1st Quarter Results
24th April 2008
STRONG START TO 2008
Results at a Glance Q1 % change % change % change
£m Actual Constant Like-for-l
ike*
Net Revenues £1,510m +20% +12% +11%
Operating Profit - reported £275m +13% +3%
Operating Profit - adjusted £305m +25% +15%
*
Net Income - reported £205m +15% +5%
Net Income - adjusted * £225m +26% +15%
EPS (diluted) - adjusted * 30.9p +27% n/a
* Adjusted results exclude exceptional items; like-for-like excludes the impact
of changes in exchange rates, acquisitions and disposals (see page 2 for
further information).
* Net revenues increased 20% (12% at constant exchange) to £1,510m.
Like-for-like growth (excluding acquisitions, disposals) was 11% at
constant rates, driven by Power Brands such as Vanish, Finish, Airwick,
Lysol and Dettol. Adams contributed £33m of revenues in the first two
months of ownership.
* The Group completed the acquisition of Adams Respiratory Therapeutics Inc
(Adams) on 30 January. Discontinued businesses since Q1 2007 include Hermal
which was disposed of on 31 August 2007.
* On a reported basis, operating profit increased 13% (3% constant) to £275m.
On an adjusted basis, excluding the Adams-related restructuring, operating
profit was £305m, an increase of 25% (15% constant).
* Gross margins increased 80bps to 57.7%. Operating margins before
restructuring expanded 80bps to 20.2%. Marketing investment increased ahead
of revenue growth, with media up 29% to 12.9% of net revenues.
* Reported net income was £205m, an increase of 15% (5% constant). On an
adjusted basis, net income grew 26% (15% constant) to £225m.
* Net debt was £889m, £764m above the December 2007 level due to the debt
taken on for the Adams acquisition. 1.5m shares were repurchased in Q1 at a
cost of £40m. Net working capital improved £149m compared to December 2007.
Commenting on these results, Bart Becht, Chief Executive Officer, said
"Q1 was a very strong quarter, benefiting from higher investments in our Power
Brands and successful new product initiatives like Airwick Freshmatic Mini and
Finish Max in 1.
"Based on the strong start to 2008 we are increasing our like-for-like full
year target for net revenue growth to 7-8% (previously 6-7%) and for net income
growth to 11% (previously 10%), both at constant exchange.
"As promised we are now adding the newly acquired Adams business to the
targets. As a result the new consolidated full year targets are for net revenue
growth of 11-12% (base £5,220m) and for net income growth of 11% (excluding
restructuring, base £905m), both at constant exchange."
Basis of Presentation
Results are presented under International Financial Reporting Standards (IFRS).
The results include the Adams Respiratory Therapeutics business (Adams) from 30
January 2008, the date of acquisition.
RB Pharmaceuticals, the Group's Subutex and Suboxone prescription drug
business, has been disclosed entirely separately for the first time to more
clearly show the performance of the various parts of the business. The Group
has chosen to adopt early the new reporting standard, IFRS 8: Operating
Segments, for the year ended 31 December 2008, which inter alia, requires the
Group to assess its `reportable segments'. Accordingly, RB Pharmaceuticals has
been identified as an additional reportable segment and comparatives have been
restated as appropriate.
Where appropriate, the term `adjusted' excludes the impact of exceptional
items. Exceptional items in 2008 consist of a restructuring charge of £30m
mainly relating to the integration of Adams. There were no exceptional items in
Q1 2007.
Where appropriate, the term `like-for-like' describes business performance on a
comparable basis, excluding the impact of exchange, business acquisitions and
business disposals.
Operating Review
Q1 net revenues increased 20% (12% at constant exchange) to £1,510m.
Like-for-like growth (excluding acquisitions, disposals and exchange) was 11%.
Adams contributed £33m for the two months of ownership in 2008, representing a
like-for-like growth rate of 28% against the comparable two months in 2007.
Discontinued businesses contributed £18m to revenues in 2007.
Gross margin increased by 80 bps to 57.7% due to sales price increases,
benefits from cost optimisation programs and the impact of a positive mix more
than offsetting increases in input costs. The inclusion of the Adams business
from 30 January contributed 20bps to this increase.
Marketing investment was significantly higher. Pure media investment increased
29% to a level of 12.9% of net revenues, an increase of 90bps on the equivalent
period last year.
Operating profit as reported was £275m, 13% higher than last year. On an
adjusted basis, excluding the £30m restructuring charge for the integration of
Adams, operating profit was £305m, an increase of 25% over Q1 2007.
Profit is not separately disclosed for the Adams business as, in the view of
the Directors, it is impracticable to separately identify a profit stream for
the acquired business due to its integration into the commercial infrastructure
of Reckitt Benckiser.
Operating margins excluding restructuring increased by 80 bps to 20.2% due to
gross margin expansion and fixed cost leverage, partially offset by increased
marketing investment.
Net finance expense was £9m (2007 £8m), reflecting interest on the debt taken
on to finance the Adams acquisition early in the quarter. The underlying tax
rate (excluding the effect of the Adams restructuring charge of £30m) for the
quarter is 24%, in line with the expected rate for the full year.
Net income was £205m, an increase of 15% (5% constant) on Q1 2007. Adjusted net
income was £225m, up 26% (15% constant) on the prior period.
Earnings per share (diluted, adjusted) increased 27% to 30.9 pence per share,
ahead of net income growth as the accretion from the buyback more than offset
dilution from new share issues. On an as reported basis, diluted earnings per
share grew 16%.
Business Review (at constant exchange rates)
Summary: % Net revenue growth
Like-for-like Exchange Acquisitions & Reported
Disposals
Europe +8 +12 -3 +17
NAA +10 +2 +10 +22
DvM +16 +6 - +22
Pharma* +49 +4 - +53
TOTAL +11 +8 +1 +20
*Pharma represents the Group's prescription drug business of Subutex and
Suboxone.
Europe 53% of net revenues
Like-for-like net revenues grew 8% to £801m. All five categories contributed to
this growth. In Fabric Care, the Vanish Oxi Action variants Multi and Crystal
White drove the growth across the area, together with Calgon water softener. In
Surface Care, growth came from Cillit Bang Grease and Floors. In Automatic
Dishwashing, the launch of Finish / Calgonit Max in 1 contributed to growth.
Home Care growth came from innovations such as Airwick Freshmatic Mini and
Symphonia. The Health & Personal Care business benefited from increased
investment in marketing with both Nurofen and Strepsils strongly contributing
to the growth.
Operating margins were 30bps higher in the quarter at 22.3%. Operating profit
increased by 7% to £179m.
North America & Australia 25% of net revenues
Like-for-like net revenues grew 10% to £341m. Including Adams, net revenues
grew 20% to £374m. For the two months of ownership, Adams contributed £33m of
net revenue, 28% ahead of the comparable prior year period. Growth across the
area was driven by Surface Care, Automatic Dishwashing, Home Care and Health &
Personal Care. Growth in Surface Care came across the Lysol range. Automatic
Dishwashing growth was driven by Electrasol 3in1 Powerball tabs and Jet Dry
Turbo Dry. In Home Care, Air Care growth continued to be driven by Airwick
Freshmatic and Mini Freshmatic, while Pest Control growth was strong across the
Mortein range due to a strong season in Australia. Health & Personal Care
(excluding Adams) grew due to Nurofen and Strepsils, following increased
marketing investment.
Food grew strongly in the quarter principally due to growth from French's
yellow mustard and Frank's Red Hot sauce.
Operating margins were 50bps higher at 16.8%. Operating profit was 19% higher
at £63m.
Developing Markets 18% of net revenues
Net revenues grew 16% to £277m, with strong growth across all regions of Asia,
Latin America and Africa Middle East. The major contributors to growth were
Fabric Care, Surface Care, Home Care and Health & Personal Care. In Fabric
Care, the growth came from Vanish, driven by initiatives to drive consumption
across the Area. In Surface Care, growth was due to Harpic across the Area and
Veja in Brazil. In Home Care, Air Care grew behind the success of Airwick
Freshmatic in a number of countries. In Health & Personal Care, the Dettol
personal care range grew strongly benefiting from range extensions in the
personal wash segments and additional investment, while in Healthcare,
Strepsils continued to drive growth behind increased marketing investment.
Operating margins improved by 60bps to 11.6%. Operating profit was £32m, an
increase of 19%.
Pharmaceuticals 4% of net revenues
Net revenues for the Group's Subutex and Suboxone prescription drug business
grew 49% to £58m. These products are based on buprenorphine and are used to
treat opiate dependence. This very strong growth was driven by a continued
increase in penetration of Suboxone in the USA.
Operating margins improved by 600bps to 53.4%. Operating profit was £31m, an
increase of 63%.
Suboxone has exclusivity in the USA until the end of September 2009 and in
Europe until 2016. Approximately 80% of the Pharmaceutical business's operating
profit, and therefore approximately 8% of the Group's operating profit, in Q1
08 was generated by the US Suboxone business. The Group continues to search for
ways to offset the impact of the loss of exclusivity in the USA in 2009,
through qualifying alternative forms of intellectual property protection, but
with no guarantee of success.
Category Review (at constant exchange rates)
Fabric Care. Net revenues increased 6% to £351m. Growth was driven by
continuing success for Vanish Oxi Action Multi and Vanish Oxi Action Crystal
White and initial success of the launch of Vanish Oxi Action Magnets. Calgon
Water Softeners grew as a result of higher marketing investment.
Surface Care. Net revenues grew 9% to £268m due to further growth for Cillit
Bang with the launch of Grease and Floors in Europe. Lysol grew strongly in
North America, led by Disinfectant Spray, Neutra Air Freshmatic and Deep Reach
toilet bowl cleaner. Other contributors were Harpic and further success for
Veja in Brazil.
Dishwashing. Net revenues increased 7% to £186m due to the success of Finish /
Calgonit All in 1 and the recently launched Max in 1 in Europe and growth
behind Electrasol 3in1 Powerball tablets and Jet Dry Turbo Dry in North
America.
Home Care. Net revenues improved by 11% to £217m. Air Care grew strongly due to
the success of Airwick Freshmatic and Airwick Mini Freshmatic. Pest Control
growth came mainly from a strong season in Australia.
Health & Personal Care. Net revenues grew 20% to £372m, with like-for-like
growth (excluding Adams) of 17%. In Antiseptics, Dettol grew strongly in
Developing Markets behind extensions to the personal wash range and
significantly increased marketing investment. Healthcare grew strongly due to
both Nurofen and Strepsils behind increased marketing investment. The newly
acquired Adams business grew 28% in the two months of ownership against the
prior year period as marketing investment and penetration of Mucinex
combination products drove further share gains in a strong end to the cold/flu
season.
Total Household and Health & Personal Care. Net revenues were ahead by 11% to £
1,408m, +10% on a like-for-like basis.
Pharmaceuticals. Net revenues for the Group's Subutex and Suboxone prescription
drug business grew 49% to £58m. This very strong growth was driven by a
continued increase in penetration of Suboxone in the USA.
Food. Net revenues grew 13% to £44m with good performance across the consumer
portfolio, in particular further growth for French's yellow mustard and for
Frank's Red Hot sauce. Operating profits increased 17% to £6m, with operating
margins improving 80bps to 13.6%.
Financial Review
Income Statement.
Net finance expense was £9m compared to £8m in Q1 2007. This was due to the
debt taken on following the acquisition of Adams offset by continuing strong
cash inflow during the quarter.
Tax on profit for the quarter was £61m at a rate of 23%. The underlying tax
rate (excluding the tax effect of exceptional items) for the period is 24%, in
line with the expected rate for the full year.
Earnings per share. On an adjusted basis, fully diluted earnings per share grew
27%, compared to a 26% increase in net income as the accretion from the buyback
more than offset dilution from the issue of new shares.
Exceptional Items. A restructuring charge of £30m was recognized in the
quarter, mainly representing the cost of integrating Adams into the Group's
North American business.
Balance Sheet. The Group had net debt of £889m at the end of Q1 compared to £
125m at the end of 2007. This is the result of debt taken out to finance the
acquisition of Adams of £1.1bn offset by continuing strong net cash inflow from
the business during Q1. The group repurchased 1.5m shares in Q1 at a cost of £
40m as part of its target to buy back £300m of shares in 2008. No dividend is
paid in Q1.
Net working capital (inventories, short term receivables and short term
liabilities excluding borrowings and provisions) decreased by £149m to minus £
975m compared to year end 2007, reflecting further improvements in net working
capital, in particular, payables.
Half Year Results.
The Company will release results for the six months to 30 June on Monday 28th
July 2008.
For further information
Reckitt Benckiser +44 (0)1753 217 800
Mark Wilson Corporate Controller & Acting Head of Investor
Relations (Investor calls)
Andraea Dawson-Shepherd Global Director, Corporate Communications (Media
calls)
Fiona Fong Head of Corporate Communications (Media calls)
The Group at a Glance (unaudited)
Quarter Ended March 31
2008 2007
£m £m
Net revenues - like-for-like 1,477 1,240
Net revenues - acquisition 33 -
Net revenues - continuing 1,510 1,240
Net revenues - discontinued - 18
Net revenues - total 1,510 1,258
Net revenue growth - like-for-like 19% 3%
Net revenue growth - continuing 22% 7%
Net revenue growth - total 20% 8%
Gross margin 57.7% 56.9%
EBITDA 300 266
EBITDA margin 19.9% 21.1%
EBIT 275 244
EBIT - adjusted* 305 244
EBIT margin 18.2% 19.4%
EBIT margin - adjusted* 20.2% 19.4%
Profit before tax 266 236
Net Income 205 179
Net Income adjusted * 225 179
EPS, basic, as reported 28.8p 25.0p
EPS, adjusted and diluted * 30.9p 24.3p
* Adjusted to exclude the impact of exceptional items.
Group Balance Sheet Data
March 31, December 31,
2008# 2007
£m £m
Net working capital * (975) (826)
Net debt (889) (125)
* Net working capital is defined as inventories, short term receivables and
short term liabilities, excluding borrowings and provisions.
# Where appropriate, these amounts include provisional fair values in respect
of the Adams acquisition
Shares in Issue
First Quarter
Millions
31 December 2007 712.0
Issued or transferred from Treasury 0.2
Repurchased and transferred to Treasury (1.5)
31 March 2008 710.7
Group Income Statement (unaudited)
Quarter Ended March 31
2008 2007 % change
£m £m
Net revenues 1,510 1,258 20%
Cost of sales (638) (542) 18%
Gross profit 872 716 22%
Net operating expenses (597) (472) 26%
Operating Profit 275 244 13%
Operating profit before exceptional items 305 244 25%
Exceptional items (30) - -
Operating Profit 275 244 13%
Net finance expense (9) (8) 13%
Profit before taxation 266 236 13%
Taxation (61) (57) 7%
Profit for the period 205 179 15%
Attributable to minority interests - - -
Attributable to equity shareholders 205 179 15%
Profit for the period 205 179 15%
Earnings per ordinary share:
On profit for the period 28.8p 25.0p 15%
On profit for the period, diluted 28.2p 24.3p 16%
Earnings per ordinary share - adjusted*:
On profit for the period 31.6p 25.0p 26%
On profit for the period, diluted 30.9p 24.3p 27%
* Adjusted to exclude the impact of
exceptional items.
Average common shares outstanding
(millions):
Basic 711.6 716.6
Diluted 727.6 736.9
Segmental Analysis (unaudited)
An analysis of the Group's revenue and profit by reportable segment is set out
below. Analysis by product segment is also provided as supplementary
information. 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.
Quarter Ended March 31
2008 2007 % change
£m £m exch. rates
actual const.
Net revenues
Europe # 801 687 17% 5%
North America & Australia # 374 306 22% 20%
Developing Markets 277 227 22% 16%
Pharmaceuticals # 58 38 53% 49%
1,510 1,258 20% 12%
Operating profit - statutory basis
Europe # 179 151 19% 7%
North America & Australia # 33 50 -34% -38%
Developing Markets 32 25 28% 19%
Pharmaceuticals # 31 18 72% 63%
275 244 13% 3%
Operating profit - adjusted*
Europe # 179 151 19% 7%
North America & Australia # 63 50 26% 19%
Developing Markets 32 25 28% 19%
Pharmaceuticals # 31 18 72% 63%
Subtotal before exceptional items 305 244 25% 15%
Exceptional items (30) -
275 244 13% 3%
Operating margin - adjusted* % %
Europe # 22.3% 22.0%
North America & Australia # 16.8% 16.3%
Developing Markets 11.6% 11.0%
Pharmaceuticals # 53.4% 47.4%
Subtotal before exceptional items 20.2% 19.4%
* Adjusted to exclude the impact of exceptional items.
# 2007 Comparatives have been reclassified to separately disclose
Pharmaceuticals, previously reported within Europe and North America &
Australia.
Additional Information
Quarter Ended March 31
2008 2007 % change
£m £m exch. Rates
Actual Const.
Net revenues by Category
Fabric Care 351 299 17% 6%
Surface Care 268 232 16% 9%
Dishwashing 186 158 18% 7%
Home Care 217 184 18% 11%
Health & Personal Care ** 372 289 29% 20%
Other Household 14 19 -26% -28%
Household and Health & Personal Care 1,408 1,181 19% 11%
Pharmaceuticals 58 38 53% 49%
Food 44 39 13% 13%
1,510 1,258 20% 12%
**Net revenues of £33m in Q1 (2007 £nil) in respect the Adams business are
included within Health & Personal Care. On a like-for-like basis, growth of
Health & Personal Care is 17%.
Operating profit - adjusted
Household and Health & Personal Care * 268 221 21% 11%
Pharmaceuticals * 31 18 72% 63%
Food 6 5 20% 17%
Subtotal before exceptional items 305 244 25% 15%
Exceptional items (30) -
275 244 13% 3%
Operating margin - adjusted % %
Household and Health & Personal Care * 19.0% 18.7%
Pharmaceuticals * 53.4% 47.4%
Food 13.6% 12.8%
Subtotal before exceptional items 20.2% 19.4%
* 2007 comparatives have been reclassified to separately disclose
Pharmaceuticals, previously included within Household and Health & Personal
Care.
Addendum: Restatement of 2007 Segment Analysis
The following table of quarterly information for 2007 shows the
reclassification of area net revenues, operating profit and operating margin to
show RB Pharmaceuticals separately from the three geographical areas.
2007 Quarter Ended 2007 Full
Year
31 March 30 June 30 31 31 December
September December
£m £m £m
£m £m
Net revenues
Europe 687 685 697 696 2,765
North America & 306 318 336 365 1,325
Australia
Developing Markets 227 245 247 249 968
Pharmaceuticals 38 54 57 62 211
1,258 1,302 1,337 1,372 5,269
Operating profit -
adjusted*
Europe 151 155 156 195 657
North America & 50 46 72 117 285
Australia
Developing Markets 25 33 29 43 130
Pharmaceuticals 18 32 34 34 118
Subtotal before 244 266 291 389 1,190
exceptional items
Exceptional items - - 47 (4) 43
244 266 338 385 1,233
Operating margin - % % % % %
adjusted*
Europe 22.0% 22.6% 22.4% 28.0% 23.8%
North America & 16.3% 14.5% 21.4% 32.1% 21.5%
Australia
Developing Markets 11.0% 13.5% 11.7% 17.3% 13.4%
Pharmaceuticals 47.4% 59.3% 59.6% 54.8% 55.9%
Subtotal before 19.4% 20.4% 21.8% 28.4% 22.6%
exceptional items
* Adjusted to exclude the impact of exceptional items.
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