / income* (6) 3 Profit on ordinary activities before 486 464
+5taxation
Tax on profit on ordinary activities (129) (116)
Net income for the period 357 348 +3
Attributable to non-controlling interest 2 - Attributable to ordinary equity holders 355 348
+2of the parent Net income for the period 357 348 +3
Earnings per ordinary share: On net income for the period, basic 48.9p 48.3p On net income for the period, diluted 48.3p 47.5p Earnings per ordinary share - adjusted**: On net income for the period, basic 52.9p 48.3p On net income for the period, diluted 52.2p 47.5p * Q1 2011 includes an exceptional charge of £1m in respect of financial costsassociated with the acquisition of SSL. There were no exceptional charges in Q12010.
** Adjusted to exclude the impact of exceptional items.
Average common shares outstanding
(millions): Basic 726.0 720.9 Diluted 735.3 732.5
Segment Information (Unaudited)
Analyses by operating segment of net revenue and adjusted operating profit, andof net revenue by product group are set out below. The Executive Committee ofthe Group assesses the performance of the operating segments based on netrevenue and adjusted operating profit. This measurement basis excludes the
effect of exceptional items.Operating segment Quarter ended 31 March 2011 2010 % change £m £m exch. rates actual const. Net revenue Europe 1,028 906 +13 +17 North America & Australia 553 528 +5 +5 Developing Markets 546 438 +25 +23 Pharmaceuticals 156 131 +19 +23 2,283 2,003 +14 +15Operating profit - adjusted* Europe 220 206 +7 +9 North America & Australia 126 105 +20 +20 Developing Markets 85 64 +33 +31 Pharmaceuticals 99 86 +15 +21 530 461 +15 +17Operating margin - adjusted* % % Europe 21.4 22.7 North America & Australia 22.8 19.9 Developing Markets 15.6 14.6 Pharmaceuticals 63.5 65.6 23.2 23.0
* Adjusted to exclude the impact of exceptional items.
Segment Information (Unaudited), continued
Product segment Quarter ended 31 March 2011 2010 % change £m £m exch. rates actual const. Net revenue by category Health & Personal Care 758 524 +45 +46 Fabric Care 375 407 -8 -6 Surface Care 363 343 +6 +3 Home Care 283 294 -4 +1 Dishwashing 235 237 -1 +1 Other 44 1 n/m n/m
Household and Health & Personal Care 2,058 1,806 +14
+15 Pharmaceuticals 156 131 +19 +23 Food 69 66 +5 +6 2,283 2,003 +14 +15Net revenue of £172m in Q1 in respect of the SSL business is included withinHealth & Personal Care. On a LFL basis, net revenue growth in Health & PersonalCare is +13%.
Net revenue of £31m in Q1 in respect of the SSL business is included within Other.
Operating profit - adjusted* Household and Health & Personal Care 415 360 +15
+16 Pharmaceuticals 99 86 +15 +21 Food 16 15 +7 +14 Operating profit before exceptional items 530 461 +15 +17 Exceptional items (38) - Operating profit 492 461 +7 Operating margin - adjusted* % %
Household and Health & Personal Care 20.2 19.9
Pharmaceuticals 63.5 65.6 Food 23.2 22.7 23.2 23.0
* Adjusted to exclude the impact of exceptional items.
mapperRelated Shares:
RB..L