1st Quarter Results 2000

Reckitt Benckiser PLC 12 May 2000 Strong First Quarter Results: On Track to Deliver Targets for 2000. Commenting today, Bart Becht, Chief Executive Officer, said 'Our first quarter as Reckitt Benckiser was excellent. While we clearly benefited from the bounce back from trade de-loading in 1999, the Company returned to organic growth across core categories and all geographical areas. Organic top line growth translated into substantial profit with only a small amount of merger synergies reflected so far. It shows that our new strategy of higher but focused investment in core categories behind more innovations and better in-market execution is starting to bear fruit. 'The strong results are also a major credit to the new Reckitt Benckiser team as they were achieved despite the many issues and distractions associated with merging two companies. Following this strong Qr.1 we expect very modest growth in Qr.2 against an unusually high Qr.2. last year. In contrast, for the second half of 2000, we anticipate strong growth as merger synergies will start to materialise during this period. As a result, we continue to be firmly on track to deliver against our 2000 targets of 5% growth in net revenues and 25% growth in net income (both at constant exchange rates) and a o100m reduction in net working capital.' Highlights of the Qr.1 results were:- - Net revenues of o748m, +9% versus Qr.1. 1999 at constant exchange rates, roughly reflecting indicative volume growth (+4% at actual rates, impacted by the 12% appreciation of sterling against the Euro). - Operating Profit of o86m, +16% (+27% at constant exchange). - Profit Before Tax of o67m, +20% (+32% at constant exchange). - Net Income of o46m, +21% (+31% at constant exchange). - Reduction in net working capital proceeding on plan towards target of o100m for full year. - Flow of new initiatives continues to accelerate with 3 new product launches in the USA, and the first cross selling initiatives in Eastern Europe and China. Contact Tom Corran tel +44 1753 835 835 SVP Investor Relations & Corporate Communications, Reckitt Benckiser plc Bobby Leach tel + 44 20 7329 0096 Shandwick Detailed Operating Review Net revenues rose by 4% to o748m. Exchange rates had a significant impact on the translation of net revenues from overseas companies, mainly in respect of the Euro, where sterling has strengthened by 12% compared to Qr.1. 1999. At constant exchange rates, net revenue growth would have been 9%, broadly in line with indicative volume growth. Gross margin rose by 4% to o357m, improving slightly as a proportion of net revenues to 47.7%. European gross margins were slightly lower due to exchange rate effects (with production switched to the UK impacted by the strength of sterling), and adverse mix of sales but this was more than compensated by significant improvement in North America due to higher volume throughput. Net operating expense was 1% higher at o271m, declining as a proportion of net revenues by 1.1 percentage points to 36.2%. Lower fixed costs due to exchange rates and reorganisation savings partly offset a 10% increase in media investment to over 10% of net revenues. Total reorganisation savings for the first quarter including procurement were o11m resulting in a net benefit to operating profit of o4m after increased media investment. We believe we are on track to deliver the promised net benefit for the full year of o38m as most of the reorganisation savings will occur in the second half. As a result, operating income rose by 16% to o86m, and operating margins improved by 1.2 percentage points to 11.5% (10.3%). In addition, non-operating profit of o1m has arisen on disposal of fixed assets. Interest expense has risen to o20m, due to higher interest rates both in Europe and North America. Taxes have risen to o20m, due to higher profits and a relatively unchanged tax rate (31%). As a result of these two items, net income for the quarter was o46m, 21% ahead of the first quarter in 1999 (+31% at constant exchange). Substantial progress has been made towards achieving the net working capital reduction target of o100m in 2000. Negotiations with customers and suppliers on new trade terms are progressing satisfactorily. At the end of the first quarter, net working capital was running at plan levels in respect of proportion of net revenues, and is on track for the more than 300 basis point reduction in ratio for the full year. Geographical Analysis Western Europe : 45% of Net Revenues First quarter net revenues were o340m in 2000 compared to o358m in 1999. The devaluation of the Euro has a major impact on translation of net revenues into sterling. At constant rates net revenues would have increased by 4%. Strong net revenue growth came in the UK in Depilatories and Air Care; in France on Lavatory Care and Depilatories; and in Private Label in Laundry Cleaning. Operating Income was up +3% to o70m (o68m) in 2000. Higher profitability came despite a lower gross margin as a result of sales mix and exchange rates impacting on cost of goods sourced from the UK. North America : 27% of Net Revenues Net revenues rose by +16% to o201m (o173m) as the region indexed against a very low first quarter in 1999 due to the trade loading at the end of 1998. Strong performance came from Woolite, Resolve Carpet Cleaner and Lysol, both All Purpose Cleaner and Disinfectant Spray. Lysol disinfectant spray continues to improve market share. Food grew behind continuing success for French's Mustard and Frank's RedHot sauce, and the launch of French's Grill and Glaze. Operating Income was up o8m to o10m in 2000 (o2m) mainly due to Gross Margin expansion offset by increased media investment. Latin America : 7% of Net Revenues Net Revenues increased by +21% to o52m (o43m) due to strong recovery of the Mexican business, a very successful Pest Control season in Brazil and continuing growth in the Surface Care business behind Veja and Lysol in Brazil. Operating Profit for the Quarter was unchanged at o1m loss primarily due lower gross margins compared to a year ago when the negative effect of the Real devaluation was not yet fully felt. Asia Pacific : 11% of Net Revenues Net revenues increased by +11% to o84m (o76m) in the first quarter fuelled by a very good performance in China, Malaysia, and India, slightly offset by a very poor Pest control season in Australia due to weather. Operating Profit came in at o4m unchanged on the first quarter in 1999. This was mainly due to higher marketing investment, particularly in Australia and behind new launches. Rest of World : 10% of Net Revenues Net revenues in the first quarter rose by +9% to o71m (o65m) behind a very successful Pest control season in South Africa, good performance in Pakistan, Middle East and Turkey, the latter recovering from a weak comparative last year,. Operating Profit was unchanged at o3m compared to the first quarter in 1999 due to increased marketing investment across the region. Category Performance Fabric Care Net revenues rose 1% to o193m mainly due to strong performance by the category in North America - particularly Resolve and Woolite; by Calgon in Eastern Europe, and by further gains for laundry detergent tabs in private label in Europe. Surface Care Net revenues rose 15% to o179m. This included a significant boost from the bounce back from trade de-loading last year, substantially increasing Lysol sales. Lysol disinfectant spray in the USA continues to regain market share. Net revenues were also helped by strong performance in Latin America, behind Veja and in Rest of World with Jik bleach in South Africa. Dishwashing Net revenues were o101m, unchanged at constant rates. Due to the exchange rates in Europe, the major market for ADW (Automatic Dishwashing), reported net revenues were 6% lower. These effects were compounded by reduced sales pressure during the integration period resulting in lower sales in Germany and the USA. The launch of Calgonit PowerBall 2-in-1 in Germany has not had any significant impact in the period but is starting to positively impact market share as of April. Home Care Net revenues rose by 19% to o86m, with very strong performance in France and UK Air Care, and in South Africa, Brazil and Asia for Pest Control, slightly offset by a disappointing season in Australia. Health & Personal Care. Net revenues rose by 6% to o88m, with exceptionally strong growth for depilatories in Europe, and the roll-out into Eastern Europe. Antiseptics have grown strongly in Asia, particularly in Malaysia, and Middle East. Lemsip continued to benefit from the UK flu season and new record market shares. Product Segments Core Household net revenues therefore rose by 6.1% to o647m (o610m). Other Household, which consists mainly of business currently for disposal, saw net revenues down 13% to o65m. As a result, total household net revenues rose by 4% to o712m. Operating profit for total household and health & personal care rose by 12% to o86m, as operating margins improved by 90 basis points to 12.1% (11.2%). Food increased net revenues by 20% to o36m, helped partly by the absence of trade de-loading in 2000. Operating results improved by o1m to breakeven in what is traditionally a seasonally low quarter. Discontinued operations relate to the disposal in 1999 of two brands in North America, Scrub Free and Delicare. In the first quarter of 1999, these brands contributed net revenues of o4m and operating profit of o1m. New Initiatives A number of new initiatives were launched in the first quarter, and others have been announced more recently. The launch of Calgonit PowerBall 2-in-1 automatic dishwash tabs in Germany is already impacting on market share and is now in Switzerland and Austria. The roll-out, starting in Australia, of insect-seeking technology in our insecticide range is proceeding. The launch of a new crystal air freshener in France, has now been extended to Belgium and Scandinavia. The launch of two new depilatory products under the Veet and Immac brands across Europe, (roll-on wax and fragrance-free cream) is being well received. In the USA, the Company has just announced the launch of a new generation Wizard electrical air-freshener, Lysol disinfecting wipes and a new Resolve steam carpet cleaner. In Food, French's Grill and Glaze has been launched, a new range of cooking sauces. At the same time, the first cross-selling initiatives have been launched, with the introduction of depilatories to Eastern European markets under the Veet brand, and the roll-out of Pif Paf insecticides into new provinces in China. Note Interim and Qr.2 results will be released on August 16, 2000. The Group at a Glance For the quarter ended 31 March 2000 2000 1999 £m £m Net revenues 748 719 Net revenues growth 4% - Gross margin 47.7% 47.6% EBITDA adjusted* 105 94 EBITDA margin 14.0% 13.1% adjusted* EBIT adjusted* 86 74 EBIT margin adjusted* 11.5% 10.3% EPS adjusted* 6.5p 5.8p EPS adjusted, 6.4p 5.7p diluted* * Adjusted to exclude non-operating items. Group profit and loss account For the quarter ended 31 March 2000 2000 1999 -------------------- --------------- Net revenues 748 719 Cost of sales (391) (377) --------------------- --------------------- -------------- Gross profit 357 342 Net operating (271) (268) expenses --------------------- --------------- --------------------- Operating profit 86 74 Non-operating items: Profit on disposal of tangible fixed assets 1 - --------------------- --------------------- --------------- Profit on ordinary activities before interest 87 74 Net interest expense (20) (18) --------------------- --------------------- --------------- Profit on ordinary activities before taxation 67 56 Tax on profit on ordinary activities (20) (18) Profit on ordinary activities after 47 38 taxation Attributable to equity minority (1) - interests Dividends on preference shares - - --------------------- --------------------- --------------- Profit for the period 46 38 --------------------- --------------------- --------------- Earnings per ordinary share: On profit for the 6.6p 5.7p period On adjusted profit for the period 6.5p 5.8p On profit for the period, diluted 6.5p 5.6p On adjusted profit, diluted 6.4p 5.7p Segmental Analysis For the quarter ended 31 March 2000 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 revenue and profit made by companies located in that area. Net revenues and operating profit - by geographical area Net Operating Operating Revenues Profit Margin 2000 1999 2000 1999 2000 1999 £m £m £m £m % % Western Europe 340 358 70 68 20.6 19.0 North America 201 173 10 2 5.0 1.2 Latin America 52 43 (1) (1) (1.9) (2.3) Asia Pacific 84 76 4 4 4.8 5.3 Rest of World 71 65 3 3 4.2 4.6 Corporate - - - (3) - - -------------- ---- ---- ---- -------- -------- ------- 748 715 86 73 11.5 10.2 Discontinued operations North America - 4 - 1 - 25.0 ============== ==== ==== ==== ========= ======= ======== 748 719 86 74 11.5 10.3 ============== ==== ==== ==== ========= ====== ======== Net revenues and operating profit - by product segment Net Operating Operating Revenues Profit Margin 2000 1999 2000 1999 2000 1999 £m £m £m £m % % Household and Health & Personal Care 712 685 86 77 12.1 11.2 Food 36 30 - (1) - (3.3) Corporate - - - (3) - - -------------- --- ------- ----- ----- -------- ----- 748 715 86 73 11.5 10.2 Discontinued Operations Household and Health & Personal Care - 4 - 1 - 25.0 ============== ==== ======= ===== ===== ======= ======= 748 719 86 74 11.5 10.3 ============== ==== ======= ===== ===== ======= ======= Additional information - Net revenues by product group Net Revenues Full Year Net Revenues 2000 1999 1999 £m £m £m Fabric Care 193 192 809 Surface Care 179 155 698 Dishwashing 101 108 422 Home Care 86 72 303 Health & Personal 88 83 373 Care ----------- ------------- ------------- ----------- Core 647 610 2,605 Business Other Household 65 75 270 ------------ ------------ ------------ ---------- 712 685 2,875 Discontinued Operations Core - 4 Business ============ ============ ============= ============== Total Household and Health & Personal 712 689 2,875 Care ============ ============ ============= ============= Following discovery of a system error, the 1999 full year analysis has been restated placing o19m of net revenues correctly in Other Household from Health and Personal Care.

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