1st Quarter Results
Reckitt Benckiser
A World Leader in Household, Health and Personal Care
20 April 2011
STRONG START TO 2011
FULL YEAR TARGETS CONFIRMED
Results at a glance Q1 % change % change
£m actual exchange constant exchange
Net revenue 2,283 +14 +15
- Like-for-like growth +5%
*
Operating profit - 492 +7 +9
reported
Operating profit - 530 +15 +17
adjusted **
Net income - reported 355 +2 +4
Net income - adjusted * 384 +10 +12
*
EPS (diluted) - 48.3p +2
reported
EPS (diluted) - 52.2p +10
adjusted **
* Like-for-like ("LFL") growth excludes the impact of changes in exchange
rates, acquisitions and disposals.
** Adjusted results (including % change figures) exclude exceptional items (see
page 2). There was an exceptional pre-tax charge of £39m in Q1 2011 relating to
the acquisition of SSL International plc, of which £38m is included in reported
operating profit and £1m is an exceptional finance cost. There were no
exceptional items in Q1 2010.
Highlights:
* Total net revenue growth of +15% (constant exchange) to £2,283m. LFL growth
+5% (+4% ex-RBP).
* Gross margin unchanged versus Q1 2010, at 59.5%: adjusted operating margin
+20bp to 23.2%.
* SSL integration on track: cost synergies of £11m delivered in the quarter.
* Adjusted net income +10% (actual exchange, +12% constant): adjusted diluted
EPS of 52.2p (+10%).
* Net working capital of minus £1,000m, a £100m improvement versus year-end
December 2010.
* Net debt of £1,647m, £364m lower than the 31 December 2010 level.
Commenting on these results, Bart Becht, Chief Executive Officer, said:
"Reckitt Benckiser got off to a strong start in the first quarter of 2011.
Like-for-like net revenue growth of +5% was driven by the success of
innovations, such as the Dettol No Touch, and continued excellent performance
in Developing Markets. RBP is making very good progress with moving more of its
business into the patent-protected Suboxone sublingual film. By the end of
March, the film had captured a 37% market volume share and represented 35% of
the total RBP U.S. net revenue in Q1. The integration of the SSL business is
well on track to deliver the targeted cost synergies and net revenue growth in
2011.
With net revenue growth of +15% and adjusted net income growth of +12% for the
total Group in the quarter (both at constant exchange), these results position
us well to achieve our FY 2011 financial targets of +12% net revenue growth and
+10% adjusted net income growth (both at constant exchange), and with that to
deliver another year of above industry-average growth."
Basis of Presentation and Exceptional Items
The results include the business of SSL International plc ("SSL") from 1
November 2010, the date of acquisition. Operating profit is not separately
disclosed for SSL as, in the view of the Directors, it is not practicable to
identify its operating profit due to its integration into the commercial
infrastructure of Reckitt Benckiser.
Where appropriate, the term "like-for-like" describes the performance of the
business on a comparable basis, excluding the impact of acquisitions,
disposals, discontinued operations and foreign exchange.
Where appropriate, the term "base business" represents the Europe, North
America & Australia and Developing Markets geographic areas, and excludes RBP
and SSL.
Where appropriate, the term "adjusted" excludes the impact of exceptional
items. There was an exceptional pre-tax charge of £39m in Q1 2011 mainly
relating to integration and transaction costs arising from the acquisition of
SSL. This exceptional pre-tax charge is reflected in reported operating profit
(£38m, of which £1m relates to transaction fees) and net interest (£1m, being
financing costs associated with the acquisition). There were no exceptional
items in Q1 2010.
Detailed Operating Review: Total Group
Q1 net revenue increased +14% (+15% at constant exchange) to £2,283m, with LFL
growth of +5%. SSL contributed £203m net revenue in the quarter, representing a
LFL growth rate of -3% versus the comparable quarter in 2010 owing to the
impact of aligning SSL's trading practices with those of RB.
The gross margin was unchanged versus Q1 2010 at 59.5%, with mix benefits and a
positive transaction impact from foreign exchange being offset by higher input
costs. Total marketing was higher, and pure media spend rose +6% (+7% constant)
to a level of 10.9% of net revenue. Within this, pure media spend on the base
business was unchanged at 12.6% of net revenue. Operating profit as reported
was £492m, +7% versus Q1 2010 (+9% constant), reflecting the impact of an
exceptional pre-tax charge of £38m in respect of the acquisition of SSL. Cost
synergies from the acquisition of SSL amounted to £11m in the quarter. On an
adjusted basis, operating profit was ahead +15% (+17% constant) to £530m: the
adjusted operating margin increased by +20bp to 23.2%.
Net finance expense was £6m (Q1 2010: net finance income of £3m), of which £1m
is an exceptional charge in respect of financing costs associated with the
acquisition of SSL. The tax rate was 26%.
Net income as reported was £355m, an increase of +2% (+4% constant) versus Q1
2010: on an adjusted basis, net income increased 10% (+12% constant). Diluted
earnings per share of 48.3 pence rose +2% on a reported basis; on an adjusted
basis, the growth was 10% to 52.2 pence.
Q1 2011 Business Review
Summary: % net revenue growth
Q1 2011 Like-for-like Acquisitions & Exchange Reported
Disposals*
Europe +0% +17% -4% +13%
NAA +2% +3% +0% +5%
DvM +14% +9% +2% +25%
Group ex-RBP +4% +11% -1% +14%
RBP +23% - -4% +19%
TOTAL +5% +10% -1% +14%
* Reflects the acquisition of SSL
The Business Review below is given at constant exchange rates.
Europe 45% of net revenue
Q1 2011 net revenue increased +17% to £1,028m, with LFL growth of +0%. Strong
growth in Health & Personal Care and a more modest improvement in Surface Care
and Home Care was offset by weakness in Fabric Care, with a relatively flat
result in Dishwashing. The strong performance in Health Care came behind
Nurofen and Strepsils, both of which benefited from such recent initiatives as
Strepsils Warm and Nuromol in the UK, as well as a more normal incidence of
cold/'flu versus Q1 2010. In Personal Care, the continued roll-out of the
Dettol No Touch Hand Soap System delivered an encouraging early result. Dettol
and Harpic contributed to the growth in Surface Care, while such new
initiatives as the Air Wick 100% natural propellant spray supported the
performance in Home Care. The decline in Fabric Care was primarily due to
weakness in Laundry Detergent in southern Europe. Vanish, while still down
year-on-year, is showing an improving market share trend.
Adjusted operating profit increased +9% to £220m; the adjusted operating margin
was -130bp lower at 21.4%, partly due to the inclusion of SSL.
North America & Australia 24% of net revenue
Q1 2011 net revenue increased +5% to £553m (+2% LFL). Growth came from Health &
Personal Care, Dishwashing and Food. In Health & Personal Care, Mucinex
benefited from a good performance in Mucinex DM (an expectorant-cough
suppressant combination variant), as well as a more normal incidence of cold/
'flu compared to Q1 2010. The increase in Dishwashing was led by Finish Quantum
and All-in-1 tablets and gel packs. Growth in Food largely came from the
consumer brands of French's Yellow Mustard and Frank's Red Hot Sauce, and was
boosted by additional marketing activity.
Adjusted operating profit increased +20% to £126m; the adjusted operating
margin was +290bp higher at 22.8%.
Developing Markets 24% of net revenue
Q1 2011 net revenue was ahead +23% (+14% LFL) to £546m, with good growth across
all regions. Health & Personal Care increased largely as a result of the
continued excellent performance of the Dettol personal care range, with Veet
and Strepsils also strong contributors. In Fabric Care, Vanish delivered a
strong result helped by increased marketing investment, while Dettol and Harpic
were the key drivers in Surface Care. Growth in Home Care came largely in Air
Care.
Adjusted operating profit increased by +31% to £85m. This resulted in a +100bp
improvement in the adjusted operating margin to 15.6%.
Pharmaceuticals 7% of net revenue
Q1 2011 net revenue increased +23% to £156m. Growth came from the impact of the
buy back from Merck of the Suboxone rights in Europe and Rest of the World and
continued solid growth in the U.S. In the U.S. the recently-launched and
patent-protected Suboxone film variant continued to grow, and by the end of
March had captured a 37% volume share of the market for buprenorphine-based
products used for opioid dependence. Despite the lower price of the film
variant compared to the Suboxone tablets, net revenue in the U.S. business grew
by +7% to £115m, of which the film generated £40m.
Operating profit for the total RBP business increased +21% to £99m. The
operating margin was down by -210bp to 63.5%, due to the materially lower
margins of the new film variant and lower margins in the acquired business in
Europe and Rest of the World.
Suboxone has data exclusivity in Europe until 2016; in the U.S., Suboxone lost
the exclusivity afforded by its Orphan Drug Status on 8 October 2009. As a
result of the loss of exclusivity in the U.S., up to 80% of the revenue and
profit of the Suboxone tablet business might be lost in the year following the
launch of generic competitors, with the possibility of further erosion
thereafter.
On 31 August 2010, the Group announced that it had received approval from the
U.S. Food and Drug Administration for its New Drug Application to manufacture
and market Suboxone sublingual film. Suboxone sublingual film is
patent-protected until 2020 and is patient-preferred. As the Group is rapidly
converting Suboxone tablets to the sublingual film, there is a short-term
dilutive impact on net revenue and operating profit: however, due to the film's
patent protection, this conversion much better protects the medium and
long-term earnings stream from the Suboxone franchise in the U.S. Hence, in the
event of generic competition to the tablet, the Group expects that the Suboxone
sublingual film will materially mitigate the impact of generic tablet launches.
Q1 2011 Category Review (at Constant Exchange Rates)
Health & Personal Care. Net revenue increased +46% (+13% LFL) to £758m, with
Durex and Scholl together contributing £172m in the quarter.
The increase in Healthcare was largely the result of a strong performance for
Mucinex, Nurofen and Strepsils, supported by new initiatives such as Strepsils
Warm, and also benefiting from a more normal incidence of cold/'flu compared to
Q1 2010. In Personal Care, there was excellent growth for the Dettol personal
care range both in Developing Markets, and in Europe where the continued
roll-out of the No Touch Hand Soap System delivered a very encouraging early
result.
Fabric Care. Net revenue declined -6% to £375m, largely driven by a weak
performance in Laundry Detergents in southern Europe. Vanish in Europe, while
still down, is showing an improving market share trend.
Surface Care. Net revenue grew +3% to £363m. Growth came from the Dettol/Lysol
ranges, with Max Power and Power Plus liquid toilet cleaners supporting a
strong performance for Harpic.
Home Care. Net revenue rose +1% to £283m. The result was supported by the
launch of Air Wick 100% natural propellant spray in Air Care, and Mortein
automatic spray in Pest Control.
Dishwashing. Net revenue increased +1% to £235m, with continued growth in
Finish Quantum and All-in-1 tablets partially mitigated by a weaker result in
dishwashing Additives.
Other. Net revenue increased to £44m, largely due to the inclusion of certain
brands from the acquisition of SSL.
Total Household and Health & Personal Care. Net revenue was ahead by +15% (+4%
LFL) to £2,058m.
Pharmaceuticals. Total net revenue for the Group's Subutex and Suboxone
prescription drug business grew +23% to £156m, with adjusted operating profit
+21% to £99m. Within the Pharmaceuticals division, the U.S. business generated
net revenue of £115m. Suboxone film continued to grow and had captured a 37%
market volume share by the end of March, generating net revenue of £40m in the
quarter. In Europe and Rest of the World, the result was helped by the full
inclusion of a number of countries from 1 July 2010, as a result of the
majority of sales, marketing and distribution rights to the
buprenorphine-containing products Suboxone, Subutex and Temgesic being bought
back by the Group.
Operating profit for the total RBP business increased +21% to £99m. The
operating margin was down by -210bp to 63.5%, due to the materially lower
margins of the new film variant and lower margins in the acquired business in
Europe and Rest of the World.
Food. Net revenue rose +6% to £69m. This growth was driven by a very good
performance for French's Yellow Mustard and Frank's Red Hot Sauce, and was
boosted by additional marketing activity. Adjusted operating profit was £16m
(+14%).
Financial Review
Basis of preparation. The unaudited financial information is prepared in
accordance with IFRSs as adopted by the European Union and IFRSs as issued by
the International Accounting Standards Board, and with the accounting policies
to be applied in the financial statements for the year ending 31 December 2011.
These are not materially different from those set out in the Group's 2010
Annual Report and Accounts.
Constant exchange. Movements in exchange rates relative to sterling affect
actual results as reported. The constant exchange rate basis adjusts the
comparative to exclude such movements, to show the underlying growth of the
Group.
Net working capital (inventories, short-term receivables and short-term
liabilities excluding borrowings and provisions) improved by £100m to minus £
1,000m, due to further improvement in payables.
Net debt as at 31 March 2011 was £1,647m (31 December 2010: £2,011m), a
decrease of £364m in the quarter, reflecting free cash flow generation during
the quarter.
Restructuring charge. A total pre-tax exceptional charge of around £250m is
expected to be incurred in respect of the acquisition of SSL and further
reconfiguration of the enlarged Group, of which approximately £216m relates to
restructuring and c.£34m is transaction costs. In FY 2010, there was an
exceptional pre-tax charge of £104m, reflected in reported operating profit (£
101m, of which £22m related to transaction fees) and net interest (£3m, being
financing costs associated with the acquisition).
For the full year 2011, an exceptional pre-tax charge in the region of £150m is
expected to be incurred, of which around £4m will be exceptional financing
costs. In Q1 2011, an exceptional pre-tax charge of £39m was incurred, of which
£38m is reflected in reported operating profit (of which £1m relates to
transaction fees) and £1m is included in net interest.
Contingent liabilities. The Group is involved in a number of investigations by
competition authorities in Europe and has made provisions for such
investigations, where appropriate. Where it is too early to determine the
likely outcome of these matters, the Directors have made no provision for such
potential liabilities.
The Group from time to time is involved in disputes in relation to ongoing tax
matters in a number of jurisdictions around the world. Where appropriate, the
Directors make provisions based on their assessment of each case.
On 23 February 2011, the Group received a civil claim for damages from the
Department of Health and others in the United Kingdom, regarding alleged
anti-competitive activity involving the Gaviscon brand. The claim is under
review and although it is at an early stage, the Directors do not believe that
any potential impact would be material to the Group financial statements.
Post balance sheet events. Further to an announcement on 13 December 2010, on
11 April 2011 the Group confirmed that it had received the necessary regulatory
clearances and had completed the acquisition of Paras Pharmaceuticals Limited
in India.
2011 Targets
The Q1 2011 results position the Group well to achieve its FY 2011 financial
targets.
For the Group excluding SSL, the target is for +4% like-for-like net revenue
growth, with profit growth ahead of that.
For SSL, the Group is also targeting around +4% net revenue growth on a
like-for-like basis (base: £762m): in addition, the Group is aiming to add 50%
of the £100m cost synergies to the 2010 profit level. An exceptional pre-tax
charge in the region of £150m is expected to be incurred in 2011, of which
around £4m will be exceptional financing costs.
For RBP, the Group continues to target further market share growth for the film
variant. At this time, the Group has no new intelligence as to the timing of
potential generic competition to the Suboxone tablets in the U.S.
Taking all of the above into consideration, the targets for the total Group
remain +12% net revenue growth (base: £8,453m) and +10% adjusted net income
growth (base: £1,661m*), both at constant exchange. These targets exclude the
potential impact of generic competition to the Suboxone tablets in the U.S.,
and will be adjusted downwards in the event that generic competition emerges.
* Adjusted to exclude the impact of exceptional items.
For further information, please contact:
Reckitt Benckiser +44 (0)1753 217800
Joanna Speed
Director, Investor Relations
Andraea Dawson-Shepherd
SVP, Global Corporate Communication & Affairs
Brunswick (Financial PR) +44 (0)20 7404 5959
David Litterick / Teresa Bianchi
Cautionary note concerning forward-looking statements
This document contains statements with respect to the financial condition,
results of operations and business of Reckitt Benckiser and certain of the
plans and objectives of the Group with respect to these items. These
forward-looking statements are made pursuant to the "Safe Harbor" provisions of
the United States Private Securities Litigation Reform Act of 1995. In
particular, all statements that express forecasts, expectations and projections
with respect to future matters, including trends in results of operations,
margins, growth rates, overall market trends, the impact of interest or
exchange rates, the availability of financing to the Company, anticipated cost
savings or synergies and the completion of strategic transactions are
forward-looking statements. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on circumstances
that will occur in the future. There are a number of factors discussed in this
report, that could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking statements, including
many factors outside Reckitt Benckiser's control. Past performance cannot be
relied upon as a guide to future performance.
The Group at a Glance (Unaudited)
Quarter ended
31 March
2011 2010
£m £m
Net revenue - total 2,283 2,003
Net revenue growth - like-for-like +5% +6%
Net revenue growth - constant +15% +6%
Net revenue growth - total +14% +5%
Gross margin 59.5% 59.5%
EBITDA - adjusted* 570 493
EBITDA margin - adjusted* 25.0% 24.6%
EBIT 492 461
EBIT - adjusted* 530 461
EBIT margin 21.6% 23.0%
EBIT margin - adjusted* 23.2% 23.0%
Profit before tax 486 464
Net income 355 348
Net income - adjusted* 384 348
EPS, basic, as reported 48.9p 48.3p
EPS, adjusted and diluted* 52.2p 47.5p
* Adjusted to exclude the impact of exceptional items.
Group balance sheet data 31 March 31 December
2011 2010
£m £m
Net working capital * (1,000) (900)
Net debt (1,647) (2,011)
* Net working capital is defined as inventories, short term receivables and
short term liabilities, excluding borrowings and provisions.
Shares in issue
Millions
31 December 2010 725.9
Issued or transferred from Treasury 0.3
31 March 2011 726.2
Group Income Statement Analysis (Unaudited)
Quarter ended
31 March
2011 2010 % change
£m £m
Net revenue 2,283 2,003 +14
Cost of sales (925) (812)
Gross profit 1,358 1,191 +14
Net operating expenses (866) (730)
Operating profit 492 461 +7
Operating profit before exceptional items 530 461 +15
Exceptional items (38) -
Operating profit 492 461 +7
Net finance (expense) / income* (6) 3
Profit on ordinary activities before 486 464 +5
taxation
Tax on profit on ordinary activities (129) (116)
Net income for the period 357 348 +3
Attributable to non-controlling interest 2 -
Attributable to ordinary equity holders 355 348 +2
of the parent
Net income for the period 357 348 +3
Earnings per ordinary share:
On net income for the period, basic 48.9p 48.3p
On net income for the period, diluted 48.3p 47.5p
Earnings per ordinary share - adjusted**:
On net income for the period, basic 52.9p 48.3p
On net income for the period, diluted 52.2p 47.5p
* Q1 2011 includes an exceptional charge of £1m in respect of financial costs
associated with the acquisition of SSL. There were no exceptional charges in Q1
2010.
** Adjusted to exclude the impact of exceptional items.
Average common shares outstanding
(millions):
Basic 726.0 720.9
Diluted 735.3 732.5
Segment Information (Unaudited)
Analyses by operating segment of net revenue and adjusted operating profit, and
of net revenue by product group are set out below. The Executive Committee of
the Group assesses the performance of the operating segments based on net
revenue and adjusted operating profit. This measurement basis excludes the
effect of exceptional items.
Operating segment
Quarter ended
31 March
2011 2010 % change
£m £m exch. rates
actual const.
Net revenue
Europe 1,028 906 +13 +17
North America & Australia 553 528 +5 +5
Developing Markets 546 438 +25 +23
Pharmaceuticals 156 131 +19 +23
2,283 2,003 +14 +15
Operating profit - adjusted*
Europe 220 206 +7 +9
North America & Australia 126 105 +20 +20
Developing Markets 85 64 +33 +31
Pharmaceuticals 99 86 +15 +21
530 461 +15 +17
Operating margin - adjusted* % %
Europe 21.4 22.7
North America & Australia 22.8 19.9
Developing Markets 15.6 14.6
Pharmaceuticals 63.5 65.6
23.2 23.0
* Adjusted to exclude the impact of exceptional items.
Segment Information (Unaudited), continued
Product segment
Quarter ended
31 March
2011 2010 % change
£m £m exch. rates
actual const.
Net revenue by category
Health & Personal Care 758 524 +45 +46
Fabric Care 375 407 -8 -6
Surface Care 363 343 +6 +3
Home Care 283 294 -4 +1
Dishwashing 235 237 -1 +1
Other 44 1 n/m n/m
Household and Health & Personal Care 2,058 1,806 +14 +15
Pharmaceuticals 156 131 +19 +23
Food 69 66 +5 +6
2,283 2,003 +14 +15
Net revenue of £172m in Q1 in respect of the SSL business is included within
Health & Personal Care. On a LFL basis, net revenue growth in Health & Personal
Care is +13%.
Net revenue of £31m in Q1 in respect of the SSL business is included within
Other.
Operating profit - adjusted*
Household and Health & Personal Care 415 360 +15 +16
Pharmaceuticals 99 86 +15 +21
Food 16 15 +7 +14
Operating profit before exceptional items 530 461 +15 +17
Exceptional items (38) -
Operating profit 492 461 +7
Operating margin - adjusted* % %
Household and Health & Personal Care 20.2 19.9
Pharmaceuticals 63.5 65.6
Food 23.2 22.7
23.2 23.0
* Adjusted to exclude the impact of exceptional items.