Qualiport

Structure & Brands.

In our search for the next potential Qualiport company, we've already looked at one of our chosen branded consumer goods companies in Unilever. If you missed the first two articles about them, click here and then here.

Reckitt & Coleman (R&C) is a global company specialising in the manufacture in over 30 countries and the sale in more than 170 countries of household and pharmaceutical products. They employ 16,500 people worldwide, of which only about 1,000 are based in the UK.

R&C have three rather basic strategic priorities:

1. Focus on brand leadership, concentrating on their core household and over-the-counter (OTC) competencies. Currently, over 70% of their brands are in either the number one or two market share positions.

2. Globalisation. The company is spread evenly between the three regions of North America, Europe and the rest of the world. By globalisation, R&C is attempting to run one big efficient company regardless of border and region barriers, rather than being segmented (where different companies and working practises are adopted in many different countries).

3. Developing markets. Like most big companies, R&C see this as an area of real growth. They are concentrating on targeting Latin America, Africa & Middle East and East & Southeast Asia. They have only a small exposure to the latter economies, and the company expects the "Asian crisis" to have little overall impact on the company.

R&C has undergone "massive organisational changes" in recent years. Rationalisation of the global supply chain has been one area that the company has worked on. This means, for example, that the purchasing, development and manufacture of pharmaceuticals has been transferred into one state of the art factory here in Hull. The company subsequently transferred production from as far away as Sydney into this one centre of global excellence. From Hull, R&C can now co-ordinate and harmonise the formulation and packaging of products across the globe, ultimately bringing big cost savings to the company.

The downside of this behaviour, the constant threat of rationalisation, is the effect it has on staff morale. This is something you cannot gauge from an annual report alone, and is where Phil Fisher's "scuttlebutt" approach would be appropriate. If you know any Reckitt & Coleman past or present employees, please tell us about it and them on our message boards. Although Phil Fisher was ahead of his time, having bought shares in Texas Instruments in 1956 and in Motorola well before their time, it was a pity he didn't have access to a world wide web like we are lucky enough to have today. If you haven't read his book "Common Stocks and Uncommon Profits," it's well worth it. First published in 1958, it reads as if it was written only yesterday.

Structure and Brands

Within the broader headings of household and pharmaceutical, R&C divides itself into 11 product categories within which lie the all-important brands. Here are the 11: Air care, Analgesics (cold/flu), Antiseptics, Fabrics care, Floor care, Furniture care, Gastro-intestinals, Lavatory care, Pest control, Shoe care and Surface care.

They also have a Food products division, which gets very little mention throughout the 1997 annual report. It appears that this is a North American only division, and includes the brands of French's french fried onions and Frank's RedHot Sauce. As we shall see from the numbers, however, this is not a completely insignificant division, although possibly one that the company does not consider to be core. Any buyers out there?

Although they emphasise the pharmaceutical side of their business, at the moment it makes up only 12% of the company's turnover. They do, however, see this as a big growth area, especially as they will be able to leverage the OTC brands and medical competence to the household goods, and visa versa. R&C see their pharmaceutical portfolio growing as the rising worldwide trend towards self medication continues.

Some of the brands you may know include: Dettol, Mortein, Harpic, Gaviscon, Lemsip, Disprin, Mr. Sheen, Lysol, Veja, Haze Mood, Spray & Wash, Preen, Woolite, Nuggett and Dettox.

Health and hygiene is a common thread in many of the company's products and brands. R&C are taking advantage of the public's greater awareness of the importance of controlling infection and disease. They themselves produce promotional but educational material to distribute to doctors and straight to consumers. With awful germs like salmonella and E.coli potentially lurking somewhere in every household, Reckitt & Coleman hope to educate and persuade consumers to use their products to create a healthier living environment.

Much like Unilever, and again in a similar fashion to most multi-nationals, Reckitt & Coleman divide themselves into the operating regions into which the operating products are sold. We've already passed over the regions, being the established ones of Europe, North America and Australasia, and the developing regions of Africa & Middle East, East & South East Asia, and Latin America. This does make things a bit complicated, but life's not meant to be easy.

The Reckitt & Coleman Snapshot

Recent Share Price: 1190p
Market capitalisation: £4.8 billion
1997 Sales: £2.2 billion
Price-to-sales ratio (PSR): 2.36

1997 Earnings Per Share: 53.7p
1998 EPS estimate: 57.4p
1999 EPS estimate: 62.0p

1997 Price Earnings Ratio (P/E): 22.2
1998 Estimated P/E: 20.7
1999 Estimated P/E: 19.2

Next Week

Next Wednesday, we'll get a bit more familiar with Reckitt & Coleman and have a closer look at the numbers. In the last 5 years, they have increased their sales in total by a less than awe inspiring 4.8%, yet adjusted EPS has risen by 26%. Something to do with an improving margin? We'll see.

The 1997 Reckitt & Coleman annual report is one of the best and clearest I've seen. I'm not talking about the pretty pictures and nice words that accompany every company's report, but the clarity of the financial statements. They go out of their way to give the shareholder as much information as possible about the company, so shareholders can evaluate their investment. As well as having full segmental breakdowns of sales and profits including operating margins, they also include a section on the capital employed in each region and product area, a full breakdown of the EPS calculation including the reconciliation and explanation of the difference between FRS3 and adjusted EPS, and a breakdown of their reorganisation provisions. The 5 year summary of accounts completes the package. Hats off to the accountants at Reckitt & Coleman.

In the meantime, if you've got any comments, views or questions on Reckitt & Coleman or anything else for that matter, please don't hesitate to post them on our message boards.

Have a great weekend, Fools.

Bruce Jackson (TMF Googly)

Qualiport Numbers

Today's Numbers            Date    05/06/98


          Change     Bid
          pence       £

RTO       -0.01      4.16
EMAP       0.00     12.50
MKS        0.11      5.62         


Rec'd        #     Stock      Buy      Now    % Change   £ Change

19/12/97   1565  Rentokil     2.55     4.16     63.1%       1.61 
17/04/98    337  EMAP        11.85    12.50      5.5%       0.65 
11/05/98    722  M & S        5.535    5.62      1.5%       0.085


19/12/97   1565  Rentokil  4,040.63  6,510.40  61.1%    2,469.77 
17/04/98    337  EMAP      4,043.37  4,212.50   4.2%      169.13
11/05/98    722  M & S     4,052.24  4,057.64   0.1%        5.40

Cash                                    33.96

Total                               14,814.50 


                Day    Month    Year    History

Qualiport       0.4%   -0.8%    52.3%    55.7%
FTSE 100        1.5%    1.3%    15.8%    18.5%
FTSE All Share  1.2%    1.1%    17.5%    20.0%