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The departure of Bart Becht from Reckitt Benckiser marks the end of an era
The imminent departure of Bart Becht from Reckitt Benckiser (LON:RB.) marks the end of an era for the household products group. He has been at the helm of the group since it was formed through the merger of Benckiser with Reckitt and Colman in 1999.
At the start of 1999 the stock traded at under £8 but recently has approached around £35 illustrating that shareholders have done well during the ‘Becht era’. Mr Becht has also drawn headlines for the size of his compensation package due boosted by the company’s performance. He joined Benckiser in 1998 after a career at rivals Procter and Gamble.
The focus for investors recently has been whether growth has slowed and whether competitive threats could hit margins. However, the group’s exposure to developing markets, its defensive characteristics and low rating (relative to how it has previously traded) have determined the direction of the share price.
First half results for 2011 show some of the conflicting trends within the group which resulted in revenue growth of 4% excluding exchange rate effects and pharmaceuticals.
On the one hand Europe was again weak with a 1% fall in like-for-like sales while developing markets were strong with a 14% increase. North America and Australia came between the two with a 2% increase.
The acquisition of SSL (completed 1st November 2010) is immediately apparent on the overall results with an 11% boost to sales. Thus after taking into account a 1% exchange rate hit the reported sales growth for the group excluding pharmaceuticals was 14%.
Reckitt Benckiser pharmaceuticals saw 22% like-for-like growth but a 6% negative exchange rate effect meant reported sales growth of 16%. Overall sales growth for Reckitt’s came in at 14%.
With Europe accounting for 44% of net revenue the like-for-like sales decline has been a drag on the group. However, according to Reckitt’s this was due to aggressive pricing rather than the loss of market share as the group contends that volume shares improved in the first four months of the year.
Turning to the remaining two regions and it is notable that developing markets now make the same revenue contribution, at 24% of net revenue, as the North America and Australia regions.
Given their faster growth, developing markets are clearly set to become the group’s second most important geographic block by revenue. However, with lower operating margins they still rank in third place in terms of operating profits.
Overall, a strong line-up of product innovations for the current year bodes well and suggests that the post-Becht era will remain one of profitable growth and the increased importance of developing markets will serve to offset Europe whilst bolstering Reckitt’s chances of staying ahead of its competitors. The rating of 14X this year’s earnings isn’t overly expensive given the defensive characteristics of the group and this falls to around 12X for 2014.
This report was produced by Senior Research Analyst, Andrew Latto
