Household goods giant Reckitt Benckiser managed an impressive first-half performance, despite facing challenging market conditions. Indeed, the group - whose products include such well known brands as Cillit Bang, Dettol and Nurofen - boosted operating profit by 17 per cent (at constant exchange rates) year-on-year to £819m. As a result, management, led by chief executive Bart Becht, raised its full-year forecasts - net revenue growth of 5 to 6 per cent is now expected for 2009 (up from 4 per cent) along with net income growth of 10 to 11 per cent (up from 8 to 10 per cent).
Management thinks that the ability to deliver decent growth at such a difficult time reflects consumers' differing attitudes towards value. Reckitt believes that customers either choose cheap unbranded products or go for established branded products that are trusted to deliver better results. On that basis, it is the middle-range brands that are coming under pressure with better sales for Reckitt's premium branded products, as well as for cheap supermarket own label offerings. The group continues to vigorously market its products, too. Without adjusting for currency effects, Reckitt's media spend grew 10 per cent in the period to 12.1 per cent of revenues. Yet the business is also benefiting from cheaper advertising rates, with the savings being ploughed back into other forms of brand-building.
In fact, Reckitt delivered growth across all its markets. The group's developing markets unit grew revenues 15 per cent (at constant currencies), the North American & Australian operation managed 7 per cent sales growth and the European business grew sales 2 per cent. Margins look good, too, with the group operating margin having risen 110 basis points in the period to 21.6 per cent, while robust cash flow helped slash the debt pile by 52 per cent in the first half to £525m.
Reckitt's pharmaceutical operation grew operating profits 46 per cent to £149m, but its Suboxone product (for opiate dependency) will face generic competition once it loses US exclusivity at the end of September. This US pharma business reported first-half operating profits of £132m, and Reckitt notes that 80 per cent of these profits could be lost to generic competition in 2010.
Prior to these figures, brokers' consensus estimates of pre-tax profits for the full year stood at £1.78bn, with EPS of 185p (£1.47bn and 158p in 2008).
| ORD PRICE: | 2,850p | MARKET VALUE: | £20.3bn | |
| TOUCH: | 2,847-2,851p | 12-MONTH HIGH: | 2,908p | LOW: 2,097p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 450p* | NET DEBT: | 16% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2008 | 3.07 | 581 | 62.1 | 32.0 |
| 2009 | 3.78 | 816 | 86.3 | 43.0 |
| % change | +23 | +40 | +39 | +34 |
Ex-div: 5 Aug Payment: 28 Sep *Includes intangible assets of £5.9bn, or 829p a share | ||||
