Reckitt Benckiser interims

Reckitt Benckiser Group is a manufacturer and marketer of branded products in household, health and personal care products, sold into nearly 200 countries from operations in over 60 countries.  I have a holding in my income portfolio (epic code: RB.) 

Reckitt Benckiser announced their interims today showing revenue up by by 3% at constant exchange rates (CER) to £4,667m and up 4% to £4,323m, if we exclude the Pharmaceutical Business. 

By territories like-for-like growth was:
 

ENA (Europe/North America) +2%;
 

LAPAC (Latin America/Asia/Australia & New Zealand)  +7%;
 

RUMEA (Russia/Middle East/Africa/Turkey)  +5%;
 

Food +3%
 

Pharma -8%

 

Management stated that there is a modest reduction in the growth rate in India and marked slowing of growth in Thailand and Indonesia that impacted the (LAPAC) Area.

By product groupings like-for-like sales growth (excluding Food and Pharma detailed above) was:

Health +10%

Hygiene +3%

Home 0%

Portfolio -6%

Reported operating profit was £1,059m, an increase of 16% compared to last year and up 30% at CER, this is due to the reduction of exceptional charges from £249m last year to £22m this year.  Excluding theses exceptional costs then operating profit was down -7.1% to £1,081m, although once again if we exclude the effects of foreign currency, adjusted operating profit was up 3% at CER.
 

Diluted EPS at 111.1p was 22.9% higher, although on an adjusted basis declined by -4.1% to 113.4p.  The interim dividend is held at 60p.
 

Free cash flow was £729m compared to £893m last year and net debt has increased by £222m to £2,181m producing gearing of 35%.
 

Management have stated that they remain on track to achieve their full year revenue growth target of 4-5% (ex Pharmaceuticals), they also expect to have continuing operating margin expansion in the second half (ex Pharmaceuticals ).
 

Commenting on the possible divestment of the Pharmaceutical business, they have concluded that a demerger of the business with a separate listing on the London Stock Exchange is the preferred option for creating value for shareholders.  I am surprised at this choice, but I'm sure management would have sought views from a select group of institutional investors, who would have been made "temporary insiders" for the purpose.  Management expect to conclude this within the next 12 months. 
 

This is a similar performance to the first quarter and they remain on track to meet their guidance, although like many international companies, they will fall short on a reported basis, due the strength of sterling reducing their overseas earnings.  Due to this and the divestment plans, I would expect a positive response in the share price over the next few days.


I am a little concerned at no increase in the interim dividend, following a reduction in the final dividend for last year of -1.3%.  At the time I wrote: "My only concern is what message management are attempting to communicate, by reducing the final dividend by 1.3% (having increased the interim by 7.1%), so that the full year dividend increase was just 2.2%, a rate of increase not seen for over a decade from Reckitt Benckiser...".  This will need careful monitoring.