27th Jul 2015 11:49
LONDON (Alliance News) - Reckitt Benckiser Group PLC on Monday said it has upgraded its like-for-like revenue growth target for the full year after its pretax profit rose in the first half thanks to a solid performance across the business.
The FTSE 100-listed consumer goods company, which makes products including cleaning spray Cillit Bang, Nurofen painkillers and Durex condoms, said its pretax profit for the six months to the end of June was GBP921 million, up from GBP838 million a year earlier.
Net revenue for the company hit GBP4.36 billion in the half, up from GBP4.332 billion last year, driven by good results across its geographical operations and aided by a favourable flu season for the company. Reckitt is now focused solely on consumer health and hygiene products, having spun off its pharmaceuticals business into FTSE 250-listed Indivior PLC last year. Like-for-like revenue growth in the half, at constant currencies, was 5%.
"I am pleased with our first half results, they once again confirm that our strategic focus on consumer health and hygiene is delivering sustainable growth and outperformance. We continue to invest behind our innovations such as Scholl Express Pedi and Durex Real Feel in both developed and developing markets leading to broad-based growth across both areas," said Rakesh Kapoor, Reckitt's chief executive.
Kapoor added that, following its robust first-half performance, Reckitt now expects to exceed the targets it set at the start of the year and is targeting like-for-like revenue growth of 4% to 5% for the full year. In its full-year results in February, the group had set out a target for 4% like-for-like net revenue growth in 2015.
Reckitt added that the savings it is driving through its Project Supercharge cost-cutting programme have been delivered earlier than expected, and it now expects to deliver total savings at the top end of its GBP100-150 million per year estimates by the end of the programme. The group expects to achieve these savings by 2017.
Thanks to those savings, and input benefits from the weak euro, the company's adjusted operating margin improved by 160 basis points in the first half, ahead of the guidance it gave at the start of the year. It does, however, expect this improvement to moderate in the second half thanks to some one-off, non-sustainable cost savings it made in the second half of 2014, which will make the margin comparatives tougher in the second half.
The group said it will pay an interim dividend of 50.3 pence per share, in line with its 50% payout ratio policy. The figure is lower than last year, when it paid 60 pence per share, as this included the Indivior business.
Reckitt shares were up 2.6% to 6,058.57 pence on Monday, the best performer in the FTSE 100.
Europe and North America like-for-like net revenue rose by 4% in the first half, boosted by broad-based growth in the group's markets and for its consumer health brands, with good flu season conditions for the company and the launch of its Amopé Velvet Express Pedi pedicure product in the US both helping.
Like-for-like net revenue in the group's emerging markets business was up 7%, despite mixed market conditions across the business. Improved consumer sentiment in India proved a positive, but conditions in the Latin American market, particularly Brazil, remained tough.
From a category perspective, Reckitt said its growth has been driven by a 13% like-for-like rise in net revenue in the first half from its consumer health brands, particularly the launch of the Amopé footcare brand in the US, a continued good performance from its Scholl express pedicure range, and strong results for Durex and Nurofen.
The group added that the acquisition of the K-Y personal lubricants brand from Johnson & Johnson, the US healthcare company, has been successfully integrated across its operations, except in the UK, due to the competition concerns raised by the Competition and Markets Authority, the UK's antitrust regulator. Back in May, the CMA said its provisional findings on the K-Y acquisition found that the deal may result in higher prices for consumers.
The CMA had said that after considering the evidence put forward, its provisional findings on the deal indicate the merger will lead to a substantial reduction in competition in the personal lubricants market, potentially through higher prices, meaning customers buying the products would be worse off.
K-Y and Reckitt's existing Durex brand hold nearly three quarters of the market share in supermarkets and national pharmacies, the CMA had said in May, and while consumers can select from wide range of products when buying in a specialist retailer or online, there is little evidence these other outlets will be able to offset the impact of the acquisition.
Reckitt said its vitamins, minerals and supplements business had a mixed performance in the half, with good growth from its Airborne, Move Free and Digestive Advantage products but challenging conditions for its MegaRed Omega-3 supplements.
Like-for-like sales in Reckitt's Hygiene arm grew 3% in the half, led by emerging markets growth for Dettol and Harpic, while like-for-like sales in its Home franchise, which includes Vanish fabric care and Air Wick air fresheners, rose by 1% after an improvement seen in the second quarter thanks to new product launches.
Liberum analyst Robert Waldschmidt said Reckitt's like-for-like revenue growth and its adjusted operating profit both came in ahead of consensus estimates. He added that Reckitt's strong cash flow generation provides ample scope for healthy shareholder returns while providing sufficient firepower for mergers and acquisitions targeted at accelerating its push to be a global leader in consumer health. Waldschmidt estimated Reckitt will generate GBP5 billion in free cashflow post dividends over the next five years.
"We continue to view Reckitt as the most compelling transformational story in the European consumer sector, with the company gradually shifting its centre of gravity away from home care towards consumer healthcare via a combination of strong organic sales growth in health and acquisitions," added Guillaume Delmas, an analyst at Japanese bank Nomura.
By Sam Unsted; [email protected]; @SamUAtAlliance
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