3rd Quarter Results
24 October 2006
STRONG Q3 - 2006 TARGETS RAISED
Results at a Q3 % change % change Year % change % change
Glance £m actual constant To actual constant
exchange exchange Date exchange exchange
£m
Net Revenues £ +17% +20% £ +18% +17%
1,243m 3,629m
Operating £224m +7% +9% £591m +6% +6%
Profit
reported
Net Income £157m -10% -8% £418m -5% -6%
reported
EPS 21.4p -9% 56.9p -4%
(diluted)
reported
Operating £271m +29% +32% £695m +25% +24%
Profit
adjusted *
Net Income £192m +10% +13% £495m +12% +11%
adjusted *
EPS 26.2p +11% 67.5p +14%
(diluted)
adjusted *
*adjusted to exclude the impact of the restructuring charge.
Net revenues grew by 17% in Q3 to £1,243m (+20% constant) and by 18% Year to
Date (YTD) to £3,629m (+17% constant). The underlying business (excluding BHI)
grew 4% (7% constant) in Q3 and 7% (6% constant) YTD.
BHI contributed net revenues of £139m in Q3 and £343m YTD. Restructuring costs
for the BHI acquisition were £47m in Q3 and £104m YTD as part of the estimated
full year charge of £150m. Cost synergies from BHI YTD were £21m, on track for
the full year target which is now estimated to be at least £35m (previously £
30m). The total cost synergies from BHI are now estimated to be at least £80m
(previously £75m) by the end of 2008.
Operating profit before restructuring increased by 29% in Q3 to £271m and by
25% YTD to £695m. YTD gross margins improved by 140 basis points (bps) to
55.9%. Q3 gross margins improved 190bps to 56.5%. Before restructuring,
operating margins in YTD improved 110bps to 19.2% and in Q3 improved 200bps to
21.8%.
On an adjusted basis net income grew 10% in Q3 to £192m and 12% to £495m YTD.
There are no one-off tax releases this YTD (last year £13m in Q3 and YTD).
EPS diluted, adjusted, grew 11% in Q3 to 26.2p, and 14% YTD to 67.5p, growth
rates benefiting from the share buyback program.
Net borrowings were £809m compared with £795m at June 2006 after £92m share
buybacks in Q3 (£185m YTD) and the payment of the interim dividend (£148m).
Commenting on these results, Bart Becht, Chief Executive Officer, said: -
"Reckitt Benckiser continued its strong performance. Growth on the underlying
business in Q3 was 7%, driven by new products such as Vanish Oxi Action Crystal
White, Airwick Freshmatic, Cillit Bang Stain & Drain and Finish 5in1. The
BHI integration is almost complete and promised synergies are being delivered
ahead of plan.
"Based on the strength of the business we are raising our target for net
revenue growth for the full year to around 17% (previously 15%) at constant
exchange (base £4,179m). We are also upgrading our targeted adjusted net
income growth (base £653m) to around 16% (previously 14%), at actual exchange."
Basis of Presentation
The results include the Boots Healthcare International business (BHI) from 1
February 2006, the date of acquisition. Where appropriate, the term 'adjusted'
excludes the impact of the restructuring charge, and the term 'underlying'
represents the results excluding restructuring and on a like-for-like basis (ie
excluding BHI).
Detailed Operating Review
Third Quarter 2006
Net revenues in Q3 grew by 17% (20% at constant exchange) to £1,243m. The
underlying business (like-for-like excluding BHI) grew by 4% (7% constant) to £
1,104m. BHI contributed net revenues of £139m.
Adjusted operating profit for Q3 grew 29% (32% constant) to £271m. Gross margin
increased by 190bps to 56.5% due to the higher gross margins on the BHI
business and to the benefit of price increases and cost optimization.
Marketing investment increased during the period broadly in line with net
revenue growth with media 21% higher to 12.2% of net revenues. Adjusted
operating margins increased by 200bps to 21.8% due to the gross margin
expansion.
Restructuring charges relating to the BHI acquisition in the quarter were £47m.
Net income was 10% (8% constant) lower at £157m after the restructuring
charges. On an adjusted basis net income grew 10% (13% constant) to £192m with
no one-off tax releases (2005 Q3 £13m).
EPS diluted, adjusted increased 11% to 26.2p with the growth rate benefiting
from the ongoing share buyback program by one percentage point.
Nine Months - Year to Date 2006
Net revenues grew by 18% (17% constant) to £3,629m. The underlying business
grew by 7% (6% constant) to £3,286m. BHI contributed net revenues of £343m for
the 8 months of ownership.
Adjusted operating profit increased 25% (24% constant) to £695m. Gross margins
were 140bps ahead of last year at 55.9% due to the higher gross margins on the
BHI business and the benefit of price increases and cost optimization
offsetting higher input costs on the base business. Marketing investment
increased broadly in line with net revenue growth, with media investment
increased by 11% to 12.4% of net revenues and a much higher rate of increase in
other consumer marketing. Adjusted operating margins increased by 110bps to
19.2% due to the gross margin expansion.
Restructuring charges relating to the BHI acquisition in the year-to-date were
£104m.
Net interest charges were £29m (2005 £22m receivable) due to the interest cost
of the BHI acquisition. The tax rate is 26%.
Net income for the year to date was 5% (6% constant) lower at £418m after the
restructuring charge. EPS diluted was 56.9 pence per share, a decrease of 4%.
Adjusted net income for the year to date increased 12% (11% constant) to £495m
with no one-off tax releases (2005 YTD £13m). Adjusted EPS diluted increased
by 14% to 67.5 pence per share with the growth rate benefiting from the ongoing
share buyback program by two percentage points.
Geographic Analysis at constant exchange for continuing operations
Europe 54% of Net Revenues
YTD net revenues grew by 21% to £1,951m. Underlying growth was 5%. Key
growth drivers were Vanish, Airwick and Cillit Bang. In fabric care, the
increase came due to the success of Vanish Oxi Action Crystal White and growth
in laundry detergents. In surface care, the key driver was Cillit Bang Stain &
Drain. In automatic dishwashing, Finish / Calgonit grew share across the Area
with the launch of Finish / Calgonit 5in1 and Finish / Calgonit Quantum but net
revenue growth was held back due to higher promotional investment. In home
care, Airwick grew due to further success for Airwick Freshmatic and the launch
of Airwick Xpress electricals. In health & personal care, Veet depilatories
grew following the launch of the new In Shower cream and new Eternally Smooth
Wax Strips.
YTD Operating margins were 50bps ahead of last year at 22.2% due to higher
gross margins partially offset by higher marketing investment in new products.
This resulted in 23% increase in operating profits to £433m.
In Q3, net revenues increased 25% to £668m with underlying growth of 6%.
Operating profits increased by 33% to £157m.
North America & Australia 28% of Net Revenues
YTD net revenues increased 12% to £1,027m. Underlying growth was 5%. Key
growth drivers were Airwick, Lysol, Easy Off Bang and Suboxone. In surface
care, the key drivers were Lysol wipes and the roll-out of Easy Off Bang
Degreaser and Stain & Drain. In home care, Airwick grew due to Airwick
Freshmatic and Airwick electrical oils in part due to the launch of Airwick
Xpress. In health and personal care, Suboxone prescription drug continued its
expansion. Food saw growth from French's and Frank's Red Hot in retail offset
by lost contracts in food service channels.
YTD Operating margins were 190bps higher at 19.4% due to gross margin expansion
following price increases in 2005 and 2006, resulting in profits increasing 25%
to £199m.
Q3 net revenues grew 12% to £356m with underlying growth of 4%. Profits were
ahead by 30% to £92m.
Developing Markets 18% of Net Revenues
YTD net revenues grew 14% to £651m. Underlying growth was 10%. Key growth
drivers were Dettol, Vanish, Easy Off Bang and Harpic. In fabric treatment the
increase was a result of Vanish Oxi Action Wow and the roll out of the brand
into further markets. In surface care, the increase came from the roll out of
Easy Off Bang and further growth for Harpic. In health & personal care, the
Dettol personal care range performed strongly benefiting from higher investment
and the launch of Dettol Active Soap.
YTD operating margins expanded 140bps to 9.7%, resulting in operating profits
increasing by 33% to £63m.
Q3 net revenues increased by 19% to £219m with underlying growth of 14%.
Operating profits increased 38% to £22m.
BHI Integration Update
The integration of the former BHI business is proceeding in line with plan.
Physical, commercial and systems integration are all essentially complete.
Cost synergies for the year are now expected to be at least £35m, higher than
the initial target of £30m. These are part of the full cost savings program
which is now expected to deliver at least £80m, rather than the initial target
of £75m, by the end of 2008. Synergies in the year to date 2006 were £21m.
Restructuring charges YTD were £104m out of the full year charge of £150m.
Charges to date mainly relate to contract termination and headcount reduction
in commercial operations and HQ functions plus write-offs related to redundant
systems.
Category Review at constant exchange rates
Fabric Care. YTD net revenues grew 7% to £906m. Vanish Oxi Action grew
strongly due to Vanish Oxi Action Crystal White, Vanish Oxi Action Multi in
Europe and the roll out of Vanish in new markets. Woolite grew behind the
roll-out of Woolite Colour. Calgon grew as a result of new advertising copy.
Laundry detergent net revenues recovered from a low base last year.
Q3 net revenues grew 8% to £314m.
Surface Care. YTD net revenues grew 4% to £680m. The major category growth
driver was the roll-out of Cillit / Easy Off Bang Stain & Drain. Disinfectant
cleaners also grew due to Lysol/Dettol multipurpose cleaners and Lysol wipes.
Harpic lavatory care growth came from the roll-out of Harpic 2in1 Max in bowl
gadget, the launch of Harpic Power Plus and from strong growth in Developing
Markets.
Q3 net revenues grew 6% to £229m.
Dishwashing. YTD net revenues grew 1% to £436m. The Company's market share
grew in Europe and Worldwide helped by the launch of Finish / Calgonit 5in1 and
Finish / Calgonit Quantum, but net revenues were held back by higher
promotional investment.
Q3 net revenues grew 3% to £141m.
Home Care. YTD net revenues grew 10% to £498m with strong growth for air
care. Air care benefited from the continuing success of Airwick Freshmatic and
Airwick electricals, the latter in part due the launch of Airwick Xpress
electricals with boost button for extra freshness. Mortein pest control was
modestly ahead of last year due to a different promotional phasing but growth
improved strongly in Q3 driven by the introduction of Mortein Instant Kill
aerosol and Mortein Liquid Vaporizer low cost electrical.
Q3 net revenues grew 11% to £173m.
Health & Personal Care. YTD net revenues grew 82% to £899m with underlying
growth of 13%. Good growth was achieved by all power brands. Dettol
antiseptics benefited from higher investment and new additions to the personal
care range, notably Dettol Active Soap. Veet depilatories benefited in
particular from the launch of Veet In Shower cream and new Eternally Smooth
Veet Wax Strips with specific skin type ingredients. Healthcare brands
Gaviscon and Lemsip grew in Europe and due to new market launches in Developing
Markets. Prescription drug Suboxone continued its substantial expansion in
North America. The BHI core brands are running ahead of 2005 on a
like-for-like basis.
Q3 net revenues grew 99% to £318m, with underlying growth of 12%.
Additional information on the Health & Personal Care category, and in
particular on prescription drug Subutex / Suboxone, is provided below.
Food. YTD net revenues were 1% behind last year at £131m with good retail
performance particularly on French's and Frank's Red Hot offset by contract
losses in the food service channel. Profits improved 5% to £23m, resulting in
an an operating margin of 17.6% +70bps.
Q3 net revenues were 2% behind at £41m but profits improved 11% to £10m.
Financial Review
Basis of Preparation
The results are prepared under IFRS accounting policies as set out in the
Group's Annual Report and Accounts for 2005.
Net interest. Net interest payable in YTD was £29m (2005 income of £22m).
This resulted from the debt taken on following the acquisition of BHI somewhat
offset by strong cash inflow during the year to date. Q3 interest payable was
£12m (2005 £7m income).
Tax. The tax rate is 26% (2005 same). In Q3 2005 the tax charge included one
off tax releases of £13m (2006 Q3 nil).
Net working capital (inventories, short term receivables and short term
liabilities excluding borrowings and provisions) decreased by £78m YTD to minus
£694m. BHI net working capital reduced £35m in the period since
consolidation on 1st February 2006 towards the full year target reduction of £
50m.
Net borrowings at the end of September were £809m compared to £795m at June and
net funds of £887m at December 2005. The YTD movement is principally the result
of the requirement to fund the acquisition on 31 January 2006 of BHI. The
quarterly increase reflects the cost of the interim dividend for 2006 of £148m
and the £92m cost of the share buyback program in the quarter offset by
continuing strong net cash inflow from the business.
Share buyback. Between 21st February and 22nd September 2006, the Group
purchased 8.9m shares for cancellation at a cost of £185m as part of its
ongoing share buyback program. In Q3, the Company purchased 4.3m shares for
cancellation at a cost of £92m. The Company is committed to completing its £
300m program for full year 2006.
Additional Health & Personal Care Disclosure
In response to investors' need for greater clarity on the historical underlying
growth trends in Health & Personal Care, the Company releases the following
additional information. The major driver of reported growth rates in past
years has been the rapid expansion of the Company's prescription business of
Buprenorphine (BBG). Adjusting for this factor, the underlying growth in
Health & Personal care in 2005 was 5%, and in year to date 2006 (excluding BHI)
it is 7%.
Additional Information on BBG
A small but rapidly growing part of Reckitt Benckiser's healthcare business is
the prescription business of BBG which principally markets two products:
Subutex and Suboxone. Both products are forms of Buprenorphine for treatment
of opiate dependence. Suboxone is a more advanced form compared to Subutex, as
it has substantially better protection against abuse by the opioid dependant
population. Subutex is principally marketed in Europe by Schering Plough
Corporation Kenilworth, New Jersey to whom it is licensed, while Suboxone is
sold by Reckitt Benckiser directly in the USA and Australia. Suboxone has
recently received marketing approval from the European Commission for treatment
in the 25 states of the European Union, Norway and Iceland.
Since 2002, the BBG business has grown from a very small proportion to
represent almost 3% of the total Company net revenues and a higher proportion
of operating profits.
Net Revenues for BBG were as follows: -
2004 % change 2005 % change YTD 2006
% change
£m @ const FX £m @ const FX £m @ const FX
89 +32% 121 +35% 103 +31%
As with all prescription drugs, the intellectual property protection of this
business has a finite term unless replaced with new treatments or forms.
Therefore, the revenue and income of this business may not be sustained going
forward unless replaced with new treatments or forms which the Company is
actively working on. Reckitt Benckiser has market exclusivity for Suboxone in
the United States, until the end of 2009. The recent approval for Suboxone in
Europe will result in a 10 year market exclusivity. At the same time, the
Company is engaged in developing new treatments with third parties that would
have either patent protection or market exclusivity in similar areas to where
it is active today.
For Further Information
Reckitt Benckiser +44 (0)1753 217 800
Tom Corran SVP Investor Relations & Corporate Communications
Mark Wilson Corporate Controller and Investor Relations Manager
PR Agency
Tim Spratt Financial Dynamics +44 (0)207 837 3113
The Group at a Glance (unaudited)
Quarter Ended September 30 Nine months Ended
September 30
2006 2005 2006 2005
£m £m £m £m
1,104 1,058 Net revenues - underlying 3,286 3,072
139 - Net revenues - acquisition 343 -
1,243 1,058 Net revenues - total 3,629 3,072
4% 8% Net revenues growth - underlying 7% 8%
17% 8% Net revenue growth - total 18% 8%
56.5% 54.6% Gross margin 55.9% 54.5%
247 232 EBITDA 664 622
19.9% 21.9% EBITDA margin 18.3% 20.2%
224 210 EBIT 591 555
271 210 EBIT - adjusted* 695 555
18.0% 19.8% EBIT margin 16.3% 18.1%
21.8% 19.8% EBIT margin - adjusted* 19.2% 18.1%
212 217 Profit before tax 562 577
157 174 Net Income 418 442
192 174 Net Income adjusted* 495 442
21.8p 23.9p EPS 57.9p 60.7p
26.2p 23.5p EPS, adjusted and diluted* 67.5p 59.3p
* Adjusted to exclude the impact of the restructuring charge.
Group Balance Sheet Data# September 30, December 31,
2006 2005
£m £m
Net working capital * (694) (616)
Net (debt) / funds (809) 887
# The balance sheet information contains provisional amounts in respect of the
acquisition of Boots Healthcare International.
* Net working capital is defined as inventories, short term receivables and
short term liabilities, excluding borrowings and provisions.
Shares in Issue (millions)
Third quarter
30 June 2006 721.3
Issued 2.7
Cancelled (4.3)
30 September 2006 719.7
Year To Date
31 December 2005 722.2
Issued 6.4
Cancelled (8.9)
30 September 2006 719.7
Group income statement (unaudited)
Quarter Ended September Nine Months Ended September
30 30
2006 2005 % change 2006 2005 % change
£m £m £m £m
1,243 1,058 17% Net revenues 3,629 3,072 18%
(541) (480) 13% Cost of sales (1,599) (1,398) 14%
702 578 21% Gross profit 2,030 1,674 21%
(478) (368) 30% Net operating expenses (1,439) (1,119) 29%
224 210 7% Operating profit 591 555 6%
271 210 29% Operating profit before 695 555 25%
restructuring
(47) - - Restructuring charge (104) - -
224 210 7% Operating profit 591 555 6%
(12) 7 - Net finance (expense)/income (29) 22 -
212 217 -2% Profit before taxation 562 577 -3%
(55) (43) 28% Taxation (144) (135) 7%
157 174 -10% Profit for the period 418 442 -5%
0 0 - Attributable to minority 0 0 -
interests
157 174 -10% Attributable to equity 418 442 -5%
shareholders
157 174 -10% Profit for the period 418 442 -5%
Earnings per ordinary share:
21.8p 23.9p On profit for the period 57.9p 60.7p
21.4p 23.5p On profit for the period, 56.9p 59.3p
diluted
Earnings per ordinary share -
adjusted*:
26.6p 23.9p On profit for the period 68.7p 60.7p
26.2p 23.5p On profit for the period, 67.5p 59.3p
diluted
* Adjusted to exclude the impact of the restructuring charge
Average common shares outstanding: (millions)
721.3 727.6 Basic 721.7 728.2
732.7 740.4 Diluted 734.4 745.4
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 September 30 Nine Months Ended September 30
2006 2005 % Change 2006 2005 % Change
£m £m exch. Rates £m £m exch rates
actual const. actual const.
Net revenues
668 537 24% 25% Europe 1,951 1,614 21% 21%
356 328 9% 12% North America & Australia 1,027 904 14% 12%
219 193 13% 19% Developing Markets 651 554 18% 14%
1,243 1,058 17% 20% 3,629 3,072 18% 17%
Operating profit
116 120 -3% -2% Europe 363 351 3% 3%
89 73 22% 25% North America & Australia 177 158 12% 11%
19 17 12% 19% Developing Markets 51 46 11% 9%
224 210 7% 9% 591 555 6% 6%
Operating profit - adjusted*
157 120 31% 33% Europe 433 351 23% 23%
92 73 26% 30% North America & Australia 199 158 26% 25%
22 17 29% 38% Developing Markets 63 46 37% 33%
271 210 29% 32% Subtotal before restructuring 695 555 25% 24%
(47) - Restructuring (104) -
224 210 7% 9% 591 555 6% 6%
% % Operating margin - adjusted* % %
23.5 22.3 Europe 22.2 21.7
25.8 22.3 North America & Australia 19.4 17.5
10.0 8.8 Developing Markets 9.7 8.3
21.8 19.8 Subtotal before restructuring 19.2 18.1
* Adjusted to exclude the impact of the restructuring charge.
Segmental Analysis (continued)
Secondary Segment: Product Segment
Quarter Ended September 30 Nine Months Ended September 30
2006 2005 % change 2006 2005 % exchange
£m £m exch. rates £m £m exch. rates
actual const. actual const.
Net revenues
314 296 6% 8% Fabric Care 906 837 8% 7%
229 223 3% 6% Surface Care 680 642 6% 4%
141 139 1% 3% Dishwashing 436 429 2% 1%
173 160 8% 11% Home Care 498 443 12% 10%
318 164 94% 99% Health & Personal Care 899 493 82% 82%
1,175 982 20% 22% Core Business 3,419 2,844 20% 19%
27 32 -16% -10% Other Household 79 98 -19% -19%
1,202 1,014 19% 21% 3,498 2,942 19% 18%
41 44 -7% -2% Food 131 130 1% -1%
1,243 1,058 17% 20% 3,629 3,072 18% 17%
Net revenues of £343m in respect of the acquisition in 2006 are included within
Health & Personal Care. On an underlying basis, growth of Health & Personal
Care is 13% for YTD and 12% for Q3 at constant rates.
Additional Information
Operating profit - by product segment
261 201 30% 32% Household and Health & Personal Care 672 533 26% 25%
10 9 11% 11% Food 23 22 5% 5%
271 210 29% 32% Sub total before restructuring 695 555 25% 24%
(47) - Restructuring (104) -
224 210 7% 9% 591 555 6% 6%
% % Operating margin - by product segment % %
21.7 19.8 Household and Health & Personal Care 19.2 18.1
24.4 20.5 Food 17.6 16.9
21.8 19.8 Subtotal before restructuring 19.2 18.1
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