3rd Quarter Results
24 October 2007
FURTHER STRONG GROWTH IN Q3
FULL YEAR NET REVENUE & PROFIT TARGETS RAISED
Results at a Glance Q3 % change % change Year To % change % change
£m actual constant Date actual constant
exchange exchange £m exchange exchange
Net Revenues 1,337 +8 +9 3,897 +7 +11
Operating Profit 338 +51 +55 848 +43 +49
reported
Net Income reported 254 +62 +65 649 +55 +62
EPS (diluted) 34.7p +62 88.3p +55
reported
Operating Profit 291 +7 +9 801 +15 +19
adjusted *
Net Income adjusted 218 +14 +15 613 +24 +28
*
EPS (diluted) 29.8p +14 83.4p +24
adjusted *
*% change numbers (adjusted basis) exclude the impact of exceptional
items (see page 2)
- Reported results include exceptional items consisting of
restructuring charges relating to the integration of Boots Healthcare
International (BHI) and further restructuring of manufacturing, and the gain
on disposal of Hermal. Q3 2007 includes a gain of £47m pretax compared to a
pretax charge of £47m in Q3 2006, and of £104m in the year to date 2006.
Adjusted results, discussed below, exclude both of these items.
- Q3 net revenues rose 8% (9% at constant exchange). Adjusted
operating profit rose to £291m, +7% (+9% constant). Gross margin increased
140bps to 57.9% and adjusted operating margin was flat at 21.8%. Adjusted net
income rose 14%.
- Year to Date (YTD) net revenue growth was 7% at actual exchange
(+11% constant). Adjusted operating profit increased to £801m, +15%. Gross
margin expansion was 180bps to 57.7%, while adjusted operating margin
increased 140bps to 20.6%. Adjusted net income was £613m, +24%.
- On a reported basis, operating profits rose 51% to £338m in Q3,
and by 43% to £848m YTD. Net income rose 62% to £254m in Q3 and by 55% to
£649m YTD.
- Net borrowings were £297m, after further strong cash inflow and
£255m proceeds of the Hermal disposal, and after a further £90m of share
buybacks and payment of the interim dividend (£179m) in the quarter.
Commenting on these results, Bart Becht, Chief Executive Officer,
said: -
"Reckitt Benckiser had a strong Q3 bringing year to date net
revenue growth to 11% at constant exchange. Growth was broad based, driven by
new products like Air Wick Freshmatic and Vanish Crystal White, and strong
growth in the Health & Personal Care franchises, Dettol, Nurofen and
Strepsils. Profit growth continues to run ahead of the full year target due to
good gross margin expansion and BHI synergies coming in ahead of schedule.
"We are therefore raising our full year target for net revenue
growth (2006 base £4,922m) to around 9% at constant exchange (previously 7% -
8%) or up to 6% at actual exchange. For net income growth (base £786m) we are
raising our target to 15% growth at actual exchange (equivalent to high teens
at constant exchange versus previous target of mid teens). The increased
target excludes exceptional pretax profits of £47m in Q3 2007. "
Basis of Presentation and Exceptional Items
Where appropriate, the term `adjusted' excludes the impact of
exceptional items. Exceptional items consist of restructuring charges relating
to the integration of Boots Healthcare International (BHI) and further
restructuring of manufacturing configuration of the enlarged company and the
gain on disposal of Hermal.
The term `underlying' represents the results excluding BHI acquired
on 1 February 2006. BHI is no longer separately identified in the commentary
that follows for Q3 as the results are now like-for-like, although it is
identified in the year to date commentary where relevant due to the extra
month of trading in Q1 2007.
Detailed Operating Review
Third Quarter 2007
Net revenues in Q3 grew by 8% (9% at constant exchange) to £1,337m.
Reported operating profit rose 51% (55% constant) to £338m. Net
income grew 62% (65% constant) to £254m. Basic EPS was 35.6 pence per share.
Adjusted operating profit for Q3 grew 7% (9% constant) to £291m.
Gross margin increased by 140bps to 57.9% due to the benefit of cost
optimization and mix. Marketing investment increased substantially, with media
investment higher by 10% at constant exchange at 12.2% of net revenues.
Adjusted operating margins were maintained at 21.8% with the gross margin
expansion and BHI synergies, offset by substantially higher investment to
drive long-term growth.
The exceptional profit in Q3 2007 was £47m compared to a charge in
Q3 last year of £47m.
On an adjusted basis net income grew 14% (15% constant). Tax in the
quarter is at a rate of 24%, the underlying rate for the year, and there were
no one-off tax releases in the quarter.
EPS diluted was 29.8 pence per share, an increase of +14% adjusted.
Year to Date (9 Months) 2007
Net revenues grew by 7% (11% constant) to £3,897m.
The underlying business grew by 6% (10% constant) to £3,483m. BHI
contributed net revenues of £414m in the nine months compared to £343m last
year for the 8 months of ownership. Like-for-like growth for BHI in the year
to date is 8%.
Reported operating profit rose 43% (49% constant) to £848m.
Reported net income YTD was 55% (62% constant) higher at £649m. Basic EPS was
90.7 pence per share.
Adjusted operating profit increased 15% (19% constant) to £801m.
Gross margin was 180bps ahead of last year at 57.7% due to the benefit of
price increases early in the year, favorable mix and cost optimization.
Marketing investment was substantially higher, with media investment increased
by 15% constant to 12.7% of net revenues, +30bps versus 2006. Adjusted
operating margins increased by 140bps to 20.6% due to the gross margin
expansion somewhat offset by higher marketing investment, and to the BHI
synergies which are running ahead of schedule.
The exceptional profit in YTD 2007 was £47m compared to charges in
YTD 2006 of £104m. Cumulative synergies from the BHI acquisition reached £78m
at the end of September 2007, compared to £68m at the end of Q2, fully on
track to reach the target of £80m by the end of 2007.
Net interest charges were £20m (2006 £29m) with the interest cost
of the BHI acquisition offset by the strong cash inflow over the period. The
tax rate is 22%, benefiting from the £20m of one-off tax releases in Q2.
Adjusted net income growth was 24% (28% constant). Excluding the
£20m one-off tax release, adjusted net income would have grown by 20% (24%
constant).
Adjusted EPS diluted increased by 24% to 83.4 pence per share.
Geographic Analysis at Constant Exchange excluding Exceptional Items
Europe 54% of Net Revenues
YTD net revenues grew by 9% to £2,108m. All five categories
contributed to this growth. The main driver in Fabric Care was fabric
treatment due to the success of Vanish Oxi Action Crystal White and Vanish Oxi
Action Multi, and to Calgon water softener following increased investment.
Surface Care growth benefited from the launch of Cillit Bang Grease & Floor
and from growth for Harpic Power Plus and Harpic Max In Toilet Bowl device
(ITB) in Lavatory Care. In Automatic Dishwashing, the key driver was Finish
Quantum and Finish All in One. In Home Care, Aircare growth was driven by
continuing success for Airwick Freshmatic and the early results of Airwick
Freshmatic Mini. In Health & Personal Care, growth came from the former BHI
brands, Nurofen, Strepsils and Clearasil, and from growth for Veet
depilatories following the launch of the new Veet 400ml Pump Pack.
YTD operating margins were 70bps ahead of last year at 22.9% due to
higher gross margins and BHI synergies, partially offset by higher marketing
investment in new products. This resulted in a 13% increase in operating
profits to £482m.
In Q3, net revenues increased 6% to £710m. Operating profits
increased by 4% to £164m.
North America & Australia 27% of Net Revenues
YTD net revenues increased 12% to £1,070m. Within this, NAA
Household grew 8% underlying, NA Food grew 8% and NAA Pharmaceuticals grew
80%.
YTD growth in Household came particularly from Surface Care,
Automatic Dishwashing and Home Care. Surface Care growth was driven by Lysol
in NA and by Harpic in ANZ. Automatic Dishwashing increased as a result of the
continuing success of Electrasol 3in1 monodose tablets. In Home Care, Air Care
growth came across both Airwick Freshmatic and the launch of Airwick
Freshmatic Mini, and from Airwick Electrical Oils. In Health & Personal Care,
increased net revenues came mainly from strong growth for Nurofen in ANZ
behind higher investment.
Pharmaceuticals grew sales of Suboxone very strongly in the USA
where the sales organization has been substantially increased and helped by a
regulatory change which allows doctors to take on more patients.
Food grew strongly due to the consumer brands of French's yellow
mustard, Frank's Red Hot sauce and French's Fried Onions.
YTD operating margins were 230bps higher at 21.7% mainly due to mix
benefit from the high growth of Suboxone plus gross margin expansion and BHI
synergies resulting in profits increasing 25% to £232m.
Q3 net revenues grew 12% to £380m. Operating profits were ahead by
13% to £98m.
Developing Markets 19% of Net Revenues
YTD net revenues grew 17% to £719m 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 Fabric Treatment, mainly driven by
initiatives on Vanish to drive category penetration. In Surface Care, the main
driver was the continuing growth for Harpic Power Plus lavatory cleaner,
supported by higher investment, and strong growth for Veja in Brazil. In Home
Care, the increase was in both Pest Control and Air Care. Mortein growth came
from a number of new initiatives such as Mortein with Dettol, while in Air
Care, the key driver was Air Wick Freshmatic. In Health & Personal Care, the
Dettol personal care range grew strongly benefiting from range extensions and
additional investment, while in Healthcare both Strepsils, due to higher
investment, and Gaviscon, due to geographical expansion, grew strongly.
YTD operating margins expanded 240bps to 12.1% resulting in
operating profits increasing by 47% to £87m.
Q3 net revenues increased by 15% to £247m. Operating profits
increased 32% to £29m.
Category Review at Constant Exchange Rates
Fabric Care. Net revenues increased 6% to £935m. The major drivers
were strong continuing growth for Vanish Oxi Action Multi and Vanish Oxi
Action Crystal White. Calgon Water Softeners grew as a result of higher
marketing investment. Woolite Garment Care benefited from the roll-out of
Woolite Color and from higher investment.
Q3 growth was 6% to £330m.
Surface Care. Net revenues grew 8% to £702m principally due to the
launch of Cillit Bang Grease & Floors, and to strong growth for Lysol in North
America and Veja in Brazil. Harpic Lavatory Care net revenues were also
stronger due to the success of Harpic Power Plus and Harpic Max.
Q3 growth was 8% to £243m.
Dishwashing. Net revenues increased 6% to £449m due to the success
of Finish Quantum and All in One in Europe and Electrasol 3in1 tablets in
North America.
Q3 growth was 3% to £144m.
Home Care. Net revenues improved by 18% to £561m. Air Care grew
strongly due to the continuing success of Airwick Freshmatic globally, strong
growth for Airwick Electrical Oils in North America, plus early benefits from
Airwick Mini Freshmatic. Pest Control growth came mainly as a result of the
launch of new products, Mortein Lantern, Mortein with Dettol and Mortein
Professional Indoor Spray.
Q3 growth was 17% to £197m.
Health & Personal Care. Net revenues increased 17% to £908m, with
underlying growth (excluding BHI) of 12% and former BHI business +23%
(including one extra month in YTD compared to 2006).
Dettol was significantly ahead in Developing Markets due to new
personal care products like Dettol Herbal soap and shower gel, and
significantly increased marketing investment. Veet benefited from the launch
of the new Veet Pump Pack.
Healthcare, including the former business of BHI, contributed
strongly to the growth in the year to date. BHI YTD net revenues, led by
Nurofen, Strepsils and Clearasil, were £414m compared to £343m in the eight
months of ownership in 2006. Adjusting for the extra month, the like-for-like
growth in the former BHI business was 8%, mainly due to substantial growth for
Strepsils, Nurofen and Clearasil, partially offset by a number of discontinued
businesses amongst the BHI tail.
Q3 growth in Health & Personal Care was 9% to £303m.
Total Household and Health & Personal Care. Net revenues were ahead
by 10% to £3,618m. In Q3, total Household and Health & Personal Care grew 8%
to £1,238m.
Pharmaceuticals. YTD net revenues were £149m, 52% ahead of the
equivalent period last year. This exceptional growth was driven by the growth
of Suboxone in the USA following a substantial increase in the sales
organisation and helped by a regulatory change that allows doctors to take on
more patients. Q3 net revenues increased to £57m +54%.
Profit YTD was £84m +71%, and for Q3 was £34m, +70%.
Food. Net revenues grew 8% to £130m with good performance across
the consumer portfolio, in particular further growth for French's yellow
mustard, French's Fried Onions and for Frank's Red Hot sauce. Operating
profits increased 24% to £26m, with operating margins improving 240bps to
20.0%.
Q3 net revenues grew 11%, and operating profit increased 22% to
£11m.
Financial Review
Basis of preparation
The unaudited financial information is prepared under IFRS in
accordance with the accounting policies set out in the Group's 2006 Annual
Report and Accounts.
Net working capital (inventories, short term receivables and short
term liabilities excluding borrowings and provisions) decreased by £116m to
minus £844m compared to the position at the end of 2006, mostly due to further
significant reductions in the BHI net working capital, effectively achieving
the £130m targeted reduction one year early. Net working capital was
maintained compared to the position at the half year.
Net borrowings at the nine months were £297m (December 2006 £660m),
a reduction of £363m compared to year end 2006. This reflected net cash flow
from operations of £699m, receipts on the disposal of Hermal of £255m, offset
by payment of the two dividends (£358m) and share buybacks (£234m).
In Q3 net borrowings reduced by £187m compared to the position at
the end of June 2007, reflecting £255m receipts from disposal of Hermal and
cash inflow of £201m, offset by the interim dividend payment (£179m) and
further share buybacks (£90m).
Share buyback. Between February and September 2007, the Group
purchased 8.7m shares at a cost of £234m as part of its ongoing share buyback
program. In Q3, the Company purchased 3.4m shares at a cost of £90m. The
Company is committed to completing its £300m program for full year 2007.
Hermal disposal. The Company announced on 16th July that it had
agreed to dispose of the Hermal prescription skincare business to Laboratorios
Almirall S.A. for a consideration of £255m in cash. The disposal was completed
on 31 August 2007. Results for Hermal are included in Q3 and YTD as reported
up to the date of disposal.
For Further Information
Reckitt Benckiser +44 (0)1753 217 800
Tom Corran SVP Investor Relations & Corporate Communications
Mark Wilson Corporate Controller and Investor Relations Manager
(investor queries)
Fiona Fong Head of Corporate Communications (press queries)
PR Agency
Susan Gilchrist Brunswick +44 (0)207 404 5959
Catherine Hicks
The Group at a Glance (unaudited)
Nine Months Ended
Quarter Ended September 30 September 30
2007 2006 2007 2006
£m £m £m £m
1,196 1,104 Net revenues - underlying 3,483 3,286
141 139 Net revenues - acquisition 414 343
1,337 1,243 Net revenues - total 3,897 3,629
8% 4% Net revenues growth - 6% 7%
underlying
8% 17% Net revenue growth - total 7% 18%
57.9% 56.5% Gross margin 57.7% 55.9%
362 247 EBITDA 916 664
27.1% 19.9% EBITDA margin 23.5% 18.3%
338 224 EBIT 848 591
291 271 EBIT - adjusted* 801 695
25.3% 18.0% EBIT margin 21.8% 16.3%
21.8% 21.8% EBIT margin - adjusted* 20.6% 19.2%
334 212 Profit before tax 828 562
254 157 Net income 649 418
218 192 Net income adjusted* 613 495
35.6p 21.8p EPS 90.7p 57.9p
29.8p 26.2p EPS, adjusted and diluted* 83.4p 67.5p
* Adjusted to exclude the impact of exceptional items.
Group Balance Sheet Data September 30, December 31,
2007 2006
£m £m
Net working capital * (844) (728)
Net debt (297) (660)
* Net working capital is defined as inventories, short term receivables and
short term liabilities, excluding borrowings and provisions.
Shares in Issue
Third quarter
Millions
31 December 2006 716.0
Issued or transferred from Treasury 5.1
Repurchased and transferred to Treasury (5.3)
30 June 2007 715.8
Issued or transferred from Treasury 1.1
Repurchased and transferred to Treasury (3.4)
30 September 2007 713.5
Group income statement (unaudited)
Nine Months Ended
Quarter Ended September 30 September 30
2007 2006 % change 2007 2006 % change
£m £m £m £m
1,337 1,243 8% Net revenues 3,897 3,629 7%
(563) (541) 4% Cost of sales (1,648) (1,599) 3%
774 702 10% Gross profit 2,249 2,030 11%
(436) (478) -9% Net operating expenses (1,401) (1,439) -3%
338 224 51% Operating profit 848 591 43%
291 271 7% Operating profit before exceptional 801 695 15%
items
47 (47) - Exceptional items 47 (104) -
338 224 51% Operating profit 848 591 43%
(4) (12) -67% Net finance expense (20) (29) -31%
334 212 58% Profit before taxation 828 562 47%
(80) (55) 45% Taxation (179) (144) 24%
254 157 62% Profit for the period 649 418 55%
0 0 - Attributable to minority interests 0 0 -
254 157 62% Attributable to equity shareholders 649 418 55%
254 157 62% Profit for the period 649 418 55%
Earnings per ordinary share:
35.6p 21.8p On profit for the period 90.7p 57.9p
34.7p 21.4p On profit for the period, diluted 88.3p 56.9p
Earnings per ordinary share -
adjusted*:
30.5p 26.6p On profit for the period 85.6p 68.7p
29.8p 26.2p On profit for the period, diluted 83.4p 67.5p
* Adjusted to exclude the impact of exceptional items.
Average common shares outstanding:
(millions)
714.4 721.3 Basic 715.9 721.7
731.6 732.7 Diluted 734.7 734.4
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 September 30 Nine Months Ended September 30
2007 2006 % Change 2007 2006 % Change
£m £m exch. Rates £m £m exch.rates
actual const. actual const.
Net revenues
710 668 6% 6% Europe 2,108 1,951 8% 9%
380 356 7% 12% North America & Australia 1,070 1,027 4% 12%
247 219 13% 15% Developing Markets 719 651 10% 17%
1,337 1,243 8% 9% 3,897 3,629 7% 11%
Operating profit
211 116 82% 82% Europe 529 363 46% 48%
98 89 10% 17% North America & Australia 232 177 31% 41%
29 19 53% 53% Developing Markets 87 51 71% 85%
338 224 51% 55% 848 591 43% 49%
Operating profit - adjusted*
164 157 4% 4% Europe 482 433 11% 13%
98 92 7% 13% North America & Australia 232 199 17% 25%
29 22 32% 32% Developing Markets 87 63 38% 47%
291 271 7% 9% Subtotal before exceptional 801 695 15% 19%
items
47 (47) Exceptional items 47 (104)
338 224 51% 55% 848 591 43% 49%
% % Operating margin - adjusted* % %
23.1 23.5 Europe 22.9 22.2
25.8 25.8 North America & Australia 21.7 19.4
11.7 10.0 Developing Markets 12.1 9.7
21.8 21.8 Subtotal before exceptional 20.6 19.2
items
* Adjusted to exclude the impact of exceptional items.
Segmental Analysis (continued)
Secondary Segment: Product Segment
Quarter Ended September 30 Nine Months Ended September 30
2007 2006 % change 2007 2006 % exchange
£m £m exch. rates £m £m exch. rates
actual const. actual const.
Net revenues
330 314 5% 6% Fabric Care 935 906 3% 6%
243 229 6% 8% Surface Care 702 680 3% 8%
144 141 2% 3% Dishwashing 449 436 3% 6%
197 173 14% 17% Home Care 561 498 13% 18%
303 279 9% 9% Health & Personal Care * 908 796 14% 17%
21 27 -22% -16% Other Household 63 79 -20% -15%
1,238 1,163 6% 8% Household and Health & 3,618 3,395 7% 10%
Personal Care
57 39 46% 54% Pharmaceuticals 149 103 45% 52%
42 41 2% 11% Food 130 131 -1% 8%
1,337 1,243 8% 9% 3,897 3,629 7% 11%
Net revenues of £414m in respect of the acquisition of BHI are included within
Health & Personal Care in 2007. On an underlying basis, growth of Health &
Personal Care is 12% for YTD and 14% for Q3 at constant rates.
* 2006 Comparatives have been restated to reflect the classification of
Pharmaceuticals.
Additional Information
Operating profit - by product
segment
246 240 2% 4% Household and Health & 691 621 11% 15%
Personal Care
34 21 62% 70% Pharmaceuticals 84 51 65% 71%
11 10 10% 22% Food 26 23 13% 24%
291 271 7% 9% Subtotal before exceptional 801 695 15% 19%
items
47 (47) Exceptional items 47 (104)
338 224 51% 55% 848 591 43% 49%
% % Operating margin - by % %
product segment
19.9 20.6 Household and Health & 19.1 18.3
Personal Care
59.6 53.8 Pharmaceuticals 56.4 49.0
26.2 24.4 Food 20.0 17.6
21.8 21.8 Subtotal before exceptional 20.6 19.2
items
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