25th Jul 2011 07:00
Reckitt Benckiser A World Leader in Household, Health and Personal Care 25 July 2011 STRONG HY 2011 RESULTS FY 2011 TARGETS CONFIRMED Results at a glance Q2* % change % change HY % change % change £m actual constant £m actual constant(unaudited) exchange exchange exchange exchange Net revenue 2,338 +13 +16 4,621 +14 +15 - Like-for-like growth** +5% +5% Operating profit - 557 +11 +13 1,049 +9 +11 reported Operating profit - 573 +14 +16 1,103 +14 +17 adjusted*** Net income - reported 404 +6 +9 759 +4 +6 Net income - adjusted 418 +10 +13 802 +10 +12 EPS (diluted) - reported 54.9p +6 103.2p +4 EPS (diluted) - adjusted 56.8p +10 109.0p +10
* Q2 results were not subject to the independent review.
** Like-for-like ("LFL") growth excludes the impact of changes in exchange rates, major acquisitions and disposals.
*** Adjusted results (including % change figures) exclude exceptional items(see page 2). There was an exceptional pre-tax charge of £56m in HY 2011 (Q22011: £17m) mainly relating to the acquisition of SSL International plc, ofwhich £54m (Q2: £16m) is included in reported operating profit and £2m (Q2:£1m) is an exceptional finance cost. There were no exceptional items in HY
2010(Q2 2010: £nil).Half Year (HY) highlights:
* Total net revenue growth of +15% (constant exchange) to £4,621m. LFL growth
+5% (+4% ex-RBP). * Gross margin -70bp to 59.3%: adjusted operating margin +20bp to 23.9%. * SSL integration on track: cost synergies of £33m delivered in the half year.
* Adjusted net income +10% (actual exchange, +12% constant): adjusted diluted
EPS of 109.0p (+10%).
* Net working capital of minus £932m, reflecting a further improvement versus
31 December 2010.
* Net debt of £2,195m (31 December 2010: £2,011m), with strong free cash flow
generation being more than offset by the payment of the final 2010 dividend, the acquisition of Paras Pharmaceuticals Limited and cash restructuring payments. * The Board declares a +10% increase in the interim dividend to 55.0p per share.
Q2 highlights:
* Total net revenue +16% (constant exchange), of which LFL growth +5% (+3%
ex-RBP). * Gross margin -140bp to 59.1%: adjusted operating margin +10bp to 24.5%.
* Adjusted net income +10% (actual exchange, +13% constant): adjusted diluted
EPS of 56.8p (+10%).
Commenting on these results, Bart Becht, Chief Executive Officer, said:
"Reckitt Benckiser delivered strong first half results, with net revenue growthof +15% and adjusted net income growth of +12% (both at constant) ahead of theGroup's FY 2011 targets.Growth in the base business was driven in particular by an excellent result inDeveloping Markets, and was boosted by innovations such as the continued rollout of the Dettol No Touch Hand Soap System into new markets, as well as asignificant level of investment in media and promotional spend.RBP made further progress in converting its U.S. business into thepatent-protected and patient-preferred Suboxone sublingual film variant. As iswell known, our Suboxone tablets can become subject to generic competition inthe U.S. at any time, and moving more of our business into the film remains akey priority. At the end of June 2011, the Suboxone film had captured a 41%volume share of the U.S. market: as a result, Suboxone tablets in the U.S. nowrepresent less than 50% of total RBP net revenue.
The integration of SSL is fully on track to deliver the targeted cost synergies and net revenue growth in 2011.
Given these strong first half results, we are well-positioned to achieve our FY 2011 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 major 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 £56m in HY 2011 mainlyrelating to integration and transaction costs arising from the acquisition ofSSL. This exceptional pre-tax charge is reflected in reported operating profit(£54m, of which £2m relates to transaction fees) and net interest (£2m, beingfinancing costs associated with the acquisition). There were no exceptionalitems in HY 2010. The tax effect of exceptional items in the period is £13m. Detailed Operating Review: Total Group
Second quarter 2011
Q2 net revenue increased +13% (+16% at constant exchange) to £2,338m, with LFLgrowth of +5%. SSL contributed £222m net revenue in the quarter, representing aLFL growth rate of +3% versus the comparable quarter in 2010 and acceleratingfrom negative growth in Q1.The gross margin declined by -140bp to 59.1%, with mix benefits, savings fromcost optimisation programmes and a positive transaction impact from foreignexchange being more than offset by higher input costs and increased investmentin price and promotion to support volume shares, especially in Europe. Totalmarketing investment was higher, and pure media investment rose +12% (+14%constant) to a level of 11.5% of net revenue. Within this, pure media spend onthe base business was up +20bp at 12.9% of net revenue. Operating profit asreported was £557m, +11% versus Q2 2010 (+13% constant), reflecting the impactof an exceptional pre-tax charge of £16m mainly relating to the acquisition ofSSL. Cost synergies from the acquisition of SSL amounted to £22m in thequarter. On an adjusted basis, operating profit was ahead +14% (+16% constant)to £573m: the adjusted operating margin increased by +10bp to 24.5%.
Net finance expense was £5m (Q2 2010: net finance income of £4m), 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 £404m, an increase of +6% (+9% constant) versus Q2 2010; on an adjusted basis, net income rose +10% (+13% constant). Diluted earnings per share of 54.9 pence were +6% higher on a reported basis; on an adjusted basis, the growth was +10% to 56.8 pence.
Half year 2011
HY net revenue increased +14% (+15% at constant exchange) to £4,621m, with LFLgrowth of +5%. SSL contributed £425m net revenue in the HY, representing a LFLgrowth rate of +0% versus the comparable period in 2010.The gross margin declined by -70bp to 59.3%, with mix benefits, savings fromcost optimisation programmes and a positive transaction impact from foreignexchange being more than offset by higher input costs and increased investmentin price and promotion to support volume shares, especially in Europe. Totalmarketing investment was higher, and pure media investment rose +9% (+11%constant) to a level of 11.2% of net revenue. Within this, pure media spend onthe base business was up +10bp at 12.7% of net revenue. Operating profit asreported was £1,049m, +9% versus HY 2010 (+11% constant), reflecting the impactof an exceptional pre-tax charge of £54m mainly relating to the acquisition ofSSL. Cost synergies from the acquisition of SSL amounted to £33m in the period.On an adjusted basis, operating profit was ahead +14% (+17% constant) to £1,103m: the adjusted operating margin increased by +20bp to 23.9%.
Net finance expense was £11m (HY 2010: net finance income of £7m), of which £2m 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 £759m, an increase of +4% (+6% constant) versus HY2010; on an adjusted basis, net income rose +10% (+12% constant). Dilutedearnings per share of 103.2 pence were +4% higher on a reported basis; on anadjusted basis, the growth was +10% to 109.0 pence. HY 2011 Business Review
Summary: % net revenue growth
HY 2011 Like-for-like SSL Impact Exchange Reported Europe -1% +18% -1% +16% NAA +2% +3% -3% +2% DvM +14% +9% -1% +22% Group ex-RBP +4% +11% -1% +14% RBP +22% +0% -6% +16% TOTAL +5% +10% -1% +14%
The Business Review below is given at constant exchange rates.
Europe 44% of net revenue
HY 2011 total net revenue increased +17% to £2,038m, with LFL growth of -1%.Volume shares improved in the first four months of the year behind significantmedia spend and increased investment in price and promotion. Increasedinvestment in price and promotion was the key factor behind the LFL reductionin net revenue in both Q2 and HY 2011.By category, in Healthcare, Nurofen and Strepsils delivered a strong result,supported by such new initiatives as Nuromol and Strepsils Warm, and benefitingfrom a more normal incidence of cold/'flu in Q1 2011. The increase in PersonalCare was driven by the continued roll-out of the Dettol No Touch Hand SoapSystem, which has delivered a very encouraging early result. Growth in SurfaceCare came from Dettol and Harpic, with the result in Home Care being boosted bysuch recent initiatives as the Air Wick 100% natural propellant spray and AirWick Odour Detect as well as continued growth in candles. Dishwashing wasmarginally down in a slower category, while the decline in Fabric Care waslargely due to weakness in Laundry Detergents in southern Europe. Vanish,although still down year-on-year, is showing an improving net revenue andmarket share trend.
For the half year, adjusted operating profit was ahead +10% at £438m; the adjusted operating margin decreased -140bp, due to a combination of increased investment in price and promotion and higher input costs.
In Q2, net revenue rose +17% to £1,010m, with LFL growth of -2%. Adjusted operating profit was £218m, with the margin -140bp lower at 21.6%.
North America & Australia 24% of net revenue
HY 2011 total net revenue increased +5% to £1,094m, with LFL growth of +2%.Growth came from Health & Personal Care, Dishwashing and Food. The increase inHealth & Personal care was driven by Mucinex, which benefited from a morenormal incidence of cold/'flu in Q1 2011. In Dishwashing, Finish Quantum andAll-in-1 tablets and gel packs contributed to the performance. The increase inFood came from the consumer brands of French's Yellow Mustard and Frank's RedHot Sauce, which was supported by additional marketing activity.
For the half year, adjusted operating profit increased +19% to £241m; the adjusted operating margin was +280bp higher at 22.0%.
Q2 net revenue rose +4% (+2% LFL) to £541m and adjusted operating profit was ahead by +17% to £115m, equating to a +280bp uplift in the margin to 21.3%.
Developing Markets 24% of net revenue
HY 2011 total net revenue was ahead +23% (+14% LFL) to £1,129m, with growthevident across all regions. In Health & Personal Care, Dettol continued to growwell, particularly behind bar soaps, and was boosted by the recent introductionof a men's range. In addition, Strepsils, Gaviscon and Veet also delivered astrong result. The increase in Fabric Care was driven by Vanish and was helpedby higher marketing, while Harpic was the key driver in Surface Care. In HomeCare, both Air Care and Pest Control contributed to the performance.
For the half year, adjusted operating profit increased by +35% to £188m. This resulted in a +140bp improvement in the adjusted operating margin to 16.7%.
Q2 net revenue increased by +23% to £583m (+14% LFL). Adjusted operating profit improved +39% to £103m, with a +180bp uplift in the margin to 17.7%.
Pharmaceuticals 8% of net revenue
HY 2011 total net revenue increased +22% to £360m. Growth came from continuedgrowth in the U.S. and the impact of the buy back from Merck of the majority ofsales, marketing and distribution rights to the buprenorphine-containingproducts Suboxone, Subutex and Temgesic in Europe and Rest of the World. In theU.S., the recently-launched and patent-protected Suboxone film variantcontinued to grow, and by the end of June had captured a 41% volume share ofthe market for buprenorphine-based products used for opioid dependence. Despitethe lower price of the film variant compared to the Suboxone tablets, netrevenue in the U.S. business grew by +8% to £273m, of which the film generated£114m.Adjusted operating profit for the total RBP business increased +16% to £236m.The operating margin was down -380bp to 65.6%, due to the materially lowermargins of the new film variant and lower margins in the acquired business inEurope and Rest of the World.
Suboxone has data exclusivity in Europe until 2016; in the U.S., Suboxone lost the exclusivity afforded by its Orphan Drug Status on 8 October 2009. As a result of the loss of exclusivity in the U.S., up to 80% of the revenue and
profit of the Suboxone tablet business might be lost in the year following the launch of generic competitors, with the possibility of further erosion thereafter.
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 beyond 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 Suboxonefilm will materially mitigate the impact of generic tablet launches.
Q2 net revenue increased by +21% to £204m. Adjusted operating profit increased +13% to £137m, with the margin -490bp lower at 67.2%.
HY 2011 Category Review (at Constant Exchange Rates) Health & Personal Care. Net revenue increased +45% (+11% LFL) to £1,536m, withdurex and Scholl together contributing £344m in the period. In Healthcare, theresult was driven by very good growth for Nurofen, Mucinex and Strepsils,boosted by such new initiatives as Strepsils Warm and also benefiting from amore normal incidence of cold/'flu in Q1 2011: Gaviscon was also a strongcontributor. In Personal Care, Dettol continued to grow well both in DevelopingMarkets, and in Europe where the continued roll-out of the No Touch Hand SoapSystem has been very encouraging.
In Q2, Health & Personal Care rose +45% (+9% LFL) to £778m.
Fabric Care. Net revenue decreased -5% to £757m, largely driven by weakness inLaundry Detergents in southern Europe. Vanish, while still down year-on-year,is showing an improving net revenue and market share trend.
Q2 net revenue declined -5% to £382m.
Surface Care. Net revenue grew +2% to £692m. There was good growth for Dettol/Lysol and Veja, with a strong result for Harpic being boosted by Power Plus andMax Power toilet liquids. Q2 net revenue increased +2% to £329m.Home Care. Net revenue increased +3% to £569m, with growth in both Air Care andPest Control. In Air Care, the result was supported by the launch of Air Wick100% natural propellant spray and Air Wick Odour Detect, with continued goodgrowth in candles. In Pest Control, a strong season and growth in automaticsprays contributed to the performance. Q2 growth was +4% to £286m.
Dishwashing. Net revenue increased +1% to £453m, behind continued success for Finish Quantum. Q2 net revenue was +1% at £218m.
Other. Net revenue increased to £105m (Q2: £61m), 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% (+3%LFL) to £4,112m. In Q2, total Household and Health & Personal Care grew +15% to£2,054m, with LFL growth of +3%.
Pharmaceuticals
HY 2011 total net revenue for the Group's Subutex and Suboxone prescriptiondrug business grew +22% to £360m. Within the Pharmaceuticals division, the U.S.business generated net revenue of £273m. Suboxone film continued to grow andhad captured a 41% market volume share by the end of June, generating netrevenue of £114m in the half year. In Europe and Rest of the World, the resultwas helped by the full inclusion of a number of countries from 1 July 2010, asa result of the majority of sales, marketing and distribution rights to thebuprenorphine-containing products Suboxone, Subutex and Temgesic being boughtback by the Group.
Adjusted operating profit for the total RBP business increased +16% to £236m. The adjusted operating margin was down by -380bp to 65.6%, 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.
Q2 net revenue was ahead +21% to £204m, with adjusted operating profit up +13% to £137m; this equated to a -490bp decline in the margin to 67.2%.
Food. Net revenue grew +8% to £149m, with a good performance from the consumerbrands of French's Yellow Mustard and Frank's Red Hot Sauce, boosted byadditional marketing investment. Adjusted operating profit increased +12% to£38m.
Q2 net revenue grew +8% and adjusted operating profit was £22m (+10%).
New Product Initiatives: H2 2011
The Group has announced a number of new product initiatives for the second half of 2011:
In Health & Personal Care:
* Launch of Mucinex Multi-Symptom, a range of liquids which provide relief
from multiple-symptom colds and not just a cough alone.
* Launch of Strepsils Children 6+, providing specific sore throat relief for
children aged six years and over.
* Launch of Strepsils Sore Throat & Cough, offering effective relief for a
dry, tickly cough on top of soothing a sore throat.
* Launch of durex Performax Intense condoms, designed to give a more intense
experience for both men and women. * Launch of Dettol Healthy Touch moisturising hand sanitiser, which effectively kills germs without drying hands.
* Launch of Dettol High Performance for Men, a new range of soaps and shower
gels specifically designed for an active male lifestyle.
In Fabric Care:
* Launch of Vanish Sensitive, which delivers the same amazing Oxi Action
stain removal while being dermatologically tested to leave laundry gentle
to the skin. In Surface Care:
* Launch of Cillit Bang Active Foam, a super-wide foam spray which thoroughly
penetrates and dissolves soapscum, for fast, easy and effective cleaning of
large bathroom surfaces.
In Home Care:
* Launch of Air Wick Flip & Fresh. By flipping over the device, this
easy-to-adjust slow-release air freshener contains 100% perfume oil and is
available in a range of fresh scents. * Launch of Air Wick Touch of Luxury fragranced candles. Once lit, a soft glow illuminates through the wax, which slowly keeps changing colour to create a comforting and relaxing mood. 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.
In line with the requirements of IFRS 3 (Revised), the balance sheet at 31 December 2010 has been restated to reflect updated provisional fair value adjustments for the acquisition of SSL International plc made within the hindsight period (see Note 15a for further details).
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 finance expense. Net finance expense was £11m (2010: net finance income of£7m), reflecting the acquisition of SSL and Paras Pharmaceuticals Limited("Paras"). The HY 2011 net finance expense includes a £2m exceptional charge inrespect of financial costs associated with the acquisition of SSL.
Tax. The overall effective tax rate is 26% (2010: 25%).
Net working capital (inventories, short-term receivables and short-term liabilities excluding borrowings and provisions) of minus £932m was a £18m improvement versus the 31 December 2010 level (see Note 15a for further details).
Cash flow. Cash generated from operations was +7% higher at £1,167m (2010:
£1,090m), and net cash flow from operations was £745m, +8% (2010: £692m). Netinterest paid was £12m higher at £5m (2010: net interest received of £7m) andtax payments decreased by £23m to £363m (2010: £386m) following the settlementof a number of outstanding matters in the prior year. Net capital expenditure(including intangibles) was £55m higher than the prior year at £74m (2010:£19m), largely owing to the disposal of a minor brand in the prior year.Net debt at the end of the half year was £2,195m (31 December 2010: £2,011m),an increase of £184m. This reflected net cash flow from operations of £745m,which was more than offset by the payment of the final 2010 dividend of £472mand the acquisition of businesses (principally Paras) for £460m. The Groupregularly reviews its banking arrangements and currently has adequatefacilities available to it.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 to 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 HY 2011, an exceptional pre-tax charge of £56m was incurred, of which£54m is reflected in reported operating profit (of which £2m relates totransaction fees) and £2m is included in net interest.Balance sheet. At 30 June 2011, the Group had shareholders' funds of £5,512m(31 December 2010: £5,130m), an increase of +7%. Net debt was £2,195m (31December 2010: £2,011m) and total capital employed in the business was £7,707m(31 December 2010: £7,141m).This finances non-current assets of £11,361m (31 December 2010: £10,732m), ofwhich £725m (31 December 2010: £738m) is tangible fixed assets, the remainderbeing goodwill, other intangible assets, deferred tax, available for salefinancial assets and other receivables. The Group has net working capital ofminus £932m (31 December 2010: minus £914m), current provisions of £70m (31December 2010: £164m) and long-term liabilities other than borrowings of £2,648m(31 December 2010: £2,511m).Dividends. The Board of Directors declares an interim dividend of 55.0p (2010:50.0p), an increase of +10%. The ex-dividend date will be 3 August 2011 and thedividend will be paid on 29 September 2011 to shareholders on the register atthe record date of 5 August 2011. The last date for election for the sharealternative to the dividend is 8 September 2011.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.
2011 Targets
The HY 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.
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.
Principal Risks and Uncertainties The Directors consider that the principal risks and uncertainties which couldhave a material impact on the Group's performance in the remaining six monthsof 2011 are the same as described on pages 6 and 7 of the Annual Report andFinancial Statements for the year ended 31 December 2010. These include:
* Market risks:
* + Demand for the Group's products adversely affected due to changes in consumer preference. + Customer de-listing of the Group's brands. + Competition may reduce market share and margins.
+ Competition from private label and unbranded products may intensify.
+ The expiry of the Group's exclusive licence for Suboxone in the U.S. in
2009 and in the rest of the world in 2016 could expose the business to
competition from generic variants. * Operational risks: *
+ Unfavourable economic or business conditions in the markets in which
the Group operates.
+ New product innovation declines or becomes less relevant to consumers.
+ Increased costs resulting from shortages of raw materials. + Disruption to the supply chain. + Adverse changes in the regulatory environment. + Fluctuations in foreign exchange and interest rates.
+ Disruption or failure of the Group's information technology systems.
+ Departure or increased turnover of key management. + Integration of acquisitions. * Environmental, social and governance risks: * + Industry sector and regulatory risks. + Product quality and safety risks to consumers. + Potential reputational risks around the supply chain. * Financial risks: * + Risk exposures in relation to tax, treasury, financial controls and reporting.
The Group's Annual Report and Financial Statements for the year ended 31 December 2010 are available on the Group's website at www.rb.com.
The Group at a Glance (Unaudited)
Quarter ended Half year ended 30 June 30 June 2011 2010 2011 2010 £m £m £m £m 2,338 2,061 Net revenue - total 4,621 4,064 +5% +6% Net revenue growth - +5% +6% like-for-like +16% +6% Net revenue growth - +15% +6% constant +13% +10% Net revenue growth - total +14% +7% 59.1% 60.5% Gross margin 59.3% 60.0% 613 532 EBITDA - adjusted* 1,183 1,025 26.2% 25.8% EBITDA margin - adjusted* 25.6% 25.2% 557 503 EBIT 1,049 964 573 503 EBIT - adjusted* 1,103 964 23.8% 24.4% EBIT margin 22.7% 23.7% 24.5% 24.4% EBIT margin - adjusted* 23.9% 23.7% 552 507 Profit before tax 1,038 971 404 380 Net income 759 728 418 380 Net income - adjusted* 802 728 55.5p 52.4p EPS, basic, as reported 104.4p 100.7p 56.8p 51.8p EPS, adjusted and diluted* 109.0p 99.2p
* Adjusted to exclude the impact of exceptional items.
Group balance sheet data 30 June 31 December 2011 2010 £m £m Net working capital * (932) (914) Net debt 2,195 2,011* Net working capital is defined as inventories, short-term receivables andshort-term liabilities, excluding borrowings and provisions. See Note 15a forfurther detailsShares in issue First half Millions 31 December 2010 725.9 Issued 0.3 31 March 2011 726.2 Issued 2.2 30 June 2011 728.4
Group Income Statement Analysis (Unaudited)
Quarter ended Half year ended 30 June 30 June 2011 2010 % change 2011 2010 % change £m £m £m £m 2,338 2,061 +13 Net revenue 4,621 4,064 +14 (957) (815) Cost of sales (1,882) (1,627) 1,381 1,246 +11 Gross profit 2,739 2,437 +12 (824) (743) Net operating expenses (1,690) (1,473) 557 503 +11 Operating profit 1,049 964 +9 573 503 +14 Operating profit before 1,103 964 +14 exceptional items (16) - Exceptional items (54) - (15) - - Exceptional restructuring (52) - charge (1) - - Transaction costs in respect (2) - of acquisitions 557 503 +11 Operating profit 1,049 964 +9 (5) 4 Net financial (expense) / income (11) 7 * 552 507 +9 Profit on ordinary activities 1,038 971 +7 before taxation (145) (127) Tax on profit on ordinary (274) (243) activities 407 380 +7 Net income for the period 764 728 +5 3 - Attributable to non-controlling 5 - interests 404 380 +6 Attributable to ordinary equity 759 728 +4 shareholders of the parent 407 380 +7 Net income 764 728 +5 Earnings per ordinary share: 55.5p 52.4p On net income for the period, 104.4p 100.7p basic 54.9p 51.8p On net income for the period, 103.2p 99.2p diluted Earnings per ordinary share - adjusted** 57.5p 52.4p On net income for the period, 110.4p 100.7p basic 56.8p 51.8p On net income for the period, 109.0p 99.2p diluted
* HY 2011 includes an exceptional charge of £2m in respect of financial costs associated with the acquisition of SSL (Q2 2011: £1m). There were no exceptional charges in HY 2010 (Q2 2010: £nil).
** Adjusted to exclude the impact of exceptional items.
Average common shares outstanding: (millions) 727.5 724.9 Basic 726.7 722.9 736.0 733.5 Diluted 735.7 734.0
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 theeffect of exceptional items.Operating segment Quarter ended Half year ended 30 June 30 June 2011 2010 2011 2010 £m £m £m £m . % change % change exch. rates exch. rates actual const. actual const. Net revenue 1,010 846 +19 +17 Europe 2,038 1,752 +16 +17 541 545 -1 +4 North America & 1,094 1,073 +2 +5 Australia 583 491 +19 +23 Developing 1,129 929 +22 +23 Markets 204 179 +14 +21 Pharmaceuticals 360 310 +16 +22 2,338 2,061 +13 +16 4,621 4,064 +14 +15 Operating profit - adjusted* 218 195 +12 +10 Europe 438 401 +9 +10 115 101 +14 +17 North America & 241 206 +17 +19 Australia 103 78 +32 +39 Developing 188 142 +32 +35 Markets 137 129 +6 +13 Pharmaceuticals 236 215 +10 +16 573 503 +14 +16 Sub-total 1,103 964 +14 +17 before exceptional items (16) - Exceptional (54) - items 557 503 +11 +13 1,049 964 +9 +11 % % Operating % % margin - adjusted* 21.6 23.0 Europe 21.5 22.9 21.3 18.5 North America & 22.0 19.2 Australia 17.7 15.9 Developing 16.7 15.3 Markets 67.2 72.1 Pharmaceuticals 65.6 69.4 24.5 24.4 23.9 23.7
* Adjusted to exclude the impact of exceptional items.
Segment Information (Unaudited), continued
Product segment Quarter ended Half year ended 30 June 30 June 2011 2010 2011 2010 £m £m £m £m . % change % change exch. rates exch. rates actual const. actual const. Net revenue by category 778 546 +42 +45 Health & 1,536 1,070 +44 +45 Personal Care 382 398 -4 -5 Fabric Care 757 805 -6 -5 329 343 -4 +2 Surface Care 692 686 +1 +2 286 268 +7 +4 Home Care 569 562 +1 +3 218 216 +1 +1 Dishwashing 453 453 +0 +1 61 31 +97 +97 Other 105 32 n/m n/m 2,054 1,802 +14 +15 Household and 4,112 3,608 +14 +15 Health & Personal Care 204 179 +14 +21 Pharmaceuticals 360 310 +16 +22 80 80 +0 +8 Food 149 146 +2 +8 2,338 2,061 +13 +16 4,621 4,064 +14 +15
Net revenue of £365m in HY 2011 in respect of the SSL business is included within Health & Personal Care (Q2 2011: £193m). On a LFL basis, net revenue growth in Health & Personal Care is +11% for HY 2011 and +9% for Q2 2011.
Net revenue of £60m in HY 2011 in respect of the SSL business is included within Other (Q2 2011: £29m).
Operating profit - adjusted* 414 352 +18 +18 Household and 829 712 +16 +17 Health & Personal Care 137 129 +6 +13 Pharmaceuticals 236 215 +10 +16 22 22 +0 +10 Food 38 37 +3 +12 573 503 +14 +16 1,103 964 +14 +17 (16) - Exceptional (54) - items 557 503 +11 +13 1,049 964 +9 +11 % % Operating % % margin - adjusted* 20.2 19.5 Household and 20.2 19.7 Health & Personal Care 67.2 72.1 Pharmaceuticals 65.6 69.4 27.5 27.5 Food 25.5 25.3 24.5 24.4 23.9 23.7
* 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 and Affairs
Brunswick (Financial PR) +44 (0)20 7404 5959
David Litterick / Teresa Bianchi
Notice to shareholders
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.
Half Year Condensed Financial Statements (Unaudited)
Group Income Statement (Unaudited)
For the six months ended 30 June
At 30 At 30 June Full Year June 2011 2010 2010 Notes £m £m £m Net revenue 4 4,621 4,064 8,453 Cost of sales (1,882) (1,627) (3,332) Gross profit 2,739 2,437 5,121 Net operating expenses (1,690) (1,473) (2,991) Operating profit 4 1,049 964 2,130 Operating profit before exceptional 1,103 964 2,231items Exceptional items 5 (54) - (101) Operating profit 1,049 964 2,130 Finance income 10 8 21 Finance expense * (21) (1) (15)
Net finance (expense) / income (11) 7
6
Profit on ordinary activities before 1,038 971 2,136taxation Tax on profit on ordinary activities 7 (274) (243) (566) Net income for the period 764 728 1,570
Attributable to non-controlling 5 -
2interests Attributable to ordinary equity 759 728 1,568shareholders of the parent Net income for the period 764 728 1,570
Earnings per ordinary share:
On net income for the period, basic 8 104.4p 100.7p 216.5p
On net income for the period, 8 103.2p 99.2p
213.8p
diluted
* HY 2011 includes an exceptional charge of £2m in respect of financial costs associated with the acquisition of SSL.
Group Statement of Comprehensive Income (Unaudited)
For the six months ended 30 June
30 June 30 June Full Year 2011 2010 2010 £m £m £m Net income for the period 764 728 1,570 Other comprehensive income
Net exchange adjustments on foreign 57 80
103
currency translation, net of tax Actuarial gains and losses, net of tax 3 (23)
4
(Losses) / gains on cash flow hedges, (1) 2
(2)net of tax
Other comprehensive income for the 59 59
105period, net of tax Total comprehensive income for the 823 787 1,675period
Attributable to non-controlling 7 -
3interests Attributable to ordinary equity 816 787 1,672shareholders of the parent 823 787 1,675
Group Balance Sheet (Unaudited)
At 30 June At 30 At 31 June December 2011 2010 2010 Restated* Notes £m £m £m ASSETS Non-current assets: Goodwill and other intangible assets 10,415 6,244
9,789
Property, plant and equipment 10 725 630
738 Deferred tax assets 181 122 164
Available for sale financial assets 11 11
12 Other receivables 29 26 29 11,361 7,033 10,732 Current assets: Inventories 743 479 643 Trade and other receivables 1,582 1,086 1,363
Derivative financial instruments 31 -
34
Available for sale financial assets 49 12
11
Cash and cash equivalents 581 653
588 2,986 2,230 2,639 Total assets 14,347 9,263 13,371 LIABILITIES Current liabilities: Borrowings 11 (2,849) (85) (2,641) Provisions for liabilities and charges 13 (70) (60) (164) Trade and other payables (2,968) (2,570) (2,627) Tax liabilities (297) (236) (295) (6,184) (2,951) (5,727) Non-current liabilities: Borrowings 11 (3) (3) (3) Deferred tax liabilities (1,859) (1,183) (1,735) Retirement benefit obligations 6 (430) (430)
(478)
Provisions for liabilities and charges 13 (142) (42) (112) Tax liabilities (178) (158) (178)
Other non-current liabilities (39) (6)
(8) (2,651) (1,822) (2,514) Total liabilities (8,835) (4,773) (8,241) Net assets 5,512 4,490 5,130 EQUITY Capital and reserves: Share capital 14 73 73 73 Share premium 81 46 59 Merger reserve (14,229) (14,229) (14,229) Hedging reserve (5) - (4)
Foreign currency translation reserve 386 309
331 Retained earnings 19,127 18,289 18,828 5,433 4,488 5,058 Non-controlling interests 79 2 72 Total equity 5,512 4,490 5,130
* See note 15a for further details
Group Cash Flow Statement (Unaudited)
For the six months ended 30 June
30 June 30 June Full Year 2011 2010 2010 Notes £m £m £m
CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations:
Operating profit 1,049 964 2,130
Depreciation of property, plant & 80 61
144
equipment, amortisation and impairment of
intangible assets Fair value gains (2) - (3) Profit on sale of property, plant and - (29)
(32)
equipment and intangible assets
Other non-cash movements - - 4 (Increase) / decrease in inventories (83) 16
(50)
Increase in trade and other receivables (55) (181)
(243)
Increase in payables and provisions 147 227
203 Share award expense 31 32 62 Cash generated from operations: 1,167 1,090 2,215 Interest paid (14) (2) (11) Interest received 9 9 19 Tax paid (363) (386) (679) Net cash generated from operating 799 711 1,544activities
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (58) (53) (170) Purchase of intangible assets (22) - (197)
Disposal of property, plant and equipment 6 34
42and intangible assets Acquisition of businesses, net of cash 15 (460) - (2,466)acquired
Purchase of short-term investments (38) (8)
(7)
Maturity of long-term investments 1 7
8
Net cash used in investing activities (571) (20)
(2,790)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares 22 67
80 Proceeds from borrowings 622 - 2,966 Repayments of borrowings (400) (102) (802) Dividends paid to the Company's 9 (472) (411) (773)shareholders
Dividends paid to non-controlling (1) -
-interests Net cash (used in) / generated from (229) (446) 1,471financing activities
Net (decrease) / increase in cash and (1) 245
225cash equivalents
Cash and cash equivalents at beginning of 568 334
334period Exchange gains 1 5 9
Cash and cash equivalents at end of 568 584
568period
Cash and cash equivalents comprise
Cash and cash equivalents 581 653 588 Overdrafts (13) (69) (20) 568 584 568
RECONCILIATION OF NET CASH FLOW FROM
OPERATIONS Net cash generated from operating 799 711 1,544activities Net purchases of property, plant and (54) (19) (158)equipment Net cash flow from operations 745 692
1,386
Management uses net cash flow from operations as a performance measure.
Group Statement of Changes in Equity (Unaudited)
For the six months ended 30 June
Share Share Merger Hedging Foreign Retained
Total Non-controlling Total
capital Premium reserve reserve currency earnings attributable interest translation to equity reserve shareholders Balance at 1 72 - (14,229) (2) 229 17,942 4,012 2 4,014January 2010 Net income 728 728 728 Other 2 80 (23) 59 59comprehensive income Total - - - 2 80 705 787 - 787comprehensive income Transactions with owners Share based 32 32 32payments Deferred tax on 1 1 1share awards Proceeds from 1 46 47 47share issue Treasury shares 20 20 20re-issued Dividends (411) (411) (411) Total 1 46 - - - (358) (311) - (311)transactions with owners Balance at 30 73 46 (14,229) - 309 18,289 4,488 2 4,490June 2010 Net income 840 840 2 842 Other (4) 22 27 45 1 46comprehensive income Total - - - (4) 22 867 885 3 888comprehensive income Transactions with owners Proceeds from 13 13 13share issue Share based 30 30 30payments Deferred tax on (8) (8) (8)share awards Current tax on 12 12 12share awards Dividends (362) (362) (362) Non-controlling 67 67interest arising on business combination Total - 13 - - - (328) (315) 67 (248)transactions with owners Balance at 31 73 59 (14,229) (4) 331 18,828 5,058 72 5,130December 2010 Net income 759 759 5 764 Other (1) 55 3 57 2 59comprehensive income Total - - - (1) 55 762 816 7 823comprehensive income Transactions with owners Proceeds from 22 22 22share issue Share based 31 31 31payments Current tax on 5 5 5share awards Deferred tax on 2 2 2share awards Dividends (472) (472) (1) (473) Non-controlling 1 1interest arising on business combination * Put option (29) (29) - (29)issued to non-controlling interest * Total - 22 - - - (463) (441) - (441)transactions with owners Balance at 30 73 81 (14,229) (5) 386 19,127 5,433 79 5,512June 2011
* See note 15c for further details
Notes to the Half Year Condensed Financial Statements (Unaudited)
1. General Information
Reckitt Benckiser Group plc is a public limited company incorporated anddomiciled in the UK. The address of its registered office is 103-105 Bath Road,Slough, Berkshire SL1 3UH. The Company is listed on the London Stock Exchange.The Half Year Condensed Financial Statements were approved by the Board ofDirectors on 22 July 2011.
This condensed consolidated interim financial information has been reviewed, not audited.
2. Basis of Preparation The Half Year Condensed Financial Statements for the six months ended 30 June2011 have been prepared in accordance with IAS 34, `Interim financialreporting' as adopted by the European Union and as issued by the InternationalAccounting Standards Board and with the Disclosure and Transparency Rules ofthe United Kingdom's Financial Services Authority. The Half Year CondensedFinancial Statements should be read in conjunction with the Annual Report andFinancial Statements for the year ended 31 December 2010, which have beenprepared in accordance with IFRSs as adopted by the European Union and IFRSs asissued by the International Accounting Standards Board.These Half Year Condensed Financial Statements do not comprise statutoryaccounts within the meaning of section 434 of the Companies Act 2006. Statutoryaccounts for the year ended 31 December 2010 were approved by the Board ofDirectors on 11 March 2011 and delivered to the Registrar of Companies. Thereport of the auditors on those accounts was unqualified, did not contain anemphasis of matter paragraph and did not contain any statement under section498 of the Companies Act 2006.The Group has considerable financial resources (as detailed in note 11)together with a diverse customer and supplier base across differentgeographical areas and categories. As a consequence, the Directors believe thatthe Group is well placed to manage its business risks successfully despite thecurrent uncertain economic outlook. The Directors have a reasonable expectationthat the Group has adequate resources to continue in operational existence forthe foreseeable future. Thus they continue to adopt the going concern basis ofaccounting in preparing the Half Year Condensed Financial Statements.
In line with the requirements of IFRS 3 (Revised) the balance sheet at 31 December 2010 has been restated to reflect updated provisional fair value adjustments for the acquisition of SSL International Plc made within the hindsight period, see note 15a for further details.
3. Accounting Policies and Estimates
Except as described below, the accounting policies applied are consistent withthose described on pages 34-37 of the Annual Report & Financial Statements forthe year ended 31 December 2010.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
The results and net assets of the Group's subsidiary in Zimbabwe have been included within the consolidated Group results with effect from 1 January 2011. The one-off impact on reported results is immaterial.
The following standards, amendments and interpretations became effective forthe first time for the financial year beginning 1 January 2011 but either haveno material impact or are not relevant to the Group: * IFRS 1 (Amendment) - "First time adoption" on financial instrument disclosures * IAS 24 (Revised) - "Related party disclosures"
* IAS 32 (Amendment) - "Financial instruments presentation" on classification
of rights issues * IFRIC 14 (Amendment) - "Prepayments of a minimum funding requirement"
* IFRIC 19 - "Extinguishing financial liabilities with equity instruments"
There are also a number of changes to accounting standards as a result of the annual improvements to IFRSs 2010, mainly effective for the financial year beginning 1 January 2011. These had no material impact on the Group.
New standards, amendments and interpretations that have been issued but are notyet effective and have not been early adopted are not expected to have amaterial impact to the Group except for the amendment to IAS 19 EmployeeBenefits. The Group is currently assessing the full impact of this amendmentand will apply the amended standard from 1 January 2013.In preparing these Half Year Condensed Financial Statements the significantestimates and judgements made by management in applying the Group's accountingpolicies and the key sources of estimation uncertainty were the same as thosethat applied to the consolidated financial statements for the year ended 31December 2010.
4. Operating Segments
Management has determined the operating segments based on the reports reviewedby the Executive Committee, which is considered the Chief Operating DecisionMaker (CODM), that are used to make strategic decisions. The ExecutiveCommittee considers the business principally from a geographical perspective,but with the Pharmaceuticals business (RBP) being managed separately given thesignificantly different nature of the business and the risks and rewardsassociated with it. The geographical segments, being Europe, NAA and DevelopingMarkets, derive their revenue primarily from the manufacture and sale ofbranded products in Household Cleaning and Health & Personal Care, whilst RBPderives its revenue exclusively from the sales of buprenorphine-basedprescription drugs used to treat opiate dependence.
The Executive Committee assesses the performance of the operating segments based on net revenue and adjusted operating profit. This measurement basis excludes the effects of exceptional items.
Finance income and expense are not allocated to segments, as they are managed on a central Group basis.
Inter segment revenues are charged according to internally agreed pricing terms that are designed to be equivalent to an arm's length basis, and have been consistently applied throughout 2010 and 2011.
Half Year Ended 30 June Europe NAA Developing RBP Elimination Total Markets 2011 £m £m £m £m £m £m Total gross segment net 2,136 1,094 1,146 360 (115) 4,621revenue Inter-segment revenue (98) - (17) - 115 - Net revenue 2,038 1,094 1,129 360 - 4,621 Operating profit - 438 241 188 236 - 1,103adjusted* Exceptional items (37) (1) (16) - - (54) Operating profit 401 240 172 236 - 1,049 Net finance expense (11) Profit before tax 1,038 * adjusted to exclude exceptional items Europe NAA Developing RBP Elimination Total Markets 2010 £m £m £m £m £m £m Total gross segment net 1,813 1,073 934 310 (66) 4,064revenue Inter-segment revenue (61) - (5) - 66 - Net revenue 1,752 1,073 929 310 - 4,064 Operating profit 401 206 142 215 - 964 Net finance income 7 Profit before tax 971
Items of income and expense which are not part of the results and financialposition of the reported segments, and therefore reported to the CODM outsideof the individual segment financial information, are shown as reconciling itemsbetween the segmental information and the Group totals presented in theconsolidated financial statements. These items principally include corporateitems that are not allocated to specific segments. For the six months ended 30June 2011, these items include expenses relating to legal matters and othermiscellaneous items (2010: a profit on disposal of intangibles and an expenserelating to legal matters). The net impact of these items is £nil (30 June2010: £nil).
SSL has now been reported as part of the Group's existing geographical segments, accordingly this has resulted in re-allocation of assets and liabilities reported as SSL at 31 December 2010, the majority of which have now been reported under Europe.
Net revenue by product segment
The Group also analyses its revenue by product group as follows:
Half Year Ended 30 June 2011 2010 £m £m Net revenue by category Health & Personal Care 1,536 1,070 Fabric Care 757 805 Surface Care 692 686 Home Care 569 562 Dishwashing 453 453 Other 105 32 Household and Health & 4,112 3,608Personal Care Pharmaceuticals 360 310 Food 149 146 4,621 4,064 5. Exceptional Items Exceptional items recognised in operating profit for period ended 30 June 2011consist of restructuring charges and acquisition costs of £54m (£52m as aresult of the integration of SSL International Plc and £2m as a result of ParasPharmaceuticals Limited). In addition, an exceptional finance charge of £2m isincluded within net finance expense. The tax effect of exceptional items in theperiod is £13m. There were no exceptional items in the first half of 2010. Forthe year ended 31 December 2010 the Group incurred £79m of restructuring costsand £22m of acquisition costs in relation to SSL.
6. Defined Benefit Pension Schemes
The Group operates a number of defined benefit and defined contribution pensionschemes around the world covering many of its employees. The Group's mostsignificant defined benefit pension schemes (UK) are funded by the payment ofcontributions to separately administered trust funds. The Group also operates anumber of other post-retirement schemes in certain countries.As at 30 June 2011, the present value of the Group's scheme liabilities lessthe fair value of plan assets was a deficit of £405m (31 December 2010: deficitof £452m). At 30 June At 30 June At 31 December 2011 2010 2010 Restated* £m £m £m Total equities 538 435 549 Total bonds 458 312 432 Total other assets 89 60 73 Fair value of plan assets 1,085 807 1,054
Present value of scheme liabilities (1,490) (1,218) (1,506)
Net liability recognised in the (405) (411)
(452)
balance sheet
* Balances at 31 December 2010 have been restated as a result of the additional SSL fair value adjustments made within the hindsight period to opening netassets. See note 15a.
The net pension liability is recognised in the balance sheet as follows:
At 30 June At 30 June At 31 December 2011 2010 2010 Restated* £m £m £m Non-current asset: Funded scheme surplus 25 19 26 Non-current liability: Funded scheme deficit (210) (223) (257) Unfunded scheme liability (220) (207) (221) Retirement benefit obligations (430) (430) (478) Net pension liability (405) (411) (452)
* Balances at 31 December 2010 have been restated as a result of the additional SSL fair value adjustments made within the hindsight period to opening net assets. See note 15a.
7. Income Taxes
Income tax expense is recognised based on management's best estimate of theweighted average annual income tax rate expected for the full financial year.The estimated average annual tax rate used for the year to 31 December 2011 is26% (the estimated tax rate for the six months ended 30 June 2010 was 25%).The March 2011 Budget Statement contained the announcement of a reduction tothe UK corporation tax rate from 28% to 26% from 1 April 2011 with furtherreductions of 1% per annum to 23% by 1 April 2014. The rate reduction to 26%has been substantively enacted and this change is reflected in these financialstatements.The Finance (No.3) Bill 2011 includes legislation to reduce the rate by 1% to25% from 1 April 2012, whilst the further reductions are expected to beincluded in future legislation. These changes have not been substantivelyenacted at the balance sheet date and, therefore, are not included in the HalfYear Condensed Financial Statements.
8. Earnings per Share
Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company (2011: £759m; 2010: £728m) by the weighted average number of ordinary shares in issue during the period (2011: 726,743,834; 2010: 722,938,221).
Diluted
Diluted earnings per share is calculated by adjusting the weighted averagenumber of shares outstanding to assume conversion of all potentially dilutiveordinary shares. The Company has two categories of dilutive potential ordinaryshares: Executive Options and Employee Sharesave schemes. The options onlydilute earnings per share when they result in the issue of shares at anexercise price below the market price of the share and when all performancecriteria (if applicable) have been met. As at 30 June 2011, there were 3.6m(2010: nil) of Executive Options not included within the dilution because theexercise price for the options was greater than the average share price for
theyear.Reported BasisThe reconciliation between profit for the half year and the weighted averagenumber of shares used in the calculations of the diluted earnings per share isset out below: 2011 2010 Profit Average Earnings Profit Average Earnings for number of per for number of per the shares share, the shares share, half pence half pence year, year, £m £m Profit attributable to 759 726,743,834 104.4 728 722,938,221 100.7shareholders Dilution for Executive 8,161,717 10,173,766 options outstanding and Executive Restricted Share Plan Dilution for Employee 787,471 888,394 Sharesave Scheme options outstanding On a diluted basis 759 735,693,022 103.2 728 734,000,381 99.2Adjusted BasisThe reconciliation between profit for the half year and the weighted averagenumber of shares used in the calculations of the diluted earnings per share isset out below: 2011 2010 Profit Average Earnings Profit Average Earnings for number of per for number of per the shares share, the shares share, half pence half pence year, year, £m £m Profit attributable to 802 726,743,834 110.4 728 722,938,221 100.7shareholders * Dilution for Executive 8,161,717 10,173,766 options outstanding and Executive Restricted Share Plan Dilution for Employee 787,471 888,394 Sharesave Scheme options outstanding On a diluted basis 802 735,693,022 109.0 728 734,000,381 99.2
* adjusted to exclude exceptional items
9. Dividends
A final dividend in respect of the financial year ended 31 December 2010 of 65.0 pence per share amounting to £472m was paid on 26 May 2011 to shareholders who were on the register on 25 February 2011.
The Directors are proposing an interim dividend in respect of the financialyear ending 31 December 2011 of 55.0 pence per share which will absorb anestimated £401m of shareholders' funds. It will be paid on 29 September 2011 toshareholders who are on the register on 5 August 2011. The expected tax impactof this dividend is £nil (2010: £nil).
10. Property, Plant and Equipment
During the period there were additions of £58m (2010: £53m) and disposals of£4m (2010: £5m). The additions and disposals were across all categories ofproperty, plant and equipment. There was no significant capital expenditurewhich was contracted but not capitalised at 30 June 2011 or 2010.
11. Financial Liabilities - Borrowings
At 30 June At 30 June At 31 December 2011 2010 2010Current £m £m £m
Bank loans and overdrafts (a) 37 83
444 Commercial paper (b) 2,811 - 2,195 Finance lease obligations 1 2 2 2,849 85 2,641 At 30 June At 30 June At 31 December 2011 2010 2010 Non-current £m £m £m Finance lease obligations 3 3 3 3 3 3
a) Bank loans are denominated in a number of currencies; all are unsecured and bear interest based on relevant LIBOR equivalent.
b) Commercial paper was issued in US Dollars, all unsecured and bearing interest based on relevant LIBOR equivalent.
At 30 June At 30 June At 31 December 2011 2010 2010 Maturity of debt £m £m £m
Bank loans and overdrafts repayable:
Within one year or on demand 37 83 444 Other borrowings repayable: Within one year or on demand: Commercial paper 2,811 - 2,195 Finance leases 1 2 2 Between two and five years :
Finance leases (payable by instalments) 3 3
3 2,815 5 2,200 Gross borrowings (unsecured) 2,852 88 2,644Borrowing facilities
The Group has various borrowing facilities available to it. The undrawn committed facilities available, in respect of which all conditions precedent have been met at the balance sheet date, were as follows:
At 30 June At 30 June At 31 December 2011 2010 2010 Undrawn committed facilities £m £m £m Expiring within one year - 900 - Expiring between one and two years 1,725 -
1,725
Expiring in more than two years 1,275 750 1,275 3,000 1,650 3,000
12. Reconciliation of Net Debt
At 30 June At 30 June At 31 December 2011 2010 2010 Analysis of net debt £m £m £m Cash and cash equivalents 581 653 588 Overdrafts (13) (69) (20) Borrowings (2,839) (19) (2,624) Other 76 12 45 (2,195) 577 (2,011) At 30 June At 30 June At 31 December 2011 2010 2010 Reconciliation of net debt £m £m £m
Net (debt)/cash at beginning of period (2,011) 220
220
Net (decrease)/increase in cash and cash (1) 245
225equivalents Repayment of borrowings 400 102 802 Proceeds from borrowings (622) - (2,966) Borrowings acquired in business - - (311)combination
Exchange and other adjustments 39 10
19
Net (debt)/cash at end of period (2,195) 577
(2,011)
13. Provisions for Liabilities and Charges
Restructuring Other Total provision provisions £m £m £m At 1 January 2010 52 72 124
Charged to the income statement - 6
6 Utilised during the year (19) (11) (30) Exchange adjustments 1 1 2 At 30 June 2010 34 68 102
Charged to the income statement 86 70
156
Additional provisions on acquisition - 30
30of SSL Utilised during the year (26) (4) (30) Exchange adjustments (1) - (1)
At 31 December 2010 (as reported) 93 164
257 Restatement (see note 15a) - 19 19
At 31 December 2010 (restated) 93 183
276
Charged to the income statement 53 17
70 Utilised during the year (114) (18) (132) Exchange adjustments - (2) (2) At 30 June 2011 32 180 212
Provisions have been analysed between current and non-current as
follows: At 30 June At 30 June At 31 December 2011 2010 2010 Restated* £m £m £m Current 70 60 164 Non-current 142 42 112 212 102 276
* Balances at 31 December 2010 have been restated as a result of the additional SSL fair value adjustments made within the hindsight period to opening net assets. See note 15a.
Other provisions include provisions for onerous leases, various legal, regulatory, environmental and other obligations throughout the Group, the majority of which are expected to be utilised within five years.
The restructuring provision relates to the acquisition and integration of the SSL business and some further restructuring of the Group. The majority is expected to be utilised in 2011 with the remainder being utilised in 2012.
14. Share Capital Equity Nominal Subscriber Nominal ordinary value £m ordinary value £m shares shares Issued and fully paid At 1 January 2011 725,853,970 73 2 - Allotments 2,507,697 - At 30 June 2011 728,361,667 73 2 -15. Business Combinations
a. SSL International Plc (SSL)
On 29 October 2010 the Group obtained control of SSL by acquiring 100% of theissued share capital for a consideration of £2.5bn. SSL is a globalmanufacturer and distributor of healthcare products enabling RB to increase itspresence in the Health & Personal Care sector through the acquisition.
The fair values of the identifiable assets and liabilities at the date of acquisition were provisionally estimated and disclosed in the 2010 Annual Report & Financial Statements. The measurement of fair values is still being completed and will be finalised in advance of 29 October 2011.
The table below sets out the movements from the provisional fair valuesdetailed in the 2010 Annual Report & Financial Statements and the updatedprovisional fair values at acquisition date as estimated at 30 June 2011. Theadjustments made to restate the balance sheet primarily relate to the impact ofvaluation assessments of certain property, plant and equipment and computersoftware, accruals for trade related expenses and returned inventory,provisions for legal matters and recognition of related deferred tax assets.
These adjustments have been recorded as a prior year restatement of the balance sheet of the Group at 31 December 2010. There is no material impact to the income statement for the year ended 31 December 2010.
Provisional Additional Updated fair values at fair value provisional acquisition adjustments fair values at date (reported acquisition at December date (reported 2010) at June 2011) £m £m £m Intangible assets 2,293 (7) 2,286
Property, plant and equipment 55 (2)
53 Inventories 98 (3) 95 Receivables 228 - 228 Payables (195) (11) (206) Provisions (30) (19) (49) Net cash 57 - 57 Deferred tax asset 34 23 57
Retirement benefit obligations (86) 1
(85) Borrowings (311) - (311) Long-term liabilities (25) - (25) Deferred tax on intangibles (601) - (601) Net assets acquired 1,517 (18) 1,499 Non-controlling interests (67) - (67) Goodwill 1,073 18 1,091 Total consideration transferred 2,523 -
2,523
b. Paras Pharmaceuticals Limited (Paras)
On 11 April 2011, the Group obtained control of Paras by acquiring 100% of theissued share capital for a consideration of INR 32.7 billion (Indian Rupees),approximately £455m. Paras was a privately owned Indian company with aportfolio of leading Indian over the counter Health & Personal Care brandsenabling RB to advance its growth strategy in this market. This transaction hasbeen accounted for by the acquisition method of accounting.From the date of acquisition to 30 June 2011 the acquisition contributed £18mto net revenue. Had the acquisition taken place at 1 January 2011 the enlargedGroup would show consolidated net revenue of £4,633m for the six months ended30 June 2011.The following table summarises the consideration paid and the provisional fairvalues of the assets acquired and liabilities assumed at the acquisition date. Provisional fair values at acquisition date £m Intangible assets 305
Property, plant and equipment
5 Inventories 4 Receivables 2 Payables (18) Net cash 7 Deferred tax on intangibles (92) Net assets acquired 213 Goodwill 242
Total cash consideration transferred
455
Acquisition related costs of £2m are included in net operating expenses and disclosed as exceptional items in the income statement.
The fair value of receivables is £2m and includes trade receivables with a fairvalue of £1m. The gross contractual amount for trade receivables due is £1mwhich is expected to be collectible.Goodwill represents the growth potential of the business, the creation of amaterial health care business in India's large and growing health care marketand the global synergies available to RB. None of the goodwill is expected tobe deductible for income tax purposes.
Intangible assets represent brands acquired. All assets and liabilities are included within the Developing Markets reportable segment.
The fair value of identifiable net assets contains provisional amounts which will be finalised in advance of 11 April 2012 when the permitted 12 month hindsight period will elapse. At 30 June 2011 these balances remain provisional.
Provisional fair value adjustments cover the recognition of acquired intangibleassets and their associated deferred tax, accounting policy alignment and otherfair value adjustments on net working capital & property, plant and equipment.
c. Shanghai Manon Trading Company Limited (Manon)
During the period the Group acquired a 50.1% interest in Manon for cash consideration of £8m. Manon has been determined to be a subsidiary undertaking of the Group from the date of acquisition of the initial 50.1% shareholding.
The Group has entered into a forward contract to purchase the remaining sharesof Manon. This contract creates a financial liability at the date ofacquisition which has been valued at £29m, being the present value of forecastcash outflow related to the purchase of remaining shares.
16. Contingent Liabilities
Contingent liabilities for the Group, comprising guarantees relating to subsidiary undertakings, at 30 June 2011 amounted to £4m (31 December 2010: £21m, 30 June 2010: £30m).
The Group is involved in a number of investigations by competition authoritiesin Europe and has made provisions for such investigations, where appropriate.Where it is too early to determine the likely outcome of these matters, theDirectors have made no provision for such potential 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.
17. Post Balance Sheet Events
Share capital issued since 30 June 2011
In the period 30 June 2011 to 20 July 2011 the Company has issued 5,124 ordinary shares.
Interim Dividend
Details of the interim dividend proposed are given in note 9.
18. Seasonality
Demand for the majority of products sold by the Group is not subject to significant seasonal fluctuations. Within some categories such as Health & Personal Care and Pest Control, some products do exhibit seasonal fluctuations; however, peak demand in the northern hemisphere markets largely tends to counter that in the southern hemisphere markets. Other less significant seasonal relationships also occur within the Group, which do not have a material impact on overall performance of the Group in any one quarter.
19. Related Party Transactions
The Group's subsidiary in Zimbabwe (Reckitt Benckiser (Zimbabwe) (Private) Ltd)is now consolidated as described in note 3. Therefore transactions between theGroup and Reckitt Benckiser (Zimbabwe) (Private) Ltd are no longer classifiedas related party transactions.
There have been no other changes in the related party transactions from those described in the Annual Report & Financial Statements 2010. There were no material related party transactions in the six months ended 30 June 2011.
Statement of Directors' Responsibilities
The Directors confirm that, to the best of their knowledge, these Half YearCondensed Financial Statements have been prepared in accordance with IAS 34 asadopted by the European Union and as issued by the International AccountingStandards Board. The interim management report includes a fair review of theinformation required by DTR 4.2.7R and DTR 4.2.8R, namely:
* An indication of important events that have occurred during the first six
months of the financial year and their impact on the Half Year Condensed
Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and * Material related party transactions in the first six months of the
financial year and any material changes in the related party transactions
described in the last annual report.
The Directors of Reckitt Benckiser Group plc are listed in the ReckittBenckiser Group plc Annual Report and Financial Statements for 31 December 2010with the exception of the following changes in the period: Colin Day resignedon 8 February 2011 and Liz Doherty was appointed on 8 February 2011. A list ofcurrent Directors is maintained on the Reckitt Benckiser Group plc website:
www.reckittbenckiser.com.By order of the BoardBart BechtChief Executive OfficerAdrian BellamyDirector22 July 2011
Independent Review Report to Reckitt Benckiser Group plc
Introduction
We have been engaged by the Company to review the Half Year Condensed FinancialStatements in the half-yearly financial report for the six months ended 30 June2011, which comprises the Group income statement, the Group statement ofcomprehensive income, the Group balance sheet, the Group cash flow statement,the Group statement of changes in equity and related notes. We have read theother information contained in the half-yearly financial report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the Half Year Condensed Financial Statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the European Union and IFRSs asissued by the International Accounting Standards Board. The Half Year CondensedFinancial Statements included in this half-yearly financial report have beenprepared in accordance with International Accounting Standard 34, `InterimFinancial Reporting', as adopted by the European Union and as issued by theInternational Accounting Standards Board.
Our responsibility
Our responsibility is to express to the Company a conclusion on the Half YearCondensed Financial Statements in the half-yearly financial report based on ourreview. This report, including the conclusion, has been prepared for and onlyfor the Company for the purpose of the Disclosure and Transparency Rules of theFinancial Services Authority and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, `Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the Half Year Condensed Financial Statements in the half-yearlyfinancial report for the six months ended 30 June 2011 are not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union, and as issued by the International AccountingStandards Board, and the Disclosure and Transparency Rules of the UnitedKingdom's Financial Services Authority.PricewaterhouseCoopers LLPChartered Accountants22 July 2011LondonNotes:
a. The maintenance and integrity of the Reckitt Benckiser Group plc website is
the responsibility of the directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have occurred to
the Half Year Condensed Financial Statements since they were initially
presented on the website.
b. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
PINXRelated Shares:
RB..L