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Reckitt Benckiser continues to clean up in the pandemic

Free cash flow doubled but the interim dividend was kept flat as chief executive Laxman Narasimhan aims to increase investment in the business

Reckitt Benckiser -

Reckitt Benckiser Group PLC (LON:RB.) again lifted its outlook for the year after the consumer goods giant's sales were boosted by the coronavirus pandemic in the first half.    

Group like-for-like (LFL) sales grew by 10.5% in the second quarter to £3.4bn, albeit down from 13.3% in the first quarter, but still with strong growth of its Dettol, Lysol and other surface disinfectants, along with over-the-counter health brands such as Nurofen, Strepsils, Mucinex and Lemsip.

First-half sales of £6.9bn were up 11.9% on a LFL basis or 10.8% reported, with hygiene sales up 16.1% and health up 9.3%, held back by slower sales of Durex condoms after months of social distancing.

A new revenue stream came from a professional service business that was created in the period, with contracts signed with Hilton hotels, Avis car hire, Delta Airlines and other others since March.

Although free cash flow doubled to £1.9bn, the interim dividend was kept at 73p, with net debt trimmed by around 5% to £10.2bn, as chief executive Laxman Narasimhan said he plans to up the level of investment in the business by another £100mln to further accelerate growth in disinfectants, professional services and e-commerce.

Laxman said his strategy to rejuvenate sustainable growth at the FTSE 100 group has not changed. 

“Our strong outperformance will allow us to expand our plan to make incremental investments to capture new growth opportunities for the near- and long-term,” the Reckitt boss said in the half-year report.

While uncertainties remain for the second-half of the year, on both the public health and economic fronts, Reckitt’s earnings guidance for the year was increased as revenue growth of “high single digits” is now expected, along with a 350-basis-point improvement to operating profit margin.

The shares fell 1% to 7,639p on Tuesday morning.

Analysts at UBS noted that second-quarter sales were a 270 basis point beat to consensus expectations, driven by hygiene and Other Health, with underlying profit margins also better than forecast. 

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said the pandemic has acted as a tailwind, with the added benefit is the group thinks the current crisis will translate into a long-term behaviour shift towards hygiene.

“Underneath the noise, Reckitt does still have work to do, not least in the baby formula business which has been a drag on performance ever since it was bought," she said.

“Rejuvenating its brands is one of the driving forces behind a £2.2bn investment programme. Sales growth was stuttering before the outbreak, and while current conditions are somewhat of a jumpstart, it’s unlikely to pave the way to sustainable long-term revenue and profit growth.

“If anything, the priority now will be finding a way to make sure coronavirus doesn’t end up delaying turnaround plans. The group’s right to chase short-term opportunities while it can, but it would be a shame to see investments aimed at brightening the long-term being funnelled elsewhere.”

   --Adds share price and broker comment--

Quick facts: Reckitt Benckiser Group PLC

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Price: 5853 GBX

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