British consumer goods group Reckitt Benckiser
New Chief Executive Rakesh Kapoor, who took over last September after Bart Becht's shock decision to retire, said on Wednesday the group would raise marketing spend as it aims to get half of its core sales from emerging markets by 2016.
As part of this new strategy, the group is reorganising its reporting to include two clusters of emerging markets, while it will merge its European and North American regions which will save costs and lead to unspecified job losses.
We should be investing more in these markets as this is where there is the opportunity for growth. We are shaping our business for tomorrow, he told a conference call after beating forecasts with an 8 percent rise in fourth-quarter earnings.
He added the group would intensify its focus on health and hygiene brands as these gave the highest profit margins, growth and consumer loyalty, and are expected to be 72 percent of its core business by 2016 from 67 percent currently.
Kapoor defines his core business as health and hygiene brands in addition to home ones like Vanish and Woolite fabric cleaners, while its food and pharmaceuticals units are seen as non-core. It also plans to discontinue its private label business -- products retailers sell under their own brand -- with annual sales of around 200 million pounds.
Reckitt shares rose 2.9 percent to 3,480 pence by 1400 GMT to be the FTSE 100's <.FTSE> biggest riser as investors reacted favourably to its new strategic focus and the forecast-beating results.
Recovering top line growth will lead to a period of modest margin performance and this is likely to lead to around 6-7 percent earnings growth over the next 2-3 years, said analyst Celine Pannuti at brokers JP Morgan Cazenove.
Reckitt outperformed its peers in recent years with a series of new products and by cutting costs, but with only a quarter of its sales in emerging markets it has suffered recently as mature markets and especially euro zone countries have slowed.
Kapoor set new 5-year targets to grow the business 2 percent above annual market growth rates which he put at 1-2 percent, to raise margins steadily, and lift its emerging market exposure to the 50 percent level from 42 percent for its core business.
The new strategy was well timed as 2011 underlying sales fell 1 percent in Europe due to aggressive price cutting and competition, its North American and Australian region grew just 3 percent, while emerging markets rose 13 percent.
The regional shakeup will see Reckitt's world divided into three with one region including Latin America, Asia and Australia and another with Russia, the Middle East and Africa, while the merger between Europe and North America is expected to save 30 million pounds by 2013.
Kapoor said the group with 2011 sales of 9.5 billion pounds will invest an extra 100 million pounds to drive the growth of its brands, which will come largely from further cost cutting, and aim the new cash at its 16 key markets assumed to include key growth markets such as Brazil, Russia, India and China.
He reiterates the message from rival Unilever
Reckitt, which also makes Cillit Bang cleaners and Air Wick air fresheners, reported fourth-quarter earnings rising to 74.2 pence a share compared with a company-compiled forecast of 71.3p and a ThomsonReuters I/B/E/S estimate of 71.8p.
For 2011, Reckitt reported a 13 percent rise in net revenue and an 11 percent rise in net income at constant exchange rates, just above its target for 12 and 10 percent rises.
Its 2011 dividend was increased 9 percent to 125p, in line with paying out 50 percent of annual earnings to shareholders.
(Reporting by David Jones; Editing by David Holmes and Jodie Ginsberg)