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