Reckitt Benckiser revenue up 5% on constant currency basis to £8.87bn

In a trading update on Monday, the FTSE 100 consumer goods giant revealed total net revenue growth of 5% on a constant currency basis to £8.87bn, and like-for-like revenue growth of 6%, which exceeded company targets.

Reckitt's gross margin expanded during the year by 140 basis points to 59.1%, which the company's board said was driven by a mix of commodity costs and cost optimisation initiatives.

Its adjusted operating margin was up 210 basis points to 26.8%. Reported earnings per share were up 6% to 240.9p, and diluted earnings per share were up 12% to 258.6p.

"RB delivered excellent growth and margin expansion in 2015 as a result of our continued focus on our Health, Hygiene and Home Powerbrand portfolio and supported by our culture of innovation and agility," said chief executive officer Rakesh Kapoor.

Its reported operating profit was up 7% on a constant currency basis to £2.24bn, with its reported net income up 8% to £1.74bn.

Adjusted net income was up 15% on a constant basis.

"Despite a year of mixed market conditions, we achieved broad-based growth across both developed and developing markets," Kapoor said.

"This was led by an exceptional performance in Consumer Health, due to both a strong flu season at the beginning of the year and outstanding performances from our innovations on brands such as Scholl, Durex, Nurofen and Strepsils," he added.

The company made a continuing investment in brand equity, putting £48m in for the year.

Reckitt Benckiser's tax rate - excluding exceptionals - was 20%, reduced from an ongoing 23% by the effect of future corporate tax rate cuts in the UK on deferred tax.

Net debt was reported at £1.6bn, with a free cash flow of around 100% of income.

"Strong gross margin expansion, combined with accelerated indirect cost savings from our Supercharge programme, created room in our P&L to both increase our brand equity investment and to deliver exceptional operating margin expansion," Kapoor explained.

He said he expected Supercharge to lead £150m in cost savings over three years, but the company had achieved a significant portion of those savings within the first year.

Reckitt Benckiser's board recommended a final dividend of 88.7p per share, up 12% against 2014, which brought the total dividend for 2015 to 139p per share.

Looking ahead, the company's management said it expected the macro environment to be tough, but remained confident in its so-called Powerbrands and Powermarkets to deliver another year of growth and margin expansion.

"We are targeting like-for-like net revenue growth of 4-5%," said Kapoor.

"For operating margin, we reiterate our medium term target of moderate margin expansion," he added.

Rakesh Kapoor said the company expected this growth to be supplemented in 2016 by part of the remaining efficienicies to come from Project Supercharge.

Whitman Howard was impressed with the numbers, issuing a buy recommendation with a price target of 6900p.

"Full year sales of £8,874m compared with VUMA consensus of £8,814m which was 0.6% ahead. Operating profits were £2,374m which appears 3.9% ahead of analyst forecasts, again based on VUMA," said Chris Wickham of Whitman Howard in a note.

"Reckitt Benckiser is salient as a UK listed international FMCG company which should grow in both mature and emerging markets. As such, it should trade – in our opinion – on a premium P/E to the rest of the UK large cap FMCG sector. We base our price target, which implies 16% upside, on a 26x 2016 P/E," he added.