Pressure on margins at Reckitt
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Your support makes all the difference.Tough price competition and margin pressure kept profits flat before exceptional items at Reckitt & Colman last year. The figures underline the group's need to consolidate its position in the US household products market through the recently announced acquisition of L&F from Kodak.
Sir Michael Colman, who announced that he is to stand down as chairman in six months time, warned that world economic and competitive conditions got no better during the year and the shares closed 11p lower at 612p.
There was no further news on the sale of Colman's, the Norwich-based mustard and soft drinks maker, and Vernon Sankey, chief executive, refused to comment on speculation that Reckitt had turned down one offer because it had failed to secure an agreement that the jobs would remain in Norfolk.
The sale of Colman's is part of a £400m disposal programme to part-fund the £1bn purchase of L&F, the North American household products group which makes Lysol, America's leading disinfectant.
The rest of the purchase is to be funded by last year's £230m rights issue and bank borrowings, which following the deal will amount to £800m. After sales held steady at £2.07bn, underlying operating profits edged higher from £305.2m to £308.5m. Including the £56m cost of rationalising European manufacturing and distribution operations and £83m to integrate L&F, pre-tax profits fell from £256.9m to £160.2m. Adjusted earnings per share, excluding one-off charges, rose 5.5 per cent to 45.0p, although the reported figure slipped from 44p to 21.3p. A final dividend of 11.8p made a full year total of 18.7p, a 7.6 per cent increase.
Household goods and toiletries, which include Steradent, Immac, Harpic and Mr Sheen, saw sales remain static, but operating profits up 5 per cent.
The division accounts for 70 per cent of group turnover, and has been transformed by the US acquisition, which will be used as a springboard into emerging markets and a lever to improve margins around the world. Cutting duplicated costs could save £40m a year.
The move is the final stage in a 10-year transformation of Reckitt from a thinly spread, middle-sized conglomerate into one of the world's top four suppliers of household cleaning products - behind Procter & Gamble, Unilever and Colgate-Palmolive.
Pharmaceuticals, mainly products like Dettol, Disprin and Lemsip, increased sales by 4 per cent but operating profits slipped 12 per cent thanks to the rising cost of R&D and the high price of marketing treatments.
The two halves of the food division fared very differently. In the US, heavy investment in mustard marketing lifted sales and market share while RedHot Cayenne Pepper Sauce gained from the trend towards spicier foods. In the UK, however, Colman's had a difficult year with Robinson's soft drinks squeezed by price competition.
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