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Business News/ Companies / Reckitt Benckiser sees slowdown as emerging markets weaken
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Reckitt Benckiser sees slowdown as emerging markets weaken

Revenue will increase 4-5% at constant currency rates, excluding the pharma unit that is under strategic review

Reckitt Benckiser joins consumer companies from Unilever to Diageo Plc that have pointed to political uncertainty and slowing growth in some key developing economies. Photo: BloombergPremium
Reckitt Benckiser joins consumer companies from Unilever to Diageo Plc that have pointed to political uncertainty and slowing growth in some key developing economies. Photo: Bloomberg

London: Reckitt Benckiser Group Plc, the maker of Nurofen painkillers and Dettol handwash, predicted slower sales growth this year amid more difficult conditions in some of the world’s developing regions.

Revenue will increase 4% to 5% at constant currency rates, excluding the pharmaceuticals unit that is under strategic review, the Slough, England-based company said on Wednesday in a statement. That compares with a 7% gain last year, which included a 2 percentage-point boost from acquisitions.

The maker of Lysol cleaners and Finish detergent joins consumer companies from Unilever to Diageo Plc that have pointed to political uncertainty and slowing growth in some key developing economies. A further weakening of market conditions in Russia weighed on growth in the fourth quarter, chief executive officer Rakesh Kapoor said in an interview. So-called like-for-like sales rose 4% in the quarter and full-year revenue surpassed £10 billion for the first time.

The performance was “overall better than market expectations," even as emerging markets “disappointed slightly," Chris Wickham, an analyst at Oriel Securities, said in a note to clients.

Fourth-quarter sales growth decelerated to 3% in the region that includes Russia, from 5% in the prior quarter, and profit margins narrowed due to branding expenses. “I am not happy with Russia," Kapoor said on a conference call. “It’s not very good."

Durex Condoms

Sales in Latin America and Asia rose 9% in the period, compared with 10% in the third quarter, the company said, as India, Brazil and Thailand dragged on growth despite “strong" sales of brands like Durex condoms in China.

“Market conditions are more challenging now than at the beginning of last year, particularly in some emerging markets," Kapoor said in the statement. Still, he said “the long-term story in emerging markets remains good."

Also on Wednesday, the company forecast “flat to moderate" expansion in operating profit margins this year, excluding the drug business, after margins on that basis widened by 0.2 percentage points to 23.6% last year.

The stock rose less than 1% to 4,864 pence at 9:56 am in London. Before Wednesday, it had gained 0.7% this year.

‘Sale or Spin’

Kapoor is considering selling the drug business—which gets its sales from opioid-addiction treatment Suboxone—to focus on health-care brands including Durex and Mucinex cold remedies. He did not provide an update on the strategic review on Wednesday. Suboxone sales declined 18% in the quarter, in line with analysts’ estimates, as the drug’s newer film-strip format ended the year with 68% market share, unchanged from the end of the third quarter.

“We continue to expect sale or spin to be the outcomes of this review, which we believe would be well received by investors," Andrew Wood, an analyst at Sanford C. Bernstein, said in a note.

The company picked a new chairman for the unit, who will “play an important part in the next stage of RBP’s evolution," it said on Wednesday without disclosing a name.

Valuations for RB Pharma were as high as £6.3 billion ($10.3 billion) three years ago, yet have declined now that the business faces threats from generic and branded competition after several years of dominating the $1.9 billion opioid-dependency treatment market. Estimates now range between £1 billion and £4 billion, according to Exane BNP Paribas.

MegaRed Tablets

The company has acquired consumer-health assets in China, Latin America and the US over the past two years and is interested in buying Merck & Co.’s over-the-counter drugs business, people with knowledge of the matter said last week. Asked about acquisitions, Kapoor said only that the company plans to be an “aggregator" as the consumer-health sector consolidates.

Reckitt Benckiser is making “excellent progress" with acquisitions, Kapoor said, including vitamin-maker Schiff Nutrition, whose MegaRed Omega-3 supplement is being introduced in 20 countries. Acquisitions like Schiff helped the company’s health unit—which makes up 29% of revenue—post a 7% sales increase in the quarter, topping estimates from analysts like Bernstein’s Wood.

The hygiene unit that includes brands like Dettol and Finish diswasher detergents saw a 6% sales lift, helped by new products like the Harpic Hygiene Max toilet cleaners.

Adjusted net income climbed 2% to £1.97 billion ($3.2 billion) for 2013, the company said. The average estimate of 19 analysts surveyed by Bloomberg was for profit of £1.94 billion on that basis. Bloomberg

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Published: 12 Feb 2014, 07:08 PM IST
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