Reckitt Benckiser Group Plc (RB)

Source: RB website

I started looking around the house and realized that I've quite a few items from Reckitt Benckiser ("RB"). I've also been buying lots of Dettol wipes due to an ever exuberant puppy who salivates way too much and thinks that slathering you with his saliva is love. He is by far the happiest dog I've ever met which probably explains why his mouth is open most of the time. Well it was also down to either reading RB's annual report or Kering's annual report and honestly I wasn't dying to read >300 pages anytime soon. Although, sadly for me I would have to read Kering sooner or later as ACCICB is semi keen on it. I have my preconceived perceptions on luxury stocks which may or may not be right but I guess I can explore that later.

Reckitt Benckiser is a brand powerhouse it seems and it concentrates mainly on the 3 Hs, namely Health, Hygiene and Home although they do have revenue coming in from Food and Pharmaceuticals too. They had divested their Pharmaceuticals arm last year and it's now called Indivior plc ("INDV") and listed on LSE. I thought about purchasing some shares of INDV when it IPOed but decided against it as we do have some holdings in other Big Pharma and I don't wish to have excess exposure in the same industry. 

I like the 3 Hs as I feel their categories are quite connected to each other when it comes to consumer purchasing behaviour. Health contributed 29% of core net revenue, Hygiene 43% and Home 22%. I would think that Food as a category is not doing that great so it would make sense to dispose or divest this in future. Their brands are well known household names (Durex, Strepsils, Scholl, Clearasil, Dettol, Mortein, Harpic, Air Wick, Vanish etc.) and have been usually number 1 or 2 in their category. However, competition in these categories are fierce as they are up against other MNCs like P&G, Unilever, Colgate-Palmolive etc as well as other local brands in the respective markets. 

I also wondered whether consumer purchasing habits have changed such that more people are open to buying generic or private brands rather than well known household names in RB's stable. If so, that spells trouble for RB as you are competing with a usually locally made product which means little or zero FX issues. The best way to combat it would be to do product line extension and they have done it with Mucinex to great success. 

They changed their trading name to RB as compared to Reckitt Benckiser which is harder to say, spell and search. I find this to be a progressive move, kinda moving on with the times and acknowledging that sometimes it's ok to take on abbreviations. I find their choice of charity Save the Children and the support provided to be extremely well thought of. They are working to reduce the death rates caused by diarrhea which can be prevented through better health and hygiene. This ties in very nicely with their main product categories. 

The way they segment their markets into RUMEA, LAPAC and ENA was rather different, especially by combining Europe and North America into the same market. ENA currently represent 57% of core revenues whereas RUMEA and LAPAC contributed 43%. They have a clear strategy which is detailed in their annual report. Whether it's right or wrong is up to the view of the individual investor, but hey this is better than putting in fluff and puff in the annual report and not knowing what management is going to do in future. I have read a couple of annual reports written that way and boy was it a waste of time as I get no closer to deciding whether this company is worth my time. 

I do like the fact that the current CEO Rakesh Kapoor who has been there for 27 years is manning the show since 2011, since most people can't even work for the same company for 7 years. I would like to think that he has worked through many departments and countries in RB which gives him a good perspective on steering the company forward. The majority shareholder is a familiar one to me, JAB Holdings B.V. which is also behind Jimmy Choo plc ("CHOO") and many other firms. 

RB's numbers are slightly down from the previous year if you take into account the exchange rates issue. If you ignore that, then the numbers are slightly up. Q3 2014 numbers are also down if you look at the actual exchange rather than the constant exchange. Personally I prefer to look at the numbers that includes actual exchange rates because this is a global company and this will always be one of the issues that plagues not only them but also their peers. 

There were 3 reasons cited for poorer 2013 numbers, one of which was adverse exchange rates movements, weaker performance in RUMEA and their acquisiton of Schiff. Whereas it was the weak growth in the LAPAC areas that resulted in poorer numbers for Q3 2014. A whopping 93% of their revenues in FY2013 came from outside the UK and with the sterling behaving as it is, I find it hard pressed to think of how FX would be less of an issue for them. 

I heard from ACCICB that this year UK will be holding its elections and thus stocks listed on LSE would not be flying towards the sky. The costs of purchasing shares listed on the LSE are exorbitant if you are a foreigner and at this point, it would not be easy to trade RB and make some moolah thus we would be monitoring this for the moment. It does seem to me to be an excellent dividend stock to have as the declared dividends have been going up for the past 5 years. Now, if only I make my $$$ in pounds.... 


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