Reckitt targets emerging markets

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DETTOL to Nurofen maker Reckitt Benckiser is ramping up its expansion in emerging markets to counter sluggish growth in Europe and the United States.

The group said it is “shaping its business for tomorrow” by setting a target of earning half of its sales from emerging markets by 2016.

The group is also intensifying its focus on health and hygiene brands.

“We should be investing more in these markets as this is where there is the opportunity for growth,” said new chief executive Rakesh Kapoor, who replaced Bart Becht in September.

“We are shaping our business for tomorrow.”

Reckitt, which was originally founded in Hull and has research and development and healthcare manufacturing operations in the city, yesterday reported a six per cent underlying increase in adjusted operating profits for the final three months of 2011, rising to £739m from a year earlier.

Like-for-like revenues increased three per cent to £2.4bn in the fourth quarter. The consumer giant said it plans to scrap quarterly reporting, and will instead report results on an interim and preliminary basis.

For 2011 as a whole, adjusted profits increased 13 per cent to £2.5bn and like-for-like revenues were up four per cent at £9.5bn.

But within this, like-for-like European sales dipped one per cent, while North American and Australian sales were up three per cent. Reckitt saw growth of 13 per cent in developing markets.

As part of a strategic review launched by Mr Kapoor, a shifting geographic focus will see Europe and North America combined as a new reporting area. Emerging markets will fall under two new reporting areas, instead of the previous one.

Reckitt said this will cost £75m, but deliver £30m in annual savings from 2013.

“We need to reshape our strategy to enable us to continue our track record of outperformance,” said Mr Kapoor.

Emerging markets, such as Africa, China the Middle East and Latin America, currently comprise 42 per cent of the group’s turnover. It plans to increase this to 50 per cent through “disproportionate” investment in 16 “powermarkets”.

Reckitt is also targeting achieving 72 per cent of its sales from health and hygiene by 2016, from 67 currently.

This will be achieved through another £100m ploughed into brands, building on its successful “powerbrand” strategy.

However, it is drawing up plans to exit its £200m private label business, which makes products for retailers. “We have undertaken a strategic review of the business and are looking at all options, and are proposing a discontinuation of the operation,” said Reckitt.

The company said 2012 will be a year of “transition and investment”. It is targeting net revenue growth two percentage points above the market’s growth of one to two per cent.

Reckitt said it spent 11.8 per cent of net revenue on advertising and media work in 2011, a nine per cent increase, as it was forced to hike spending in Europe and North America to defend market share.

“Against the background of tight quarter expectations, particularly on the operating line, Reckitt Benckiser has beaten both full-year and fourth quarter consensus and full-year guidance,” said analysts at Investec.

But they added “it feels as if we will be downgrading our numbers modestly for the new guidance”.

Shares in Reckitt gained 2.8 per cent to close up 95p at 3,477p.

Reckitt traces its roots back to the early 19th century in Hull and Germany.

Industrial chemicals business Benckiser was founded by Johann A Benckiser in Germany in 1823. In 1840 Issac Reckitt rented, then bought, a starch mill in Hull. The company became renowned for starch, washing blue and black lead for polishing. The companies merged in 1999.

john.collingridge@ypn.co.uk