Final Results

9th February 2005 FIFTH STRAIGHT YEAR OF ABOVE INDUSTRY GROWTH 2005 TARGETS FURTHER GROWTH Results at a Glance Q4 % change % change Full Year % change % change Â£m actual constant actual constant (unaudited) exchange exchange Â£m exchange exchange Net Revenues 1,022 +7 +11 3,871 +4 +10 Operating Profit 243 +7 +11 759 +12 +18 Net Income 201 +20 +25 586 +20 +26 EPS (full dilution) 27.0p +21 78.3p +18 * Q4 Net revenues grew by 7% (11% at constant exchange) to Â£1,022m, the first time a quarter has exceeded Â£1 billion. Net revenues for the full year grew by 4% (10% constant) to Â£3,871m. * Operating profit increased by 7% (11% at constant exchange) in Q4 to Â£243m - the highest ever quarter - and by 12% (18% at constant exchange) to Â£759m for the full year. Full Year operating margins improved 130 basis points (bps) to 19.6% behind a 150 bps gross margin improvement somewhat offset by a significant increase in marketing investment. * Net income grew by 20% in Q4 to Â£201m and by 20% in the full year to Â£586m, benefiting from a non-recurring tax credit of Â£14m. Fully diluted EPS for the year grew 18% to 78.3p. * Under International Financial Reporting Standards (IFRS) reported net income and EPS would decrease by around 1% - 1.5 % compared to UK GAAP, a minor change not affecting growth rates. * Net cash flow increased to Â£664m. After dividends of Â£216m and share buyback of Â£283m during the year, net funds increased to Â£638m (Â£292m) at the year-end. * The Board is recommending a final dividend of 18 pence (+29%) to give a total dividend of 34 pence for the year, an increase of 21% over 2003, in line with policy. The dividend is covered 2.4 times by 2004 net income. Commenting on results and prospects for 2005, Bart Becht, Chief Executive Officer, said (comments in full overleaf) 'Q4 was a very good quarter for Reckitt Benckiser. For the first time, the Company broke the billion pound net revenue barrier and earned over Â£200m net income for the quarter - equivalent to the underlying profit for the full year in 1999. As a result, Reckitt Benckiser exceeded raised targets on net revenue and net income growth and outperformed the industry for the fifth year in a row. 'In 2005 we are looking to continue our strong organic growth. Our in-going target is for net revenue growth of 5% to 6% at constant exchange. The base for net income targets excludes non-recurring tax credit (Â£14m) and will be restated for IFRS. Off this base, we are targeting low double-digit net income and EPS growth at constant exchange. Achieving these targets will deliver another year of strong organic growth.' Full comments by Bart Becht, CEO of Reckitt Benckiser. 'Q4 was a very good quarter for Reckitt Benckiser. For the first time, the Company broke the billion pound net revenue barrier and earned over Â£200m net income for the quarter - equivalent to the underlying profit for the full year in 1999. As a result, Reckitt Benckiser exceeded the raised targets for net revenue growth and net income growth and outperformed our industry for the fifth year in a row. 'It is now five years since the creation of Reckitt Benckiser. Since the 1999 merger year, the Company has generated net revenue growth of over 7% per year on a like-for-like basis, well ahead of the industry average. Net income has almost trebled from Â£200m in 1999 to Â£586m in 2004. The Company has generated over Â£2.5 billion in net cash flow allowing it to return over Â£1.25 billion to shareholders through dividends and share buybacks, while completely paying off the Company's net borrowings. 'I believe our ability to consistently outperform the industry is due to our passion for giving consumers better products, our ability to heavily invest in and select the right consumer initiatives, and our focus on controlling costs and generating cash. Clearly none of these results would have been possible without the strength and passion of the Reckitt Benckiser team and the corporate culture we built since the merger. 'Going forward, we will be guided by the vision and strategy that has worked for us so well. As Reckitt Benckiser achieves margin levels in line with the best of our industry peers, somewhat more of its profit growth will come from top line growth and somewhat less from margin expansion. 'In 2005 we are looking to continue our strong organic growth. 'For 2005, our in-going target is for net revenue growth of 5% to 6% at constant exchange. For margins, it remains the Company's intention to offset increased input costs through cost optimization and sales mix, and so generate modest operating margin expansion over 2005 as a whole. Given the Company benefited from fixed price contracts especially in H1 last year, it is likely that most of this modest margin expansion in the year will come in the second half. The base for net income targets excludes the non-recurring tax credit relating to recent tax settlements (Â£14m) and will be restated for International Financial Reporting Standards. Off this base, we are targeting low double-digit net income and EPS growth at constant exchange. Achieving these targets will deliver another year of strong organic growth.' Detailed Operating Review Fourth Quarter 2004 Net Revenues grew by 7% (11% at constant exchange) to Â£1,022m due to continuing success for the Company's new initiatives. Operating profit for Q4 grew 7% (11% constant) to Â£243m. Gross margin increased by 30 bps to 55.3% due to higher margin new products and further benefits from cost optimization programs Squeeze and Xtrim offset to some extent by higher raw and packaging material costs. Marketing investment increased substantially in the quarter building on the substantial increases in earlier quarters. Media investment rose by 50 bps to 10% of net revenues for the quarter. Operating margins were level with last year at 23.8% with gross margin improvement and reductions in fixed costs as a percentage of net revenues offset by substantially higher marketing investment. Net income grew 20% (25% constant) to Â£201m. The underlying tax rate was 26%, but the charge was reduced by a non-recurring tax credit of Â£14m relating to recent tax settlements. Full Year 2004 Net revenues grew by 4% (10% constant) to Â£3,871m as the Company benefited from its focus on major product initiatives in its core categories. Operating profit increased 12% (18% constant) to Â£759m. Gross margins rose 150 bps to 54.8% as a result of higher margin new products and savings from the cost optimization programs Squeeze and Xtrim, plus favourable contracts on raw and packaging materials earlier in the year. Marketing investment increased substantially in the year with media investment increasing by 90 bps to 12.4% of net revenues. Operating margins increased by 130 bps to 19.6%. Net income grew by 20% (26% constant) to Â£586m. The underlying tax rate was 26%, but the charge was reduced by a non-recurring tax credit of Â£14m relating to recent tax settlements. Net interest income of Â£11m (2003 expense of Â£19m) was lower due to the strong cash inflow over the past year reducing the level of net borrowings and to the conversion of a substantial proportion of the convertible bond in July 2004. Category Review at constant exchange rates Fabric Care. Net revenues grew 9% to Â£1,064m largely due to the success of Vanish Oxi Action, the Company's fabric treatment franchise. Key drivers included the formula upgrade to Vanish Oxi Action Max, and the benefits of the launch of Vanish Oxi Action gel and pre-treater. It also benefited from the extension of Vanish Oxi Action into carpet cleaners. Q4 net revenues grew 7% to Â£268m. Surface Care. Net revenues grew 11% to Â£773m. Multipurpose and specialty cleaners grew due to the success of Cillit Bang 'lime and grime power cleaner' across Europe and strong growth on the base business in Developing Markets. Lavatory cleaners grew behind the roll-out of the Lysol Ready Brush in North America and the launch of the Harpic Ready Brush in Europe plus strong growth for the base business in Developing Markets. Q4 net revenues grew 18% to Â£212m. Dishwashing. Net revenues grew 5% to Â£542m. Strong automatic dishwashing growth was somewhat offset by a decline on hand dishwashing products. In automatic dishwashing, growth came across all regions, with particularly strong growth in North America due to Electrasol with Jet Dry Action gel, gelpacs and tablets launched earlier this year. In Europe growth came behind the launch of Calgonit /Finish 3-in-1 Extra Power in the summer. Q4 net revenues grew 3% to Â£142m. Home Care. Net revenues grew 12% to Â£564m with strong growth for both air care and pest control. Air care grew behind Airwick Aroma Oils and the roll-out of Airwick Mobil'Air. Pest control grew behind the success of Mortein Professional, Mortein Power Booster coils and a very strong pest season earlier in the year in the Southern Hemisphere. Q4 net revenues grew 10% to Â£152m. Health & Personal Care. Net revenues grew 15% to Â£599m. Excellent growth was achieved in all categories. Depilatories grew behind the success of Veet Rasera despite a disappointing season in Europe due to poor summer weather. Dettol antiseptics grew behind the personal care range in Developing Markets. Health care products benefited from the continuing roll-out of Gaviscon in Europe and the strength of the UK flu season for Lemsip early in the year. Suboxone continues to grow strongly as distribution builds in North America. Q4 net revenues grew 18% to Â£150m. Core Household grew full year net revenues 10% to Â£3,542m, and 11% to Â£924m in Q4. Food. Net revenues grew 9% to Â£190m with continued growth for French's yellow mustard, French's Gourmayo and gains for Frank's Red Hot sauce. Q4 net revenues grew 11% to Â£62m. Geographic Analysis at constant exchange Europe 52% of Net Revenues Full year net revenues grew by 8% to Â£2,032m. Growth came from key recent product introductions. In fabric treatment, growth was due to the success of Vanish Oxi Action, including a number of new additions to the range such as gel, pre-treater, the upgrade to Vanish Oxi Action Max and the extension of Vanish Oxi Action into carpet cleaners. In surface care, growth came from multipurpose cleaners with the success of Cillit Bang across the Area and the launch of Harpic Ready Brush in lavatory care. In automatic dishwashing growth came due to the launch in the summer of Calgonit/Finish 3-in-1 Extra Power. Health & personal care grew with the launch of Veet Rasera despite a disappointing summer season for the category, and strong growth for the health care portfolio due to the roll-out of Gaviscon in Europe and a strong flu season for Lemsip in the UK early in the year. Operating margins improved by 50bps to 22.8% resulting in a 11% increase in operating profits to Â£464m. In Q4, net revenues grew 11% to Â£526m, and operating profits increased by 8% to Â£137m. Operating margin was 26.0%, 110bps below the exceptional level of last year, due to further substantial increase in marketing investment behind the launch and roll out of new initiatives. North America & Australia 31% of Net Revenues Full year net revenues increased by 9% to Â£1,196m. In surface care increases were due to the roll-out of the Lysol Ready Brush and growth for Lysol disinfectant cleaner, particularly Lysol Neutra Air. In automatic dishwashing increases came due to the success of Electrasol with Jet Dry Action gel, gelpacs and tablets. In Home Care, Air Care grew following the continued success of Airwick Aroma Oils and the initial success of Airwick Mobil'Air, and in health & personal care, depilatories grew strongly due to the launch of Veet Rasera. Suboxone continues to grow strongly as distribution builds up in North America. Food grew due to continued growth for French's Yellow Mustard and gains for Frank's Red Hot sauce. Operating margins grew by 130bps to 20.4%, resulting in profits increasing 16% to Â£244m. Q4 net revenues grew 8% to Â£328m, with profits increasing 14% to Â£90m, an increase of 80bps in operating margin to 27.4%. Developing Markets 17% of Net Revenues Full year net revenues grew 16% to Â£643m. There was strong growth in all categories. In fabric care, growth came following the launch and roll-out of Vanish Oxi Action fabric treatment products. In surface care, increases came with the success of Harpic behind higher investment in key markets, and strong recovery in certain markets for multipurpose cleaners further boosted by the launch of Easy Off Bang in some markets. Pest control grew strongly with the launch of Mortein Power Booster coils. Dettol antiseptics grew due to the success of the personal care range supported by higher investment. Operating margins expanded by 240bps to 6.8%, resulting in operating profits increasing by 76% to Â£44m. Q4 net revenues increased by 17% to Â£168m, and operating profits increased 50% to Â£15m with operating margins expanding by 240bps to 8.9%. New Initiatives : H1 2005 Reckitt Benckiser is today announcing a number of new initiatives for the first half of 2005 including: - Fabric Care. Further expansion of Vanish Oxi Action with the launch of Vanish Oxi Action Dual Power. This is launched in North America as Spray 'n Wash Dual Power. Launch of Resolve Dual Power for carpets in North America. Surface Care. Further expansion of Cillit Bang with the launch of Cillit Bang Powder and Cillit Bang Degreaser across Europe. Launch of Cillit Bang as Easy Off Bang in markets outside Europe. Automatic Dishwashing. Finish / Calgonit 4-in-1 with glass protection launched in Europe. Finish / Calgonit Power Booster for pots and pans launched in Europe. Home Care. Airwick Freshmatic automatic spray launched in Europe and selected markets outside Europe Health & Personal Care. Veet 3-minute cream launched globally. Veet wax strips with comfort spray launched in North America. Gaviscon Cool in Europe. 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 July the holders of 151.6m 9.5 per cent Convertible Capital Bonds 2005 exercised their conversion rights to convert their Bonds into 30.6m fully paid ordinary shares of Reckitt Benckiser plc. The effect of this is to reduce borrowings by Â£151.6m (thereby increasing the Company's net funds position) and increase the number of shares in issue by 30.6m. Net Interest. The net interest income of Â£11m (2003 expense of Â£19m) was due to strong cash generation over the past year reducing the group's indebtedness and the impact of conversion of the Convertible Bonds reducing interest payable by Â£11m. Tax. The underlying tax rate for the period was 26% but the charge was reduced by the non-recurring credit of Â£14m relating to recent settlements. Net Working Capital (defined as net current liabilities excluding current asset investments, cash and short term borrowings) decreased further at the year end by Â£67m compared to year-end 2003 to minus Â£645m. Cash Flow. Operating cash flow increased to Â£914m, due to higher operating profit. Net working capital improvements were lower than 2003 as many of the group's businesses reached optimal levels. Net cash flow from ordinary operations increased to Â£664m. Net interest received was Â£8m (2003 net payment of Â£25m) while tax payments increased from Â£ 146m to Â£189m. Gross capital expenditure was slightly higher than prior year at Â£78m (Â£71m). This was offset by proceeds from disposal of fixed assets of Â£9m (Â£12m) to give net capital expenditure of Â£69m against Â£59m last year. Net Funds at the year-end were Â£638m (2003 Â£292m), an improvement of Â£346m due to strong operating cash inflow and the conversion of Â£152m of Convertible Bonds, but after higher dividend payments and share buyback. The Company's net funds position consisted of cash of Â£51m (Â£59m) and short-term investments of Â£ 827m (Â£724m) offset by the Convertible Bond of Â£40m (Â£192m) and other borrowings of Â£200m (Â£299m). Balance Sheet. At the end of 2004, the Group had shareholders' funds of Â£1,676m (Â£1,470m), an increase of 14%. Net funds were Â£638m (2003 Â£292m). Total capital employed in the business was Â£1,041m (Â£1,182m) a decrease of 12%. The Company's financial ratios improved significantly during the year. Dividends The Directors recommend a final dividend of 18 pence per share, an increase of 29%, to give a full year dividend of 34 pence per share, an overall increase of 21%. This is in line with the previously communicated policy to increase the dividend once the dividend cover of the group reached the average of the industry peer group. This dividend will be covered 2.4 times by 2004 net income, broadly in line with the peer group. The dividend, if approved by shareholders at the AGM on 5th May 2005, will be paid on 26th May to shareholders on the register on 4th March. The ex dividend date will be 2nd March 2004. Share Buyback During 2004, the group purchased 19,355,000 shares for cancellation at a cost of Â£283m as part of its ongoing share buyback program. International Financial Reporting Standards Reckitt Benckiser will adopt International Financial Reporting Standards (IFRS) from 1st January 2005. The group expects the impact of this change on the UK GAAP 2004 results to be a decrease of 1% - 1.5 % on Net Income and Earnings Per Share. The Company will publish a detailed restatement of 2004, including quarterly analysis and accompanying explanation, during March prior to releasing its first quarter results under IFRS on 26th April 2005. For Further Information Tom Corran Reckitt Benckiser plc +44 (0)1753 217 800 Senior Vice President, Investor Relations & Corporate Communications Mark Wilson Reckitt Benckiser plc +44 (0)1753 217 800 Corporate Controller and Investor Relations Manager Tim Spratt Financial Dynamics +44 (0) 207 831 3113 The preliminary results for the year ended 31 December 2004, including the IFRS references, are unaudited. The unaudited financial statements for 2004 are prepared using accounting policies consistent with the audited financial statements for 2003. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2004 or 31 December 2003. The financial information for the year ended 31 December 2003 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. 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 2004 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 2004 2003 2004 2003 Â£m Â£m Â£m Â£m From total ordinary activities 1,022 953 Net revenues 3,871 3,713 7% 8% Net revenues growth 4% 7% 55.3% 55.0% Gross margin 54.8% 53.3% 275 249 EBITDA 856 768 26.9% 26.1% EBITDA margin 22.1% 20.7% 243 227 EBIT 759 679 23.8% 23.8% EBIT margin 19.6% 18.3% 250 224 Profit before tax 770 660 24.5% 23.5% PBT margin 19.9% 17.8% 201 167 Net Income 586 489 19.7% 17.5% Net Income margin 15.1% 13.2% 27.7p 23.6p EPS 82.0p 69.2p 27.0p 22.4p EPS, diluted 78.3p 66.2p Group Balance Sheet Data December 31, December 31 2004 2003 Â£m Â£m Net working capital * (645) (578) Net funds 638 292 * Defined as stock, short term debtors and short term creditors excluding borrowings. Shares in Issue Fourth Full Year Quarter Millions Millions As at 1 October 2004 / 1 January 2004 727.6 707.7 Issues on Conversion of Capital Bonds - 30.6 Other Issues 0.6 5.6 Cancelled (3.7) (19.4) 31 December 2004 724.5 724.5 Group profit and loss account (unaudited) Quarter Ended Dec 31 Year Ended Dec 31 2004 2003 % change 2004 2003 % change Â£m Â£m Â£m Â£m 1,022 953 7% Total net revenues 3,871 3,713 4% (457) (429) 7% Cost of sales (1,750) (1,735) 1% 565 524 8% Gross profit 2,121 1,978 7% (322) (297) 8% Net operating expenses (1,362) (1,299) 5% 243 227 7% Total operating profit 759 679 12% 7 (3) Net interest income/(expense) 11 (19) 250 224 12% Profit on ordinary activities 770 660 17% before taxation (49) (57) (14%) Tax on profit on ordinary (184) (171) 8% activities 201 167 20% Profit on ordinary activities 586 489 20% after taxation 0 0 Attributable to equity minority 0 0 interests 201 167 20% Profit for the period 586 489 20% (131) (99) 32% Ordinary Dividends (248) (198) 25% 70 68 3% Retained profit for the period 338 291 16% Earnings per ordinary share: 27.7p 23.6p 17% On profit for the period 82.0p 69.2p 18% 27.0p 22.4p 21% On profit for the period, 78.3p 66.2p 18% diluted Average common shares outstanding (millions): 726.3 708.3 Basic 714.9 706.9 747.4 760.0 Diluted 754.5 758.1 Group balance sheet As at December 31 (unaudited) 2004 2003 Â£m Â£m Fixed assets: Intangible assets 1,660 1,746 Tangible assets 473 502 2,133 2,248 Current assets: Stocks 258 224 Debtors due within one year 494 480 Debtors due after more than one year 79 85 Investments 827 724 Cash at bank and in hand 51 59 1,709 1,572 Current liabilities: Creditors due within one year: Borrowings (82) (172) Other (1,397) (1,282) Convertible capital bonds (40) - (1,519) (1,454) Net current assets 190 118 Total assets less current liabilities 2,323 2,366 Non-current liabilities: Creditors due after more than one year: Borrowings (118) (127) Other (136) (165) Convertible capital bonds - (192) (254) (484) Provisions for liabilities and charges (390) (408) Equity minority interests (3) (4) Net Assets 1,676 1,470 Capital and reserves: Called up share capital (including non-equity capital 81 79 of Â£5m) Share premium account 405 227 Capital Redemption Reserve 2 0 Merger reserve 142 142 Profit and loss account 1,046 1,022 Total shareholders' funds (including non-equity 1,676 1,470 shareholders' funds of Â£5m) Group cash flow statement For the year ended December 31 (unaudited) Reconciliation of operating profit to operating cash flow 2004 2003 Â£m Â£m Operating activities: Operating profit 759 679 Non-cash items: Depreciation and amortisation 97 89 Loss on sale of fixed assets 8 3 Other non cash movements 4 - (Increase)/decrease in stocks (36) 6 (Increase)/decrease in debtors (11) 16 Increase in creditors 93 93 Cash flow from operating activities 914 886 Cash Flow Statement Cash flow from operating activities 914 886 Return on investments and servicing of finance 8 (25) Taxation (189) (146) Capital expenditure and financial investment Purchase of intangible fixed assets (5) (85) Purchase of tangible fixed assets (78) (71) Disposal of tangible fixed assets 9 12 (74) (144) Acquisitions and disposals Acquisition of businesses (1) (8) Equity dividends paid (216) (189) Cash inflow before use of liquid resources and 442 374 financing Management of liquid resources (105) (348) Financing Share Repurchases (283) (25) Other Financing (57) 15 (340) (10) (Decrease)/increase in cash in year (3) 16 Reconciliation of net cash flow to movement in debt (Decrease)/increase in cash in year (3) 16 Cash outflow from decrease in debt 86 15 Cash outflow from increase in liquid resources 105 348 Changes in net debt resulting from cash flows 188 379 Conversion of convertible capital bonds 152 1 Exchange differences 6 17 Movement in net debt in year 346 397 Net funds/(debt) at beginning of year 292 (105) Net funds at end of year 638 292 Reconciliation of operating cash flow to net cash flow from ordinary operations Operating cash flow 914 886 Return on investments and servicing of finance 8 (25) Taxation (189) (146) Capital expenditure (net, excluding intangible assets) (69) (59) Net cash flow from ordinary operations 664 656 Segmental Analysis (unaudited) Analyses by geographical area and product segment of net revenues and operating profit are set out below. The figures for each geographical area show the net revenues and profit made by companies located in that area. Quarter Ended Dec 31 Year Ended Dec 31 2004 2003 % change 2004 2003 % change Â£m Â£m Exch. rates Â£m Â£m Exch. rates Actual Const. Actual Const. Net revenues - by geographical area 526 472 11% 11% Europe 2,032 1,909 6% 8% 328 327 0% 8% North America & 1,196 1,197 0% 9% Australia 168 154 9% 17% Developing Markets 643 607 6% 16% 1,022 953 7% 11% 3,871 3,713 4% 10% Operating profit - by geographical area 137 128 7% 8% Europe 464 425 9% 11% 90 87 3% 14% North America & 244 229 7% 16% Australia 15 10 50% 50% Developing Markets 44 27 63% 76% 1 2 Corporate 7 (2) 243 227 7% 11% 759 679 12% 18% % % Operating margin - by % % geographical area 26.0 27.1 Europe 22.8 22.3 27.4 26.6 North America & 20.4 19.1 Australia 8.9 6.5 Developing Markets 6.8 4.4 23.8 23.8 19.6 18.3 Segmental Analysis (continued) Quarter Ended Dec 31 Year Ended Dec 31 2004 2003 % change 2004 2003 % change Â£m Â£m Exch. rates Â£m Â£m Exch. Rates Actual Const. Actual Const. Net revenues - by product segment 960 891 8% 11% Household and Health & 3,681 3,519 5% 10% Personal Care 62 62 0% 11% Food 190 194 (2%) 9% 1,022 953 7% 11% 3,871 3,713 4% 10% Operating profit - by product segment 219 202 8% 13% Household and Health & 709 639 11% 15% Personal Care 23 23 0% 5% Food 43 42 2% 13% 1 2 Corporate 7 (2) 243 227 7% 11% 759 679 12% 18% % % Operating margin - by % % product segment 22.8 22.7 Household and Health & 19.3 18.2 Personal Care 37.1 37.1 Food 22.6 21.6 23.8 23.8 19.6 18.3 Net revenues - Household and Health & Personal Care 268 251 7% 7% Fabric Care 1,064 1,017 5% 9% 212 191 11% 18% Surface Care 773 748 3% 11% 142 139 2% 3% Dishwashing 542 535 1% 5% 152 146 4% 10% Home Care 564 540 4% 12% 150 128 17% 18% Health & Personal Care 599 539 11% 15% 924 855 8% 11% Core Business 3,542 3,379 5% 10% 36 36 0% 13% Other Household 139 140 (1%) 6% 960 891 8% 11% Net Revenues - 3,681 3,519 5% 10% continuing operations Earnings per ordinary share For the year ended December 31, (unaudited) The reconciliation between profit for the year and the weighted average number of shares used in the calculation of the diluted earnings per share is set out below: 2004 2003 Profit Average Earnings Profit Average Earnings for the number of per for number of per year Â£m shares share the shares share pence year Â£ pence m Profit attributable to 586 714,855,797 82.0 489 706,887,749 69.2 shareholders Dilution for Executive 12,960,413 11,307,188 options outstanding and Executive Restricted Share Plan Dilution for Employee 937,121 1,247,501 Sharesave Scheme options outstanding Dilution for convertible 5 25,791,345 13 38,655,773 capital bonds outstanding* On a diluted basis 591 754,544,676 78.3 502 758,098,211 66.2 * After the appropriate tax adjustment, the profit adjustments represent the coupon on the convertible capital bonds. The earnings per share impact reflects the effect of that profit and the assumption of the issue of shares on conversion of the bonds. 13 12

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