Another year of record results from the household goods giant.
It's been a great ten years for Reckitt Benckiser (LSE: RB). Formed by the merger of Reckitt & Colman and Benckiser in 1999, it has consistently outperformed its rivals, rewarding shareholders with a return few other FTSE 100 companies have been able to match.
The chances are you've probably already used one of its products today. The company's focus on 17 key 'powerbrands' -- market leaders in their categories, such as Cillit Bang, Vanish and Nurofen -- has been at the heart of its success.
Sales up, profits up, margins up
Fourth quarter and full-year results reported yesterday were at the top end of analysts' forecasts. Sales for the year of £7.8bn were up 8% at constant exchange rates, while adjusted operating profit increased 12% to £1.9bn, at a margin up one percentage point on last year.
The rise in sales was driven by the powerbrands and by stellar growth from Reckitt's heroin-substitute drug Suboxone. Stripping out the contribution from the pharmaceutical division reduces sales growth to 6%.
Suboxone's exclusivity in the US expired in October last year. The company fears it could lose up to 80% of sales and profits on the drug in the year following the launch of generic competitors. Generic competition has not yet emerged, but it's widely believed to be a question of when, not if.
Next year's targets
Due to the uncertainty surrounding Suboxone, Reckitt has not issued targets for the group as a whole for 2010. For the business, excluding the pharmaceutical division, targets are for sales growth of 5% and operating profit growth of 10% (both at constant exchange rate).
On a conference call, chief executive Bart Becht said the new targets should not be interpreted as a slowdown: "It's our going-in position." Reassuring words from a company with a history of making upwards revisions to its targets during the course of the year.
Cash and rumours
Strong cash generation enabled the company to wipe out last year's net debt of £1.1bn, and it ended the year with net cash of £220m. On current form that will rise to over £1bn by the end of 2010. There are no plans to buy back shares or treat shareholders to a special dividend.
Towards the end of last year, there was a wave of speculation that the company was on the brink of announcing a merger or major acquisition, with tips for Colgate-Palmolive and SSL International (LSE: SSL).
Becht said yesterday, though, that he thought 'industry consolidation' unlikely, but that Reckitt was looking at in-fill acquisitions in emerging markets. The bulk of the company's sales come from Europe (45%), and North America and Australia (28%), but sales in emerging markets are now close to 20%. Growth in these markets is strong with more and more people entering the middle class and able to afford Reckitt's products.
How are the shares looking?
The share price is up again on Thursday as the market digests the results. At 3,240p, it's on a forward P/E of 16 or so with a dividend yield of around 3%.
Rival Unilever (LSE: ULVR), which reported results last week, trades on a lower P/E and higher yield -- but there's nothing unusual about that. Reckitt has been on an even higher rating in the past and it looks like the market is discounting something for the uncertainty surrounding Suboxone.
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The author owns shares in Reckitt Benckiser and Unilever.
