1st Quarter Results
26th April 2007
VERY STRONG START
FULL YEAR TARGETS RAISED
Results at a Glance Q1 % change % change % change
£m Actual Constant Actual
exchange exchange exchange
Adjusted Basis Adjusted As reported
* Basis*
Net Revenues £1,258m +8% +15% +8%
Operating Profit £244m +24% +33% +58%
Net Income £179m +27% +36% +63%
EPS (fully diluted) 24.3p +27% - +63%
*% change numbers (adjusted basis) exclude the impact of the £42m 2006
restructuring charge on comparatives.
* Net revenues increased 8% (15% at constant exchange) to £1,258m. The
underlying business (excluding BHI) grew 3% (10% constant) to £1,119m. BHI
contributed net revenues of £139m in the quarter compared to £77m for the
two months of ownership in 2006.
* On a reported basis, operating profit increased 58% to £244m and net income
increased 63% to £179m against last year's reported comparatives including
£42m of one-off restructuring charges.
* On an adjusted basis, excluding restructuring, operating profit of £244m
increased 24% (33% constant). Operating profit benefited from £13m of
synergies in the quarter and from the profit on the extra month of BHI this
year. Gross margins increased 250bps to 56.9%. Operating margins before
restructuring increased 250bps to 19.4% after media investment increased
17%.
* Cumulative synergies reached £53m annualized, an increase of £14m in Q1 and
on track to reach the full target of £80m this year, a year ahead of plan.
* Net income of £179m increased 27% (36% constant) on an adjusted basis.
* Net borrowings were £468m, £192m below the end of last year due to strong
cash inflow. 1.6m shares were repurchased in the quarter at a cost of £43m.
Net working capital improved a further £48m, mainly from BHI, to minus £
776m.
Commenting on these results, Bart Becht, Chief Executive Officer, said
"Reckitt Benckiser had an excellent first quarter with very good growth on both
the base business (10% like-for-like) and the BHI business acquired in early
2006. Growth has come across all geographies and all categories mainly from the
success of initiatives like Air Wick Freshmatic and Electricals, Finish &
Calgonit Quantum and 5in1, Vanish Oxi Action Crystal White and Multi, supported
by further increases in marketing investment.
"Based on these strong results and momentum, we are raising our target for net
revenue growth from at least 6% to between 7% and 8% at constant exchange (base
£4,922m). We are also raising our target for net income growth at constant
exchange from low double digits to mid teens percentage (base £786m)."
Basis of Presentation
Results are presented under International Financial Reporting Standards (IFRS).
The results include the Boots Healthcare International business (BHI) from 1
February 2006, the date of acquisition. Where appropriate, the term `adjusted'
excludes the restructuring charge, and the term `underlying' represents the
results excluding restructuring and BHI operations.
The Company has also separated out the revenues of BBG (The Buprenorphine
Business Group) from the Health & Personal Care category. It is the Company's
intention to disclose the BBG business unit as a separate product segment in
due course. This is compliant with the requirement under IFRS to report
material operations externally on a basis consistent with the internal
reporting structure.
Detailed Operating Review
Q1 net revenues increased 8% (15% at constant exchange) to £1,258m. The
underlying business (excluding BHI) grew 3% (10% constant) to £1,119m.
BHI contributed net revenues of £139m for the quarter, compared to £77m in the
two months of ownership in Q1 2006. There was therefore one extra month
contribution from BHI in 2007. On a like-for-like basis, BHI net revenues grew
12% comparing Q1 2007 with the full equivalent period last year (including
January 2006).
Gross margin increased by 250 bps to 56.9%, due to positive mix, continuing
benefits from the Company's ongoing cost optimization programs and the impact
of an extra month of the higher margin BHI business.
Marketing investment was significantly higher. Pure media investment increased
17% to a level of 12.0% of net revenues, +90bps on the equivalent period last
year.
Operating profit was £244m, 24% higher than last year's adjusted number (33% at
constant exchange) and 58% (72% constant) higher than last year's reported
number which included £42m of restructuring charges following the acquisition
of BHI.
Synergies following the acquisition of BHI have now reached a level of £53m
cumulatively on an annualized basis. The improvement in the quarter was £14m
(compared to the £39m at the end of 2006). Synergies contributed around £13m
additional profit in the quarter compared to the equivalent period last year.
Operating margins excluding restructuring increased by 250 bps to 19.4% due to
gross margin expansion and to fixed cost leverage plus the additional
synergies.
Net finance expense was £8m (2006 £5m), reflecting interest on the acquisition
cost and somewhat higher interest rates, offset by strong cash inflow. The tax
rate is 24%.
Net income was £179m, an increase of 27% (36% constant) on the adjusted net
income, and 63% (77% constant) on the reported net income in 2006 including the
after-tax cost of the restructuring charge.
Earnings per share (diluted, adjusted) increased 27% to 24.3 pence per share,
in line with net income growth. On an as reported basis, diluted earnings per
share grew 63%.
Geographical Analysis at constant exchange & on adjusted basis
Europe 56% of net revenues
Net revenues grew 15% to £700m. Underlying growth was 8%. 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 2X Power 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 / Calgonit Quantum
and Finish / Calgonit 5in1. In Home Care, Aircare growth was driven by
continuing success for Airwick Freshmatic. In Health & Personal Care, growth
came from the healthcare portfolio due to higher investment, particularly
behind Nurofen and Strepsils, and to growth for Veet depilatories following the
initial launch of the new Veet 400ml Pump Pack.
Operating margins were 130bps higher in the quarter at 22.6%. Operating profit
increased by 23% to £158m.
North America & Australia 26% of net revenues
Net revenues grew 12% to £331m. Underlying growth was 10%. Excluding BBG, the
underlying growth was 6%. Q1 growth in Household came particularly from Surface
Care, Automatic Dishwashing, Home Care. Surface Care growth was driven by Lysol
disinfecting spray and wipes and by Harpic Power Plus Lavatory Care. 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, which is continuing its successful growth, and from Airwick
Electrical Oils. In Health & Personal Care, increased net revenues came mainly
from strong growth behind higher investment in the healthcare portfolio.
BBG grew very strongly in the USA partly due to phasing and helped by a
regulatory change which allows each qualified medical practice to take on up to
100 patients each for treatment with Suboxone, rather than the previous limit
of 30 patients.
Food grew strongly in the quarter in the consumer brands of French's yellow
mustard, Frank's Red Hot sauce and French's Fried Onions.
Operating margins were 400bps higher at 18.4%. Operating profit was 42% higher
at £61m.
Developing Markets 18% of net revenues
Net revenues grew 19% to £227m, and by 17% underlying, 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 to drive category consumption across the Area. In Surface
Care, the main driver was the continuing growth for Harpic Power Plus lavatory
cleaner and Harpic Max ITB, supported by higher investment. 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 Lantern and 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 Strepsils and
Gaviscon grew due to category growth across the Area.
Operating margins improved by 350bps to 11.0%. Operating profit was £25m, an
increase of 92%.
Category Review at constant exchange rates
Fabric Care. Net revenues increased 8% to £299m. 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.
Surface Care. Net revenues grew 8% to £232m principally due to the relaunch of
the Cillit Bang range with 2X Power, the roll-out of Cillit/Easy Off Bang Stain
and Drain outside Europe, and to strong growth for Lysol disinfectant spray and
wipes in North America. Harpic Lavatory Care net revenues were also stronger
due to the success of Harpic Power Plus and Harpic Max ITB in Europe and NAA
and to strong underlying growth in Developing Markets.
Dishwashing. Net revenues increased 7% to £158m due to the success of Finish /
Calgonit 5in1 and Quantum, both launched last year. In North America, Automatic
Dishwashing grew strongly, mainly due to Electrasol 3in1 monodose tablets.
Home Care. Net revenues improved by 15% to £184m. Air Care grew strongly due to
the continuing success of Airwick Freshmatic in Europe and North America, and
strong growth for Airwick Electrical Oils in North America. Pest Control growth
came mainly as a result of the launch of new products, Mortein Lantern, Mortein
with Dettol and Mortein Professional Indoor Spray.
Health & Personal Care (now excluding BBG). Net revenues increased 39% to £
289m, with underlying growth (excluding BHI) of 12%. Dettol antiseptic was
significantly ahead in Developing Markets due to the expansion of the personal
care range and significantly increased marketing investment. Veet depilatories
saw the initial launch of the new Veet 400ml Pump Pack in Europe.
Healthcare, including the former business of BHI, contributed strongly to the
growth in the quarter. BHI net revenues, led by Nurofen, Strepsils and
Clearasil, were £139m in the quarter compared to £77m in the two months of
ownership in 2006. Adjusting for the extra month, the underlying growth in the
former BHI business was 12%, mainly due to substantial growth for Strepsils and
Nurofen as a result of higher investment and in comparison to a weak quarter
last year.
BBG net revenues in Q1 were £38m, 52% ahead of the equivalent period last year.
This exceptional growth was driven by the USA partly due to phasing and helped
by a regulatory change that allows medical practices to take on 100 patients
each for treatment with Suboxone, rather than the previous limit of 30
patients.
Total Household and Health & Personal Care net revenues were ahead by 15% to £
1,219m, +10% on an underlying basis.
Food. Net revenues grew 5% to £39m with good performance across the consumer
portfolio, in particular further growth for French's yellow mustard and
French's Fried Onions and for Frank's Red Hot sauce. Operating profits
increased 67% to £5m, with operating margins improving 550bps to 12.8%.
Financial Review
Income Statement. Net finance expense was £8m compared to £5m in Q1 2006. This
was due to the debt taken on following the acquisition of BHI for the full
quarter offset by continuing strong cash inflow through the period and to
somewhat higher interest rates, year on year.
Tax on profit for the quarter was £57m. The tax rate for the period is 24%.
Fully diluted earnings per share. Excluding the 2006 restructuring, fully
diluted earnings per share grew 27% (against a 27% increase in the equivalent
net income figure).
No profit has been disclosed for the acquired business as, in the view of the
Directors, it is impracticable to separately identify a profit stream for the
acquired business following full integration of BHI into the commercial
structure and portfolio of Reckitt Benckiser.
Restructuring. The restructuring charge of £42m was incurred in Q1 2006. This
represented the first tranche of the £149m charge recognized in full year 2006.
Balance Sheet. The group had net debt of £468m at the end of Q1 compared to £
660m at the end of 2006. This is the result of continuing strong net cash
inflow from the business during Q1. The group repurchased 1.6m shares in Q1 at
a cost of £43m as part of its target to buy back £300m of shares in 2007. No
dividend is paid in Q1.
Net working capital (inventories, short term receivables and short term
liabilities excluding borrowings, convertible bonds and provisions) decreased
by £48m to minus £776m compared to year end 2006, reflecting further
improvements in net working capital on the acquired BHI business.
Half Year Results.
The Company will release results for the six months to 30 June on Wednesday
25th July 2007.
For further information
Reckitt Benckiser +44 (0)1753 217 800
Tom Corran SVP Investor Relations & Corporate Communications
Fiona Fong Head of Corporate Communications Press calls
Mark Wilson Corporate Controller & Investor calls
Investor Relations Manager
The Group at a Glance (unaudited)
Quarter Ended March 31
2007 2006
£m £m
Net revenues - underlying 1,119 1,085
Net revenues - acquisition 139 77
Net revenues - total 1,258 1,162
Net revenue growth - underlying 3% 10%
Net revenue growth - total 8% 18%
Gross margin 56.9% 54.4%
EBITDA 266 179
EBITDA margin 21.1% 15.4%
EBIT 244 154
EBIT - adjusted* 244 196
EBIT margin 19.4% 13.3%
EBIT margin - adjusted* 19.4% 16.9%
Profit before tax 236 149
Net Income 179 110
Net Income adjusted * 179 141
EPS 25.0p 15.2p
EPS, adjusted and diluted * 24.3p 19.1p
* Adjusted to exclude the impact of the 2006 restructuring charge.
Group Balance Sheet Data
March 31, December 31,
2007 2006
£m £m
Net working capital* (776) (728)
Net (debt) / funds (468) (660)
*Defined as inventories, short term receivables and short term liabilities
excluding borrowings, convertible bonds and provisions.
Ordinary Shares (Voting)
First Quarter
Millions
31 December 2006 716.0
Issued or transferred from Treasury 1.6
Repurchased and transferred to Treasury (1.6)
31 March 2007 716.0
Group Income Statement (unaudited)
Quarter Ended March 31
2007 2006 % change
£m £m
Net revenues 1,258 1,162 8%
Cost of sales (542) (530) 2%
Gross profit 716 632 13%
Net operating expenses (472) (478) -1%
Operating Profit 244 154 58%
Operating profit before restructuring 244 196 24%
Restructuring charge - (42) -
Operating Profit 244 154 58%
Net finance (expense)/income (8) (5) 60%
Profit before taxation 236 149 58%
Taxation (57) (39) 46%
Profit for the period 179 110 63%
Attributable to minority interests - - -
Attributable to equity shareholders 179 110 63%
Profit for the period 179 110 63%
Earnings per ordinary share:
On profit for the period 25.0p 15.2p 64%
On profit for the period, diluted 24.3p 14.9p 63%
Earnings per ordinary share - adjusted*:
On profit for the period 25.0p 19.5p 28%
On profit for the period, diluted 24.3p 19.1p 27%
* Adjusted to exclude the impact of the 2006
restructuring charge.
Average common shares outstanding
(millions):
Basic 716.6 722.4
Diluted 736.9 736.4
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 March 31
2007 2006 % change
£m £m exch. rates
actual const.
Net revenues
Europe 700 623 12% 15%
North America & Australia 331 326 2% 12%
Developing Markets 227 213 7% 19%
1,258 1,162 8% 15%
Operating profit - statutory basis
Europe 158 112 41% 48%
North America & Australia 61 33 85% 110%
Developing Markets 25 9 178% 317%
244 154 58% 72%
Operating profit - adjusted
Europe 158 133 19% 23%
North America & Australia 61 47 30% 42%
Developing Markets 25 16 56% 92%
Subtotal before restructuring 244 196 24% 33%
Restructuring charge - (42)
244 154 58% 72%
Operating margin - adjusted % %
Europe 22.6% 21.3%
North America & Australia 18.4% 14.4%
Developing Markets 11.0% 7.5%
Subtotal before restructuring 19.4% 16.9%
Segmental Analysis (continued)
Secondary Segment: Product Segment Quarter Ended March 31
2007 2006 % change
£m £m exch. Rates
Actual Const.
Net revenues
Fabric Care 299 291 3% 8%
Surface Care 232 232 0% 8%
Dishwashing 158 154 3% 7%
Home Care 184 172 7% 15%
Health & Personal Care 289 219 32% 39%
BBG 38 27 41% 52%
Other Household 19 26 -27% -21%
Household and Health & Personal Care 1,219 1,121 9% 15%
Food 39 41 -5% 5%
1,258 1,162 8% 15%
Net revenues of £139m in Q1 (2006 £77m) in respect the BHI business are
included within Health & Personal Care. On an underlying basis, growth of
Health & Personal Care is 12% at constant rates.
Additional Information
Operating profit - by product segment
Household and Health & Personal Care 239 193 24% 32%
Food 5 3 67% 67%
Subtotal before restructuring 244 196 24% 33%
Restructuring - (42)
244 154 58% 72%
Operating margin - by product segment % %
Household and Health & Personal Care 19.6% 17.2%
Food 12.8% 7.3%
Subtotal before restructuring 19.4% 16.9%
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