Merger Integration on Schedule
Reckitt Benckiser PLC
8 February 2000
Reckitt Benckiser Merger Integration on Schedule.
- The promised level of £75m annual net cost savings will be delivered to
operating profits, half realised in 2000 and the remainder in 2001.
- Savings will also fund at least a £65m increase in advertising investment,
another promised merger benefit.
- Additional savings of £20m a year have been identified from supply chain
initiatives to be in place by the end of 2001, within the original timetable
for all the cost savings
- All costs of reorganisation will now be charged in 1999 due to the
aggressive timetable adopted, significantly faster than expected. This will
include the extra cost (£25m) for the additional savings.
- In total, the savings from reorganisation will amount to £160m from all
programs at a total restructuring cost of £220m, one of the highest ratios
of savings to cost in fast moving consumer goods.
- The integration of the two companies to form Reckitt Benckiser plc is in
line with original schedule. The structure and staffing of the company is
virtually complete with over 90% of the management now in place.
Rationalisation of the business tail is under way with businesses and
products up for disposal with net revenues of £260m.
Commenting today on this announcement, Bart Becht, Chief Executive of Reckitt
Benckiser plc said: 'We are very pleased with the progress to date. Delivery
of restructuring savings and purchasing synergies is an essential step to
restore the company's profitability and to fuel the top line growth of our
core brands. We are confident that the promised cost savings will be
delivered on time and within original estimates, and we have identified
further savings at attractive cost.
'We are now gradually turning our attention back to growing our core business
by putting in place the engines of growth while continuing our cost reduction
efforts. We will substantially increase our investment behind our core
categories and new initiatives as promised. We will also exploit the
opportunities for cross selling our portfolios into new markets. We are now
one company with a single management team committed to delivering as promised
to shareholders.'
For further information:
Tom Corran Tel +44 1753 746 548
SVP Corporate Communications Fax +44 1753 746 415
Mob +44 7808 177 537
Bobby Leach
Shandwick Tel +44 171 329 0096
Detailed Statement
Reckitt Benckiser plc today issues the following update on progress in merging
two companies and delivering the promised benefits to shareholders.
At the announcement of the merger in July 1999, the Company committed to
delivering a number of benefits to shareholders;
- Rapid integration of the two companies
- net cost savings from the merger of £75m a year to operating income by the
end of 2001
- A 25% increase in media investment (equal to £65m) behind core categories
and innovations funded from previously announced restructuring programs (see
note) and merger benefits in excess of the those mentioned above
- significant reductions in net working capital;
- rationalisation of the tail of underperforming and non-core business and
products; and
- The appointment of a strong management team, focused on delivering
shareholder value.
Substantial progress has been made on all fronts.
Post merger integration is absolutely on schedule.
- The Operating Framework, the organisational principles by which the Company
will operate, is complete and being rolled out in practice.
- The management and staff selection process across all operating entities and
HQ has been substantially completed. As part of that, some 350 senior
managers have been selected for the Company, mostly from internal
appointments. This means that over 90% of the senior management positions
are now filled.
- New corporate and local headquarters have been selected and appropriately
staffed.
- Legal and systems integration of the operating businesses is proceeding on
plan at a country by country level.
- Cost synergies have been identified in detail and plans have been put in
place to deliver them, and to track these savings.
- A major review of purchasing has commenced with a targeted level of savings.
- A highly performance-oriented incentive system has been put in place to
focus management on delivering shareholder value. Additionally, a stock
ownership policy was introduced for top and senior management.
The Company is well on track to deliver the promised level of net cost savings
of £75m per annum to operating profit by the end of 2001. In addition, the
company has identified savings of at least £65m from merger and previously
announced restructuring programs to fund the promised increase in advertising
investment. Furthermore, the company has identified additional savings of £20m
a year from the integration process. The latter will be in place by the end of
2001, within the original timetable for all the cost savings. As a result, the
total identified savings of the merger and previously announced reorganisation
is £160m (made up of £75m plus £65m plus £20m) of which some £65m will fund
increased investment, and some £95m will benefit profits. It is currently
anticipated that approximately 40% of the benefit will impact profits in 2000,
and that around 80% will benefit profits for 2001, with the full benefit of
£95m achieved in 2002. The benefits will be seen in both lower cost of goods,
enhancing gross margin, and in lower administrative overheads, containing
SG&A.
The associated costs of these programs have been confirmed at £120m for the
merger reorganisation and at £75m for the previously announced reorganisation
program. An additional cost of £25m is calculated for the identified
additional savings. Going forward the company will treat all these programs as
if they were one. Due to the rapid start to implementation of all these
programs, all of the costs, £220m in total, will be charged in the 1999
accounts. Approximately £175m will be cash expensed, with the remaining £45m
non-cash items. In addition, as previously communicated, 1999 profits will be
charged for the transaction costs of the merger, now confirmed at £42m, all of
which was cash expensed in 1999.
In total the reorganisation savings will amount to £160m gross of reinvestment
in the business at a total cost of £220m. This is one of the highest ratios
of savings to cost in the fast moving consumer goods industry since 1990.
The rationalisation of the portfolio and business tail is under way.
Businesses or products with net revenues of some £260m have been identified as
for sale. Already Scrub Free and Delicare, with net revenues of £16m, have
been sold in November 1999. It is anticipated that further sales will be
completed during 2000, with a number of disposals already under negotiation.
Reckitt Benckiser plc will release its preliminary results for 1999 on 15th
March 2000.
Note: Previously announced restructuring program
Prior to the announcement of the merger, Reckitt & Colman announced a
reorganisation program - called 'Back on Track' - with targeted annual savings
of £40-45m, all of which was to be reinvested in the business in higher
marketing and new product initiatives. These savings were to be achieved at a
cost of some £75m to be charged to accounts in 1999 and 2000. This program
has now been combined with the merger reorganisation program, and will not be
separately identified in future. As a result the full effects will be as
follows:
Total Benefit £m Total Cost £m
Increased Media Investment 65 Back on Track Charge 75
Original merger benefit 75 Merger Restructuring 120
Newly identified savings 20 Extra charge for new savings 25
Total Benefit 160 Total Restructuring Charges 220
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