3rd Quarter Results
Reckitt Benckiser Group plc
A World Leader in Household, Health and Personal Care
2 November 2010
STRONG Q3 RESULTS
NEW FY10 TARGETS SET FOR TOTAL GROUP
Results at a glance Q3 % change % change YTD % change % change
£m actual constant £m actual constant
(unaudited) exchange exchange exchange exchange
Net Revenue 2,112 +11 +7 6,176 +9 +6
Operating Profit 564 +21 +16 1,528 +19 +16
Net Income 426 +19 +14 1,154 +19 +16
EPS (diluted) 58.4p +18 157.6p +17
Year to date ("YTD") highlights:
* Total net revenue +6% (constant exchange) to £6,176m. Excluding Reckitt
Benckiser Pharmaceuticals ("RBP"), net revenue was ahead +5% (at constant),
supported by successful new product initiatives and investment in the
Group's 17 Powerbrands.
* Gross margin +80bp to 60.2%: operating margin +210bp to 24.7%.
* Adjusted net income +19% (actual exchange): diluted EPS of 157.6p (+17%).
* Net working capital of minus £1,118m, £139m above the 31 December 2009
level.
* Net cash of £471m (31 December 2009: £220m), as a result of strong free
cash flow generation partially offset by the payment of two dividends
totalling £774m and the buy back of the remaining rights to Suboxone and
Subutex in Europe and Rest of the World.
Q3 highlights:
* Total net revenue +7% (constant exchange), +5% (constant) ex-RBP.
* Gross margin +80bp to 60.8%: operating margin +220bp to 26.7%.
* Adjusted net income +19% (actual exchange): diluted EPS of 58.4p (+18%).
Commenting on these results, Bart Becht, Chief Executive Officer, said:
"Reckitt Benckiser achieved strong results for the first nine months, with net
revenue growth of +6% and net income growth of +16%, both at constant exchange.
Ex-RBP, the business performed well. Net revenue growth of +5% and operating
profit growth of +10% (both at constant) were in line with this year's targets,
benefiting from an excellent performance in Developing Markets and the success
of Powerbrand innovations such as the Lysol / Dettol No Touch Hand Soap System.
For the full year, we are now targeting net revenue growth of +6% and net
income growth of +16% for the total Group (both at constant exchange and
excluding SSL), with exchange possibly adding around +2% to these numbers. For
the business ex-RBP, there is no change to our previously communicated full
year targets."
Detailed Operating Review
Third quarter 2010
Q3 net revenue increased +11% to £2,112m, with growth of +7% at constant
exchange.
The gross margin improved by +80bp to 60.8%, largely as a result of benefits
from cost optimisation programmes, input cost savings and a positive
transaction impact from foreign exchange. Total marketing investment was higher
and pure media increased +4% (+0% constant), equating to a level of 9.8% of net
revenue. Operating profit was £564m, +21% higher than last year (+16%
constant): the operating margin increased by +220bp to 26.7% due to gross
margin expansion and operating cost efficiencies. Excluding RBP, operating
profit rose +14% to £432m (+10% constant), equating to a +110bp improvement in
the margin.
Net finance income was £4m (Q3 2009: £2m), reflecting strong free cash flow
generation during the quarter. The tax rate was 25%.
Net income was £426m, an increase of +19% versus Q3 2009 (+14% constant).
Diluted earnings per share increased +18% to 58.4 pence.
Year to date (nine months) 2010
YTD net revenue increased +9% to £6,176m, with growth of +6% at constant
exchange.
The gross margin improved by +80bp to 60.2%, largely as a result of input cost
savings, benefits from cost optimisation programmes and a positive transaction
impact from foreign exchange. Total marketing investment was higher, and pure
media investment rose +4% (+1% constant), equating to a level of 11.0% of net
revenue. Operating profit was £1,528m, +19% higher than last year (+16%
constant): the operating margin increased by +210bp to 24.7% due to gross
margin expansion and operating cost efficiencies. Excluding RBP, operating
profit rose +13% to £1,181m (+10% constant), equating to a +100bp improvement
in the margin.
Net finance income was £11m (YTD 2009: net finance expense of £1m), reflecting
strong free cash flow generation during the nine months. The tax rate was 25%.
Net income was £1,154m, an increase of +19% versus YTD 2009 (+16% constant).
Diluted earnings per share increased +17% to 157.6 pence.
YTD 2010 Business Review
Summary: % net revenue growth
YTD 2010 Like-for-like Disposals Exchange Reported
Europe -1% - -1% -2%
NAA +4% -1% +5% +8%
DvM +19% - +8% +27%
Group ex-RBP +5% +0% +2% +7%
RBP* +27% - +1% +28%
TOTAL +6% +0% +3% +9%
* RBP represents the Group's prescription drug business of Subutex and Suboxone
The Business Review below is given at constant exchange rates.
Europe 42% of net revenue
YTD 2010 total net revenue declined -1% to £2,595m, with growth mainly in
Health & Personal Care, Home care and Dishwashing. In Health & Personal Care,
growth in Dettol was supported by the launch of the Dettol No Touch Hand Soap
System, with Nurofen and Gaviscon also strong contributors. The result in Home
Care was supported by such new initiatives as Airwick Aqua Mist and Airwick
Ribbons, while growth in Dishwashing came from the continued success of Quantum
and the launch of Quantumatic. The performance of Fabric Care was impacted by
increased competitive activity for Vanish, and weakness in Water Softeners and
Laundry Detergents.
For the nine months, the operating margin was +30bp ahead of last year at
23.0%, with operating profit of £597m.
In Q3, net revenue growth was unchanged at £843m. Operating profit was £196m,
with the margin up +40bp to 23.3%.
North America & Australia 27% of net revenue
YTD 2010 total net revenue increased +3% to £1,666m (+4% like-for-like), with
growth coming largely in Health & Personal Care, Surface Care, Home Care and
Dishwashing. In Health & Personal Care, growth was driven by the launch of the
Lysol No Touch Hand Soap System, while the result in Surface Care was boosted
by the Lysol surface care range. The increase in Home Care was supported by the
launch of Airwick Aqua Mist and Airwick Ribbons, with Quantum helping the
performance in Dishwashing.
In Food, growth was driven by the consumer brands of French's Yellow Mustard,
French's Fried Onions and Frank's Red Hot sauce, supported by the launch of new
variants for these franchises.
For the nine months, operating profit increased +16% to £374m; the operating
margin was +280bp higher at 22.4%.
Q3 net revenue rose +2% to £593m (+3% like-for-like) and operating profit was
ahead by +17% to £168m, equating to a +340bp uplift in the margin to 28.3%.
Developing Markets 23% of net revenue
YTD 2010 total net revenue was ahead +19% to £1,410m, with growth across all
regions. In Health & Personal Care, the Dettol personal care range of bar and
liquid soaps and shower gels delivered an excellent result, with Strepsils,
Gaviscon and Veet also strong contributors. Growth in Fabric Care was driven by
Vanish, with Dettol, Harpic and Veja all contributing to the result in Surface
Care. The increase in Home Care was supported by the launch of Airwick Aqua
Mist in Air Care and Mortein automatic and aerosol sprays in Pest Control.
For the nine months, operating profit increased by +34% to £210m. This resulted
in a +170bp improvement in the operating margin to 14.9%.
Q3 net revenue increased by +18% to £481m. Operating profit improved +28% to £
68m, with the margin up +100bp to 14.1%.
RBP 8% of net revenue
YTD 2010 total net revenue for the Group's Subutex and Suboxone prescription
drug business grew +27% to £505m. These buprenorphine-based products are used
to treat opiate dependence. This strong growth was driven by a continued
increase in the number of patients treated with Suboxone in the U.S. and the
launch of the Suboxone sublingual film. The performance was further helped by
the full consolidation of a number of countries in Europe and Rest of the World
from 1st July 2010, as a result of the majority of sales and marketing rights
to the buprenorphine-containing products Suboxone, Subutex and Temgesic
reverting back to the Group.
For the nine months, the operating margin improved by +850bp to 68.7%.
Operating profit was £347m, an increase of +45%.
Q3 net revenue rose +33% to £195m. Operating profit increased +39% to £132m,
for a +480bp expansion in the margin to 67.7%.
Suboxone has data exclusivity in Europe until 2016; in the U.S., Suboxone lost
the exclusivity afforded by its Orphan Drug Status on 8th October 2009. Within
RBP, the U.S. Suboxone business generated YTD 2010 net revenue of £425m and
operating profit of £306m. As a result of the loss of exclusivity in the U.S.,
up to 80% of the revenues and profits of the Suboxone tablet business might be
lost in the year following the launch of generic competitors, with the
possibility of further erosion thereafter.
Further to an announcement on 19th March 2010, the majority of the sales and
marketing rights to the buprenoprhine-containing products Suboxone, Subutex and
Temgesic reverted to the Group, starting 1st July 2010. The rights apply to a
number of countries in Europe and Rest of the World, and the consideration for
the rights paid to Merck & Co., Inc. was approximately £100m. As a result,
these countries are now fully consolidated by the Group.
On 31st 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 has been
developed through an exclusive agreement with MonoSol Rx, utilising its
proprietary PharmFilm® technology, to deliver Suboxone in a fast-dissolving
sublingual film. In the event of generic competition to the Suboxone tablet,
the Group expects that the Suboxone film will help to mitigate the impact
thereof.
YTD 2010 Category Review (at Constant Exchange Rates)
Health & Personal Care. Net revenue increased +7% to £1,667m. In Personal Care,
the Dettol personal wash range continued to deliver excellent growth in
Developing Markets and Europe, with the launch of the Lysol No Touch Hand Soap
System in North America also contributing strongly. Veet increased, helped by
the new Suprem'Essence range with essential oils. In Healthcare, growth came
behind Gaviscon and Nurofen, being partially offset by the impact on Mucinex
and Strepsils of the lower incidence of cold/'flu in Q1. In Q3, Health &
Personal Care grew +8% to £597m.
Fabric Care. Net revenue declined -1% to £1,206m, impacted by increased
competitive activity for Vanish and weakness on Water Softeners and Laundry
Detergents. Q3 net revenue growth was unchanged, at £401m.
Surface Care. Net revenue grew +4% to £1,039m. Growth came in both the Dettol
and Lysol ranges, boosted by a strong result for Harpic behind new initiatives
and continued excellent performance from Veja in Brazil. Q3 growth was +2% to £
353m.
Home Care. Net revenue increased +7% to £842m. Growth in Air Care was driven by
the launch of Airwick Aqua Mist and Airwick Ribbons, while the Mortein range of
aerosol and automatic sprays and a good pest season underpinned the performance
in Pest Control. In Q3, net revenue grew +7% to £280m.
Dishwashing. Net revenue increased +3% to £651m, helped by the continued
success of Finish Quantum, growth in dishwashing additives and the launch of
Finish Quantumatic. Q3 net revenue increased +4% to £198m.
Total Household and Health & Personal Care. Net revenue was ahead by +4% to £
5,454m. In Q3, total Household and Health & Personal Care grew +4% to £1,846m.
RBP. YTD 2010 net revenue for the Group's Subutex and Suboxone prescription
drug business grew +27% to £505m, predominantly driven by a continued increase
in the number of patients treated with Suboxone in the U.S. and the launch of
the Suboxone sublingual film. The performance was further helped by the full
consolidation of a number of countries in Europe and Rest of the World from 1st
July 2010, as a result of the majority of sales and marketing rights to the
buprenorphine-containing products Suboxone, Subutex and Temgesic reverting back
to the Group. Operating profit was ahead +45% to £347m, equating to a +850bp
improvement in the margin to 68.7%.
Q3 net revenue increased by +33% to £195m, while operating profit rose +39% to
£132m.
Food. Net revenue rose +11% to £217m, as a result of a very good performance
across the consumer portfolio, in particular further growth for French's Yellow
Mustard, French's Fried Onions and Frank's Red Hot Sauce, and boosted by new
variants for these franchises. Operating profit increased +28% to £56m.
Q3 net revenue grew +8% to £71m and operating profit was £19m (+8%).
YTD 2010 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
set out in the Group's 2009 Annual Report & Financial Statements, except as
explained in Note 3 to the Half Year Condensed Financial Statements.
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) of minus £1,118m was £139m
higher than the 31 December 2009 level.
Net cash at the end of the nine months was £471m (31 December 2009: £220m), an
increase of £251m. This reflected strong free cash flow generation, partially
offset by the payment of two dividends totalling £774m and the buy back of the
remaining rights to Suboxone and Subutex in Europe and Rest of the World. The
Group regularly reviews its banking arrangements and currently has adequate
facilities available to it.
Contingent liabilities. The Group is involved in a number of investigations by
competition authorities in Europe. Where it is too early to determine the
likely outcome of these matters, the Directors have made no provisions for such
potential liabilities.
Post balance sheet events.
Office of Fair Trading investigation
On 15th October 2010, the Office of Fair Trading announced that the Group had
agreed to pay a penalty of £10.2m in respect of an investigation in the UK
relating to Gaviscon.
Recommended cash offer to acquire SSL International plc
On 29th October 2010, the Group announced that all of the conditions to the
recommended cash offer for the entire issued and to be issued ordinary share
capital of SSL International plc had been satisfied or waived and, accordingly,
the offer was wholly unconditional. The full terms of, and conditions to, the
offer and the procedure for acceptance were set out in the offer document
issued by Reckitt Benckiser plc on 18th August 2010.
The Group also announced that at 1:00 pm (London time) on 29th October 2010,
Reckitt Benckiser plc had received valid acceptances of the offer in respect of
approximately 86.24 per cent. of the existing issued ordinary share capital of
SSL International plc.
Further information relating to the recommended cash offer for SSL
International plc on the Group's website ( www.rb.com/Investors-media/
reckitt-benckiser-offer-for-SSL-International).
2010 Targets
For the full year, the Group is now targeting net revenue growth of +6%
(continuing operations, base: £7,732m) and net income growth of +16%
(continuing operations, base: £1,412m) for the total business (both at constant
exchange and excluding SSL), with exchange possibly adding around +2% to these
numbers.
For the business ex-RBP, there is no change to the previously communicated full
year targets, being +5% net revenue growth (continuing operations, base: £
7,144m) and +10% operating profit growth (continuing operations, base: £
1,512m), both at constant exchange.
For further information, please contact:
Reckitt Benckiser +44 (0)1753 217800
Joanna Speed
Director, Investor Relations
Andraea Dawson-Shepherd
SVP, Global Corporate Communication and 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 Nine months ended
30 September 30 September
2010 2009 2010 2009
£m £m £m £m
2,112 1,907 Net revenue - total 6,176 5,690
+7% +7% Net revenue growth - +6% +7%
constant
+11% +15% Net revenue growth - total +9% +20%
60.8% 60.0% Gross margin 60.2% 59.4%
596 497 EBITDA 1,621 1,378
28.2% 26.1% EBITDA margin 26.2% 24.2%
564 467 EBIT 1,528 1,286
26.7% 24.5% EBIT margin 24.7% 22.6%
568 469 Profit before tax 1,539 1,285
426 357 Net income 1,154 970
58.8p 50.1p EPS, basic 159.5p 136.3p
58.4p 49.6p EPS, adjusted 157.6p 134.4p
Group balance sheet data 30 September 31 December
2010 2009
£m £m
Net working capital * (1,118) (1,257)
Net cash 471 220
* Net working capital is defined as inventories, short-term receivables and
short-term liabilities, excluding borrowings and provisions.
Shares in issue
Nine months
Millions
31 December 2009 719.9
Issued / transferred from Treasury 4.9
31 March 2010 724.8
Issued / transferred from Treasury 0.4
30 June 2010 725.2
Issued / transferred from Treasury 0.2
30 September 2010 725.4
Group Income Statement Analysis (Unaudited)
Quarter ended Nine months ended
30 September 30 September
2010 2009 % change 2010 2009 % change
£m £m £m £m
2,112 1,907 +11 Net revenue 6,176 5,690 +9
(828) (762) Cost of sales (2,455) (2,311)
1,284 1,145 +12 Gross profit 3,721 3,379 +10
(720) (678) Net operating expenses (2,193) (2,093)
564 467 +21 Operating profit 1,528 1,286 +19
4 2 Net finance income / (expense) 11 (1)
568 469 +21 Profit on ordinary activities 1,539 1,285 +20
before taxation
(142) (112) Tax on profit on ordinary (385) (315)
activities
426 357 +19 Net income 1,154 970 +19
- - Attributable to equity minority - -
interests
426 357 Attributable to ordinary equity 1,154 970
holders of the parent
426 357 Net income 1,154 970
Earnings per ordinary share:
58.8p 50.1p On net income for the period, 159.5p 136.3p
basic
58.4p 49.6p On net income for the period, 157.6p 134.4p
diluted
Average common shares
outstanding:
(millions)
725.3 712.3 Basic 723.7 711.8
730.2 719.7 Diluted 732.7 721.7
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.
There have been no exceptional items in the current and prior periods. The
adjusted operating profit is the same as the reported operating profit.
Operating segment
Quarter ended Nine months ended
30 September 30 September
2010 2009 % Change 2010 2009 % Change
£m £m exch. rates £m £m exch. rates
actual const actual const
Net revenue
843 862 -2 +0 Europe 2,595 2,644 -2 -1
593 538 +10 +2 North America & 1,666 1,546 +8 +3
Australia
481 367 +31 +18 Developing 1,410 1,106 +27 +19
Markets
195 140 +39 +33 Pharmaceuticals 505 394 +28 +27
2,112 1,907 +11 +7 6,176 5,690 +9 +6
Operating profit
196 197 -1 +0 Europe 597 600 -1 +0
168 134 +25 +17 North America &
Australia 374 303 +23 +16
68 48 +42 +28 Developing
Markets 210 146 +44 +34
132 88 +50 +39 Pharmaceuticals 347 237 +46 +45
564 467 +21 +16 1,528 1,286 +19 +16
% % Operating margin % %
23.3 22.9 Europe 23.0 22.7
28.3 24.9 North America
& Australia 22.4 19.6
14.1 13.1 Developing
Markets 14.9 13.2
67.7 62.9 Pharmaceuticals 68.7 60.2
26.7 24.5 24.7 22.6
Segment Information (Unaudited), continued
Product segment
Quarter ended Nine months ended
30 September 30 September
2010 2009 % change 2010 2009 % change
£m £m exch. rates £m £m exch.rates
actual const. actual const.
Net revenue by category
597 533 +12 +8 Health & 1,667 1,511 +10 +7
Personal Care
401 396 +1 +0 Fabric Care 1,206 1,203 +0 -1
353 328 +8 +2 Surface Care 1,039 963 +8 +4
280 247 +13 +7 Home Care 842 756 +11 +7
198 188 +5 +4 Dishwashing 651 628 +4 +3
17 14 +21 +16 Other Household 49 42 +17 +18
1,846 1,706 +8 +4 Household and 5,454 5,103 +7 +4
Health & Personal
Care
195 140 +39 +33 Pharmaceuticals 505 394 +28 +27
71 61 +16 +8 Food 217 193 +12 +11
2,112 1,907 +11 +7 6,176 5,690 +9 +6
Operating profit
413 361 +14 +10 Household and Health
& Personal Care 1,125 1,006 +12 +9
132 88 +50 +39 Pharmaceuticals 347 237 +46 +45
19 18 +6 +8 Food 56 43 +30 +28
564 467 +21 +16 1,528 1,286 +19 +16
% % Operating margin % %
22.4 21.2 Household and Health
& Personal Care 20.6 19.7
67.7 62.9 Pharmaceuticals 68.7 60.2
26.8 29.5 Food 25.8 22.3
26.7 24.5 24.7 22.6
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