8th Mar 2005 11:00
8th March 2005 ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Reckitt Benckiser plc (RB.L) announces that it has adopted InternationalFinancial Reporting Standards (IFRS) with effect from 1 January 2005. Groupresults will be published under IFRS commencing with the first quarter of 2005,to be released on 26 April 2005. This press release describes the impact of theconversion from UK GAAP to IFRS on the group's results for 2004 and sets outthe restated comparatives that are expected to form the base for 2005performance.Impact at a glance 2004 UK GAAP IFRS Change Change ‚£m ‚£m ‚£m % Net Revenues 3,871 3,871 - - Operating Profit 759 749 (10) -1.3% Net Income 586 577 (9) -1.5% Fully diluted EPS 78.3p 77.1p (1.2p) -1.5% Net Assets (Dec 2004) 1,676 1,698 22 1.3% * Net revenues are not impacted by the change of accounting basis. Changes to KPIs are minor and financial targets are unchanged despite the reduction in operating margin. * Operating profit is predominately impacted by the adoption of : * IFRS 2 (Share-based Payment) for the cost of share awards * IAS 19 (Employee Benefits) for the cost of pensions and other employee benefits * IFRS 3 (Business Combinations) for the cessation of goodwill amortisation.Detailed schedules and explanatory notes can be found in the attachedappendices.Commenting on this accounting change, Colin Day, Chief Financial Officer, said"Reckitt Benckiser is adopting the new international framework of accountingfor 2005 reporting. The net impact of the change to both the profit and lossaccount and the balance sheet is minor and we do not expect the change to havea material impact on the reporting of business performance in 2005 and beyond."The Group reiterates its financial targets for 2005 of net revenue growth of5-6% at constant exchange and for low double digit net income growth atconstant exchange off a base of ‚£563m (reported 2004 net income of ‚£586m lessone-off tax credits of ‚£14m and IFRS adjustments of ‚£9m)."For further information Reckitt Benckiser plc +44 (0)1753 217 800 Tom Corran SVP Investor Relations & Corporate Communications Mark Wilson Corporate Controller and Investor Relations Manager Appendices page A Basis of Preparation 2 B Key Performance Indicators and Financial Targets 2 C Group Income Statement 3 D Reconciliation of Net Income 3 E Segmental Analysis 4 F Group Balance Sheets 5 G Reconciliation of Key Balance Sheet Items 6 H Group Cash Flow Statement 7 I Statement of Changes in Equity 8 J Earnings per Ordinary Share 8 K Description of IFRS adjustments 8 A. Basis of PreparationThe unaudited financial statement extracts are prepared on the basis of currentIFRS as it applies to the group and are based on a transition date of 1 January2004. This basis is subject to amendment by the International AccountingStandards Board (IASB) and is dependent on endorsement by the EuropeanCommission (EC). Accordingly, the information presented and the format ofpresentation may be subject to change as new guidance is issued or as practicedevelops. The group will publish its first audited IFRS Financial Statementswithin its Annual Report and Accounts for 2005, in early 2006.The group has adopted IFRS 1: First-time adoption of international financialreporting standards and has applied all of the optional exemptions from fullretrospective application with two exceptions. First, the group has applied therequirements of IFRS 2: Share-based payment to all awards that had not vestedas at 1 January 2005. Second, the Group has applied IAS 32: FinancialInstruments: Disclosure and Presentation and IAS 39: Financial Instruments:Recognition and Measurement with effect from the transition date. In adoptingcurrent IFRS, the Group has assumed that the EC will endorse the December 2004amendment to IAS 19: Employee Benefits. B. Key Performance Indicators and Financial TargetsThe following table describes the impact of the conversion to IFRS on theGroup's KPIs and financial targets, both for 2005 and ongoing as announced on 9February 2005:KPI UK GAAP Target Impact IFRS Target Net revenue 5% - 6% growth in 2005, No change to KPI or target. 5% - 6% growth in 2005,growth at constant exchange. at constant exchange. Operating Margin At least 20% by 2006, One time adjustment to 2004, At least 20% by 2006, reported 19.6% for reducing operating margin by reported 19.3% for 2004. 30bps, no change to target. 2004. Net Income growth Low double digit growth One time adjustment to 2004, Low double digit growthand EPS growth in 2005, at constant reducing net income. No in 2005, at constant exchange off a base of change to growth target but exchange, off ‚£563m ‚£586m excluding one-off off new base. base. tax credit of ‚£14m and after IFRS adjustments. C. Group Income Statement prepared under IFRS (unaudited) 2004 Q1 Q2 Q3 Q4 Full Year Notes ‚£m ‚£m ‚£m ‚£m ‚£m Net revenues 920 953 976 1,022 3,871 Cost of sales (426) (424) (443) (457) (1,750) Gross profit 494 529 533 565 2,121 Net operating expenses 1,2,4 (350) (358) (337) (327) (1,372) Total operating profit 144 171 196 238 749 Net financial (expense)/income 3,5 (4) - 8 5 9 Profit on ordinary activities before taxation 140 171 204 243 758 Tax on profit on ordinary activities (37) (44) (54) (46) (181) Profit on ordinary activities after taxation 103 127 150 197 577 Attributable to equity minority interests 0 0 0 0 0 Profit for the period 103 127 150 197 577 Ordinary dividends 3,8 - (99) (117) - (216) Retained profit for the period 103 28 33 197 361 Earnings per ordinary share: On profit for the period 14.6p 18.0p 20.8p 27.1p 80.7p On profit for the period, diluted 13.9p 17.2p 19.7p 26.5p 77.1p Average shares outstanding (millions): Basic 707.9 704.3 720.7 726.3 714.9 Diluted 761.4 757.4 752.2 747.4 754.5D. Reconciliation of Net Income (unaudited) 2004 Q1 Q2 Q3 Q4 Full Year Notes ‚£m ‚£m ‚£m ‚£m ‚£m Net Income under UK GAAP 105 129 151 201 586 Adjustments (inclusive of taxation): IFRS 2: Share awards 1 (2) (2) (2) (3) (9) IFRS 3: Goodwill amortisation 4 1 - 1 - 2 IAS 19: Employee benefits 2 - (1) - - (1) IAS 39: Fair value of derivative instruments 5 (1) 1 - (1) (1) Net Income under IFRS 103 127 150 197 577 E. Segmental Analysis prepared under IFRS (unaudited) Primary Segment: Geographical Area 2004 Q1 Q2 Q3 Q4 Full Year Net revenues - by geographical area ‚£m ‚£m ‚£m ‚£m ‚£m Europe 492 505 509 526 2,032 North America & Australia 276 288 304 328 1,196 Developing Markets 152 160 163 168 643 Total 920 953 976 1,022 3,871 Operating profit - by geographical area Europe 96 113 113 136 458 North America & Australia 41 42 66 88 237 Developing Markets 4 10 11 13 38 Corporate 3 6 6 1 16 Total 144 171 196 238 749 Operating margin - by geographical area Europe 19.5% 22.4% 22.2% 25.9% 22.5% North America & Australia 14.9% 14.6% 21.7% 26.8% 19.8% Developing Markets 2.6% 6.3% 6.7% 7.7% 5.9% Total 15.7% 17.9% 20.1% 23.3% 19.3%Secondary Segment: Product SegmentNet revenues Fabric Care 256 261 279 268 1,064 Surface Care 184 181 196 212 773 Dishwashing 140 128 132 142 542 Home Care 133 131 148 152 564 Health & Personal Care 138 166 145 150 599 Core Business 851 867 900 924 3,542 Other Household 33 37 33 36 139 Household and Health & Personal Care 884 904 933 960 3,681 Food 36 49 43 62 190 Total 920 953 976 1,022 3,871Additional Information: Profit by class of businessOperating profit Household and Health & Personal Care 139 156 181 214 690 Food 2 9 9 23 43 Corporate 3 6 6 1 16 Total 144 171 196 238 749 Operating margin Household and Health & Personal Care 15.7% 17.3% 19.4% 22.3% 18.7% Food 5.6% 18.4% 20.9% 37.1% 22.6% Total 15.7% 17.9% 20.1% 23.3% 19.3% F. Group Balance Sheets prepared under IFRS (unaudited) 31 December 1 January 2004 2004 Notes ‚£m ‚£m ASSETS Non-current assets: Property, plant and equipment 6,7 481 508 Goodwill and intangible assets 4,7 1,663 1,749 Deferred tax assets 2,11 58 14 Other receivables 2 10 22 2,212 2,293 Current assets: Inventories 258 224 Trade and other receivables 5 504 490 Short term investments 10 570 609 Cash and cash equivalents 10 308 174 1,640 1,497 Total assets 3,852 3,790 LIABILITIES Current liabilities: Borrowings 6 (86) (176) Provisions 11 (4) (5) Other liabilities 5,8 (1,283) (1,196) Convertible capital bonds 3 (31) - (1,404) (1,377) Non-current liabilities: Borrowings 3,6 (129) (138) Convertible capital bonds 3 - (147) Deferred tax liabilities 1,2,11 (231) (218) Retirement benefit obligations 2 (253) (205) Provisions 11 (11) (15) Other liabilities 2 (126) (155) (750) (878) Total liabilities (2,154) (2,255) Net assets 1,698 1,535 EQUITY Capital and reserves: Share capital 3 76 74 Share premium account 405 227 Equity component of convertible bonds 3 9 45 Merger reserve 142 142 Capital redemption reserve 2 - Profit and loss account 1,2,4,5,8 1,061 1,043 1,695 1,531 Equity minority interest 11 3 4 Total equity 1,698 1,535 G. Reconciliation of Key Balance Sheet Items (unaudited)Net Assets 31 December 1 January 2004 2004 Notes ‚£m ‚£m Net Assets under UK GAAP 1,676 1,470 Adjustments (inclusive of taxation): IFRS 2: Deferred taxation on share award 1 16 8reserve IAS 19: Employee benefits 2 (130) (84) IAS 32: Convertible bond 3 9 45 IAS 32: Preference shares 3 (5) (5) IFRS 3: Goodwill amortisation 4 2 - IAS 39: Fair value of derivative instruments 5 (4) (2) IAS 10: Final dividend 8 131 99 IAS 1: Reclassification of minority interest 11 3 4 Net Assets under IFRS 1,698 1,535Net Working Capital * Notes Net Working Capital under UK GAAP (645) (578) IAS 19: Employee benefits 2 (3) (1) IAS 39: Fair value of derivative instruments 5 (4) (2) IAS 10: Events after the balance sheet date 8 131 99 Net Working Capital under IFRS (521) (482)* Net working capital is defined as inventories, short term receivables andshort term liabilities, excluding borrowings, convertible capital bonds andprovisions.Net Funds Notes Net Funds under UK GAAP 638 292 IAS 32: Convertible bond 3 9 45 IAS 32: Preference shares 3 (5) (5) IAS 17: Leases 6 (10) (10) Net Funds under IFRS 632 322 H. Group Cash Flow Statement prepared under IFRS (unaudited) 31 December 2004 ‚£m CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations: Operating profit 749 Depreciation 85 Amortisation and impairment 12 Loss on sale of property, plant and equipment 8 Other non-cash movements 4 Increase in inventories (36) Increase in trade and other receivables (3) Increase in payables and provisions 95 Cash generated from operations 914 Interest paid (30) Interest received 38 Tax paid (189) Net cash generated from operating activities 733 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of intangible assets (5) Purchase of property, plant and equipment (78) Disposal of property, plant and equipment 9 Acquisitions of businesses (1) Maturity of short term investments 38 Net cash used in investing activities (37) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of ordinary shares 30 Share repurchases (283) Repayments of borrowings (87) Dividends paid to the Company's shareholders (216) Net cash used in financing activities (556) Net increase in cash and cash equivalents 140 Cash and cash equivalents at beginning of period 163 Exchange gains/(losses) (2) Cash and cash equivalents at end of period 301 Cash and cash equivalents comprise Cash and cash equivalents 308 Overdrafts (7) 301 Reconciliation to net cash flow from ordinary operations Net cash generated from operating activities 733 Net purchase of property, plant and equipment (69) Net cash flow from ordinary operations 664 Management uses net cash flow from ordinary operations as a performancemeasure.I. Statement of Changes in Equity prepared under IFRS (unaudited) 2004 Note ‚£m Balance at 1 January 2004 1,535 Profit for the year 577 Dividends 8 (216) Own shares repurchased (283) Ordinary shares allotted on conversion of convertible capital 152bonds Reduction in equity component of convertible bond upon 3 (36)conversion Ordinary shares allotted on exercise of options 30 Unvested share awards 1 41 Reduction in equity minority interests 11 (1) Actuarial gains and losses 2 (54) Net exchange movements on foreign currency translation (47) Balance at 31 December 2004 1,698All items above are shown inclusive of tax. J. Earnings per Ordinary Share prepared under IFRS (unaudited)A reconciliation between the basic and diluted earnings per share for the fullyear is set out below: 2004 Profit Average number Earnings for the of shares per share year ‚£m pence Profit attributable to shareholders 577 714.9 80.7p Dilution for Executive options outstanding and Executive 12.9 Restricted Share Plan Dilution for Employee Sharesave Scheme options outstanding 0.9 Dilution for convertible capital bonds outstanding 25.8 5 On a diluted basis 582 754.5 77.1p K. Description of IFRS adjustments1. IFRS 2: Share-based PaymentIn accordance with IFRS 2, the Group has recognised an expense representing thefair value of outstanding share awards based on a Black-Scholes calculation atdate of grant, spread over the vesting period. The Group has also adopted thetransitional arrangement which allows companies that have previously disclosedthe fair value charge to apply IFRS 2 retrospectively to all grants not vestedat 1 January 2005. This approach is encouraged by the standard and givesconsistency across reporting periods.As a result of the above, an incremental charge to net income of ‚£9m has beenincluded in 2004. The Group has recognised a share award reserve within theprofit and loss reserve in the balance sheet to reflect the cumulative chargeunder IFRS 2 in respect of outstanding share awards. The deferred tax impact isa debit to deferred tax of ‚£8m at 1 January 2004, a debit of ‚£16m at 31December 2004, and a ‚£2m credit to the income statement for 2004. 2. IAS 19: Employee BenefitsThe Group has adopted IAS 19 by recognising in full the surplus/deficit ondefined benefit schemes and other employee related liabilities in the groupbalance sheet at the date of transition. The group has included movements inthe surplus/deficit within the income statement and statement of movement inequity as required by IFRS. This is similar to the requirements of FRS 17,whose disclosures have been provided in the Group's Annual Report & Accountssince 2001. The Group has also early-adopted the amendment to IAS 19 issued on16 December 2004 allowing all actuarial gains and losses to be taken to equityin the year in which they arise.In reversing the SSAP 24 accounting treatment and adopting IAS 19, the groupbalance sheet is credited with ‚£84m (being ‚£109m less deferred tax of ‚£25m) at1 January 2004 and ‚£130m (being ‚£184m less deferred tax of ‚£54m) at 31 December2004. The impact on the income statement from reversing the SSAP 24 charge andincluding the IAS 19 charges is ‚£2m in 2004, which is included within operatingcosts. Actuarial losses of ‚£76m less tax of ‚£22m are shown in the statement ofmovement in equity.3. IAS 32: Financial Instruments: Disclosure and PresentationIAS 32 requires that where financial instruments contain both liability andequity components, the components are classified separately on the balancesheet. The group's Convertible Capital Bond is such an instrument andaccordingly ‚£45m and ‚£9m representing the split between debt and equitycomponents has been reclassified from debt to equity in the balance sheets of 1January 2004 and 31 December 2004 respectively. These amounts are based on thefair value of the components on issue.Additionally under IAS 32, the group's 5% cumulative preference shares fall tobe classified as debt in the balance sheet and the dividends classified asfinancial expense in the income statement. Accordingly, a balance sheetadjustment of ‚£5m is reflected at 1 January 2004 and 31 December 2004, while ‚£0.2m is reclassified in the income statement from dividends to net financialincome.4. IFRS 3: Business CombinationsIFRS prohibits the amortisation of goodwill, requiring at least annualimpairment reviews to be undertaken. Accordingly, goodwill balances at 1January 2004 are no longer subject to amortisation, resulting in a credit tonet operating expenses in 2004 of ‚£4m and an equivalent debit to goodwill at 31December 2004.5. IAS 39: Financial Instruments: Recognition and MeasurementUnder IAS 39 and IFRS 1, the Group's policy is to recognise the fair value offinancial derivative instruments on the balance sheet with effect from 1January 2004. Accordingly, financial assets of ‚£1m and financial liabilities of‚£3m have been recognised on the balance sheet as at 1 January 2004. As at 31December 2004, financial liabilities of ‚£4m were recognised, resulting in a ‚£2mcharge to financial income in 2004.6. IAS 17: LeasesThe Group has applied the requirements of IAS 17 to its leases and accordinglyhas reclassified certain leases from operating to finance leases to reflect thesubstance of the transaction according to IFRS. The total amount of assets andliabilities added to the balance sheet in respect of finance leases is ‚£10meach, at both 1 January 2004 and 31 December 2004. 7. IAS 38: Intangible AssetsComputer software that is not an integral part of related hardware isclassified as an intangible asset under IFRS, whereas such assets wereclassified under tangible assets under UK GAAP. Reclassifications of ‚£4m and ‚£2m have been made between tangible and intangible assets at 1 January 2004 and31 December 2004 respectively.8. IAS 10: Events After the Balance Sheet DateIn accordance with IAS 10, dividends declared after the balance sheet date arenot recognised as a liability in the financial statements, as there is nopresent obligation at the balance sheet date, as defined by IAS 37: Provisions,Contingent Liabilities and Contingent Assets. Accordingly the final dividendsfor 2003 of ‚£99m and for 2004 of ‚£131m are de-recognised in the balance sheetsfor 2003 and 2004 respectively. Dividends payable presented with the incomestatement for 2004 is adjusted by ‚£32m to reflect these timing adjustments.9. IAS 14: Segment reportingIn accordance with IAS 14, the group has defined its primary segment asgeographical and its secondary segment as product category. Analysis of netrevenues and operating profit by geographical area (primary segment) and of netrevenues by product category (secondary segment) are set out above. While notrequired by IAS 14, the group additionally discloses operating profit byproduct class.10. IAS 7: Cash Flow StatementsThe Cash Flow Statement is presented in accordance with IAS 7. The Group's cashand investments balances are not impacted by the change of accounting basis.However, the Group has presented short term investments separately from cashand cash equivalents as required by IAS 7. Short term investments representthose deposits with a maturity of over three months from inception.A reconciliation is provided to 'Net cash flow from ordinary operations', whichmanagement use as a performance measure. This is not impacted by the change ofaccounting basis.11. Other AdjustmentsUnder IFRS, provisions are required to be analysed as those expected to beutilised within one year and after more than one year. Accordingly, ‚£5m and ‚£4mis reclassified from non-current liabilities to current liabilities as at 1January 2004 and 31 December 2004 respectively.For presentational purposes, minority interest has been reclassified to equityon the face of the balance sheet.Taxation is provided on the conversion adjustments at the appropriate rate andis separately described above where material. The IFRS restatement of preliminary results for the year ended 31 December 2004are unaudited. The financial information set out in the announcement does notconstitute the Company's statutory accounts for the years ended 31 December2004. The UK GAAP balance sheet as at 1 January 2004 is derived from thestatutory accounts for the year ended 31 December 2003 which have beendelivered to the Registrar of Companies. The auditors reported on thoseaccounts; their report was unqualified and did not contain a statement undereither Section 237 (2) or Section 237 (3) of the Companies Act 1985. Thestatutory accounts for the year ended 31 December 2004 will be finalised on thebasis of the financial information presented by the directors in the UK GAAPpreliminary announcement of 9th February 2004 and will be delivered to theRegistrar of Companies following the Company's Annual General Meeting.ENDRelated Shares:
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