Final Results

8th February 2006 RECORD 2005, EXCEEDING TARGETS 2006 TARGETS ANOTHER STRONG GROWTH YEAR Results at Q4 % change % change Full % change % change a Glance £m actual constant Year £ actual constant exchange exchange m exchange exchange (unaudited) Net £ +8% +5% £ +8% +6% Revenues 1,107m 4,179m Operating £285m +20% +17% £840m +12% +10% Profit Net Income £227m +15% +13% £669m +16% +14% EPS 30.8p +16% 90.0p +17% (diluted) * Net revenues grew 8% (5% constant) to £1,107m in Q4, a record quarter for the Company, and 8% (6% constant) to £4,179m full year (FY). * Operating profit increased 20% in Q4 to £285m and 12% in FY to £840m. FY operating margins improved by 80 basis points (bps) to 20.1%, achieving the 2006 target a year early. * Net income grew 15% in Q4 to £227m and 16% in FY to £669m. Fully diluted EPS grew 16% in Q4 to 30.8p, and 17% in FY to 90.0p, the growth rate benefiting from the share buyback program. * Strong cash generation resulted in net funds of £887m at the year end, an increase of £255m over the year, after share buybacks of £300m and dividends of £262m this year. The Company has confirmed its intention of a £300m buyback program in 2006. * The Board recommends a final dividend of 21p an increase of 17%, to bring the full year dividend to 39p an increase of 15% on 2004. * Reckitt Benckiser completed the acquisition of Boots Healthcare International (BHI) for £1,926m on 1st February 2006. Commenting on these results, Bart Becht, Chief Executive Officer, said 'Reckitt Benckiser sustained its robust growth ahead of the market resulting in our highest ever quarter for net revenues, operating profit and net income. As a result, 2005 was another year of solid progress exceeding our earlier targets. Growth came across all regions and was strongly driven by new products like Cillit / Easy Off Bang, Finish 4in1, Air Wick Freshmatic and Vanish Oxi Action Max. Benefiting from strong cost containment operating margin reached our 20% target a year early. 'The recently completed acquisition of BHI gives us a new platform for growth in the attractive OTC healthcare market. In 2006, our major focus for this business will be on successful integration and realizing the promised synergies while gradually preparing the business for growth. 'Our 2006 targets, incorporating BHI, are for net revenue growth in the mid teens at constant exchange (base £4,179m), and net income growth in the low double digits (excluding restructuring charges and one-off tax credits to give a base of £653m) at constant exchange. The targets should be seen against a background of increasingly challenging market conditions and still limited visibility into the BHI business after only one week of ownership.' Detailed Operating Review Fourth Quarter 2005 Net revenues in Q4 grew by 8% (5% at constant exchange) to £1,107m, another record quarter and the first quarter to exceed £1.1bn Operating profit for Q4 grew 20% (17% constant) to £285m. Gross margin increased 60 bps compared to last year to 55.9% due to higher margin new products and benefits from ongoing cost optimization programs progressively offsetting higher input costs. Marketing investment was level with last year during the period with a shift in marketing mix towards other forms of consumer marketing as planned. Pure media investment was 8% lower at 8.5% of net revenues. Operating margin was 25.7%, up 240 bps as a result of the higher gross margin, maintained marketing investment and tight control of fixed costs. Net income grew 15% (13% constant) to £227m, the first time a quarter has earned over £200m (under IFRS). The tax charge was reduced by £3m of one-off tax credits. EPS diluted increased 16% to 30.8 pence. Full Year 2005 Net revenues grew by 8% (6% constant) to £4,179m. Operating profit increased 12% (10% constant) to £840m. Gross margin increased 10bps to 54.9% as a result of higher margin new products, and savings from ongoing cost optimization programs offsetting significantly higher input costs. Media investment increased 3% and represented 11.9% of net revenues (2004 12.4%). Other marketing investment increased ahead of the rate of net revenue growth due to a shift in marketing mix towards other forms of consumer marketing. Operating margins increased by 80bps to 20.1% due to gross margin expansion and particularly to tight control of fixed costs more than offsetting higher marketing investment. Net income for the year increased 16% (14% constant) to £669m. Net interest received of £36m (2004 £9m) was due to the strong cash inflow over the past year increasing the level of net funds after higher dividend payments and share buyback, and the conversion of the convertible bond. The underlying tax rate for the period is 26% before non-recurring tax credits of £16m arising from favorable tax settlements. EPS diluted increased 17% to 90.0 pence. Geographic Analysis at constant exchange Europe 51% of Net Revenues FY net revenues grew by 4% to £2,135m. Growth came from key recent product introductions. In fabric treatment, growth was due to the success of Vanish with Vanish Oxi Action Max and Vanish Dual Power. In surface care, growth came from Cillit Bang. In automatic dishwashing, growth was due to Finish/Calgonit 4in1. Home Care increased due to the successful launch of Air Wick Freshmatic. Health & Personal Care saw strong growth for the health care portfolio due to the roll-out of Gaviscon in Europe. FY Operating margins were 60bps ahead of last year at 23.5% due to tight control of costs offsetting higher marketing investment, resulting in operating profits increased by 6% to £502m. In Q4, net revenues grew 1% to £521m, and operating profits increased by 11% to £151m due to lower marketing investment and tight cost controls. North America & Australia 31% of Net Revenues FY net revenues increased 5% to £1,281m. In fabric care, Spray 'n Wash Dual Power fabric treatment and Resolve Dual Power carpet cleaner grew sales. In surface care increases came from growth for Lysol disinfectant spray, and the launch of Easy-Off Bam. In automatic dishwashing increases came due to the success of Electrasol with Jet Dry Action. In Home Care, Air Care grew following the launch of Air Wick Freshmatic, and in Health & Personal Care, Veet depilatories and prescription drug Suboxone were the principal contributors to growth. Food increased net revenues due to the launch of Cattleman's BBQ sauce in retail and to continued growth for French's yellow mustard and gains for Frank's Red Hot sauce. FY operating margins were 90bps higher at 21.1%, due to substantially higher input costs reducing gross margins offset by tight control of fixed costs. As a result operating profits increased 9% to £270m. Q4 net revenues grew 8% to £377m, with operating profits increasing 20% to £ 112m. Developing Markets 18% of Net Revenues FY net revenues grew 12% to £763m. There was strong growth in all categories. In fabric care, growth came following the roll-out of Vanish Oxi Action fabric treatment products. In surface care, increases came from the success of Easy-Off Bang. Pest control grew strongly with the launch of Mortein Power Booster coils. Health & Personal Care grew due to the continuing roll out of Veet in new markets and strong growth for the Dettol range of personal care products. FY Operating margins expanded 250bps to 8.9%, resulting in operating profits increasing by 55% to £68m. Q4 net revenues increased by 12% to £209m, and operating profits increased 57% to £22m. Corporate The group has restated the allocation of central costs between area and corporate operating profit in order to allocate in full the corporate overheads to the three operating areas. This presentation best reflects the commercial reality of the business, showing where the profit is earned and reflecting the support provided by the corporate centre to the three operating areas. Accordingly the corporate line is removed from disclosure, as it is nil. The group total is not affected by this change. 2004 has been restated to provide consistent comparatives. Category Review at constant exchange rates Fabric Care. FY net revenues grew 2% to £1,113m largely due to the success of Vanish Oxi Action, the Company's fabric treatment franchise and Calgon water softener, offset to some extent by softness in laundry detergent and fabric softeners. Key drivers of growth included the roll out of Vanish Oxi Action Max, Vanish Dual Power and continued growth for Vanish carpet cleaners. Q4 net revenues grew 2% to £276m. Surface Care. FY net revenues grew 9% to £871m. The major growth driver was the roll-out of Bang under the Cillit brand in Europe, and the Easy-Off brand in North America and Developing Markets. The Dettol and Lysol disinfecting range, particularly disinfectant spray, grew in Europe, North America and Developing Markets Q4 net revenues grew 3% to £229m compared to the roll out period of Cillit Bang last year. Dishwashing. FY net revenues grew 6% to £579m due to strong growth in automatic dishwashing. Growth came from the success of Finish/Calgonit 4in1 in Europe, initial sales of Finish/Calgonit Quantum in early launch markets and from Electrasol with Jet Dry Action in North America. Q4 net revenues grew 5% to £150m. Home Care. FY net revenues grew 8% to £628m with strong growth for both air care and pest control. Air care grew behind the launch of Air Wick Freshmatic in Europe, North America and certain Developing Markets. Pest control growth was driven by Mortein Power Booster coils and a strong pest season in the Southern Hemisphere. Q4 net revenues grew 14% to £185m. Health & Personal Care. FY net revenues grew 9% to £662m with growth across all segments. Veet depilatories continue to benefit from the continuing roll out in Developing Markets and growth in North America. Dettol antiseptics grew behind the personal care range in Developing Markets. Healthcare products benefited from the continuing roll-out of Gaviscon in Europe. Suboxone continues to grow strongly as distribution builds in North America. Q4 net revenues grew 12% to £169m. Core Household grew net revenues 6% to £3,853m FY and 6% to £1,009m in Q4. Food. FY net revenues grew 2% to £195m with continued growth for French's yellow mustard and gains for Frank's Red Hot sauce. Q4 net revenues of £65m were level with 2004. New Product Initiatives - H1 2006 The Company is launching a number of new product initiatives for H1 2006. Fabric Care: Vanish Oxi Action Crystal White for superior stain removal and whiteness is being launched across Europe. Surface Care: Cillit Bang Universal Stain & Drain cleaner for toilets, drains and bathrooms is launched across Europe. Easy Off Bam Degreaser is launched in North America. Automatic Dishwashing: Finish 5in1, with Power Boost Action is being launched across Europe. Finish Quantum, a breakthrough in automatic dishwashing delivering our best ever performance, has been rolled out to more markets following its initial launch in the UK in October 2005. In additives, Finish Fusion Power machine cleaner to eliminate both grease and limescale, and Finish Protector Dual Protectiongivingboth glass and decoration protection, have recently been launched. Home Care: In air care, Airwick Xpress is launched in both Europe and North America, an electrical oil fragrancer with extra boost function, as is Airwick Odourstop line up of aerosol, freshmatic and click spray which is designed to eliminate odours more effectively while also fragrancing. In pest control, Mortein Instant Kill is an instant action mosquito and fly-killing aerosol, while Mortein Liquid Vaporizer is an upgraded, low cost, long-lasting plug-in mosquito repellant. Health & Personal Care:In depilatories, Veet In Shower is a new formula depilatory cream to be used while in the shower. Veet new formula Eternally Smooth wax strips are being launched in 3 new fragrances with added ingredients specifically designed for normal, dry and sensitive skin. In Healthcare, Lemsip Daytime cold and flu relief capsules for symptom relief and to relieve tiredness and Gaviscon Cool Handy Packs have been launched. Financial Review - Full Year Basis of Comparison: Constant Exchange. Movements of exchange rates relative to sterling affect actual results as reported. The constant exchange rate basis adjusts comparatives to exclude such movements and show the underlying growth. Convertible Capital Bonds. On 31 March 2005 the holders of 40m 9.5 per cent Convertible Capital Bonds exercised their conversion rights to convert their Bonds into 8.1m fully paid ordinary shares of Reckitt Benckiser plc. The effect of this is to reduce borrowings by £31m (thereby increasing the Company's net funds position) and increase the number of shares in issue by 8.1m. Net Interest. The net interest income of £36m (2004 £9m) was due to strong cash generation over the past year increasing the net funds and the impact of conversion of the Convertible Bonds reducing interest payable by £7m. Tax. The underlying tax rate for the period was 26% but the charge was reduced by non-recurring credits of £16m relating to recent resolution of long outstanding tax cases. Net Working Capital (defined as inventories, short term receivables and short term liabilities, excluding borrowings, convertible capital bonds and provisions) decreased further at the year end by £95m compared to year-end 2004 to minus £616m. Cash Flow. Operating cash flow increased to £823m, due to higher operating profit. Net working capital improvements were lower than 2004 as many of the group's businesses reached optimal levels. Net cash flow from operations increased to £758m. Net interest received was £ 34m (2004 £8m) while tax payments decreased by £32m. Capital expenditure was slightly lower than prior year at £78m (£83m). Proceeds from disposals of fixed assets were £17m (£9m). Net Funds at the year-end were £887m (2004 £632m), an improvement of £255m due to strong operating cash inflow and the conversion of £31m of Convertible Bonds, but after higher dividend payments and share buyback. The Company's net funds position consisted of cash of £978m (£308m) and short-term investments of £77m (£570m) offset by borrowings of £168m (£246m). Balance Sheet. At the end of 2005, the Group had shareholders funds of £1,856m (£1,580m), an increase of 17%. Net funds were £887m (2004 £632m). Total capital employed in the business was £969m (£948m) an increase of 2%. This finances assets of £2,343m (2004 £2,212m) of which £485m (£481m) is tangible fixed assets, the remainder being intangible assets, goodwill, deferred tax and other receivables. The Company maintains negative net working capital (defined as current assets less current liabilities excluding cash, investments and borrowings) of £616m (2004 £521m), has current provisions of £ 4m (2004 £4m) and has long-term liabilities other than borrowings of £754m (2004 £739m). The Company's financial ratios remain strong. Return on shareholders funds (net income divided by total shareholders funds) was 36.0% (2004 36.5%). Dividends The Directors recommend a final dividend of 21 pence per share, an increase of 17%, to give a full year dividend of 39 pence per share, an overall increase of 15%. The dividend, if approved by shareholders at the AGM on 4th May 2006, will be paid on 25th May to shareholders on the register on 3rd March. The ex dividend date will be 1st March 2006. Share Buyback During 2005, the group purchased 17.445m shares for cancellation at a cost of £ 300m as part of its ongoing share buyback program. The Company has confirmed its intention to repurchase a further £300m of its own shares during 2006. International Financial Reporting Standards Following further developments in the practical interpretation of International Financial Reporting Standards, the Group has recognized an additional deferred tax asset as described in note 1. This change does not impact the income statement or cash flows for 2004 or 2005. 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 PR Agency Tim Spratt Financial Dynamics +44 (0)207 831 3113 The preliminary results for the year ended 31 December 2005 and the results for the year ended 31 December 2004 are prepared under International Financial Reporting Standards as adopted for use in the EU ('IFRS') and are unaudited. The accounting policies applied in preparing the 2005 preliminary results are in accordance with IFRS are therefore different to those applied in preparing the financial statements for the year ended 31 December 2004. The Group's current accounting policies were included in our 2005 Interim Report which is available on our website,www.reckittbenckiser.com. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2005 or 31 December 2004 as defined by SI 04/2947 - The Companies Act 1985 (International Accounting Standards and Other Accounting Amendments) Regulations 2004. For the year ended 31 December 2004, the statutory accounts were originally presented under UK GAAP. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2005 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Group at a Glance (unaudited) Quarter Ended Dec 31 Year Ended Dec 31 2005 2004# 2005 2004# £m £m £m £m From total ordinary activities 1,107 1,022 Net revenues 4,179 3,871 8% 7% Net revenues growth 8% 4% 55.9% 55.3% Gross margin 54.9% 54.8% 308 269 EBITDA 931 846 27.8% 26.3% EBITDA margin 22.3% 21.9% 285 238 EBIT 840 749 25.7% 23.3% EBIT margin 20.1% 19.3% 299 243 Profit before tax 876 758 27.0% 23.8% PBT margin 21.0% 19.6% 227 197 Net Income 669 577 20.5% 19.3% Net Income margin 16.0% 14.9% 31.4p 27.1p EPS 92.0p 80.7p 30.8p 26.5p EPS, diluted 90.0p 77.1p #Restated following the adoption of IFRS. Group Balance Sheet Data Dec 31 Dec 31 2005 2004# £m £m Net working capital * (616) (521) Net funds 887 632 #Restated following the adoption of IFRS. * Net working capital is defined as inventories, short term receivables and short term liabilities, excluding borrowings, convertible capital bonds and provisions. Group income statement (unaudited) Quarter Ended Dec 31 Year Ended Dec 31 2005 2004# % 2005 2004# % change change £m £m £m £m 1,107 1,022 8% Net revenues 4,179 3,871 8% (488) (457) 7% Cost of sales (1,886) (1,750) 8% 619 565 10% Gross profit 2,293 2,121 8% (334) (327) 2% Net operating expenses (1,453) (1,372) 6% 285 238 20% Total operating profit 840 749 12% 14 5 Net finance income 36 9 299 243 23% Profit before taxation 876 758 16% (72) (46) Taxation (207) (181) 14% 227 197 15% Profit for the period 669 577 16% - - - Attributable to minority interests - - - 227 197 15% Attributable to equity 669 577 16% shareholders 227 197 15% Profit for the period 669 577 16% Earnings per ordinary share: 31.4p 27.1p 16% On profit for the period 92.0p 80.7p 14% 30.8p 26.5p 16% On profit for the period, diluted 90.0p 77.1p 17% Average common shares outstanding: 723.7 726.3 Basic 727.1 714.9 736.7 747.4 Diluted 743.3 754.5 #Restated following the adoption of IFRS. Statement of Recognised Income and Expense For the year ended Dec 31 (unaudited) 2005 2004# £m £m Profit for the year 669 577 Net exchange adjustments on foreign currency translation 85 (43) Net actuarial gains and losses (17) (54) Net hedged gains and losses taken to reserves (1) - Net gains/(losses) not recognised in the income statement 67 (97) Total recognised income for the year 736 480 #Restated following the adoption of IFRS. Group balance sheet As at Dec 31 (unaudited) 2005 2004# £m £m ASSETS Non-current assets: Goodwill and intangible assets 1,766 1,663 Property, plant and equipment 485 481 Deferred tax assets 77 58 Other receivables 15 10 2,343 2,212 Current assets: Inventories 270 258 Trade and other receivables 545 504 Short term investments 77 570 Cash and cash equivalents 978 308 1,870 1,640 Total Assets 4,213 3,852 LIABILITIES Current liabilities: Borrowings (88) (86) Provisions (4) (4) Other liabilities (1,431) (1,283) Convertible capital bonds - (31) (1,523) (1,404) Non-current liabilities: Borrowings (80) (129) Deferred tax liabilities (note 1) (377) (349) Retirement benefit obligations (261) (253) Provisions (10) (11) Other liabilities (106) (126) (834) (868) Total liabilities (2,357) (2,272) Net assets 1,856 1,580 EQUITY Capital and reserves: Share capital 76 76 Share premium account 479 405 Capital redemption reserve 4 2 Equity component of convertible bonds - 9 Merger reserve 142 142 Hedging reserve (1) - Profit and loss account (note 1) 1,155 943 1,855 1,577 Equity minority interest 1 3 Total equity 1,856 1,580 #Restated following the adoption of IFRS. Group cash flow statement For the year ended Dec 31 (unaudited) 2005 2004# £m £m CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations: Operating profit 840 749 Depreciation 82 85 Amortisation and impairment 9 12 (Gain)/loss on sale of property, plant and equipment and intangible assets (8) 8 Other non-cash movements - 4 Increase in inventories (1) (36) Increase in trade and other receivables (30) (3) Increase in payables and provisions 18 63 Share award expense 36 32 Cash generated from operations: 946 914 Interest paid (16) (30) Interest received 50 38 Tax paid (157) (189) Net cash generated from operating activities 823 733 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment and intangible assets (78) (83) Disposal of property, plant and equipment and intangible assets 17 9 Acquisition of businesses (4) (1) Maturity of short term investments 493 38 Net cash generated by investing activities 428 (37) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of ordinary shares 36 30 Share purchases (300) (283) Repayments of borrowings (66) (87) Dividends paid to the Company's shareholders (262) (216) Net cash used in financing activities (592) (556) Net increase in cash and cash equivalents 659 140 Cash and cash equivalents at beginning of period 301 163 Exchange gains/(losses) 9 (2) Cash and Cash equivalents at end of period 969 301 Cash and cash equivalents comprise Cash and cash equivalents 978 308 Overdraft (9) (7) 969 301 RECONCILIATION OF NET CASH FLOW FROM OPERATIONS Net cash generated from operating activities 823 733 Net purchase of property, plant and equipment (65) (69) Net cash flow from operations 758 664 Management uses net cash flow from operations as a performance measure. #Restated following the adoption of IFRS. 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 Dec 31 Year Ended Dec 31 2005 2004# % Change 2005 2004# % Change £m £m exch. Rates £m £m exch rates actual const. actual const. Net revenues - by geographical area 521 526 -1% 1% Europe 2,135 2,032 5% 4% 377 328 15% 8% North America & Australia 1,281 1,196 7% 5% 209 168 24% 12% Developing Markets 763 643 19% 12% 1,107 1,022 8% 5% 4,179 3,871 8% 6% Operating profit - by geographical area 151 137 10% 11% Europe 502 466 8% 6% 112 88 27% 20% North America & Australia 270 242 12% 9% 22 13 69% 57% Developing Markets 68 41 66% 55% 285 238 20% 17% 840 749 12% 10% % % Operating margin - by geographical area % % 29.0% 26.0% Europe 23.5% 22.9% 29.7% 26.8% North America & Australia 21.1% 20.2% 10.5% 7.7% Developing Markets 8.9% 6.4% 25.7% 23.3% 20.1% 19.3% #Restated following the adoption of IFRS. Segmental Analysis (continued) Secondary Segment: Product Segment Quarter Ended Dec 31 Year Ended Dec 31 2005 2004# % change 2005 2004# % exchange £m £m exch. rates £m £m exch. rates actual const. actual const. Net revenues - by product segment 276 268 3% 2% Fabric Care 1,113 1,064 5% 2% 229 212 8% 3% Surface Care 871 773 13% 9% 150 142 6% 5% Dishwashing 579 542 7% 6% 185 152 22% 14% Home Care 628 564 11% 8% 169 150 13% 12% Health & Personal Care 662 599 11% 9% 1,009 924 9% 6% Core Business 3,853 3,542 9% 6% 33 36 -8% -13% Other Household 131 139 -6% -7% 1,042 960 9% 6% Household and Health & 3,984 3,681 8% 6% Personal Care 65 62 5% 0% Food 195 190 3% 2% 1,107 1,022 8% 5% 4,179 3,871 8% 6% Additional Information: Profit by class of business Operating profit - by class of business 260 215 21% 19% Household and Health & 793 705 12% 10% Personal care 25 23 9% 4% Food 47 44 7% 4% 285 238 20% 17% 840 749 12% 10% % % Operating margin - by class of business % % 25.0% 22.4% Household and Health & 19.9% 19.2% Personal care 38.5% 37.1% Food 24.1% 23.2% 25.7% 23.3% 20.1% 19.3% Earnings per ordinary share For the year ended Dec 31, (unaudited) The reconciliation between profit for the year and the weighted average number of shares used in the calculations of the diluted earnings per share is set out below: 2005 2004 Profit Average Earnings Profit Average Earnings for Number of per for number of per the Shares share the shares share year pence year# pence # £m £m Profit attributable to 669 727,061,855 92.0 577 714,855,797 80.7 shareholders Dilution for Executive 13,496,383 12,960,413 options outstanding and Executive Restricted Share Plan Dilution for Employee 726,783 937,121 Sharesave Scheme options outstanding Dilution for - 1,970,687 5 25,791,345 convertible capital bonds outstanding* On a diluted basis 669 743,255,708 90.0 582 754,544,676 77.1 * After the appropriate tax adjustment, the profit adjustment represents the coupon on convertible capital bonds. The earnings per share impact reflects the effect of that profit and the assumption of the issue of shares on the conversion of bonds. #Restated following the adoption of IFRS. Shares in Issue Millions 31 Dec 2004 724.5 Issues on Conversion of Capital Bonds 8.1 Other Issues 7.0 Cancelled (17.4) 31 Dec 2005 722.2 Note 1: IFRS Adjustment Following further developments in the practical interpretation of IAS 12: Income Taxes since the Group published its half year results on 25th July 2005, the Group now recognizes an additional deferred tax asset. Under IAS 12, deferred tax is recognized in respect of nearly all taxable temporary timing differences arising between the tax base and the book value of most balance sheet items. This additional temporary difference recognized by the Group relates to the existence of future deductible items that did not fall to be recognized under UK GAAP. Accordingly the Group now recognizes as a reduction in deferred tax liabilities, an additional deferred tax asset of £42m at 1st January 2004, the date of transition. This adjustment does not impact the income statement, net working capital or net funds. The impact on net assets is set out below. Net Assets 31 Dec 1 January 2004 2004 £m £m Net Assets under IFRS as previously reported (25 July 1,541 1,371 2005) IAS 12: Deferred tax asset 39 42 Net Assets under IFRS 1,580 1,413 The above table supplements the information contained within the press releases of 8th March 2005 and 25th July 2005, which described the conversion of the group's basis of accounting from UK GAAP to IFRS and contained restatements of 2004 results.

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