1st Quarter Results
Reckitt Benckiser
A World Leader in Household, Health and Personal Care
27 April 2010
GOOD START TO 2010
FULL YEAR TARGETS CONFIRMED
Results at a glance Q1 % change % change
£m actual exchange constant exchange
Net revenue 2,003 +5 +6
Operating profit 461 +14 +16
Net income 348 +15 +17
EPS (diluted) 47.5p +13
Highlights:
* Total net revenue growth of +6% (constant exchange) to £2,003m. Excluding
Reckitt Benckiser Pharmaceuticals ("RBP"), net revenue was ahead +5% (at
constant), supported by new initiatives and investment in the Group's 17
Powerbrands.
* Gross margin +90bp to 59.5%: operating margin +180bp to 23.0%. Excluding
RBP, operating profit rose +10% (at constant), with the margin +100bp to
20.0%.
* Net income +15% (actual exchange): diluted EPS of 47.5p (+13%).
* Net cash of £663m, £443m higher than the 31 December 2009 level as a result
of strong free cash flow generation.
* Net working capital of minus £1,348m, a £91m improvement versus year-end
December 2009.
Commenting on these results, Bart Becht, Chief Executive Officer, said:
"Reckitt Benckiser had a good first quarter in 2010. Excluding RBP, net revenue
increased +5% and operating profit was ahead +10% (both at constant exchange) -
in line with our full year targets. This result was supported by successful new
product initiatives, and significant investment in media and marketing across
our Powerbrand portfolio.
The performance of the total Group was similarly positive, with net revenue
growth of +6% and net income growth of +17%, both at constant exchange. These
results reinforce our confidence in achieving continued good growth in 2010,
notwithstanding potential generic competition to Suboxone in the U.S."
Detailed Operating Review: Total Group
Q1 net revenue increased +5% to £2,003m, with growth of +6% at constant
exchange.
The gross margin improved by +90bp to 59.5%, largely as a result of input cost
savings, a positive transaction impact from foreign exchange and benefits from
cost optimisation. While media support increased, media spend declined by -4%
(-2% constant) to a level of 11.8% of net revenue due to more favourable media
buying rates. Total marketing investment was higher, as savings from these more
favourable rates were re-invested in Other Consumer Marketing activities.
Operating profit was £461m, +14% higher than last year (+16% constant). The
operating margin increased by +180bp to 23.0% due to gross margin expansion and
operating cost efficiencies.
Net finance income was £3m (Q1 2009: net finance expense of £4m), reflecting
strong free cash flow generation during the quarter. The tax rate was 25%.
Net income was £348m, an increase of +15% versus Q1 2009 (+17% constant).
Diluted earnings per share increased +13% to 47.5 pence.
Q1 2010 Business Review
Summary: % net revenue growth
Q1 2010 Like-for-like Disposals Exchange Reported
Europe +0% +0% -1% -1%
NAA +4% -1% -2% +1%
DvM +19% +0% +3% +22%
Group ex-Pharma +5% +0% -1% +4%
Pharma* +30% +0% -12% +18%
TOTAL +6% +0% -1% +5%
* Pharma represents the Group's prescription drug business of Subutex and
Suboxone
The Business Review below is given at constant exchange rates.
Europe 45% of net revenue
Total net revenue was unchanged versus Q1 2009, at £906m. Good growth in Home
Care was offset by weakness in Fabric Care, with Dishwashing, Surface Care and
Health & Personal Care showing a relatively flat performance. The increase in
Home Care came from continued growth of Airwick <i>-Motion and the launch of
Airwick Aqua Mist. The result in Fabric Care was impacted by weakness in
Laundry Detergent, Fabric Conditioner and Water Softeners.
The operating margin was +30bp ahead of last year at 22.7%, with operating
profit of £206m.
North America & Australia 26% of net revenue
Total net revenue increased +3% to £528m (+4% like-for-like). Growth was led by
Fabric Care, Surface Care, Dishwashing and Home Care; this was partially offset
by weakness in Health & Personal Care, as the poor incidence of cold/'flu
impacted Mucinex sales. In Fabric Care, new initiatives supported the
performance of both Resolve and Woolite. The result in Dishwashing was led by
Finish All-in-1 tablets, gel packs and dishwashing additives, while growth in
Surface Care came from Lysol Multi-Purpose Care spray. Home Care increased
largely due to growth in Air Care behind the launch of Airwick Aqua Mist, with
a strong finish to the pest season in Australia driving a good result in Pest
Control.
In Food, growth was led by the consumer brands of French's Yellow Mustard,
French's Fried Onions and Frank's Red Hot sauce, and supported by the launch of
new variants.
Operating profit increased +13% to £105m; the operating margin was +230bp
higher at 19.9%.
Developing Markets 22% of net revenue
Total net revenue was ahead +19% to £438m, with strong growth across all
regions. In Fabric Care, Vanish delivered a strong result helped by increased
marketing investment, while Dettol, Harpic, and Veja in Brazil, were the key
drivers in Surface Care. In Home Care, new initiatives supported growth in both
Air Care and in Pest Control. Health & Personal Care increased largely as a
result of the continued excellent performance of the Dettol personal care
range, with Veet, Strepsils and Gaviscon also contributing strongly.
Operating profit increased by +49% to £64m. This resulted in a +240bp
improvement in the operating margin to 14.6%.
Pharmaceuticals 7% of net revenue
Total net revenue for the Group's Subutex and Suboxone prescription drug
business grew +30% to £131m. These buprenorphine-based products are used to
treat opiate dependence. This strong growth was predominantly driven by a
continued increase in penetration of Suboxone in the U.S.
The operating margin improved by +880bp to 65.6%. Operating profit was £86m, an
increase of +51%.
Suboxone has data exclusivity in Europe until 2016; in the U.S., Suboxone lost
the exclusivity afforded by its Orphan Drug Status on 8th October 2009. Within
the Pharmaceuticals division, the U.S. Suboxone business generated Q1 net
revenue of £111m and operating profit of £75m. While the Group continues to
search for ways to offset the impact of the loss of exclusivity in the U.S., up
to 80% of the revenue and profit of that business might be lost in the year
following the launch of generic competitors, with the possibility of further
erosion thereafter.
Q1 2010 Category Review (at Constant Exchange Rates)
Fabric Care. Net revenue was unchanged versus Q1 2009, at £407m. Vanish showed
good growth in North America & Australia and Developing Markets, and was helped
by the launch of Vanish Oxi Action Extra Hygiene. Growth in Woolite was
supported by the launch of Woolite Complete. The performance of Vanish and
Woolite was offset by weakness in Laundry Detergents, Fabric Conditioners and
Water Softeners.
Surface Care. Net revenue grew +7% to £343m. Growth came from the Dettol/Lysol
ranges, Harpic, and Veja in Brazil.
Dishwashing. Net revenue increased +1% to £237m, helped by the continued growth
of Finish Quantum and All-in-1 tablets, and further supported by the launch of
the Finish Quantumatic automatic detergent dispenser.
Home Care. Net revenue rose +11% to £294m. In Air Care, growth continued on
Airwick <i>-Motion, further boosted by the launch of Airwick Aqua Mist. A good
pest season and new initiatives underpinned the performance in Pest Control.
Health & Personal Care. Net revenue increased +4% to £524m, with strong growth
in Personal Care being partially mitigated by the impact of a weak cold/'flu
season in North America and Europe versus Q1 2009.
The increase in Personal Care was largely the result of a very strong
performance for the Dettol/Lysol ranges. For Dettol, the personal care range
continued to drive excellent growth in Developing Markets and Europe. For
Lysol, the launch of the No Touch Hand Soap System in North America has
delivered very encouraging early results. Veet also increased, driven by the
launch of the Suprem'Essence range with essential oils. In Healthcare, a good
result for Gaviscon was offset by weakness in Mucinex and Strepsils, driven by
the lower incidence of cold/'flu.
Total Household and Health & Personal Care. Net revenue was ahead by +4% to £
1,806m.
Pharmaceuticals. Net revenue for the Group's Subutex and Suboxone prescription
drug business grew +30% to £131m, predominantly driven by a continued increase
in penetration of Suboxone in the U.S. Operating profit was ahead +51% to £86m,
equating to a +880bp improvement in the margin to 65.6%.
Food. Net revenue rose +15% to £66m. This growth was driven by a very good
performance across the consumer portfolio, in particular further growth for
French's Yellow Mustard, French's Fried Onions and Frank's Red Hot Sauce, and
boosted by new variants. Operating profit increased +48% to £15m.
Financial Review
Basis of preparation. The unaudited financial information is prepared in
accordance with IFRSs as adopted by the European Union and IFRSs as issued by
the International Accounting Standards Board, and with the accounting policies
set out in the Group's 2009 Annual Report and Accounts.
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 working capital (inventories, short-term receivables and short-term
liabilities excluding borrowings and provisions) improved by £91m to minus £
1,348m, mostly due to further improvement in payables.
Net cash as at 31 March 2010 was £663m (31 December 2009: £220m), an increase
of £443m in the quarter, reflecting strong free cash flow generation from the
business.
Contingent liabilities. The Group is involved in a number of investigations by
competition authorities in Europe. It is too early to determine the likely
outcome of these matters and the Directors have made no provisions for such
potential liabilities.
The Group has recently received a Statement of Objections from the Office of
Fair Trading in the United Kingdom regarding alleged anti-competitive activity
involving the Gaviscon brand. In the event that the Office of Fair Trading
finds against the Group, it may impose a fine of up to the statutory maximum of
ten percent of Group worldwide turnover. The Board considers it appropriate to
disclose a contingent liability in this regard. The Statement of Objections is
under review and the Group will present an appropriate response to the Office
of Fair Trading in due course. The Directors at this stage believe that there
are substantive questions of law brought forward by the Statement of
Objections, questions that have not been settled in prior competition law cases
and which require thorough analysis and debate.
2010 Targets
Given the good start to the year, the Group is re-iterating its targets for
2010. Due to the uncertain timing of generic competition to Suboxone in the
U.S., it is not considered appropriate to communicate targets for the total
Group. For the business excluding RBP, the targets are for net revenue growth
of +5% (continuing operations, base: £7,144m) and for operating profit growth
of +10% (continuing operations, base: £1,512m), both at constant exchange.
For further information, please contact:
Reckitt Benckiser +44 (0)1753 217800
Joanna Speed
Director, Investor Relations
Andraea Dawson-Shepherd
Global Director, Corporate Communications &
Affairs
Brunswick (Financial PR) +44 (0)20 7404 5959
Susan Gilchrist
Senior Partner
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 the
plans and objectives of the Group with respect to these items. These
forward-looking statements are made pursuant to the "Safe Harbor" provisions of
the United States Private Securities Litigation Reform Act of 1995. In
particular, all statements that express forecasts, expectations and projections
with respect to future matters, including trends in results of operations,
margins, growth rates, overall market trends, the impact of interest or
exchange rates, the availability of financing to the Company, anticipated cost
savings or synergies and the completion of strategic transactions are
forward-looking statements. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on circumstances
that will occur in the future. There are a number of factors discussed in this
report, that could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking statements, including
many factors outside Reckitt Benckiser's control. Past performance cannot be
relied upon as a guide to future performance.
The Group at a Glance (Unaudited)
Quarter ended
31 March
2010 2009
£m £m
Net revenue - total 2,003 1,911
Net revenue growth - constant +6% +8%
Net revenue growth - total +5% +27%
Gross margin 59.5% 58.6%
EBITDA 493 437
EBITDA margin 24.6% 22.9%
EBIT 461 405
EBIT margin 23.0% 21.2%
Profit before tax 464 401
Net income 348 303
EPS, basic 48.3p 42.7p
EPS, diluted 47.5p 42.1p
Group balance sheet data 31 March 31 December
2010 2009
£m £m
Net working capital * (1,348) (1,257)
Net cash 663 220
* Net working capital is defined as inventories, short term receivables and
short term liabilities, excluding borrowings and provisions.
Shares in issue
Millions
31 December 2009 719.9
Issued or transferred from Treasury 4.9
31 March 2010 724.8
Group Income Statement Analysis (Unaudited)
Quarter ended
31 March
2010 2009 % change
£m £m
Net revenue 2,003 1,911 +5
Cost of sales (812) (792)
Gross profit 1,191 1,119 +6
Net operating expenses (730) (714)
Operating profit 461 405 +14
Operating profit before exceptional items 461 405 +14
Exceptional items - -
Operating profit 461 405 +14
Net finance income / (expense) 3 (4)
Profit on ordinary activities before 464 401 +16
taxation
Tax on profit on ordinary activities (116) (98) +18
Net income for the period 348 303 +15
Attributable to equity minority interests - -
Attributable to ordinary equity holders 348 303 +15
of the parent
Net income for the period 348 303 +15
Earnings per ordinary share:
On net income for the period, basic 48.3p 42.7p
On net income for the period, diluted 47.5p 42.1p
Average common shares outstanding
(millions):
Basic 720.9 709.4
Diluted 732.5 719.6
Segment Information (Unaudited)
Analyses by operating segment of net revenue and operating profit, and of net
revenue by product group are set out below. The Executive Committee of the
Group assesses the performance of the operating segments based on net revenue
and operating profit. This measurement basis excludes the effect of exceptional
items.
Operating segment
Quarter ended
31 March
2010 2009 % change
£m £m exch. rates
actual const.
Net revenue
Europe 906 918 -1 +0
North America & Australia 528 522 +1 +3
Developing Markets 438 360 +22 +19
Pharmaceuticals 131 111 +18 +30
2,003 1,911 +5 +6
Operating profit
Europe 206 206 +0 +0
North America & Australia 105 92 +14 +13
Developing Markets 64 44 +45 +49
Pharmaceuticals 86 63 +37 +51
461 405 +14 +16
Operating margin % %
Europe 22.7 22.4
North America & Australia 19.9 17.6
Developing Markets 14.6 12.2
Pharmaceuticals 65.6 56.8
23.0 21.2
Segment Information (Unaudited), continued
Product segment
Quarterended
31 March
2010 2009 % change
£m £m exch. rates
actual const.
Net revenue by category
Fabric Care 407 406 +0 +0
Surface Care 343 321 +7 +7
Dishwashing 237 235 +1 +1
Home Care 294 264 +11 +11
Health & Personal Care 524 505 +4 +4
Other Household 1 8 -88 -85
Household and Health & Personal Care 1,806 1,739 +4 +4
Pharmaceuticals 131 111 +18 +30
Food 66 61 +8 +15
2,003 1,911 +5 +6
Operating profit
Household and Health & Personal Care 360 332 +8 +8
Pharmaceuticals 86 63 +37 +51
Food 15 10 +50 +48
461 405 +14 +16
Operating margin % %
Household and Health & Personal Care 19.9 19.1
Pharmaceuticals 65.6 56.8
Food 22.7 16.4
23.0 21.2
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