RECKITT BENCKISER GROUP PLC: FY Results 2012
13 February 2013
2012 TARGETS ACHIEVED
STRATEGY WELL ON TRACK
Results at a glance Q4 % change % change FY % change % change (unaudited) £m actual constant £m actual constant
exchange exchange exchange exchange Net revenue 2,476 +2 +6 9,567 +1 +4 - Like-for-like growth* +7 +5 Operating profit - 2,435 +2 +5 reported Operating profit - 2,570 +3 +6 adjusted** Net income - reported 1,829 +5 +8 Net income - adjusted** 1,938 +7 +10 EPS (diluted) - reported 249.5p +5 EPS (diluted) - 264.4p +7 adjusted** * Like-for-like ("LFL") growth excludes the impact of changes in exchange rates, material acquisitions and disposals.
** Adjusted results exclude exceptional items.
Highlights: Full Year
- LFL +5% ex RBP (+5% incl. RBP), well ahead of our market growth, driven by Emerging Market Areas and Europe North America (ENA).
- Health & Hygiene led growth; Durex, Gaviscon, Strepsils, Dettol, Lysol, Harpic and Finish.
- Increased brand equity investment (BEI) of £100m1, +70bps, (ex RBP).
- Gross margin +50bps to 57.9%. "Project Fuel" targets fully achieved.
- Adjusted operating margin** +70bps to 26.9% via gross margin expansion and early ENA cost savings.
- Adjusted net income** +7% (+10% constant): adjusted diluted EPS of 264.4p (+7%).
- Net working capital of minus £700m (2011: minus £701m).
- Net debt after dividends, acquisitions and restructuring of £2,426m (2011: £1,795m).
- The Board recommends an +11% increase in the final dividend to 78p per share bringing the total dividend for 2012 to 134p (+7% versus 2011).
- Q4 LFL growth +6% ex RBP (+7% incl. RBP), reflecting steadily improving in-year performance.
- Further improvement in ENA +3% LFL, assisted by higher incidences of cold and flu.
Commenting on these results, Rakesh Kapoor, Chief Executive Officer, said:
"A year ago we set a new purpose driven strategy to deliver growth and outperformance over the next decade.
We are laying the foundations for RB to succeed in a world where health and hygiene play an increasingly important role in terms of both economic and social development. We enhanced our focus on our 16 Powermarkets, many of which are in the emerging market areas that now represent 44% of our core net revenue. I am very pleased that our 2012 achievements demonstrate the strength of this strategy and its ability to create sustainable value for all of our stakeholders.
In environmental sustainability we have already reduced the carbon footprint of our products by 20% and have now set an ambitious target to reduce that by a further third, while also cutting the water use associated with our products by the same amount.
While much has yet to be done and markets remain challenging, we approach 2013 with the confidence that we have the right strategic focus, the right organisation and culture, and with the right innovation platforms. We are particularly excited by our entry into the vitamins, minerals and supplements (VMS) market with the acquisition of Schiff. We are supporting our brands with more and better quality brand equity investment to deliver further growth in an increasingly competitive consumer environment.
We remain committed to our goal of net revenue growth on average +200bps per annum above our market growth, and moderate operating margin expansion (ex RBP). For 2013, we are targeting net revenue growth of +5-6%2 including acquisitions and disposals announced to date. Given the early achievement of cost savings in 2012, we expect to maintain operating margins in 2013. These targets exclude RBP.
This will allow us to further accelerate the shape of our core business in line with our strategy. We are now setting the target of Health & Hygiene categories to become 72%, and our emerging market areas to become 50%, of our core business net revenue by 2015. This is a year earlier than previously targeted."
1 at constant rates
2 at constant rates including announced acquisitions and disposals / withdrawal from Private Label and other minor items, ex RBP. Together they will have a net impact of c.+100bps
Basis of Presentation and Exceptional Items
Where appropriate, the term "like-for-like" (LFL) describes the performance of the business on a comparable basis, excluding the impact of major acquisitions, disposals and discontinued operations. It is measured on a constant exchange basis.
ENA is the Europe and North America area structure. RUMEA is the Russia and CIS, Middle East and Africa area structure. LAPAC is the Latin America, Asia and Asia Pacific area structure.
Where appropriate, the term "core business" represents the ENA, RUMEA and LAPAC geographic areas, and excludes RBP and Food.
Where appropriate, the term "adjusted" excludes the impact of exceptional items. There was an exceptional pre-tax charge of £135m in FY 2012 mainly relating to restructuring costs in respect of the new strategy reorganisation, integration costs arising from the acquisition of SSL, and costs associated with acquisitions. This exceptional pre-tax charge is reflected in reported operating profit. Exceptional items in FY 2011 were £92m in reported operating profit and £4m in net interest. The tax effect of exceptional items in the period is £26m (2011: £23m).
As communicated in RB's February 2012 "Strategy for Continued Outperformance" announcement, the Group now uses a number of new, or refined, measures to monitor progress. This includes a revised gross margin definition (discussed in note 3 to the Half Year Condensed Financial Statements), as well as a new definition of net working capital (inventories, trade and other receivables and trade and other payables) and a new measure of total brand equity building investment (BEI).
Detailed Operating Review: Total Group
Full Year 2012
Total FY net revenue was £9,567m, an increase of +5% LFL. Growth was driven by a strong performance in our emerging market (LAPAC and RUMEA) areas, with an improving result from ENA despite challenging market conditions. Health and Hygiene led performance with strong results from Health Powerbrands Durex and Gaviscon, and from Hygiene Powerbrands Dettol, Lysol, Finish and Harpic.
Gross margin increased by +50bps to 57.9%. The significant improvement in margins during the second half, as expected, was driven by a number of factors - a more benign input cost environment, pricing, improved mix and savings from our ongoing cost optimisation programme (Project Fuel), where we delivered savings of £50m, as targeted. These improvements were partially offset by adverse foreign exchange.
Our newly defined BEI metric increased by £100m (constant) +70 bps to 12.7% of net revenue (ex RBP). Within this, media increased by +50bps to 11.7% of net revenue (ex RBP).
Operating profit was £2,435m, +5% constant versus FY 2011 (+2% actual). There was an exceptional pre-tax charge of £135m (FY 2011: £92m). On an adjusted basis, operating profit was ahead +6% (constant) to £2,570m. Adjusted operating margin increased by +70bps to 26.9% (ex RBP +70bps to 23.3%). This margin increase was in part due to early achievement of some of the £30m costs savings from the new ENA structure targeted for 2013.
Net finance expense was £15m (FY 2011: £19m). The tax rate was 24%, (FY 2011: 26%). This reduction was primarily due to the benefit in 2012 of the 2% reduction in the UK corporate tax rate (both the reduction in the current year tax liability, and the reduction to deferred tax liability in respect of tax payable in future years), and the favourable settlement of certain tax cases.
Reported net income was £1,829m, an increase of +8% constant (+5% actual). On an adjusted basis net income rose +10% constant (+7% actual). Diluted earnings per share of 249.5 pence was +5% higher on a reported basis and on an adjusted basis, the growth was +7% to 264.4 pence.
Fourth quarter 2012
Total Q4 net revenue was £2,476m, a +7% LFL increase. Growth trends in Emerging Markets were similar to those in Q3, whilst ENA continued to improve its performance with +3% LFL growth. Health category performance was driven by Strepsils and Mucinex following a higher incidence of flu, but also from our non-seasonal brands with Durex having a particularly strong quarter. In Hygiene, growth was driven by strong performances from Dettol / Lysol and Finish, and in Home, Air Wick had a strong quarter.
We have made progress in strengthening and reshaping the core business in line with our new strategy. Our private label business did not fit with our future strategic focus and we withdrew from it during 2012. We also sold our non-core Paras Personal Care business and a number of other minor businesses.
We continue to strengthen our global health care franchise by entering the VMS market with the acquisition of Schiff, and building local health care platforms in China and Latin America via a number of small acquisitions, including the recently announced collaboration with Bristol-Myers Squibb.
Sustainability & Social Contribution
We increased our global partnership with Save the Children in order to support health and hygiene programmes in more than 40 countries, taking funds contributed to £3.5m, up +60% from £2.2m in 2011. In 2012 we helped to reach approximately 325,000 children and families and since our relationship began in 2006 it has reached nearly 900,000 vulnerable children and families. 2013 will see this partnership continuing and expanding further still.
In sustainability, we achieved our targeted 20% carbon reduction per dose of product since 2007 ahead of schedule and by year end had reduced it by 21%. In 2012 specifically our carbon reduction was the equivalent of taking 2.4 million cars off the road. We maintained our effectively carbon neutral global manufacturing status, which started in 2006, with an additional 370,000 trees planted, taking it to 5.8 million trees planted in total. We have set further ambitious sustainability goals for 2020. These are to further reduce our per dose carbon footprint by 1/3, reduce our water impact by 1/3 and innovate such that 1/3 of our net revenue comes from more sustainable products.
FY 2012 Business Review
Summary: % net revenue growth
FY 2012 Like-for-like Acquisitions & Exchange Reported
Disposals* ENA +1% -1% -3% -3% LAPAC +11% 0% -6% +5% RUMEA +8% -1% -4% +3% Food +2% 0% +1% +3% Group ex-RBP +5% -1% -4% 0% RBP +10% 0% 0% +10% TOTAL +5% -1% -3% +1% * Reflects the acquisition of Paras (Q1), Schiff and other minor acquisitions (Q4), withdrawal from Private Label (Propack), disposal of Paras Personal Care and a number of minor businesses.
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.
Review by Operating Segment
Quarter ended Full Year ended 31 December 31 December 2012 2011 % change 2012 2011 % change £m £m exch. rates £m £m exch. rates actual const. actual const.
Total Net revenue
1,236 1,245 -1 +2 ENA
4,678 4,837 -3 0
591 568 +4 +9 LAPAC
2,327 2,210 +5 +11
327 316 +3 +6 RUMEA
1,404 1,364 +3 +7
93 94 -1 0 Food
321 312 +3 +2
2,247 2,223 +1 +5 Total - ex RBP
8,730 8,723 0 +4
229 193 +19 +22 RBP
837 762 +10 +10
2,476 2,416 +2 +6 Total
9,567 9,485 +1 +4
Operating profit - adjusted*
ENA 1,156 1,157 0 +3
LAPAC 464 417 +11 +17 RUMEA 290 293 -1 +3 Food 92 92 0 -1 Corporate** 32 10 n/a n/a
Total - ex RBP 2,034 1,969 +3 +7
RBP 536 518 +3 +3
Subtotal before exceptional items 2,570 2,487 +3 +6
Exceptional items (135) (92)
Total 2,435 2,395 +2 +5
Operating margin - adjusted* % %
ENA 24.7 23.9
LAPAC 19.9 18.9
RUMEA 20.7 21.5
Food 28.7 29.5
Total - ex RBP 23.3 22.6
RBP 64.0 68.0
Total 26.9 26.2
* Adjusted to exclude the impact of exceptional items.
**Items of income and expense which are not part of the results and financial position of the reported segments, and therefore reported to the Chief Operating Decision Maker outside of the individual segment financial information, are shown in the Corporate segment. For the 12 months ended 31 December 2012, these items include profits on disposals of intangibles and the Paras Personal Care business, expenses for legal matters and movements in corporate provisions.
The Business Review below is given at constant exchange rates.
ENA 56% of core net revenue
FY 2012 total net revenue was £4,678m, with LFL growth of +1%. We continue to witness difficult market conditions in many parts of Europe. Despite this the new organisation delivered a consistently improving performance through the year across ENA, supported with higher levels of BEI. Additionally, the 2nd half witnessed a higher incidence of flu than in the comparable period.
Growth in our Health platform was driven by Durex, Gaviscon, Mucinex, and Strepsils. Hygiene brands of Dettol, Lysol and Finish performed strongly, particularly in Europe behind Dettol No-Touch, and in the US behind Finish Quantum and All-in-1 gel packs and tablets. In the Home category, Air Wick achieved good growth in H2 driven by a strong performance from the newly launched Filter & Fresh and Black Edition candles.
FY adjusted operating profit was £1,156m, an increase of +3% at constant. The adjusted operating margin increased +80bps, with increased BEI more than offset by a combination of gross margin expansion, and fixed cost savings. These savings came from the early achievement of cost savings from the new structure in H2. This has effectively brought forward some of the planned cost savings originally targeted for 2013.
Q4 LFL growth was +3%.
LAPAC 27% of core net revenue
FY 2012 total net revenue increased to £2,327m, with LFL growth of +11%. Growth came from Latin America, North Asia and South East Asia, driven by distribution expansion, innovation and increasing penetration. In Health, all Powerbrands grew, with exceptionally strong performances from Durex in China, Scholl in Japan, Paras brands in India, and Gaviscon rollouts in a number of markets. In Hygiene, Dettol, Lysol, Harpic and Veet delivered strong growth from initiatives such as Dettol Daily Care and Re-energize, and PowerPlus in Harpic. Vanish and Air Wick performed well in the Home category.
FY adjusted operating profit increased +17% to £464m. Adjusted operating margin was +100bps higher at 19.9%. Increased investment behind BEI was more than offset by good gross margin, volume leverage and fixed cost containment.
Q4 LFL growth was +11%.
RUMEA 17% of core net revenue
FY 2012 net revenue of £1,404m was ahead +8% on LFL basis (+7% total), driven by strong growth in Russia & CIS. In Health, growth was driven by Durex, Gaviscon, and Strepsils. Hygiene Powerbrands Dettol, Finish, Harpic and Veet performed particularly well supported by initiatives such as Dettol Daily Care and Re-energize. Air Wick performed well in the Home category with growth driven by Freshmatic and Aqua Mist.
The 2nd half saw the upscheduling of certain Nurofen products in Russia, an increased promotional environment and some operational and socio-political challenges in certain markets. These headwinds will continue through the year but we remain confident about the underlying strength of the business.
FY adjusted operating profit increased by +3% to £290m. This resulted in a -80bps decline in the adjusted operating margin to 20.7%. This was due to adverse FX impacting gross margin and increased investment in both BEI and the new area structure, to support the business and drive future growth.
Q4 LFL growth was +7%.
FY 2012 net revenue increased +2% to £321m underpinned by continued growth in French's Mustard and Frank's Red Hot Sauce. The 2nd half was flat due to weaker US market conditions and increased private label activity, particularly around French Fried Onions. Our core French's Mustard and Frank's Red Hot franchises remain strong.
Operating margins fell by -80bps to 28.7% due to adverse mix and input costs.
Q4 LFL growth was 0%.
FY 2012 net revenue increased +10% to £837m. Growth came from continued strong volume growth in the US. This was offset by dilution from the increased Film penetration, which is a lower priced product, and government price reductions in a number of European markets. Conversion from tablets to Film in the US continues to increase with market volume share now 64%, up from 48% at the end of 2011, creating a significantly more sustainable business.
Q4 net revenue growth of +22% was helped by the lapping of the adjustments made on Medicaid accruals in Q4 2011. The underlying growth trends in the quarter were similar to those experienced throughout 2012.
FY operating profit increased +3% to £536m. The operating margin was down -400bps to 64.0%, due to the factors, as communicated during the Q3 IMS conference call. These factors included lower margins of the film variant, downward pricing pressure in Europe, and 2nd half increase in BEI for advertising and marketing programmes to increase patient awareness about the Film and treatment. We also increased investment in the clinical pipeline. We expect this gradual increase in investment to continue into 2013 and beyond as we build a strong, sustainable growth business.
RBP recently announced its voluntary discontinuation of Suboxone tablets in the USA due to increasing concerns with pediatric exposure. Further details can be found on our website - www.rb.com
At this time the Group does not know the timing of potential generic competition to Suboxone in the US. For further information surrounding Suboxone products, please refer to page 11 of the 2011 Annual Report and Financial Statements.
FY 2012 Category Review Quarter ended Full Year ended 31 December 31 December 2012 2011 % change 2012 2011 % change £m £m exch. rates £m £m exch. rates actual const. actual const. Net revenue by category
606 546 +11 +13 Health
2,068 2,000 +3 +6
897 902 -1 +4 Hygiene
3,682 3,643 +1 +5
501 506 -1 +3 Home
1,966 2,009 -2 +2
150 175 -14 -11 Portfolio Brands 693 759 -9 -4 93 94 -1 0 Food
321 312 +3 +2
2,247 2,223 +1 +5 Total - ex RBP
8,730 8,723 0 +4
229 193 +19 +22 RBP
837 762 +10 +10
2,476 2,416 +2 +6 Total
9,567 9,485 +1 +4
Operating profit - adjusted
Health, Hygiene, Home & Portfolio
1,910 1,867 +2 +6
Food 92 92 0 -1 Corporate 32 10 n/a n/a
Total - ex RBP
2,034 1,969 +3 +7
RBP 536 518 +3 +3
2,570 2,487 +3 +6
2,435 2,395 +2 +5
Operating margin - adjusted % % Health, Hygiene, Home & Portfolio 22.7 22.2 Food 28.7 29.5 Corporate n/a n/a Total - ex RBP 23.3 22.6 RBP 64.0 68.0 Total 26.9 26.2 The Category Review below is given at constant exchange rates. Health 25% of core net revenue Net revenue increased to £2,068m, with LFL growth of +6%. Higher incidences of cold and flu in Q4 in ENA drove improved performances of our seasonal brands Mucinex and Strepsils. The non-seasonal Powerbrands performed well particularly Durex, Paras brands and Gaviscon. Growth in Nurofen was impacted by upscheduling of certain products in Russia. New initiatives such as Performax Intense condoms, plus increased distribution in China drove Durex growth, and the roll out of Double Action in a number of emerging markets strengthened performance from Gaviscon. Q4 LFL growth was +10%. Hygiene 44% of core net revenue Net revenue increased to £3,682m with LFL growth of +6%, driven by strong growth in the Dettol / Lysol franchise across all three of our areas. New initiatives such as Dettol Daily Care and Re-energize in emerging markets and the recently launched Lysol No-Touch Kitchen System in ENA underpinned this strong performance. Finish continues to perform well in a number of markets globally, and particularly in the US where Quantum and All-In-1 tablets and gel packs have gained market share. Veet delivered good growth behind initiatives such as the Veet Easy Wax Electrical Roll-On. Harpic enjoyed very strong growth in LAPAC and RUMEA by driving category penetration via consumer education and increased distribution, backed by the continued success of Harpic Powerplus, and Harpic Hygienic blocks in all geographies. Q4 LFL growth was +6%. Home 23% of core net revenue Net revenue increased to £1,966m, with LFL growth of +2%. Growth came from Vanish where there has been excellent growth in a number of emerging market countries, combined with more stable market shares in ENA where we have lapped competitive entries. Growth was also driven by Air Wick which produced a good performance behind Freshmatic, candles and "Flip & Fresh". Q4 LFL growth was +3%. Portfolio 8% of core net revenue Net revenue was £693m, with LFL growth of +1%. The total performance of -4% was primarily due to the discontinuation of the Private Label business where all contracts are now terminated. Q4 LFL growth was -2%. New Product Initiatives: H1 2013 RB announces a number of new product initiatives for the first half of 2013: Health: - Launch of Mucinex Sinus-Max range. A Triple Action formula that relieves sinus pressure, breaks down mucus and helps get rid of headaches with maximum strength medicines. - Launch of Nurofen next generation heat patch. A flexible patch that starts to heat up in just five minutes from application. - Launch of Nurofen Meltlets for youth, even on-the-go. - Strepsils Children 6+ Lozenges. The product acts directly at the site of pain, providing fast and long lasting relief for `little ones' sore throats. - Launch of Durex Feel Real. Polyisoprene condom using a softer more flexible material to provide a more natural feeling during sex. - Launch of Gaviscon Instant Granules. Dissolves in seconds and soothes in minutes. - Launch of Scholl Hard Skin and Callus Express treatment. It delivers soft feeling skin in one application without using a blade. Hygiene: - Launch of Finish Quantum with Power Gel. New formula of Finish Quantum that now comes with a revolutionary gel chamber that delivers amazingly clean and shiny dishes. - Launch of Dettol Kitchen Gels - India and South Korea. A unique dish wash gel that gives you healthy dishes and kitchen surfaces. It makes your dishes, sink and counter top sparkling clean and kills 100 times more germs than an ordinary dish wash. - Launch of Dettol Radiance Soap and Body Wash. Contains a unique blend of Vitamins B3 & C that helps rejuvenate and purify the skin for it to regain its radiance. - Launch of Veet Naturals Hair Removal Cream. Combines Veet's hair removal expertise with nature's skin care ingredients. Home: - Launch of Vanish Gel Treat and Go: Treat the stains directly, soak or add to the washing machine - for amazing stain removal first time. - Launch of Air Wick Filter & Fresh Car. Physically captures odours as well as adding great fragrance, thanks to its Activated Carbon Filter. A truly clean, fresh fragrance experience! - Launch of Air Wick EverFresh Gels. Slow release gel for bathrooms. 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 2011 Annual Report and Financial Statements, and as updated by the 2012 Interim Statement. 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 finance expense. Net finance expense was £15m (2011: net finance expense of £19m), reflecting the acquisition of SSL and Paras. The 2011 net finance expense includes a £4m exceptional charge in respect of financial costs associated with the acquisition of SSL. Tax. The tax rate was 24%, a reduction from the 2011 rate of 26%. This was primarily due to a 2% reduction in the UK corporate tax, associated deferred tax benefits and the favourable settlement of certain tax cases. Net working capital (inventories, short-term receivables and short-term liabilities excluding borrowings and provisions) of minus £700m, which is in line with the 31 December 2011 level, despite the acquisition of Schiff. Cash flow. Cash generated from operating activities was £2,423m (2011: £2,430m) and net cash flow from operations was £1,735m (2011: £1,581m). Net interest paid was £7m (2011: net interest paid of £13m) and tax payments were £528m (2011: £677m). Capital expenditure was lower than the prior year at £177m (2011: £205m). Acquisition of businesses of £877m related to the acquisition of Schiff, and other minor acquisitions. Net debt at the end of the year was £2,426m (December 2011: net debt of £1,795m). This reflected strong free cash flow generation, offset by the payment of two dividends totaling £916m and the acquisition of businesses (principally Schiff) for £877m. The Group regularly reviews its banking arrangements and currently has adequate facilities available to it. Restructuring charge. A total pre-tax exceptional charge of £135m has been incurred during the year in respect of the following: - The remaining restructuring costs in respect of the acquisition of SSL; - Costs associated with the new strategy and Private Label business closure costs and - Acquisition costs associated with the acquisition of Schiff and other acquisitions In FY 2011, an exceptional pre-tax charge of £96m was incurred, of which £92m is reflected in reported operating profit and £4m is included in net interest. Acquisition of Schiff. On 14 December 2012, the Group acquired Schiff which was funded by existing facilities. The following provisional items were recognised on the Group's balance sheet as at 31 December 2012: Intangible assets (£807m), Goodwill (£371m), net working capital assets (£26m), deferred tax liabilities (£267m), provisions (£45m) and other net assets (£27m). These provisional values will be finalised during 2013. Balance sheet. At the end of 2012, the Group had total equity of £5,922m (2011: £5,781m), an increase of +2%. Net debt was £2,426m (2011: net debt of £1,795m) and total capital employed in the business was £8,348m (2011: £7,576m). This finances non-current assets of £12,023m (2011: £11,188m), of which £737m (2011: £732m) is property, plant and equipment, the remainder being goodwill, other intangible assets, deferred tax, available for sale financial assets, retirement benefit surplus and other receivables. The Group has net working capital of minus £700m (2011: minus £701m), current provisions of £128m (2011: £60m) and long-term liabilities other than borrowings of £2,668m (2011: £2,642m). The Group's financial ratios remain strong. Return on shareholders' funds (net income divided by total shareholders' funds) was 31.0% on a reported basis and 32.8% on an adjusted basis (2011: 30.3% on a reported basis and 31.6% on an adjusted basis). Dividends. The Board of Directors recommends a final dividend of 78 pence (2011: 70 pence), an increase of +11%, to give a full year dividend of 134 pence (2011: 125 pence), an overall increase of +7%. The dividend, if approved by shareholders at the AGM on 2 May 2013, will be paid on 30 May to shareholders on the register at the record date of 22 February. The ex-dividend date is 20 February and the last date for election for the share alternative to the dividend is 8 May. The final dividend will be accrued once approved by shareholders. Contingent liabilities. The Group is involved in a number of investigations by government authorities and has made provisions for such investigations, where appropriate. Where it is too early to determine the likely outcome of these matters, the Directors have made no provision for such potential liabilities. The Group has received a civil claim for damages from the Department of Health and others in the United Kingdom, regarding alleged anti-competitive activity involving the Gaviscon brand. The claim is under review and at this time the Directors do not believe that any potential impact would be material to the Group financial statements. The Group from time to time is involved in discussions in relation to ongoing tax matters in a number of jurisdictions around the world. Where appropriate, the Directors make provisions based on their assessment of each case. Post balance sheet event. On 8 January 2013 the Group obtained control of Oriental Medicine Company Limited, a manufacturer of traditional Chinese sore throat products, by acquiring 100% of the share capital. On 10 February 2013, the Group entered into a 3 year collaboration agreement with Bristol-Myers Squibb, for a number of market-leading over-the-counter consumer health care brands in Brazil, Mexico and certain other parts of Latin America. The Group will make an upfront cash payment of $482m (£300m) to enter into the arrangement which also includes personnel, supply contracts and an option to acquire legal title to the related intellectual property at the end of the collaboration period for a multiple of earnings. The transaction will be accounted for as a business combination and the Directors are in the process of revaluing the assets and liabilities acquired to fair value, including the value of any acquired intangible assets. Further disclosure will be provided in the 2013 Half Year Announcement. Medium term KPIs We continue to target net revenue growth on average +200bps per annum above our market growth, and moderate operating margin expansion (ex RBP). However, given the initial progress against our new strategy and our recent acquisitions we are accelerating two of our medium term KPIs from 2016 to 2015. We are now targeting: - Health & Hygiene revenues to be 72% of core net revenues by the end of 2015 - LAPAC and RUMEA revenues to be 50% of core net revenues by the end of 2015 Both these KPIs are one year ahead of our ingoing expectations. 2013 Targets In 2012 we discontinued our Private Label business, and sold a number of small non-core brands. 2013 will benefit from a number of acquisitions. Together they will have a net impact of c.+100bps. Taking these into account, we are targeting: - net revenue growth of +5-6%**; - further increased investment in our brands (BEI); and - maintain operating margins* These targets exclude RBP. * adjusted to exclude the impact of exceptional items. ** at constant rates including acquisitions and disposals / withdrawal from Private Label and other minor items, excluding RBP. For further information, please contact: Reckitt Benckiser +44 (0)1753 217800 Richard Joyce Director, Investor Relations Andraea Dawson-Shepherd SVP, Global Corporate Communication and Affairs Brunswick (Financial PR) +44 (0)20 7404 5959 David Litterick / Max McGahan Notice to shareholders Cautionary note concerning forward-looking statements This document contains statements with respect to the financial condition, results of operations and business of Reckitt Benckiser and certain of the plans and objectives of the Group with respect to these items. These forward-looking statements are made pursuant to the "Safe Harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing to the Company, anticipated cost savings or synergies and the completion of strategic transactions are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors discussed in this report, that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including many factors outside Reckitt Benckiser's control. Past performance cannot be relied upon as a guide to future performance. The Group at a Glance (Unaudited) Quarter ended 31 December Full year ended 31 December 2012 2011 2012 2011
£m £m £m £m
2,476 2,416 Net revenue - total 9,567 9,485 +7% +3% Net revenue growth - +5% +4% like-for-like +6% +8% Net revenue growth - +4% +13% constant +2% +6% Net revenue growth - total +1% +12% Gross margin 57.9% 57.4% EBITDA - adjusted* 2,717 2,642 EBITDA margin - adjusted* 28.4% 27.9% EBIT 2,435 2,395 EBIT - adjusted* 2,570 2,487 EBIT margin 25.5% 25.3% EBIT margin - adjusted* 26.9% 26.2% Profit before tax 2,420 2,376 Net income 1,829 1,745 Net income - adjusted* 1,938 1,818 EPS, basic, as reported 252.5p 239.8p EPS, adjusted and diluted* 264.4p 247.1p * Adjusted to exclude the impact of exceptional items. Group balance sheet data 31 December 31 December 2012 2011
Net working capital * (700) (701) Net debt (2,426) (1,795)
* Net working capital is defined as inventories, trade and other receivables and trade and other payables.
Shares in issue
Millions 31 December 2011 728.6 Issued 5.6 31 December 2012 734.2
Group Income Statement
For the 12 months ended 31 December 2012 (unaudited)
Unaudited Audited Year ended Year ended 31 December 31 December 2012 2011 (restated)(a)
£m £m Net revenue 9,567 9,485 Cost of sales (4,030) (4,036) Gross profit 5,537 5,449 Net operating expenses (3,102) (3,054) Operating profit 2,435 2,395 Operating profit before exceptional 2,570 2,487 items Exceptional items (135) (92) Operating profit 2,435 2,395 Finance income 26 23 Finance expense(b) (41) (42) Net finance expense (15) (19) Profit on ordinary activities before 2,420 2,376 taxation Tax on profit on ordinary activities (587) (622) Net income for the period 1,833 1,754
Attributable to non-controlling 4 9 interests Attributable to owners of the parent 1,829 1,745 Net income for the period 1,833 1,754
Earnings per ordinary share: Basic earnings per share 252.5p 239.8p Diluted earnings per share 249.5p 237.1p
(a) The income statement for the year ended 31 December 2011 has been restated to reflect a change in the Group's accounting policy for certain consumer promotional costs. The Group now treats certain consumer promotional costs as cost of sales where previously these were classified as marketing in net operating expenses. The Directors believe that this change provides more relevant information about the performance of the Group and aligns the Group's accounting policies with common industry practice.
(b) Finance expense for the year ended 31 December 2011 includes an exceptional charge of £4m, relating to financial costs associated with the acquisition of SSL.
Group Statement of Comprehensive Income
For the 12 months ended 31 December 2012 (unaudited)
Unaudited Audited Year ended Year ended 31 December 31 December 2012 2011
£m £m Net income for the period 1,833 1,754 Other comprehensive income Net exchange losses on foreign currency translation, net of tax (255) (226) Actuarial losses, net of tax (49) (49) Gains on cash flow hedges, net of tax 3 3 Reclassification of foreign currency 9 - translation reserves on disposal of subsidiary, net of tax Other comprehensive income for the period, net of tax (292) (272) Total comprehensive income for the period 1,541 1,482 Attributable to non-controlling interests (1) 4 Attributable to owners of the parent 1,542 1,478
1,541 1,482 Group Balance Sheet
As at 31 December 2012 (unaudited)
Unaudited Audited 31 December 31 December 2012 2011
£m £m ASSETS Non-current assets: Goodwill and other intangible assets 11,175 10,258 Property, plant and equipment 737 732 Deferred tax assets 49 150 Available for sale financial assets 2 10 Retirement benefit surplus 27 32 Other receivables 33 6
12,023 11,188 Current assets: Inventories 735 758 Trade and other receivables 1,407 1,442 Derivative financial instruments 4 67 Current tax receivables 20 21 Available for sale financial assets 4 11 Cash and cash equivalents 887 639
3,057 2,938 Total assets 15,080 14,126
LIABILITIES Current liabilities: Borrowings (3,271) (2,505) Provisions for liabilities and charges (128) (60) Trade and other payables (2,842) (2,901) Derivative financial instruments (43) (7) Current tax liabilities (203) (227)
(6,487) (5,700) Non-current liabilities: Borrowings (3) (3) Deferred tax liabilities (1,814) (1,772) Retirement benefit obligations (426) (502) Provisions for liabilities and charges (100) (118) Non-current tax liabilities (311) (211) Other non-current liabilities (17) (39)
(2,671) (2,645) Total liabilities (9,158) (8,345) Net assets 5,922 5,781
EQUITY Capital and reserves: Share capital 73 73 Share premium 184 86 Merger reserve (14,229) (14,229) Hedging reserve 2 (1) Foreign currency translation reserve (131) 110 Retained earnings 20,022 19,672
5,921 5,711 Non-controlling interests 1 70 Total equity 5,922 5,781
Group Statement of Changes in Equity
For the 12 months ended 31 December 2012 (unaudited)
Foreign Total currency attributable Non-
Share Share Merger Hedging translation Retained to owners of controlling Total Unaudited capital Premium reserve reserve reserve earnings the parent interests equity
£m £m £m £m £m £m £m £m £m Balance at 1 73 59 (14,229) (4) 331 18,828 5,058 72 5,130 January 2011 Net income 1,745 1,745 9 1,754 Other comprehensive income Actuarial losses, net of tax (49) (49) (49) Gains on cash flow 3
3 3 hedges, net of tax Net exchange adjustments on foreign currency translation, net of tax (221)
(221) (5) (226) Total other comprehensive - - - 3 (221) (49) (267) (5) (272) income Total comprehensive - - - 3 (221) 1,696 1,478 4 1,482 income Transactions with owners Proceeds from share issue 27
27 27 Share based payments
61 61 61 Deferred tax on share awards (13) (13) (13) Current tax on share awards
2 2 2 Dividends (873) (873) (7) (880) Non-controlling interest
1 1 arising on business combination Put option issued to non- (29) (29) (29) controlling interest Total transactions - 27 - - - (852) (825) (6) (831) with owners Balance at 73 86 (14,229) (1) 110 19,672 5,711 70 5,781 31 December 2011 Net income 1,829 1,829 4 1,833 Other comprehensive income Actuarial losses, net of tax (49) (49) (49) Gains on cash flow hedges, 3
3 3 net of tax Net exchange adjustments (250)
(250) (5) (255) on foreign currency translation, net of tax Reclassification of foreign 9
9 9 currency reserves on disposal of subsidiary, net of tax Total other comprehensive - - - 3 (241) (49) (287) (5) (292) income Total comprehensive income - - - 3 (241) 1,780 1,542 (1) 1,541 Transactions with owners Proceeds from share issue 98
98 98 Share based payments
49 49 49 Current tax on share awards
23 23 23 Shares repurchased (535) (535) (535) and held in Treasury Dividends (916) (916) (4) (920) Acquisition of non-controlling (51) (51) (55) (106) Interest Deconsolidation of
(9) (9) non-controlling interest following loss of control Total transactions - 98 - - - (1,430) (1,332) (68) (1,400) with owners Balance at 73 184 (14,229) 2 (131) 20,022 5,921 1 5,922 31 December 2012
Group Cash Flow Statement
For the year ended ended 31 December 2012 (unaudited)
Year ended Year ended
31 December 31 December
£m CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations: Operating profit 2,435 2,395 Depreciation of property, plant & equipment, 148
157 and amortisation & impairment of intangible assets Fair value (gains) / losses (7)
1 Gain on sale of property, plant & equipment and (13)
(9) intangible assets Gain on sale of businesses (32)
- Decrease / (Increase) in inventories 19 (131) Increase in trade and other receivables (16) (113) (Decrease) / Increase in payables and (160)
69 provisions Share based payments 49
61 Cash generated from operations: 2,423 2,430 Interest paid (34)
(35) Interest received 27
22 Tax paid (528) (677) Net cash generated from operating activities 1,888 1,740
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (166) (164) Purchase of intangible assets (11)
(41) Disposal of property, plant and equipment 13
5 Disposal of intangible assets 9
12 Acquisition of businesses, net of cash (877) (460) acquired Disposal of businesses, net of cash disposed 81
- Maturity / (Purchase) of short-term 7
(2) investments Maturity of long-term investments 14
2 Net cash outflow on deconsolidation of a (6)
- subsidiary Net cash generated used in investing (936) (648) activities
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of ordinary shares 98
27 Shares purchased and held as Treasury shares (535)
- Proceeds from borrowings 887
249 Repayments of borrowings (112) (400) Dividends paid to owners of the parent (916) (873) Dividends paid to non-controlling interests (4)
(7) Acquisition of non-controlling interest (106)
- Net cash used in financing activities (688) (1,004)
Net increase in cash and cash equivalents 264
88 Cash and cash equivalents at beginning of 634
568 period Exchange losses (16)
(22) Cash and cash equivalents at end of period 882
Cash and cash equivalents comprise Cash and cash equivalents 887
639 Overdrafts (5)
(5) 882 634 RECONCILIATION OF NET CASH FLOW FROM OPERATIONS Net cash generated from operating activities 1,888 1,740 Net purchases of property, plant and equipment (153) (159) Net cash flow from operations 1,735 1,581 Management uses net cash flow from operations as a performance measure. Earnings per Ordinary Share For the year ended 31 December 2012 (unaudited) 2012 2011 pence pence Basic earnings per share 252.5 239.8 Diluted earnings per share 249.5 237.1 Adjusted basic earnings per share 267.6 249.9 Adjusted diluted earnings per share 264.4 247.1 Basic Basic earnings per share is calculated by dividing the net income attributable to owners of the parent (2012: £1,829m (2011: £1,745m)) by the weighted average number of ordinary shares in issue during the year (2012: 724,238,235 (2011: 727,628,580)). Diluted Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potentially dilutive ordinary shares. The Company has two categories of potentially dilutive ordinary shares: those resulting from exercises under the Executive Share Option and Employee Sharesave schemes. The options only dilute earnings when they result in the issue of shares at a value below the market price of the share and when all performance criteria (if applicable) have been met. As at 31 December 2012, there were 4m (2011: 4m) of Executive Share Options not included within the dilution because the exercise price for the options was greater than the average share price for the year. The Directors believe that diluted earnings per ordinary share, adjusted for the impact of exceptional items after the appropriate tax amount, provides additional useful information on underlying trends to shareholders in respect of earnings per ordinary share. Details of the adjusted net income attributable to owners of the parent are as follows: 2012 2011 £m £m Net income attributable to owners of the parent 1,829 1,745 Exceptional items 135 92 Exceptional charge included in finance expense - 4 Tax effect of exceptional items (26) (23) Adjusted net income attributable to owners of the parent 1,938 1,818 The reconciliation between the weighted average number of shares used in the calculation of the earnings per share is set out below: 2012 2011 Average Average number of number of shares shares On a basic basis 724,238,235 727,628,580 Dilution for Executive Options outstanding and Executive Restricted Share Plan 8,098,123 7,423,757 Dilution for Employee Sharesave scheme options outstanding 659,327 780,818 On a diluted basis 732,995,685 735,833,155 The Directors believe that diluted earnings per ordinary share, adjusted for the impact of the exceptional charge (net of tax) in the current year, provides the most meaningful measure of earnings per ordinary share. END -0- Feb/13/2013 07:00 GMT