3rd Quarter Results
19th October 2004
RECORD RESULTS
FULL YEAR TARGETS RAISED FURTHER
Results at a Glance Q3 % change % change Year To % change % change
£m actual constant Date actual constant
exchange exchange £m exchange exchange
Net Revenues £976m +1% +8% £2,849m +3% +9%
Operating Profit £197m +15% +24% £516m +14% +21%
Net Income £151m +23% +32% £385m +20% +27%
EPS (diluted) 19.9p +19% 51.5p +18%
* Net revenues grew by 1% (8% constant) to £976m in Q3, a record quarter for
the Company, and by 3% (9% constant) to £2,849m year to date (YTD).
* Operating profit increased by 15% in Q3 to £197m and by 14% in YTD to £
516m. YTD operating margins improved by 170 basis points (bps) to 18.1%
following a 190bps gross margin improvement, offset by a significant
increase in marketing investment.
* Net income grew by 23% in Q3 to £151m and by 20% in YTD to £385m. Fully
diluted EPS grew by 19% in Q3 to 19.9p, and by 18% in YTD to 51.5p.
* Strong cash generation resulted in net funds of £500m at the end of Q3, an
increase of £208m since last year-end, after share buybacks of £225m and
conversion of Convertible Bonds of £152m. The Company has completed its £
250m buyback program for 2003-04, and will today commence its £300m share
buyback program for the year ending Q3 2005.
* Major initiatives contributing to these results included Vanish Oxi Action
fabric treatment, Airwick Aroma Oils and Mobil'Air in air care, Cillit Bang
lime and grime power cleaner and the Lysol/Harpic Ready Brush lavatory
cleaner.
Commenting on these results, Bart Becht, Chief Executive Officer, said
'Reckitt Benckiser continued to grow ahead of the market and its full year
targets in Q3. Growth came across all regions and was strongly driven by the
success of new products for the Company's top 15 Power Brands.
'Due to the stronger than expected Q3 results, against a tough comparative last
year, Reckitt Benckiser is raising its full year targets to net revenue growth
of around 9% (previously 7% plus) and net income growth of around 22%
(previously 18% plus) both at constant exchange. The Company expects exchange
on translation to reduce reported net revenue and net income growth by around
600 basis points if current exchange rates prevail for the remainder of the
year.'
Detailed Operating Review
Third Quarter 2004
Net revenues in Q3 grew by 1% (8% at constant exchange) to £976m.
Operating profit for Q3 grew 15% (24% constant) to £197m. Gross margin
increased by 190bps to 54.6% due to higher margin new products and benefits
from ongoing cost optimization programs. Marketing investment, particularly
media, increased significantly during the period with media 6% higher at 12.2%
of net revenues. Operating margins increased by 240 basis points to 20.2%.
Net income grew 23% (32% constant) to £151m. EPS diluted increased 19% to 19.9
pence.
Nine Months 2004
Net revenues grew by 3% (9% constant) to £2,849m.
Operating profit increased 14% (21% constant) to £516m. Gross margins rose
190bps to 54.6% as a result of higher margin new products, favourable purchase
contracts on some raw and packaging materials mainly in the first half of the
year, and savings from ongoing cost optimization programs. Media investment
increased by 12% to 13.3% of net revenues (YTD 2003 12.2%). Operating margins
increased by 170bps to 18.1%.
Net income for the nine months increased by 20% (27% constant) to £385m. Net
interest received of £4m (charged £16m) was due to the strong cash inflow over
the past year reducing the level of net borrowings after higher dividend
payments and share buyback, and the specific impact of the conversion of £152m
nominal of the convertible bond. The tax rate for the period was 26%. EPS
diluted increased 18% to 51.5 pence.
Category Review at constant exchange rates
Fabric Care. YTD net revenues grew 9% to £796m largely due to the success of
Vanish Oxi Action, the Company's fabric treatment franchise. Key drivers
included the formula upgrade to Vanish Oxi Action Max, and the benefits of the
launch of Vanish Oxi Action gel and pre-treater. It also benefited from the
extension of Vanish Oxi Action into carpet cleaners.
Q3 net revenues grew 8% to £279m.
Surface Care. YTD net revenues grew 9% to £561m. Lavatory cleaners grew
strongly behind the roll-out of the Lysol Ready Brush in North America and the
launch of the Harpic Ready Brush in Europe plus strong growth for the base
business in Developing Markets. Multipurpose and specialty cleaners grew due to
the initial success of Cillit Bang lime and grime power cleaner.
Q3 net revenues grew 7% to £196m.
Dishwashing. YTD net revenues grew 6% to £400m. Growth came across all regions,
with particularly strong growth in North America due to Electrasol with Jet Dry
Action gel, gelpacs and tablets launched earlier this year. In Europe growth
came behind the launch of Calgonit/Finish 3-in-1 Extra Power in the summer.
Q3 net revenues grew 6% to £132m.
Home Care. YTD net revenues grew 12% to £412m with strong growth for both air
care and pest control. Air care grew behind Airwick Aroma Oils and the initial
success of Airwick Mobil'Air. Pest control grew behind the success of Mortein
Professional, Mortein Power Booster coils and a very strong pest season earlier
in the year in the Southern Hemisphere.
Q3 net revenues grew 12% to £148m.
Health & Personal Care YTD net revenues grew 13% to £449m. Excellent growth was
achieved in all categories. Depilatories grew behind the success of Veet Rasera
despite a disappointing season in Europe due to poor summer weather. Dettol
antiseptics grew behind the personal care range in Developing Markets.
Healthcare products benefited from the continuing roll-out of Gaviscon in
Europe and the strength of the UK flu season for Lemsip early in the year.
Suboxone continues to grow strongly as distribution builds in North America.
Q3 net revenues grew 9% to £145m.
Core Household grew net revenues 10% to £2,618m YTD, and 8% to £900m in Q3.
Food. YTD net revenues grew 8% to £128m with continued growth for French's
yellow mustard and gains for Frank's Red Hot sauce.
Q3 net revenues grew 8% to £43m.
Geographic Analysis at constant exchange
Europe 53% of Net Revenues
YTD net revenues grew by 7% to £1,506m. Growth came from key recent product
introductions. In fabric treatment, growth was due to the success of Vanish Oxi
Action, including a number of new additions to the range such as gel,
pre-treater, the upgrade to Vanish Oxi Action Max and the extension of Vanish
Oxi Action into carpet cleaners. In surface care, growth came from the launch
of Harpic Ready Brush in lavatory care and growth from multipurpose cleaners
following the launch of Cillit Bang. In automatic dishwashing growth
accelerated due to the launch in the summer of Calgonit/Finish 3-in-1 Extra
Power. Health & personal care grew with the launch of Veet Rasera despite a
disappointing season, and strong growth for the health care portfolio due to
the roll-out of Gaviscon in Europe and a strong flu season for Lemsip in the UK
early in the year. YTD Operating margins improved by 100bps to 21.7% resulting
in a 12% increase in operating profits to £327m.
In Q3, net revenues grew 6% to £509m, and operating profits increased by 12% to
£115m behind a 140bps increase in operating margin to 22.6%.
North America & Australia 30% of Net Revenues
YTD net revenues increased by 10% to £868m. In surface care increases were due
to the roll-out of the Lysol Ready Brush and growth for Lysol disinfectant
cleaner, particularly Lysol Neutra Air. In automatic dishwashing increases came
due to the success of Electrasol with Jet Dry Action gel, gelpacs and tablets.
In Home Care, Air Care grew following the continued success of Airwick Aroma
Oils and the initial success of Airwick Mobil'Air, and in health & personal
care, depilatories grew strongly due to the launch of Veet Rasera. Food grew
due to continued growth for French's Yellow Mustard and gains for Frank's Red
Hot sauce. YTD Operating margins grew by 140bps to 17.7%, resulting in profits
increasing 18% to £154m.
Q3 net revenues grew 8% to £304m, with profits increasing 17% to £68m, an
increase of 160bps in operating margin to 22.4%.
Developing Markets 17% of Net Revenues
YTD net revenues grew 15% to £475m. There was strong growth in all categories.
In fabric care, growth came following the launch and roll-out of Vanish Oxi
Action fabric treatment products. In surface care, increases came with the
success of Harpic behind higher investment in key markets, and strong recovery
in certain markets for multipurpose cleaners. Pest control grew strongly with
the launch of Mortein Power Booster coils. Dettol antiseptics grew due to the
success of the personal care range supported by higher investment. YTD
Operating margins expanded by 230bps to 6.1%, resulting in operating profits
increasing by 93% to £29m.
Q3 net revenues increased by 13% to £163m, and operating profits increased 50%
to £12m with operating margins expanding by 180bps to 7.4%.
Financial Items
Conversion of Convertible Bonds
On 31 July the holders of 151.6m 9.5 per cent Convertible Capital Bonds 2005
exercised their conversion rights to convert their Bonds into 30.6m fully paid
ordinary shares of Reckitt Benckiser plc. The effect of this is to reduce
borrowings by £151.6m (thereby increasing the Company's net funds position) and
increase the number of shares in issue by 30.6m.
In Q3 this reduced the interest payable by the Company, and increased the
weighted average number of shares in issue for the calculation of basic
earnings per share. There was no material impact on the calculation of fully
diluted earnings per share.
Net Interest. YTD Interest receivable on the Company's cash and debt portfolio
less payable on borrowings was £4m (YTD 2003: net payable £16m). This reduction
reflects strong cash inflow in 2004 to date plus the interest saved on
convertible bonds following the substantial conversion in July.
Net working capital (defined as stock, short-term debtors and short-term
creditors excluding borrowings) at the period end was minus £512m. The
difference compared to the prior year-end position (minus £578m) is due to the
absence of an accrued dividend at the end of September more than offsetting an
underlying improvement of £33m.
Net funds at the nine months were £500m (2003 year-end £292m), an improvement
of £208m due to strong operating cash inflow offset by share buyback and higher
dividend payments. The net funds also increased in the quarter as £152m of
bonds were converted into ordinary shares.
Share buyback
Between 16th February and 19th September 2004, the Group purchased 15.6m shares
for cancellation at a cost of £225m as part of its ongoing share buyback
program. This brings the totals for the program to date to 17.6m shares at a
cost of £250m. The Company has already announced that it intends to increase
the size of its annual share buyback program to £300m for the year starting in
Q4 2004.
Shares in Issue
The number of shares in issue at 30th September was 727.6m following issue of
31m shares in the quarter, mostly for conversion of securities as outlined
above, reduced by the repurchase of 6m shares by the Company.
For Further Information
Reckitt Benckiser +44 (0)1753 217 800
Tom Corran SVP Investor Relations & Corporate Communications
Elvira Luykx Global Communications Manager
Mark Wilson Investor Relations Manager
PR Agency
Tim Spratt Financial Dynamics +44 (0)207 831 3113
The Group at a Glance (unaudited)
Quarter Ended Sept 30 Nine Months Ended Sept 30
2004 2003# 2004 2003#
£m £m £m £m
From total ordinary
activities
976 969 Net revenues 2,849 2,760
1% 13% Net revenues growth 3% 7%
54.6% 52.7% Gross margin 54.6% 52.7%
218 197 EBITDA 581 519
22.3% 20.3% EBITDA margin 20.4% 18.8%
197 172 EBIT 516 452
20.2% 17.8% EBIT margin 18.1% 16.4%
205 167 Profit before tax 520 436
21.0% 17.2% PBT margin 18.3% 15.8%
151 123 Net Income 385 322
15.5% 12.7% Net Income margin 13.5% 11.7%
21.0p 17.5p EPS 54.1p 45.6p
19.9p 16.7p EPS, diluted 51.5p 43.8p
# Restated following the adoption of FRS 5 Application Note G 'Revenue
Recognition'
Group Balance Sheet Data September 30, December 31
2004 2003
£m £m
Net working capital * (512) (578)
Net funds 500 292
* Defined as stock, short term debtors and short term creditors excluding
borrowings.
Shares in Issue Millions
30 June 2004 702.4
Issues * 31.3
Cancelled (6.1)
30 September 2004 727.6
* 30.6m issued on conversion of £151.6m of Company's 9.5% Convertible Bond
Group profit and loss account
(unaudited)
Quarter Ended Sept 30 Nine Months Ended Sept
30
2004 2003# % change 2004 2003# %
change
£m £m £m £m
976 969 1% Net revenues 2,849 2,760 3%
(443) (458) (3%) Cost of sales (1,293) (1,306) (1%)
533 511 4% Gross profit 1,556 1,454 7%
(336) (339) (1%) Net operating expenses (1,040) (1,002) 4%
197 172 15% Total operating profit 516 452 14%
8 (5) 260% Net interest income/(expense) 4 (16) 125%
205 167 23% Profit on ordinary activities 520 436 19%
before taxation
(54) (44) 23% Tax on profit on ordinary (135) (114) 18%
activities
151 123 23% Profit on ordinary activities 385 322 20%
after taxation
- - Attributable to equity minority - -
interests
151 123 23% Profit for the period 385 322 20%
- - Ordinary Dividends (117) (99) 18%
151 123 23% Retained profit for the period 268 223 20%
Earnings per ordinary share:
21.0p 17.5p On profit for the period 54.1p 45.6p
19.9p 16.7p On profit for the period, 51.5p 43.8p
diluted
Average common shares
outstanding:
720.7 707.6 Basic 711.0 706.7
752.2 758.8 Diluted 756.9 757.6
# Restated following the adoption of FRS 5 Application Note G 'Revenue
Recognition'
Segmental Analysis (unaudited)
Analyses by geographical area and product segment of net revenues and operating
profit are set out below. The figures for each geographical area show the net
revenues and profit made by companies located in that area.
Quarter Ended Sept 30 Nine Months Ended Sept 30
2004 2003* % Change 2004 2003* % Change
£m £m exch. Rates £m £m exch. rates
Actual const. Actual const.
Net revenues - by
geographical area
509 495 3% 6% Europe 1,506 1,437 5% 7%
304 313 -3% 8% North America & 868 870 0% 10%
Australia
163 161 1% 13% Developing Markets 475 453 5% 15%
976 969 1% 8% 2,849 2,760 3% 9%
Operating profit - by
geographical area
115 105 10% 12% Europe 327 297 10% 12%
68 65 5% 17% North America & 154 142 8% 18%
Australia
12 9 33% 50% Developing Markets 29 17 71% 93%
2 (7) Corporate 6 (4)
197 172 15% 24% 516 452 14% 21%
% % Operating margin - by % %
geographical area
22.6% 21.2% Europe 21.7% 20.7%
22.4% 20.8% North America & 17.7% 16.3%
Australia
7.4% 5.6% Developing Markets 6.1% 3.8%
20.2% 17.8% 18.1% 16.4%
* Restated following the adoption of FRS 5 Application Note G 'Revenue
Recognition' and the alignment of the reported geographical segments with the
internal management structure of Reckitt Benckiser.
Segmental Analysis (continued)
Quarter Ended Sept 30 Nine Months Ended Sept 30
2004 2003# % change 2004 2003# % exchange
£m £m exch. rates £m £m exch. rates
actual const. actual const.
Net revenues - by
product segment
933 925 1% 8% Household and Health & 2,721 2,628 4% 9%
Personal Care
43 44 -2% 8% Food 128 132 -3% 8%
976 969 1% 8% 2,849 2,760 3% 9%
Operating profit - by product
segment
186 170 9% 15% Household and Health & 490 437 12% 16%
Personal Care
9 9 0% 29% Food 20 19 5% 25%
2 (7) Corporate 6 (4)
197 172 15% 24% 516 452 14% 21%
% % Operating margin - by % %
product segment
19.9% 18.4% Household and Health & 18.0% 16.6%
Personal Care
20.9% 20.5% Food 15.6% 14.4%
20.2% 17.8% 18.1% 16.4%
Net revenues - Household and
Health & Personal Care
279 277 1% 8% Fabric Care 796 766 4% 9%
196 199 -2% 7% Surface Care 561 557 1% 9%
132 131 1% 6% Dishwashing 400 396 1% 6%
148 145 2% 12% Home Care 412 394 5% 12%
145 139 4% 9% Health & Personal Care 449 411 9% 13%
900 891 1% 8% Core Business 2,618 2,524 4% 10%
33 34 -3% 3% Other Household 103 104 -1% 4%
933 925 1% 8% 2,721 2,628 4% 9%
# Restated following the adoption of FRS 5 Application Note G 'Revenue
Recognition'
9
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