Interim Results

26 July 2004 STRONG FIRST HALF, FULL YEAR TARGETS RAISED Results at a Glance Q2 % change % change Year To % change % change Â£m actual constant Date actual constant exchange exchange Â£m exchange exchange Net Revenues Â£953m +1% +8% Â£1,873m +5% +10% Operating Profit Â£174m +7% +14% Â£319m +14% +19% Net Income Â£129m +10% +17% Â£234m +18% +23% EPS (diluted) 17.4p +10% 31.6p +17% * Net revenues grew by 1% (8% at constant exchange) to Â£953m in Q2, and by 5% (10% constant) to Â£1,873m in H1. * Operating profit increased by 7% in Q2 to Â£174m and by 14% in H1 to Â£319m. Half year operating margins improved by 140 basis points (bps) to 17.0% behind a 190 bps gross margin improvement, offset by a significant increase in marketing investment. * Net income grew by 10% in Q2 to Â£129m and by 18% in H1 to Â£234m. EPS diluted grew by 10% in Q2 to 17.4p, and by 17% in H1 to 31.6p. * Strong cash generation resulted in a Â£111m increase in the Company's net funds in H1 2004 to Â£403m after share buyback of Â£137m. * Major initiatives contributing to these results included Vanish Oxi Action fabric treatment, the Lysol/Harpic Ready Brush lavatory cleaner, Airwick Aroma Oils in air care, and Veet Rasera in depilatories. * The Company continues to return cash to shareholders through both its progressive dividend policy and a rolling share buyback program. * The Company declares an interim dividend of 16.0 pence per share, an increase of 14%. * The Company's share buyback program will be increased to Â£300m (from Â£250m currently) for the year starting from Q4 2004. Commenting on these results, Bart Becht, Chief Executive Officer, said 'Reckitt Benckiser had a strong first half of 2004 with net revenue and net income growth running significantly ahead of the target rate for the full year of net revenue growth of 5% plus and net income growth of low double digits both at constant exchange. Growth has come from all categories and regions behind new product initiatives supported by significant increases in marketing, particularly media, investment. 'After two strong quarters, Reckitt Benckiser is firmly on track to deliver ahead of the Company's initial full year targets. Consequently we are raising our target for net revenue growth to 7% plus and for net income growth to 18% plus both at constant exchange.' Detailed Operating Review Second Quarter 2004 Net revenues in Q2 grew by 1% (8% at constant exchange) to Â£953m. Operating profit for Q2 grew 7% (14% constant) to Â£174m. Gross margin increased by 240bps to 55.5% due to higher margin new products and benefits from ongoing cost optimization programs. Marketing investment, particularly media, increased significantly during the period with media 15% higher to 15.0% of net revenues. Operating margins increased by 100 basis points to 18.3%. Net income grew 10% (17% constant) to Â£129m. EPS diluted increased 10% to 17.4 pence. Half Year 2004 Net revenues grew by 5% (10% constant) to Â£1,873m. Operating profit increased 14% (19% constant) to Â£319m. Gross margins rose 190bps to 54.6% as a result of higher margin new products, favourable purchase contracts on some raw and packaging materials and savings from ongoing cost optimization programs. Media investment increased by 15% to 13.8% of net revenues (H1 2003 12.5%). Operating margins increased by 140bps to 17.0%. Net income for the half year increased by 18% (23% constant) to Â£234m. Net interest expense of Â£4m (Â£11m) was lower due to the strong cash inflow over the past year reducing the level of net borrowings after higher dividend payments and share buyback. The tax rate for the period was 26%. EPS diluted increased 17% to 31.6 pence. Category Review at constant exchange rates Fabric Care. H1 net revenues grew 10% to Â£517m. In fabric treatment, Vanish Oxi Action grew strongly across Western Europe and Developing Markets, including the benefits of the launch of Vanish Oxi Action Gel. In North America Spray 'n Wash in-wash continued to grow. Carpet Cleaners grew behind the launch of Vanish Oxi Carpet. Q2 net revenues grew 7% to Â£261m. Surface Care. H1 net revenues grew 9% to Â£365m. Lavatory cleaners grew strongly 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. Multipurpose and specialty cleaners grew due to strong performance in Europe and Developing Markets. Q2 net revenues grew 8% to Â£181m. Dishwashing. H1 net revenues grew 5% to Â£268m. 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 was steady in the absence of major initiatives. Q2 net revenues grew 6% to Â£128m. Home Care. H1 net revenues grew 12% to Â£264m with strong growth for both air care and pest control. Air care grew behind Airwick Aroma Oils and Decosphere. Pest control grew behind the success of Mortein Professional, Mortein Power Booster coils and a very strong pest season. Q2 net revenues grew 12% to Â£131m. Health & Personal Care H1 net revenues grew 16% to Â£304m. Excellent growth was achieved in all categories. Depilatories grew behind the success of Veet Rasera. Dettol antiseptics grew behind the personal care range in Developing Markets. Healthcare products benefited from the continuing roll-out of Gaviscon in Europe and the strength of the UK flu season for Lemsip. Suboxone continues to grow strongly as distribution builds in North America. Q2 net revenues grew 12% to Â£166m. Core Household grew net revenues 10% to Â£1,718m in the half-year, and 9% to Â£ 867m in Q2. Food. H1 net revenues grew 9% to Â£85m with good performance across the portfolio, but particularly behind French's yellow mustard which had a strong half-year, increasing market share, and the launch of Frank's Red Hot Chile & Lime. Q2 net revenues grew 4% to Â£49m. Geographic Analysis at constant exchange for continuing operations Europe 53% of Net Revenues H1 net revenues grew by 8% to Â£997m. Growth came behind key recent product introductions. In fabric treatment, growth was due to the success of Vanish Oxi Action, the introduction of Vanish Oxi Action Gel and the launch of Vanish Oxi Carpet. In surface care, growth came from the launch of Harpic Ready Brush in lavatory care and strong growth from specialty cleaners. In automatic dishwashing growth was steady in the absence of major initiatives. Health & personal care grew behind the success of Veet Rasera, and strong growth for the health care portfolio behind the roll-out of Gaviscon in Europe and a strong flu season for Lemsip in the UK. H1 Operating margins improved by 90bps to 21.3% resulting in a 13% increase in operating profits to Â£212m. In Q2, net revenues grew 6% to Â£505m, and operating profits increased by 10% to Â£114m behind a 70bps increase in operating margin to 22.6%. North America & Australia 30% of Net Revenues H1 net revenues increased by 11% to Â£564m. Growth came across all five categories. In fabric care, it came behind the continued growth of Spray 'n' Wash in-wash. In surface care increases were due to the roll-out of the Lysol Ready Brush. 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 behind the success of Airwick Aroma Oils and Decosphere, and in health & personal care, depilatories grew strongly behind the launch of Veet Rasera. Food grew strongly behind growth for French's Yellow Mustard and the launch of Frank's Red Hot Chile & Lime sauce. H1 Operating margins grew by 140bps to 15.2%, resulting in profits increasing 19% to Â£86m. Q2 net revenues grew 11%, against an easier comparative in Q2 last year, with profits increasing 16% to Â£44m, an increase of 130bps in operating margin to 15.3%. Developing Markets 17% of Net Revenues H1 net revenues grew 16% to Â£312m. There was strong growth in all categories. In fabric care, growth came behind 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. Pest control grew strongly with the launch of Mortein Power Booster coils. Dettol antiseptics grew behind the success of the personal care range supported by higher investment. H1 Operating margins expanded by 270bps to 5.4%, resulting in operating profits increasing by 143% to Â£17m. Q2 net revenues increased by 10% to Â£160m, and operating profits increased 71% to Â£12m with operating margins expanding by 250bps to 7.5%. New Initiatives H2 2004 A number of new products are being launched. * In fabric treatment, Vanish Oxi Action Max to provide even better stain removal and Vanish Oxi Pre-Treater trigger spray are being launched in Europe. * In surface care, Lysol Neutra Air electrical is being launched in North America, and Lysol All Purpose Cleaners are being relaunched with natural ingredients. Cillit Bang universal tough cleaner on lime and grime is being launched in parts of Europe. * In automatic dishwashing, Finish/Calgonit 3-in-1 Brilliant Extra Power is being upgraded to its best ever cleaning formula. * In air care, Airwick Mobil Air portable electrical is launching in Europe and North America. Financial Review Net Interest. Interest payable on borrowings less receivable on funds on the Company's cash and debt portfolio was Â£4m (Â£11m) in H1. This reduction reflects strong cash inflow in 2003 and 2004 to date. Tax on the profit for the half year was Â£81m, a rate of 26% (H1 2003 26%) on profit before tax of Â£315m. Net working capital (defined as stock, short term debtors and short term creditors excluding borrowings) improved by Â£55m to minus Â£633m. Cash Flow from operating activities rose by 4% to Â£444m due to increased operating profits and a further release of cash from working capital. After an increase in interest receivable, offset by higher tax payments in the first half of the year, net cash flow from ordinary operations increased by 2% to Â£ 337m. Cash conversion continued to be strong. The ratio of cash flow from operating activities to net revenues was broadly maintained at 18%. Net funds at the half-year were Â£403m (2003 year-end Â£292m), an improvement of Â£111m due to strong operating inflow, working capital release and improved cash management offset by share buyback and higher dividend payments. The Group's net funds position consisted of cash of Â£52m (Â£59m) and short term investments of Â£820m (Â£724m) offset by the convertible capital bond of Â£192m (Â£192m) and other borrowings of Â£277m (Â£299m). Balance Sheet and Financing. At the half year the Group had shareholders funds of Â£1,431m (2003 year-end Â£1,470m), a decrease of 3%. Net funds were Â£403m (2003 year-end Â£292m). Total capital employed in the business was Â£1,031m (2003 year-end Â£1,182m). The Company's financial ratios have improved over the period. Interest cover (operating profit over net interest) for the half year was 80 times (H1 2003 25.5 times). Dividends. The Board of Directors announces an interim dividend of 16.0 pence per share (2003 14.0 pence per share), an increase of 14% in line with the Company's policy to increase the dividend in line with earnings once coverage ratios reach the level of the industry peer group. The interim dividend is covered 2.1 times by profit for the half year (2.0 times). The ex dividend date will be 11th August and the dividend will be paid on 23rd September to shareholders on the register at the record date of 13th August. The last date for election for the share alternative to the dividend is 2nd September. Share buyback Between 16th February and 25th June 2004, the Group purchased 9,565,000 shares for cancellation at a cost of Â£137m as part of its ongoing share buyback program. This brings the totals for the program to date to 11.5m shares at a cost of Â£162m. The Company today announces that it intends to complete its projected program of Â£250m by end Q3 2004. Thereafter the Company intends to increase the size of its annual share buyback program to Â£300m for the year starting in Q4 2004. For Further Information Reckitt Benckiser +44 (0)1753 217 800 Tom Corran SVP Investor Relations & Corporate Communications Elvira Luykx Global Communications Manager Mark Wilson Investor Relations Manager PR Agency Tim Spratt Financial Dynamics +44 (0)207 837 3113 The Group at a Glance (unaudited) Quarter Ended June 30 Half Year Ended June 30 2004 2003# 2004 2003# Â£m Â£m Â£m Â£m From total ordinary activities 953 943 Net revenues 1,873 1,791 1% 7% Net revenues growth 5% 4% 55.5% 53.1% Gross margin 54.6% 52.7% 196 183 EBITDA 363 322 20.6% 19.4% EBITDA margin 19.4% 18.0% 174 163 EBIT 319 280 18.3% 17.3% EBIT margin 17.0% 15.6% 173 158 Profit before tax 315 269 18.2% 16.8% PBT margin 16.8% 15.0% 129 117 Net Income 234 199 13.5% 12.4% Net Income margin 12.5% 11.1% 18.3p 16.5p EPS 33.1p 28.1p 17.4p 15.8p EPS, diluted 31.6p 27.1p # Restated following the adoption of FRS 5 Application Note G 'Revenue Recognition' Group Balance Sheet Data June 30, December 31 2004 2003 Â£m Â£m Net working capital * (633) (578) Net funds 403 292 * Defined as stock, short term debtors and short term creditors excluding borrowings. Group profit and loss account (unaudited) Quarter Ended June 30 Half Year Ended June 30 2004 2003# % change 2004 2003# % change Â£m Â£m Â£m Â£m 953 943 1% Net revenues 1,873 1,791 5% (424) (442) (4%) Cost of sales (850) (848) 0% 529 501 6% Gross profit 1,023 943 8% (355) (338) 5% Net operating expenses (704) (663) 6% 174 163 7% Total operating profit 319 280 14% (1) (5) (80%) Net interest expense (4) (11) (64%) 173 158 9% Profit on ordinary activities 315 269 17% before taxation (44) (41) 7% Tax on profit on ordinary (81) (70) 16% activities 129 117 10% Profit on ordinary activities 234 199 18% after taxation 0 0 Attributable to equity minority 0 0 interests 129 117 10% Profit for the period 234 199 18% (112) (99) 13% Ordinary Dividends (112) (99) 13% 17 18 (6%) Retained profit for the period 122 100 22% Earnings per ordinary share: 18.3p 16.5p On profit for the period 33.1p 28.1p 17.4p 15.8p On profit for the period, 31.6p 27.1p diluted Average common shares outstanding: 704.3 706.5 Basic 706.1 706.2 757.4 757.6 Diluted 759.3 756.8 # Restated following the adoption of FRS 5 Application Note G ' Revenue Recognition' Group balance sheet For the half year ended June 30, (unaudited) 1st Half Full Year 1st Half 2004 2003 2003 Â£m Â£m Â£m Fixed assets: Intangible assets 1,686 1,746 1,795 Tangible assets 469 502 522 2,155 2,248 2,317 Current assets: Stocks 232 224 231 Debtors due within one year 514 480 510 Debtors due after more than one year 84 85 84 Investments 820 724 571 Cash at bank and in hand 52 59 48 1,702 1,572 1,444 Current liabilities: Creditors due within one year: Borrowings (153) (172) (112) Other (1,379) (1,282) (1,334) Convertible capital bonds (192) - - (1,724) (1,454) (1,446) Net current (liabilities)/assets (22) 118 (2) Total assets less current liabilities 2,133 2,366 2,315 Non-current liabilities: Creditors due after more than one year: Borrowings (124) (127) (219) Other (164) (165) (162) Convertible capital bonds - (192) (193) (288) (484) (574) Provisions for liabilities and charges (411) (408) (415) Equity minority interests (3) (4) (6) Net Assets 1,431 1,470 1,320 Capital and reserves: Called up share capital (including non-equity 78 79 78 capital of Â£5m) Share premium account 238 227 205 Merger reserve 142 142 142 Capital redemption reserve 1 - - Profit and loss account 972 1,022 895 Total shareholders' funds (including non-equity 1,431 1,470 1,320 shareholders' funds of Â£5m) Group cash flow statement For the half year ended June 30 (unaudited) Reconciliation of operating profit to operating cash flows 2004 2003 Â£m Â£m Operating activities: Operating profit 319 280 Depreciation and amortisation 44 42 Loss on sale of fixed assets - 2 (Increase)/decrease in stocks (17) 4 Increase in debtors (50) (8) Increase in creditors and provisions 148 107 Cash flow from operating activities 444 427 Cash flow statement Cash flow from operating activities 444 427 Return on investments and servicing of finance (6) (12) Taxation (78) (54) Capital expenditure and financial investment Purchase of intangible fixed assets - (54) Purchase of tangible fixed assets (26) (30) Disposal of tangible fixed assets 3 1 (23) (83) Acquisition of businesses (1) (1) Equity dividends paid (98) (90) Cash inflow before use of liquid resources and 238 187 financing Management of liquid resources (98) (193) Financing (135) 6 Increase in cash for the period 5 - Reconciliation of net cash flow to movement in debt Increase in cash in period 5 - Cash outflow from decrease in debt 9 2 Cash outflow from increase in liquid resources 98 193 Changes in net debt resulting from cash flows 112 195 Translation differences (1) 5 Movement in net debt in period 111 200 Net debt at beginning of period 292 (105) Net funds at end of period 403 95 Reconciliation of operating cash flow to net cash flow from ordinary operations Operating Cash flow 444 427 Returns on investments and servicing of finance (6) (12) Taxation (78) (54) Net capital expenditure (excluding intangible assets) (23) (29) Net cash flow from ordinary operations 337 332 Management uses net cash flow from ordinary operations as a performance measure. Segmental Analysis (unaudited) Analyses by geographical area and product segment of net revenues and operating profit are set out below. The figures for each geographic area show the net revenues and profit made by companies located in that area. Quarter Ended June 30 Half Year Ended June 30 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 505 498 1% 6% Europe 997 942 6% 8% 288 285 1% 11% North America & 564 557 1% 11% Australia 160 160 0% 10% Developing Markets 312 292 7% 16% 953 943 1% 8% 1,873 1,791 5% 10% Operating profit - by geographical area 114 109 5% 10% Europe 212 192 10% 13% 44 40 10% 16% North America & 86 77 12% 19% Australia 12 8 50% 71% Developing Markets 17 8 113% 143% 4 6 Corporate 4 3 174 163 7% 14% 319 280 14% 19% % % Operating margin - by % % geographical area 22.6 21.9 Europe 21.3 20.4 15.3 14.0 North America & 15.2 13.8 Australia 7.5 5.0 Developing Markets 5.4 2.7 - - Corporate - - 18.3 17.3 17.0 15.6 * Restated following the adoption of FRS 5 Application Note G 'Revenue Recognition' and the alignment of the reported geographical segments with the internal management structure of Reckitt Benckiser. Segmental Analysis (continued) Quarter Ended June 30 Half Year Ended June 30 2004 2003# % change 2004 2003# % exchange Â£m Â£m exch. rates Â£m Â£m exch. rates actual const. actual const. Net revenues - by product segment 904 890 2% 8% Household and Health & 1,788 1,703 5% 10% Personal Care 49 53 (8%) 4% Food 85 88 (3%) 9% 953 943 1% 8% 1,873 1,791 5% 10% Operating profit - by product segment 161 148 9% 14% Household and Health & 304 267 14% 18% Personal Care 9 9 0% 13% Food 11 10 10% 22% 4 6 Corporate 4 3 174 163 7% 14% 319 280 14% 19% % % Operating margin - by % % product segment 17.8 16.6 Household and Health & 17.0 15.7 Personal Care 18.4 17.0 Food 12.9 11.4 Corporate 18.3 17.3 17.0 15.6 Net revenues - Household and Health & Personal Care 261 261 0% 7% Fabric Care 517 489 6% 10% 181 180 1% 8% Surface Care 365 358 2% 9% 128 128 0% 6% Dishwashing 268 265 1% 5% 131 125 5% 12% Home Care 264 249 6% 12% 166 155 7% 12% Health & Personal Care 304 272 12% 16% 867 849 2% 9% Core Business 1,718 1,633 5% 10% 37 41 (10%) (3%) Other Household 70 70 0% 6% 904 890 2% 8% 1,788 1,703 5% 10% # Restated following the adoption of FRS 5 Application Note G 'Revenue Recognition' Earnings per ordinary share For the half year ended June 30, (unaudited) The reconciliation between profit for the half year and the weighted average number of shares used in the calculations of the diluted earnings per share are set out below: 2004 2003 Profit Average Earnings Profit Average Earnings for Number of per for number of per the Shares share the shares share half pence half pence year year Â£m Â£m Profit attributable to 234 706,081,102 33.1 199 706,240,741 28.1 shareholders Dilution for Executive 13,538,252 10,499,650 options outstanding and Executive Restricted Share Plan Dilution for Employee 1,072,623 1,168,219 Sharesave Scheme options outstanding Dilution for convertible 6 38,655,773 6 38,900,697 capital bonds outstanding * On a diluted basis 240 759,347,750 31.6 205 756,809,307 27.1 * 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. The Directors believe that a diluted earnings per ordinary share, adjusted for the distorting effects of non-operating items after the appropriate tax amount, provides the most meaningful measure of earnings per ordinary share in comparing the performance of the business over time.

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