Q3 Results
13th November 2002
OUTSTANDING Q3 CONTINUES VERY STRONG TREND
Results at a Glance Q3 % change Year to % change % change
actual Date
exchange actual constant
exchange exchange
Net Revenues £876m +4 £2,632m +4 +7
Operating Profit £138m +19 £395m +14 +15
Net Income £95m +28 £268m +24 +25
Normalized*
Net Income Reported £95m +40 £268m +20 +21
*
*see financial review - basis of comparatives on page 6.
* Net revenues grew by 4% (9% at constant exchange) to £876m in Q3, and by 4%
(7% constant) to £2,632m in year to date (YTD).
* Operating profit increased by 19% in Q3 to £138m and by 14% YTD to £395m.
Year to date operating margins improved 130 basis points (bps) to 15.0%
behind a 320 bps gross margin improvement, offset by a significant increase
in marketing investment.
* Normalized net income grew by 28% in Q3 to £95m and by 24% in YTD to £268m.
Reported net income was also £95m in Q3 and £268m in YTD.
* Strong cash generation and further reductions in net working capital
resulted in a £236m reduction in net borrowings in YTD 2002 to £231m.
* Recent initiatives contributing significantly to growth in the quarter
included Finish/Calgonit 3-in-1 Total in automatic dishwashing, Air Wick
Click Spray, Crystal Air and Crystal Auto in air care, Vanish Action Ball
in fabric treatment, Veet Mousse and Aqua System in depilatories and the
range of surface care wipes.
Commenting on these results, Bart Becht, Chief Executive Officer, said
'Reckitt Benckiser had a very good Q3, even considering last year?s Q3 was a
weaker comparative. Western Europe and North America achieved particularly
strong growth behind the success of our new products, more than offsetting
continued weak trading conditions and volatility in many emerging markets.
'These results, and the continuing success of our innovation program, give us
increasing confidence in our full year targets of net revenue growth of around
6% at constant exchange and net income growth of around 18%. 2002 shows the
sustainability of our strategy with growth in the second half continuing at the
same rate as the first.'
Detailed Operating Review
The financial schedules attached to the release contain full details of the
results as reported and as adjusted for non-recurring factors. Specific terms
are defined separately in the financial review.
Third Quarter 2002
Net revenues in Q3 grew by 4% (9% at constant exchange) to £876m (£843m in
2001).
Operating profit for Q3 grew 19% (22% constant) to £138m (£116m). Gross margin
increased by 350 bps to 52.6% due to higher margin new products, favorable
purchase prices of raw and packaging materials, further benefits from Squeeze
2-50 and Xtrim. Operating margins increased by 200 basis points to 15.8%.
Net income was £95m. Normalized net income grew 28% (30% constant) to £95m (£
74m).
Year to Date: Nine Months 2002
Net revenues grew by 4% (7% constant) to £2,632m (£2,539m).
Operating profit increased 14% (15% constant) to £395m (£348m). Gross margins
rose 320 bps to 52.1% as a result of higher margin new products, favourable
purchase prices on raw and packaging materials, savings from the Squeeze
program and initial savings from the Xtrim program. Marketing investment,
particularly media, increased substantially. Operating margins increased by 130
bps to 15.0% (13.7%).
Net income for YTD was £268m. Normalized net income grew 24% (25% constant) to
£268m (£217m). Net interest expense of £28m (£43m) was lower due to the strong
cash inflow over the past year reducing the level of net borrowings. The tax
rate for the period on the normalized taxable profit was 27%, in line with the
likely rate for the full year.
Category Review at constant exchange rates
Fabric Care YTD net revenues grew 6% to £672m driven by a very strong
performance in fabric treatment and garment care. In fabric treatment, the
in-wash segment benefited from the rollout of Vanish ActionBall in Western
Europe and a strong performance on the base business in Korea. Additionally,
the carpet cleaner segment grew strongly behind the success of Vanish Powershot
spot and stain treater both in North America and Western Europe. In garment
care, Woolite grew strongly in North America and Europe behind better marketing
execution on the base brand and the success of Woolite Black.
Q3 net revenues grew 7% to £229m.
Surface Care YTD net revenues grew 3% to £585m. The main growth drivers were
lavatory care, disinfectant cleaners and specialty cleaners, partially offset
by declines on multipurpose cleaners in Latin America due to weaker market
conditions. In lavatory care, growth came behind the success of the Lysol
liquid in-toilet-bowl device in North America, Harpic wipes and better
marketing execution on the base Harpic business in Western Europe. In
disinfectant cleaners, the growth was due to the roll-out of Lysol and Dettol
floor wipes, the early benefit of Lysol and Dettol rapid dry floor cleaner and
growth behind the base Lysol disinfectant spray brand.
Q3 net revenues grew 7% to £193m.
Dishwashing YTD net revenues grew 12% to £359m benefiting from the success of
the launch of Finish/Calgonit 3-in-1 Total across Europe and the 2-in-1 product
in North America. The recent launch of Calgonit Protector is encouraging and
providing incremental growth.
Q3 net revenues grew 14% to £119m.
Home Care YTD net revenues grew 14% to £395m due to continuing success for Air
Care offset by Pest Control. Air Care has seen further substantial growth
behind the success of Airwick electrical oils and Crystal Air in North America.
In Western Europe growth has come from Crystal Air and Electricals, and the
more recent innovations of Crystal Auto and Click Spray. Pest Control was lower
than last year in Asia and Latin America due to weaker market conditions and
the effect of wholesaler consolidation in India.
Q3 net revenues grew 15% to £134m.
Health & Personal Care YTD net revenues grew 14% to £344m. The main growth
drivers were depilatories, antiseptics and health care. Depilatories grew
behind the success of Veet Mousse and the Veet Aqua System in Western Europe
and the launch of Veet in the USA. Dettol antiseptic performed well, most
notably in Africa/Middle East. The Health Care business performed strongly with
notable growth on Gaviscon in the UK and Continental Europe.
Q3 net revenues grew 20% to £118m.
Geographic Analysis at constant exchange
Western Europe: 43% of net revenues
Net revenues grew by 8% in YTD to £1,127m. This strong performance was due to
the success of automatic dishwashing, air care, depilatories, garment care and
healthcare. The launch of Finish/Calgonit 3-in-1 Total in automatic dishwashing
has resulted in good growth. Air Wick Crystal Auto and Click Spray were
successfully launched across the region, building on the continuing growth of
Crystal Air and Electricals. Veet Mousse, supported by further growth for the
Veet Aqua System, has driven growth in depilatories. Garment care growth came
behind innovations such as Woolite Black and new fragrance variants. Healthcare
grew strongly due to the success of Gaviscon in the UK and Continental Europe.
YTD Operating margins increased by 150 bps to 21.6% due to substantial gross
margin expansion, resulting from higher margin new products, lower input costs
and Squeeze and Xtrim initiatives, offset by increases in marketing investment.
Operating profits increased by 17% to £243m.
Net revenues grew 11% to £385m in Q3 and operating profits by 16% to £85m.
North America: 31% of net revenues.
Net revenues grew 9% in YTD to £822m. The growth came from the continuing
success of air care and automatic dishwashing and the launch of depilatories.
In air care, growth came behind Airwick Electricals and Crystal Air. The launch
of Electrasol Powerball 2-in-1 has continued to increase net revenues in
automatic dishwashing. The Lysol disinfecting range performed well behind the
liquid in-toilet-bowl device, the roll-out of floor wipes, the introduction of
Rapid Dry floor cleaner and growth of the base disinfectant spray brand.
Woolite fine fabric grew strongly behind strong growth on the core Woolite
brand and the launch of Woolite Black. Food was ahead of last year. North
American operating margins expanded 220 bps to 14.1% due to significant gross
margin expansion, arising from new products, lower input costs and Squeeze and
Xtrim benefits, offset by marketing investment. Operating profit increased 30%
to £116m.
Net revenues grew 10% to £275m in Q3 and operating profit rose 29% to £44m.
Latin America: 5% of net revenues.
Net revenues declined 3% in YTD to £129m. Adverse market conditions in
Argentina and Brazil were compounded by rapidly rising costs of imported
materials due to substantial currency devaluation. These factors have been seen
increasingly across the whole region including Mexico. Due to the lower volumes
and the exchange rate impact on input costs, operating margin deteriorated. YTD
operating loss was £4m (2001 £nil).
Net revenues grew 6% to £37m in Q3 and the operating loss was £1m (2001 £1m
loss).
Asia Pacific: 11% of net revenues.
Net revenues YTD were in line with last year at £295m including a £73m (2001 £
58m) contribution from the acquisitions in Korea and Indonesia. Excluding
acquisitions, net revenues declined 6% due to China and India. In China, the
business achieved reduced operating losses on the planned lower net revenue
base. Net revenues in India were impacted by soft market conditions,
competitive issues and organizational changes during H1, but substantially
improved in Q3 post reorganization. Elsewhere, net revenues progressed largely
due to strong results in Australia/New Zealand and in Korea. Operating margins
improved by 280 bps to 6.8% helped by the acquisitions, lower input costs, and
further Squeeze savings. Operating profits increased 67% to £20m of which £9m
(2001 £4m) came from the acquisitions.
Net revenues grew 12% to £102m in Q3 and operating profits grew substantially
to £8m (2001 £2m).
Rest of World: 9% of net revenues.
Net revenues grew 12% in YTD to £246m. Growth came across both Eastern Europe
and Africa/Middle East. In Eastern Europe the growth was driven by Calgonit
automatic dishwashing, Vanish fabric treatment and Veet depilatories. In Africa
/Middle East, growth came mainly from Dettol, due to higher investment, from
Air Care, behind the introduction of Crystal Air, from Harpic in lavatory care,
and from Health Care. YTD operating margins were in line with last year at
7.3%. Operating profit increased 6% to £18m.
Net revenues grew 5% in Q3 to £77m in Q3 and operating profit was £2m (2001 £
6m).
New Initiatives Q4 2002
The major focus in the final quarter of the year is on rolling out the major
initiatives announced with the half year results. By the end of the year, these
initiatives, such as Calgon Aquapro water softener, Harpic lavatory care 2-in-1
in-bowl device and new Powerons Gel, Finish/Calgonit protector in automatic
dishwashing, Air Wick Decosphere, Les Eaux Parfumees and Glowing Candles in air
care, and Dettol rapid dry floor cleaner will be in virtually all European
markets. Air Wick Click Spray has been launched in North America. Veet is being
introduced in new markets in Latin America.
Among new product introductions, Air Wick Crystal Air has introduced new
seasonal designs. Lemsip has introduced two new products, a sinus treatment and
Lemsip Direct, a new cold/flu powder treatment to be swallowed direct (rather
than in solution).
Basis of Comparatives
For clarity in evaluating the underlying performance of the business, the
following terminology is used.
*
* FRS 19 Restatement (see note 1). In the financial statements, comparatives
for 2001 have been restated following implementation of FRS 19 'Accounting
for Deferred Tax'. The effect of the restatement was to reduce net income
by £7m in Q3 2001 and £17m in YTD 2001. The full year effect would have
been to reduce net income by £24m from £340m to £316m in 2001.
Reconciliation of Net Income 2001 2001 2002 Q3 2002
Q3 9 mths £m
£m £m 9 mths
£m
Normalized Net Income as 74 217 95 +28% 268
Previously Reported +24%
Non Operating Items after 1 23
Tax
Total Net Income as 75 240 95 +27% 268
Previously Reported +12%
FRS 19 Restatement (7) (17)
Total Net Income Restated as 68 223 95 +40% 268
Reported in 2002 +20%
*
* Normalized. This excludes non-operating items. There are no non-operating
items in YTD 2002 (£28m profit on disposal in YTD 2001 of which £5m arose
in Q3).
In the detailed commentary, unless otherwise specifically stated, comparisons
are made with 2001 results before restatement for FRS 19 and before
non-operating items.
*
* Continuing Operations. Excludes net revenues and operating profit relating
to businesses sold or deconsolidated during the course of 2001 or 2002.
These are individually disclosed in the profit and loss account for both Q3
and YTD. There were no disposals in YTD 2002. Zimbabwean operations have
been deconsolidated from 1 July 2002 as detailed in Note 2.
*
* Constant Exchange. Movements of exchange rates relative to sterling affect
actual results as reported. The constant exchange rate basis adjusts
comparatives to exclude such movements and show the underlying growth.
For Further Information
Tom Corran Reckitt Benckiser +44 (0)1753 217 800
Senior Vice President, Investor Relations & Corporate Communications
Tim Spratt Financial Dynamics +44 (0) 207 831 3113
The Group at a Glance (unaudited)
Quarter Ended Sept 30 Nine Months Ended Sept 30
2002 2001# 2002 2001#
£m £m £m £m
From total ordinary
activities
876 843 Net revenues 2,632 2,539
4% 7% Net revenues growth 4% 8%
52.6% 49.1% Gross margin 52.1% 48.9%
159 136 EBITDA normalized* 454 404
18.2% 16.1% EBITDA margin normalized* 17.2% 15.9%
138 116 EBIT normalized* 395 348
15.8% 13.8% EBIT margin normalized* 15.0% 13.7%
130 101 Profit before tax 367 305
normalized*
14.8% 12.0% PBT margin normalized* 13.9% 12.0%
95 67 Net Income normalized* 268 200
10.8% 7.9% Net Income margin 10.2% 7.9%
normalized*
13.5p 9.6p EPS normalized* 38.1p 28.6p
13.0p 9.4p EPS normalized, diluted* 36.7p 27.9p
* Normalized to exclude non-operating items.
# Restated following the adoption of Financial Reporting Standard 19
'Accounting for Deferred Tax'
Selected Financial Information (unaudited)
Group Balance Sheet Data
Sept 30, Dec 31,
2002 2001
£m £m
Net working capital** (331) (306)
Net borrowings 231 467
** Defined as stock, short term debtors and short term creditors excluding
borrowings
Group profit and loss account
(unaudited)
Quarter Ended Sept 30 Nine Months Ended Sept 30
2002 2001# % change 2002 2001# % change
£m £m £m £m
876 839 4% Net revenues from continuing 2,619 2,520 4%
operations
0 4 Discontinued and de-consolidated 13 19
operations
876 843 4% Total net revenues 2,632 2,539 4%
(415) (429) (3%) Cost of sales (1,261) (1,296) (3%)
461 414 11% Gross profit 1,371 1,243 10%
(323) (298) 10% Net operating expenses (976) (895) 9%
138 116 19% Operating profit from continuing 394 346 14%
operations
0 0 Discontinued and de-consolidated 1 2
operations
138 116 19% Total operating profit 395 348 14%
Non-operating items:
0 5 Profit on disposal of businesses 0 28
138 121 14% Profit on ordinary activities 395 376 5%
before interest
(8) (15) (47%) Net interest expense (28) (43) (35%)
130 106 23% Profit on ordinary activities 367 333 10%
before taxation
(35) (38) (8%) Tax on profit on ordinary (99) (109) 9%
activities
95 68 40% Profit on ordinary activities 268 224 20%
after taxation
0 0 Attributable to equity minority 0 (1)
interests
95 68 40% Profit for the period 268 223 20%
0 0 Ordinary Dividends (90) (89)
95 68 40% Retained profit for the period 178 134 33%
Earnings per ordinary share
(pence):
13.5 9.8 On profit for the period 38.1 32.0
13.5 9.6 On normalized profit for the 38.1 28.6
period
13.0 9.6 On profit for the period, diluted 36.7 31.1
13.0 9.4 On normalized profit, diluted 36.7 27.9
Average common shares outstanding
(millions):
704.7 701.0 Basic 703.9 699.9
756.6 751.0 Diluted 756.3 749.5
# Restated following the adoption of Financial Reporting Standard 19
'Accounting for Deferred Tax'
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 Sept 30 Nine Months Ended Sept 30
2002 2001 % change 2002 2001 % change
£m £m exch. rates £m £m exch. rates
Actual Const. Actual Const.
Net revenues ? by
geographical area
385 341 13% 11% Western Europe 1,127 1,036 9% 8%
275 271 1% 10% North America 822 775 6% 9%
37 50 (26%) 6% Latin America 129 165 (22%) (3%)
102 95 7% 12% Asia Pacific 295 299 (1%) 0%
77 82 (6%) 5% Rest of World 246 245 0% 12%
876 839 4% 10% 2,619 2,520 4% 7%
- 4 - - Discontinued and 13 19 - -
de-consolidated
operations
876 843 4% 9% 2,632 2,539 4% 7%
Operating profit ? by
geographical area
85 71 20% 16% Western Europe 243 208 17% 17%
44 37 19% 29% North America 116 92 26% 30%
(1) (1) 0% 0% Latin America (4) 0 - -
8 2 300% 700% Asia Pacific 20 12 67% 67%
2 6 (67%) (71%) Rest of World 18 18 0% 6%
- 1 - - Corporate 1 16 - -
138 116 19% 22% 394 346 14% 16%
- - - - Discontinued and 1 2 - -
de-consolidated
operations
138 116 19% 22% 395 348 14% 15%
% % Operating margin ? by %
geographical area
%
22.1 20.8 Western Europe 21.6 20.1
16.0 13.7 North America 14.1 11.9
(2.7) (2.0) Latin America (3.1) 0.0
7.8 2.1 Asia Pacific 6.8 4.0
2.6 7.3 Rest of World 7.3 7.3
15.8 13.8 15.0 13.7
- - Discontinued and - -
de-consolidated
operations
15.8 13.8 15.0 13.7
Segmental Analysis (continued)
Quarter Ended Sept 30 Nine Months Ended Sept 30
2002 2001 % change 2002 2001 % change
£m £m exch. rates £m £m exch. rates
Actual Const. Actual Const.
Net revenues ? by
product segment
834 796 5% 10% Household and Health & 2,483 2,382 4% 8%
Personal Care
42 43 (2%) 8% Food 136 138 (1%) 1%
876 839 4% 10% 2,619 2,520 4% 7%
- 4 - - Discontinued and 13 19 - -
de-consolidated
operations
876 843 4% 9% 2,632 2,539 4% 7%
Operating profit ? by product
segment
130 109 19% 20% Household and Health & 374 315 19% 20%
Personal Care
8 6 33% 33% Food 19 15 27% 27%
- 1 - - Corporate 1 16 - -
138 116 19% 22% 394 346 14% 16%
- - - - Discontinued and 1 2 - -
de-consolidated
operations
138 116 19% 22% 395 348 14% 15%
% % Operating margin ? by % %
product segment
15.6 13.7 Household and Health & 15.1 13.2
Personal Care
19.0 14.0 Food 14.0 10.9
15.8 13.8 15.0 13.7
- - Discontinued and - -
de-consolidated
operations
15.8 13.8 15.0 13.7
Net revenues ? Household and
Health
& Personal Care
229 220 4% 7% Fabric Care 672 650 3% 6%
193 198 (3%) 7% Surface Care 585 601 (3%) 3%
119 106 12% 14% Dishwashing 359 326 10% 12%
134 124 8% 15% Home Care 395 359 10% 14%
118 101 17% 20% Health & Personal Care 344 308 12% 14%
793 749 6% 11% Core Business 2,355 2,244 5% 9%
41 47 (13%) (9%) Other Household 128 138 (7%) (7%)
834 796 5% 10% Net Revenues ? 2,483 2,382 4% 8%
continuing operations
Note 1. Financial Review ? FRS 19
Under the Group?s accounting policies as disclosed in the 2001 Annual Report &
Accounts, the Group previously recognized deferred tax on timing differences
that were expected to reverse in the foreseeable future. With effect from 1
January 2002, the Group has adopted Financial Reporting Standard 19 'Accounting
for Deferred Tax' and accordingly now recognizes deferred tax on timing
differences that have originated but not reversed by the balance sheet date.
The prior year comparatives have been restated to comply with the above change
in accounting policy. The effect of this restatement is to reduce profit after
tax. The full year effect on 2001 is to reduce normalized net income by £24m
from £340m to £316m. On a quarter by quarter view, the restatements for 2001
are:
Q1 Q2 Q3 Q4
Normalized net income (£m)
As reported 58 85 74 123
Restated 54 79 67 116
Earnings per Share (normalized,
diluted)
As reported 8.1p 11.9p 10.3p 16.8p
Restated 7.6p 11.1p 9.4p 15.9p
Note 2. De-consolidation of Zimbabwe
The results and net assets of the Group?s subsidiary in Zimbabwe have been
excluded from the consolidated Group results with effect from 1st July 2002, on
the basis that severe long term restrictions now exist that hinder the exercise
of the Group?s rights over the assets employed, in particular the remittance of
funds. The results for the first half of 2002 are treated as discontinued
business (net revenues of £13m, operating profit of £1m), and results for
Zimbabwe will be excluded from Q3 and Q4 2002. The effect of this is to reduce
the net revenue and profit growth rate in full year 2002 by less than 0.5% and
is already reflected in the full year targets confirmed above.
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