27th Apr 2006 12:00
27th April 2006 STRONG START TO 2006 FULL YEAR TARGETS CONFIRMED Results at a Glance Q1 % change % change ‚£m actual exch constant exch Net Revenues ‚£1,162m +18% +13% Operating Profit as reported ‚£154m -4% -7% Net Income as reported ‚£110m -11% -14% EPS (fully diluted) as 14.9p -10% reported Operating Profit adjusted* ‚£196m +23% +18% Net Income adjusted* ‚£141m +14% +10% EPS adjusted* (fully diluted) 19.1p +15% *Adjusted to exclude the impact of the restructuring charge. * Net revenues increased 18% (13% at constant exchange) to ‚£1,162m. The base business (excluding BHI) grew 10% (6% constant) to ‚£1,085m. BHI contributed net revenues of ‚£77m in the two months of ownership. * Operating profit before restructuring increased 23% (18% constant) to ‚£ 196m. Gross margins increased 30 bps to 54.4%. Operating margins before restructuring increased by 70bps to 16.9%. * Net income was ‚£14m lower after restructuring charges relating to the BHI acquisition of ‚£42m. Excluding the after tax impact of restructuring, net income increased 14% to ‚£141m. * Net borrowings at 31st March were ‚£825m reflecting the ‚£1.926bn cost of the BHI acquisition less net funds of ‚£887m at the end of last year and further strong cash inflow in the quarter. 2.2m shares were repurchased in the quarter at a cost of ‚£45m. Commenting on these results, Bart Becht, Chief Executive Officer, said"Reckitt Benckiser made a strong start to 2006 with underlying growth on thebase business of 6% and a better than expected contribution from BHI in itsfirst two months. Underlying growth was driven by the success of initiatives like Vanish Oxi Action Crystal White, Cillit Bang Stain and Drain and AirwickFreshmatic supported by increasing marketing investment."The integration of BHI is proceeding on plan and we are increasingly confidentof delivering the promised synergy targets."The results position us well to achieve our full year targets for 2006 of netrevenue growth in the mid teens (base ‚£4,179m) and net income growth (excludingrestructuring and one-off tax credits) in the low double digits (base ‚£653m),both at constant exchange, from the enlarged business. " Basis of Presentation Results are presented under International Financial Reporting Standards (IFRS).The results include the Boots Healthcare International business (BHI) from 1February 2006, the date of acquisition. Where appropriate, the term `statutory'represents the total business, the term `adjusted' excludes the restructuringcharge, and the term `underlying' represents the results excludingrestructuring and BHI operations. The Corporate item is now fully allocatedback to the operations, consistent with the 2005 results. The comparatives for2005 by quarter have been restated and were set out in a press release dated12th April 2006. Detailed Operating Review Q1 net revenues increased 18% (13% at constant exchange) to ‚£1,162m. The basebusiness (excluding BHI) grew 10% (6% constant) to ‚£1,085m.BHI contributed net revenues of ‚£77m in the two months of ownership sinceacquisition on 31st January 2006.Gross margin increased by 30 bps to 54.4%, mainly due to the positive miximpact of consolidating BHI. On the base business higher costs of raw andpackaging materials in the quarter were substantially offset by the benefits ofvolume growth, price increases and savings from the Company's cost optimisationprograms.Marketing investment was higher driven by other consumer marketing. Pure mediainvestment increased 3% to a level of 11.1% of net revenues. This was belowlast year's ratio of 12.6% due to phasing of initiatives and a much lower levelof media investment in BHI in its first two months.Operating profit reflects restructuring charges relating to the BHI acquisitionof ‚£42m, the first tranche of a ‚£150m charge in total, all of which is likelyto be recognized in 2006. The costs incurred in Q1 primarily relate toheadcount reduction in commercial operations and HQ functions in the first twomonths of integration.Operating margins excluding restructuring increased by 70 bps to 16.9% due togross margin expansion and lower marketing ratios due in part to the inclusionof BHI.Operating profit before restructuring grew 23% (18% constant) to ‚£196m.Operating profit after restructuring was ‚£154m, a decrease of 4% (7% constant).Net finance expense was ‚£5m (2005 income of ‚£7m), reflecting interest on theacquisition cost, offset by strong cash inflow. The tax rate is 26%.Net income was ‚£110m, a decrease of 11% (14% constant). Excluding the after taximpact of restructuring, net income was ‚£141m, an increase of 14% actual (10%constant).Earnings per share decreased 10% to 14.9 pence per share, better than the netincome growth rate due to further accretion from the buyback program. Excludingrestructuring, earnings per share increased 15% to 19.1 pence per share. Geographical Analysis at constant exchange & on adjusted basis Europe 54% of net revenuesNet revenues grew 16% to ‚£623m. Underlying growth was 5%. The majorcontributors to growth were fabric care, surface care and home care. The maindriver in fabric care was fabric treatment due to the successful launch ofVanish Oxi Action Crystal White. In surface care, growth came from multipurposecleaners and lavatory care. Cillit Bang has performed well against a very highbase last year, primarily due to initial success for Cillit Bang Stain andDrain. The increase in lavatory care was due to the successful introduction ofthe Harpic 2in1Max in toilet bowl device. In Home care, aircare growth wasdriven by continuing success for Airwick Freshmatic both devices and refills.Laundry detergent improved.Operating margins were 140bps higher in the quarter at 21.3%. Operating profitincreased by 23% to ‚£133m.North America & Australia 28% of net revenuesNet revenues grew 11% to ‚£326m. Underlying growth was 7%. Q1 growth inhousehold came particularly from surface care and home care. Surface caregrowth was driven by the launch of Easy Off Bam across the Area, including thenewly introduced degreaser. In Home care, air care growth came across bothAirwick Freshmatic, which is continuing its successful growth, and from AirwickElectrical Oils. Food was in line with last year in the quarter with growth forthe consumer brands of French's yellow mustard, Frank's Red Hot sauce andCattleman's BBQ sauce offset by business given up in food service.Operating margins were 60bps lower at 14.4% due to lower gross margin as aresult of higher raw and packaging materials not fully offset by lower fixedcosts. Operating profit was 6% higher at ‚£47m.Developing Markets 18% of net revenuesNet revenues grew 9% to ‚£213m, and by 7% underlying, with strong growth acrossall regions of Asia, Latin America and Africa Middle East. The majorcontributors to growth were fabric care, surface care and health & personalcare. In fabric care, the growth came from fabric treatment, mainly driven bythe roll-out of Vanish Oxi Action in new markets in Asia and Africa MiddleEast. In surface care, the increase was due to the roll-out of Easy Off Bang,including the new Degreaser in new markets and strong growth for Harpiclavatory care. In Health & Personal Care, the Dettol personal care range againgrew strongly benefiting from range extensions and additional investment, whilein healthcare Gaviscon grew due to new market entries in the Area.Operating margins improved by 60bps to 7.5% due to gross margin improvement,significant volume leverage and favorable product mix. Operating profit was ‚£16m (2005 ‚£12m).BHI Integration Update.The integration of the former BHI business is proceeding in line with plan. Theorganizational structure and staffing have now been implemented across thebusiness, with the portfolio of BHI brands now being marketed and distributedincreasingly as a single portfolio with the Reckitt Benckiser brands. Backoffice and commercial integration will be largely complete by the middle of theyear, although certain aspects of systems integration will complete in thesecond half.Following review since acquisition, the Company can confirm and is increasinglyconfident of delivering the promised synergies of ‚£75m of cost reduction and ‚£130m of net working capital by 2008. For 2006, the in-year cost synergies areestimated to be around ‚£30m and the net working capital target remains areduction of ‚£50m. Category Review at constant exchange rates. Fabric Care. Net revenues increased 9% to ‚£291m. The major drivers were strongcontinuing growth for Vanish Oxi Action fabric treatment due to the launch ofVanish Oxi Action Crystal White, and for both Woolite fine fabric and Calgonwater softeners. Laundry detergent sales improved.Surface Care. Net revenues grew 4% to ‚£232m principally due to the launch ofCillit Bang Stain and Drain in Europe and to the continuing roll-out of EasyOff Bang Degreaser outside Europe. Harpic Lavatory Care net revenues were alsostronger due to the success of Harpic 2in1 Max in toilet bowl device in Europeand to strong growth in Developing Markets.Dishwashing. Net revenues increased 1% to ‚£154m due to comparison with thelaunch period for Finish / Calgonit 4in1 in Q1 last year. Finish / CalgonitQuantum, initially launched in Q4 2005, is being rolled out across Europe inits high end niche positioning. Finish 5in1 had no impact in the quarter asshipments only commenced at the end of March.Home Care. Net revenues improved by 12% to ‚£172m. Air Care grew strongly due tothe continuing success of Airwick Freshmatic in Europe and North America, andstrong growth for Airwick Electrical Oils in North America.Health & Personal Care. Net revenues increased 60% to ‚£246m, with underlyinggrowth excluding BHI of 10%. Dettol antiseptic was ahead in Developing Marketsdue to the expansion of the personal care range. OTC Health Care increased dueto the success of Gaviscon Cool, particularly the newly introduced handy pack,and the roll-out of Gaviscon into new markets. Suboxone anti-addictiontreatment continues to grow strongly in North America.The former business of BHI, led by Nurofen, Strepsils and Clearasil,contributed net revenues of ‚£77m in the two months of ownership. The resultswere better than expected even though net revenues for the period were belowlast year due to the planned reduction in trade inventories.Core Household net revenues grew 15% to ‚£1,095m. Total Household and Health &Personal Care net revenues were ahead by 14% to ‚£1,121m.Food. Net revenues were in line with last year at ‚£41m with good performanceacross the consumer portfolio, benefiting also from the national roll-out inretail of Cattleman's BBQ sauce, further growth for French's yellow mustard andFrank's red hot sauce, offset by business given up in food service channels. Financial Review Income Statement. Net interest moved from ‚£7m income to a charge of ‚£5m. Thiswas due to the debt taken on following the acquisition of BHI offset bycontinuing strong cash inflow through the period. Tax on profit for the quarterwas ‚£39m. The tax rate for the period is 26%.Fully diluted earnings per share declined 10%, slightly better than the 11%decline in net income. The benefit of the buyback program was therefore 100bps.Excluding restructuring, fully diluted earnings per share grew 15% (against a14% increase in the equivalent net income figure).No profit has been disclosed for the acquired business as, in the view of theDirectors, it is impracticable to separately identify a profit stream for theacquired business following full integration of BHI into the commercialstructure and portfolio of Reckitt Benckiser.Restructuring. The restructuring charge is recognized in the income statementin accordance with IFRS. A charge of ‚£42m was incurred in Q1. This representsthe first tranche of the ‚£150m charge for BHI integration that is expected tobe recognized in full in 2006.Balance Sheet. The group had net debt of ‚£825m at the end of Q1 compared to anet funds position of ‚£887m at the end of 2005. This is the result of therequirement to fund the acquisition on 31 January 2006 of BHI offset bycontinuing strong net cash inflow from the business during Q1. The grouprepurchased 2.2m shares in Q1 at a cost of ‚£45m as part of its target tobuyback ‚£300m of shares in calendar 2006. No dividend is paid in Q1.Net working capital (inventories, short term receivables and short termliabilities excluding borrowings, convertible bonds and provisions) decreasedby ‚£30m to minus ‚£646m, reflecting further improvements in payables offset bythe inclusion of positive working capital from the acquisition of BHI.Half Year Results.The Company will release results for the six months to 30 June 2006 on Monday24th July.For further information Reckitt Benckiser +44 (0)1753 217 800 Tom Corran SVP Investor Relations & Corporate Communications Fiona Fong Head of Corporate Communications Press calls Mark Wilson Corporate Controller & Investor Calls Investor Relations Manager PR Agency Tim Spratt Financial Dynamics +44 (0)207 837 3113 The Group at a Glance (unaudited) Quarter Ended March 31 2006 2005 ‚£m ‚£m Net revenues - underlying 1,085 986 Net revenues - acquisition 77 - Net revenues - total 1,162 986 Net revenue growth - underlying 10% 7% Net revenue growth - total 18% 7% Gross margin 54.4% 54.1% EBITDA 179 182 EBITDA margin 15.4% 18.5% EBIT 154 160 EBIT - adjusted* 196 160 EBIT margin - adjusted* 16.9% 16.2% Profit before tax 149 167 Net Income 110 124 Net Income adjusted * 141 124 EPS 15.2p 17.1p EPS, adjusted and diluted * 19.1p 16.6p * Adjusted to exclude the impact of the restructuring charge.Group Balance Sheet Data# March 31, December 31, 2006 2005 ‚£m ‚£m Net working capital* (646) (616) Net (debt) / funds (825) 887*Defined as inventories, short term receivables and short term liabilitiesexcluding borrowings, convertible bonds and provisions.# This balance sheet information contains provisional amounts in respect of theacquisition of BHI.Shares in Issue First Quarter Millions 31 December 2005 722.2 Issued 1.2 Cancelled (2.2) 31 March 2006 721.2 Group Income Statement (unaudited) Quarter Ended March 31 2006 2005 % change ‚£m ‚£m Net revenues 1,162 986 18% Cost of sales (530) (453) 17% Gross profit 632 533 19% Net operating expenses (478) (373) 28% Operating Profit 154 160 -4% Operating profit before restructuring 196 160 23% Restructuring charge (42) - - Operating Profit 154 160 -4% Net finance (expense)/income (5) 7 - Profit before taxation 149 167 -11% Taxation (39) (43) -9% Profit for the period 110 124 -11% Attributable to minority interests - - - Attributable to equity shareholders 110 124 -11% Profit for the period 110 124 -11% Earnings per ordinary share: On profit for the period 15.2p 17.1p -11% On profit for the period, diluted 14.9p 16.6p -10% Earnings per ordinary share - adjusted*: On profit for the period 19.5p 17.1p +14% On profit for the period, diluted 19.1p 16.6p +15% * Adjusted to exclude the impact of the restructuring charge. Average common shares outstanding (millions) : Basic 722.4 724.8 Diluted 736.4 748.9 Segmental Analysis (unaudited)Analyses by geographical area (primary segment) of net revenues and operatingprofit and of net revenues by product group (secondary segment) are set outbelow. The figures for each geographical area show the net revenues and profitmade by companies located in that area. Additional information is provided toshow profit by class of business.Primary Segment: Geographical Area Quarter Ended March 31 2006 2005 % change ‚£m ‚£m exch. rates actual const. Net revenues Europe 623 538 16% 16% North America & Australia 326 273 19% 11% Developing Markets 213 175 22% 9% 1,162 986 18% 13%Operating profit - statutory basis Europe 112 107 5% 4% North America & Australia 33 41 -20% -25% Developing Markets 9 12 -25% -31% 154 160 -4% -7%Operating profit - adjusted Europe 133 107 24% 23% North America & Australia 47 41 15% 6% Developing Markets 16 12 33% 20% Subtotal before restructuring 196 160 23% 18% Restructuring charge (42) - - - 154 160 -4% -7%Operating margin - adjusted % % Europe 21.3% 19.9% North America & Australia 14.4% 15.0% Developing Markets 7.5% 6.9% Subtotal before restructuring 16.9% 16.2% Segmental Analysis (continued)Secondary Segment: Product Segment Quarter Ended March 31 2006 2005 % change ‚£m ‚£m exch. Rates Actual Const. Net revenues Fabric Care 291 262 11% 9% Surface Care 232 210 10% 4% Dishwashing 154 150 3% 1% Home Care 172 144 19% 12% Health & Personal Care 246 150 64% 60% Core Business 1,095 916 20% 15% Other Household 26 33 -21% -26% Household and Health & Personal Care 1,121 949 18% 14% Food 41 37 11% 0% 1,162 986 18% 13%Net revenues of ‚£77m in respect of the acquisition in 2006 are included withinHealth & Personal Care. On an underlying basis, growth of Health & PersonalCare is 10% at constant rates.Additional InformationOperating profit - by product segment Household and Health & Personal Care 193 157 23% 18% Food 3 3 0% 0% Subtotal before restructuring 196 160 23% 18% Restructuring (42) - 154 160 -4% -7%Operating margin - by product segment % % Household and Health & Personal Care 17.2% 16.5% Food 7.3% 8.1% Subtotal before restructuring 16.9% 16.2% ENDRECKITT BENCKISER PLCRelated Shares:
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