STRONG Q3 RESULTS NEW FY10 TARGETS SET FOR TOTAL GROUP Results at a glance (unaudited)

Transcription

1 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 (unaudited) actual constant actual m exchange exchange m exchange Net Revenue 2, , Operating Profit , Net Income , EPS (diluted) 58.4p p +17 Year to date ( YTD ) highlights: % change constant exchange 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. 1

2 Third quarter 2010 Detailed Operating Review 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 Q (+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 pence. Summary: % net revenue growth YTD 2010 Business Review 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 2

3 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 1 st July 2010, as a result of the majority of sales and marketing rights to the buprenorphinecontaining 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%. 3

4 Suboxone has data exclusivity in Europe until 2016; in the U.S., Suboxone lost the exclusivity afforded by its Orphan Drug Status on 8 th October 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 19 th March 2010, the majority of the sales and marketing rights to the buprenorphine-containing products Suboxone, Subutex and Temgesic reverted to the Group, starting 1 st July 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 31 st 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 fastdissolving 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. 4

5 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 1 st 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 15 th 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 29 th 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 18 th August

6 The Group also announced that at 1:00 pm (London time) on 29 th October 2010, Reckitt Benckiser plc had received valid acceptances of the offer in respect of approximately 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 ( 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) Joanna Speed Director, Investor Relations Andraea Dawson-Shepherd SVP, Global Corporate Communication and Affairs Brunswick (Financial PR) +44 (0) 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 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 forwardlooking 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. 6

7 The Group at a Glance (Unaudited) Quarter ended Nine months ended m m m m 2,112 1,907 Net revenue total 6,176 5,690 +7% +7% Net revenue growth constant +6% +7% +11% +15% Net revenue growth total +9% +20% 60.8% 60.0% Gross margin 60.2% 59.4% EBITDA 1,621 1, % 26.1% EBITDA margin 26.2% 24.2% EBIT 1,528 1, % 24.5% EBIT margin 24.7% 22.6% Profit before tax 1,539 1, Net income 1, p 50.1p EPS, basic 159.5p 136.3p 58.4p 49.6p EPS, adjusted 157.6p 134.4p Group balance sheet data 31 December m m Net working capital * (1,118) (1,257) Net cash * 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 Issued / transferred from Treasury March Issued / transferred from Treasury June Issued / transferred from Treasury

8 Group Income Statement Analysis (Unaudited) Quarter ended Nine months ended % % change change m m m m 2,112 1, Net revenue 6,176 5, (828) (762) Cost of sales (2,455) (2,311) 1,284 1, Gross profit 3,721 3, (720) (678) Net operating expenses (2,193) (2,093) Operating profit 1,528 1, Net finance income / (expense) 11 (1) Profit on ordinary activities before 1,539 1, taxation (142) (112) Tax on profit on ordinary activities (385) (315) Net income 1, Attributable to equity minority interests Attributable to ordinary equity holders of the 1, parent Net income 1, Earnings per ordinary share: 58.8p 50.1p On net income for the period, basic 159.5p 136.3p 58.4p 49.6p On net income for the period, diluted 157.6p 134.4p Average common shares outstanding: (millions) Basic Diluted

9 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 % Change % Change m m exch. rates m m exch. rates actual const. actual const. Net revenue Europe 2,595 2, North America & Australia 1,666 1, Developing Markets 1,410 1, Pharmaceuticals ,112 1, ,176 5, Operating profit Europe North America & Australia Developing Markets Pharmaceuticals ,528 1, % % Operating margin % % Europe North America & Australia Developing Markets Pharmaceuticals

10 Segment Information (Unaudited), continued Product segment Quarter ended Nine months ended % change % change m m exch. rates m m exch. rates actual const. actual const. Net revenue by category Health & Personal Care 1,667 1, Fabric Care 1,206 1, Surface Care 1, Home Care Dishwashing Other Household ,846 1, Household and Health & Personal Care 5,454 5, Pharmaceuticals Food ,112 1, ,176 5, Operating profit Household and Health & Personal Care 1,125 1, Pharmaceuticals Food ,528 1, % % Operating margin % % Household and Health & Personal Care Pharmaceuticals Food