Interim Results
26 July 2004
STRONG FIRST HALF, FULL YEAR TARGETS RAISED
Results at a Glance Q2 % change % change Year To % change % change
£m actual constant Date actual constant
exchange exchange £m exchange exchange
Net Revenues £953m +1% +8% £1,873m +5% +10%
Operating Profit £174m +7% +14% £319m +14% +19%
Net Income £129m +10% +17% £234m +18% +23%
EPS (diluted) 17.4p +10% 31.6p +17%
* Net revenues grew by 1% (8% at constant exchange) to £953m in Q2, and by 5%
(10% constant) to £1,873m in H1.
* Operating profit increased by 7% in Q2 to £174m and by 14% in H1 to £319m.
Half year operating margins improved by 140 basis points (bps) to 17.0%
behind a 190 bps gross margin improvement, offset by a significant increase
in marketing investment.
* Net income grew by 10% in Q2 to £129m and by 18% in H1 to £234m. EPS
diluted grew by 10% in Q2 to 17.4p, and by 17% in H1 to 31.6p.
* Strong cash generation resulted in a £111m increase in the Company's net
funds in H1 2004 to £403m after share buyback of £137m.
* Major initiatives contributing to these results included Vanish Oxi Action
fabric treatment, the Lysol/Harpic Ready Brush lavatory cleaner, Airwick
Aroma Oils in air care, and Veet Rasera in depilatories.
* The Company continues to return cash to shareholders through both its
progressive dividend policy and a rolling share buyback program.
* The Company declares an interim dividend of 16.0 pence per share, an
increase of 14%.
* The Company's share buyback program will be increased to £300m (from £250m
currently) for the year starting from Q4 2004.
Commenting on these results, Bart Becht, Chief Executive Officer, said
'Reckitt Benckiser had a strong first half of 2004 with net revenue and net
income growth running significantly ahead of the target rate for the full year
of net revenue growth of 5% plus and net income growth of low double digits
both at constant exchange. Growth has come from all categories and regions
behind new product initiatives supported by significant increases in marketing,
particularly media, investment.
'After two strong quarters, Reckitt Benckiser is firmly on track to deliver
ahead of the Company's initial full year targets. Consequently we are raising
our target for net revenue growth to 7% plus and for net income growth to 18%
plus both at constant exchange.'
Detailed Operating Review
Second Quarter 2004
Net revenues in Q2 grew by 1% (8% at constant exchange) to £953m.
Operating profit for Q2 grew 7% (14% constant) to £174m. Gross margin increased
by 240bps to 55.5% due to higher margin new products and benefits from ongoing
cost optimization programs. Marketing investment, particularly media, increased
significantly during the period with media 15% higher to 15.0% of net revenues.
Operating margins increased by 100 basis points to 18.3%.
Net income grew 10% (17% constant) to £129m. EPS diluted increased 10% to 17.4
pence.
Half Year 2004
Net revenues grew by 5% (10% constant) to £1,873m.
Operating profit increased 14% (19% constant) to £319m. Gross margins rose
190bps to 54.6% as a result of higher margin new products, favourable purchase
contracts on some raw and packaging materials and savings from ongoing cost
optimization programs. Media investment increased by 15% to 13.8% of net
revenues (H1 2003 12.5%). Operating margins increased by 140bps to 17.0%.
Net income for the half year increased by 18% (23% constant) to £234m. Net
interest expense of £4m (£11m) was lower due to the strong cash inflow over the
past year reducing the level of net borrowings after higher dividend payments
and share buyback. The tax rate for the period was 26%. EPS diluted increased
17% to 31.6 pence.
Category Review at constant exchange rates
Fabric Care. H1 net revenues grew 10% to £517m. In fabric treatment, Vanish Oxi
Action grew strongly across Western Europe and Developing Markets, including
the benefits of the launch of Vanish Oxi Action Gel. In North America Spray 'n
Wash in-wash continued to grow. Carpet Cleaners grew behind the launch of
Vanish Oxi Carpet.
Q2 net revenues grew 7% to £261m.
Surface Care. H1 net revenues grew 9% to £365m. 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 strong
performance in Europe and Developing Markets.
Q2 net revenues grew 8% to £181m.
Dishwashing. H1 net revenues grew 5% to £268m. 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
was steady in the absence of major initiatives.
Q2 net revenues grew 6% to £128m.
Home Care. H1 net revenues grew 12% to £264m with strong growth for both air
care and pest control. Air care grew behind Airwick Aroma Oils and Decosphere.
Pest control grew behind the success of Mortein Professional, Mortein Power
Booster coils and a very strong pest season.
Q2 net revenues grew 12% to £131m.
Health & Personal Care H1 net revenues grew 16% to £304m. Excellent growth was
achieved in all categories. Depilatories grew behind the success of Veet
Rasera. 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. Suboxone continues
to grow strongly as distribution builds in North America.
Q2 net revenues grew 12% to £166m.
Core Household grew net revenues 10% to £1,718m in the half-year, and 9% to £
867m in Q2.
Food. H1 net revenues grew 9% to £85m with good performance across the
portfolio, but particularly behind French's yellow mustard which had a strong
half-year, increasing market share, and the launch of Frank's Red Hot Chile &
Lime.
Q2 net revenues grew 4% to £49m.
Geographic Analysis at constant exchange for continuing operations
Europe 53% of Net Revenues
H1 net revenues grew by 8% to £997m. Growth came behind key recent product
introductions. In fabric treatment, growth was due to the success of Vanish Oxi
Action, the introduction of Vanish Oxi Action Gel and the launch of Vanish Oxi
Carpet. In surface care, growth came from the launch of Harpic Ready Brush in
lavatory care and strong growth from specialty cleaners. In automatic
dishwashing growth was steady in the absence of major initiatives. Health &
personal care grew behind the success of Veet Rasera, and strong growth for the
health care portfolio behind the roll-out of Gaviscon in Europe and a strong
flu season for Lemsip in the UK. H1 Operating margins improved by 90bps to
21.3% resulting in a 13% increase in operating profits to £212m.
In Q2, net revenues grew 6% to £505m, and operating profits increased by 10% to
£114m behind a 70bps increase in operating margin to 22.6%.
North America & Australia 30% of Net Revenues
H1 net revenues increased by 11% to £564m. Growth came across all five
categories. In fabric care, it came behind the continued growth of Spray 'n'
Wash in-wash. In surface care increases were due to the roll-out of the Lysol
Ready Brush. 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 behind the success of Airwick Aroma Oils and Decosphere, and in health &
personal care, depilatories grew strongly behind the launch of Veet Rasera.
Food grew strongly behind growth for French's Yellow Mustard and the launch of
Frank's Red Hot Chile & Lime sauce. H1 Operating margins grew by 140bps to
15.2%, resulting in profits increasing 19% to £86m.
Q2 net revenues grew 11%, against an easier comparative in Q2 last year, with
profits increasing 16% to £44m, an increase of 130bps in operating margin to
15.3%.
Developing Markets 17% of Net Revenues
H1 net revenues grew 16% to £312m. There was strong growth in all categories.
In fabric care, growth came behind 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 behind the success of
the personal care range supported by higher investment. H1 Operating margins
expanded by 270bps to 5.4%, resulting in operating profits increasing by 143%
to £17m.
Q2 net revenues increased by 10% to £160m, and operating profits increased 71%
to £12m with operating margins expanding by 250bps to 7.5%.
New Initiatives H2 2004
A number of new products are being launched.
* In fabric treatment, Vanish Oxi Action Max to provide even better stain
removal and Vanish Oxi Pre-Treater trigger spray are being launched in
Europe.
* In surface care, Lysol Neutra Air electrical is being launched in North
America, and Lysol All Purpose Cleaners are being relaunched with natural
ingredients. Cillit Bang universal tough cleaner on lime and grime is being
launched in parts of Europe.
* In automatic dishwashing, Finish/Calgonit 3-in-1 Brilliant Extra Power is
being upgraded to its best ever cleaning formula.
* In air care, Airwick Mobil Air portable electrical is launching in Europe
and North America.
Financial Review
Net Interest. Interest payable on borrowings less receivable on funds on the
Company's cash and debt portfolio was £4m (£11m) in H1. This reduction reflects
strong cash inflow in 2003 and 2004 to date.
Tax on the profit for the half year was £81m, a rate of 26% (H1 2003 26%) on
profit before tax of £315m.
Net working capital (defined as stock, short term debtors and short term
creditors excluding borrowings) improved by £55m to minus £633m.
Cash Flow from operating activities rose by 4% to £444m due to increased
operating profits and a further release of cash from working capital. After an
increase in interest receivable, offset by higher tax payments in the first
half of the year, net cash flow from ordinary operations increased by 2% to £
337m.
Cash conversion continued to be strong. The ratio of cash flow from operating
activities to net revenues was broadly maintained at 18%.
Net funds at the half-year were £403m (2003 year-end £292m), an improvement of
£111m due to strong operating inflow, working capital release and improved cash
management offset by share buyback and higher dividend payments. The Group's
net funds position consisted of cash of £52m (£59m) and short term investments
of £820m (£724m) offset by the convertible capital bond of £192m (£192m) and
other borrowings of £277m (£299m).
Balance Sheet and Financing. At the half year the Group had shareholders funds
of £1,431m (2003 year-end £1,470m), a decrease of 3%. Net funds were £403m
(2003 year-end £292m). Total capital employed in the business was £1,031m (2003
year-end £1,182m).
The Company's financial ratios have improved over the period. Interest cover
(operating profit over net interest) for the half year was 80 times (H1 2003
25.5 times).
Dividends. The Board of Directors announces an interim dividend of 16.0 pence
per share (2003 14.0 pence per share), an increase of 14% in line with the
Company's policy to increase the dividend in line with earnings once coverage
ratios reach the level of the industry peer group. The interim dividend is
covered 2.1 times by profit for the half year (2.0 times). The ex dividend date
will be 11th August and the dividend will be paid on 23rd September to
shareholders on the register at the record date of 13th August. The last date
for election for the share alternative to the dividend is 2nd September.
Share buyback
Between 16th February and 25th June 2004, the Group purchased 9,565,000 shares
for cancellation at a cost of £137m as part of its ongoing share buyback
program. This brings the totals for the program to date to 11.5m shares at a
cost of £162m. The Company today announces that it intends to complete its
projected program of £250m by end Q3 2004. Thereafter the Company intends to
increase the size of its annual share buyback program to £300m for the year
starting in Q4 2004.
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)207 837 3113
The Group at a Glance (unaudited)
Quarter Ended June 30 Half Year Ended June 30
2004 2003# 2004 2003#
£m £m £m £m
From total ordinary
activities
953 943 Net revenues 1,873 1,791
1% 7% Net revenues growth 5% 4%
55.5% 53.1% Gross margin 54.6% 52.7%
196 183 EBITDA 363 322
20.6% 19.4% EBITDA margin 19.4% 18.0%
174 163 EBIT 319 280
18.3% 17.3% EBIT margin 17.0% 15.6%
173 158 Profit before tax 315 269
18.2% 16.8% PBT margin 16.8% 15.0%
129 117 Net Income 234 199
13.5% 12.4% Net Income margin 12.5% 11.1%
18.3p 16.5p EPS 33.1p 28.1p
17.4p 15.8p EPS, diluted 31.6p 27.1p
# Restated following the adoption of FRS 5 Application Note G 'Revenue
Recognition'
Group Balance Sheet Data June 30, December 31
2004 2003
£m £m
Net working capital * (633) (578)
Net funds 403 292
* Defined as stock, short term debtors and short term creditors excluding
borrowings.
Group profit and loss account
(unaudited)
Quarter Ended June 30 Half Year Ended June
30
2004 2003# % change 2004 2003# % change
£m £m £m £m
953 943 1% Net revenues 1,873 1,791 5%
(424) (442) (4%) Cost of sales (850) (848) 0%
529 501 6% Gross profit 1,023 943 8%
(355) (338) 5% Net operating expenses (704) (663) 6%
174 163 7% Total operating profit 319 280 14%
(1) (5) (80%) Net interest expense (4) (11) (64%)
173 158 9% Profit on ordinary activities 315 269 17%
before taxation
(44) (41) 7% Tax on profit on ordinary (81) (70) 16%
activities
129 117 10% Profit on ordinary activities 234 199 18%
after taxation
0 0 Attributable to equity minority 0 0
interests
129 117 10% Profit for the period 234 199 18%
(112) (99) 13% Ordinary Dividends (112) (99) 13%
17 18 (6%) Retained profit for the period 122 100 22%
Earnings per ordinary share:
18.3p 16.5p On profit for the period 33.1p 28.1p
17.4p 15.8p On profit for the period, 31.6p 27.1p
diluted
Average common shares
outstanding:
704.3 706.5 Basic 706.1 706.2
757.4 757.6 Diluted 759.3 756.8
# Restated following the adoption of FRS 5 Application Note G ' Revenue
Recognition'
Group balance sheet
For the half year ended June 30, (unaudited)
1st Half Full Year 1st Half
2004 2003 2003
£m £m £m
Fixed assets:
Intangible assets 1,686 1,746 1,795
Tangible assets 469 502 522
2,155 2,248 2,317
Current assets:
Stocks 232 224 231
Debtors due within one year 514 480 510
Debtors due after more than one year 84 85 84
Investments 820 724 571
Cash at bank and in hand 52 59 48
1,702 1,572 1,444
Current liabilities:
Creditors due within one year:
Borrowings (153) (172) (112)
Other (1,379) (1,282) (1,334)
Convertible capital bonds (192) - -
(1,724) (1,454) (1,446)
Net current (liabilities)/assets (22) 118 (2)
Total assets less current liabilities 2,133 2,366 2,315
Non-current liabilities:
Creditors due after more than one year:
Borrowings (124) (127) (219)
Other (164) (165) (162)
Convertible capital bonds - (192) (193)
(288) (484) (574)
Provisions for liabilities and charges (411) (408) (415)
Equity minority interests (3) (4) (6)
Net Assets 1,431 1,470 1,320
Capital and reserves:
Called up share capital (including non-equity 78 79 78
capital of £5m)
Share premium account 238 227 205
Merger reserve 142 142 142
Capital redemption reserve 1 - -
Profit and loss account 972 1,022 895
Total shareholders' funds (including non-equity 1,431 1,470 1,320
shareholders' funds of £5m)
Group cash flow statement
For the half year ended June 30 (unaudited)
Reconciliation of operating profit to operating cash flows
2004 2003
£m £m
Operating activities:
Operating profit 319 280
Depreciation and amortisation 44 42
Loss on sale of fixed assets - 2
(Increase)/decrease in stocks (17) 4
Increase in debtors (50) (8)
Increase in creditors and provisions 148 107
Cash flow from operating activities 444 427
Cash flow statement
Cash flow from operating activities 444 427
Return on investments and servicing of finance (6) (12)
Taxation (78) (54)
Capital expenditure and financial investment
Purchase of intangible fixed assets - (54)
Purchase of tangible fixed assets (26) (30)
Disposal of tangible fixed assets 3 1
(23) (83)
Acquisition of businesses (1) (1)
Equity dividends paid (98) (90)
Cash inflow before use of liquid resources and 238 187
financing
Management of liquid resources (98) (193)
Financing (135) 6
Increase in cash for the period 5 -
Reconciliation of net cash flow to movement in debt
Increase in cash in period 5 -
Cash outflow from decrease in debt 9 2
Cash outflow from increase in liquid resources 98 193
Changes in net debt resulting from cash flows 112 195
Translation differences (1) 5
Movement in net debt in period 111 200
Net debt at beginning of period 292 (105)
Net funds at end of period 403 95
Reconciliation of operating cash flow to net cash flow from ordinary operations
Operating Cash flow 444 427
Returns on investments and servicing of finance (6) (12)
Taxation (78) (54)
Net capital expenditure (excluding intangible assets) (23) (29)
Net cash flow from ordinary operations 337 332
Management uses net cash flow from ordinary operations as a performance
measure.
Segmental Analysis (unaudited)
Analyses by geographical area and product segment of net revenues and operating
profit are set out below. The figures for each geographic area show the net
revenues and profit made by companies located in that area.
Quarter Ended June 30 Half Year Ended June 30
2004 2003* % Change 2004 2003* % Change
£m £m exch. Rates £m £m exch rates
Actual const. Actual const.
Net revenues - by
geographical area
505 498 1% 6% Europe 997 942 6% 8%
288 285 1% 11% North America & 564 557 1% 11%
Australia
160 160 0% 10% Developing Markets 312 292 7% 16%
953 943 1% 8% 1,873 1,791 5% 10%
Operating profit - by
geographical area
114 109 5% 10% Europe 212 192 10% 13%
44 40 10% 16% North America & 86 77 12% 19%
Australia
12 8 50% 71% Developing Markets 17 8 113% 143%
4 6 Corporate 4 3
174 163 7% 14% 319 280 14% 19%
% % Operating margin - by % %
geographical area
22.6 21.9 Europe 21.3 20.4
15.3 14.0 North America & 15.2 13.8
Australia
7.5 5.0 Developing Markets 5.4 2.7
- - Corporate - -
18.3 17.3 17.0 15.6
* 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 June 30 Half Year Ended June 30
2004 2003# % change 2004 2003# % exchange
£m £m exch. rates £m £m exch. rates
actual const. actual const.
Net revenues - by
product segment
904 890 2% 8% Household and Health & 1,788 1,703 5% 10%
Personal Care
49 53 (8%) 4% Food 85 88 (3%) 9%
953 943 1% 8% 1,873 1,791 5% 10%
Operating profit - by product
segment
161 148 9% 14% Household and Health & 304 267 14% 18%
Personal Care
9 9 0% 13% Food 11 10 10% 22%
4 6 Corporate 4 3
174 163 7% 14% 319 280 14% 19%
% % Operating margin - by % %
product segment
17.8 16.6 Household and Health & 17.0 15.7
Personal Care
18.4 17.0 Food 12.9 11.4
Corporate
18.3 17.3 17.0 15.6
Net revenues - Household and
Health & Personal Care
261 261 0% 7% Fabric Care 517 489 6% 10%
181 180 1% 8% Surface Care 365 358 2% 9%
128 128 0% 6% Dishwashing 268 265 1% 5%
131 125 5% 12% Home Care 264 249 6% 12%
166 155 7% 12% Health & Personal Care 304 272 12% 16%
867 849 2% 9% Core Business 1,718 1,633 5% 10%
37 41 (10%) (3%) Other Household 70 70 0% 6%
904 890 2% 8% 1,788 1,703 5% 10%
# Restated following the adoption of FRS 5 Application Note G 'Revenue
Recognition'
Earnings per ordinary share
For the half year ended June 30, (unaudited)
The reconciliation between profit for the half year and the weighted average
number of shares used in the calculations of the diluted earnings per share are
set out below:
2004 2003
Profit Average Earnings Profit Average Earnings
for Number of per for number of per
the Shares share the shares share
half pence half pence
year year
£m £m
Profit attributable to 234 706,081,102 33.1 199 706,240,741 28.1
shareholders
Dilution for Executive 13,538,252 10,499,650
options outstanding and
Executive Restricted
Share Plan
Dilution for Employee 1,072,623 1,168,219
Sharesave Scheme options
outstanding
Dilution for convertible 6 38,655,773 6 38,900,697
capital bonds outstanding
*
On a diluted basis 240 759,347,750 31.6 205 756,809,307 27.1
* After the appropriate tax adjustment, the profit adjustment represents the
coupon on convertible capital bonds. The earnings per share impact reflects the
effect of that profit and the assumption of the issue of shares on the
conversion of bonds.
The Directors believe that a diluted earnings per ordinary share, adjusted for
the distorting effects of non-operating items after the appropriate tax amount,
provides the most meaningful measure of earnings per ordinary share in
comparing the performance of the business over time.
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