Reckitt Benckiser – healthy prospects

A brief history

Reckitt has origins dating back to 1840 when Isaac Reckitt bought a starch factory in Hull, East Yorkshire. Its first product was laundry starch, but the company wasted no time introducing new products and opening offices in other countries.

Reckitt went public in 1888 and by the early twentieth century, it had over 5,000 staff and offices in the United Kingdom, Australia, South Africa and the United States.

The company continued to develop and acquire more products over the remaining years of the twentieth century. Well-known brands include Harpic, Dettol, Lemsip, Veet, Mortein and Gaviscon.

Reckitt merged with Benckiser in 1999, which added brands like Vanish and Finish to the product portfolio. The group has since acquired Nurofen, Durex, Mucinex, Strepsils and Clearasil amongst other brands.

Business segments and product categories

Reckitt Benckiser is organised into three business segments – Hygiene, Health and Nutrition.
Hygiene and Health are the largest and fastest growing segments, whereas Nutrition is the newest and smallest part of the group.

These business segments operate across fourteen different product categories and own leading brands within each category.

The total size of the market in which Reckitt Benckiser competes is estimated at US$300 billion (across all categories) and has grown by more than 4% per annum over the past five years.

Almost two-thirds of company revenues are made in developed regions such as North America and Europe. However, a growing middle class in the developing world will see its premium products become more accessible to consumers in other countries, including China and India.

Brand power is a key strength

Over the past fifteen years, Reckitt Benckiser has transformed into a global force in consumer health and nutrition.

The company now owns a vast range of iconic brands that hold either #1 or #2 positions in their markets. It’s a global leader in categories such as auto dishwashing (34% market share), surface and disinfection (33% market share) and intimate wellness (36% market share in condoms and lubricants).

COVID-19 has been transformational

The pandemic changed the world in many ways. It has certainly raised everybody’s awareness of the importance of good hygiene.

A surge in demand for disinfectants and other germ protection products benefitted Reckitt Benckiser immensely. In 2020, sales of Lysol jumped by 70% and Dettol sales grew 50%.

Sales of its household products also increased due to people working from home during that time. Reckitt Benckiser strengthened its supply chains and sales execution to cope with the sharp rise in demand. It also took the opportunity to expand into new regions.

By the end of 2021, Dettol and Lysol had been launched in over seventy new markets.
These products had little or no presence in Brazil, Turkey, Vietnam, Scandinavia and Eastern Europe prior to the pandemic.

An enviable track record

The company has an impressive track record of financial performance. It has grown its revenue, earnings and dividend over many years, even in difficult times.

Earnings and dividend per share grew by 23% and 25% respectively in 2009, during the Global Financial Crisis.

Strong cash flows are used to strengthen existing market positions, fund new acquisitions and pay attractive dividends to shareholders. In addition, excess capital is often returned to shareholders via share buybacks.

Defensive characteristics

Reckitt Benckiser has many defensive qualities that position it to withstand a challenging environment, and it has proven resilient in past downturns.

The company sells goods that are necessities of daily life. Think of all the products in your kitchen, laundry and bathroom that you couldn’t live without.

The business also has enormous scale and diverse sources of income, which ensure its performance isn’t dependent on a single product or geographic region. Products are manufactured at forty sites around the world and sold in almost 200 countries.

Ample opportunities for growth

Future growth will come from significant investment in research and development and further acquisitions, which have been a cornerstone of Reckitt Benckiser’s strategy throughout history.

The company is also well positioned to benefit from urbanisation, global warming, ageing populations and a growing emphasis on health and wellbeing.

This is an excerpt of an article published in our flagship publication for clients only, News & Views. Craigs Investment Partners clients can view News & Views, including the full version of this article by logging in to the client portal.

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