Reckitt Benckiser

Consumer giant with German roots

We all consume all sorts of different products every day. From smartphones to food to toilet paper. In doing so, we often pour a lot of money into the coffers of just a few large corporations. For a consumer goods giant like that, it of course makes a lot of sense to diversify as broadly as possible and have a branded product in its range for every everyday situation.

To keep your home clean, you should reach for cleaning products every now and then. Laundry has to be freshly washed, toilets quickly build up limescale and the dishes should sparkle too. As a teenager you may struggle with acne. Later comes your first love, and you may face the question: "Kids - yes or no?" No matter what you decide, Reckitt Benckiser has both condoms and baby food on offer. And if at some point you get old and frail, there are even painkillers. So the German-British company is ideally positioned - but why isn't the stock doing as well as hoped?

The origins and business model of Reckitt Benckiser Group Public Limited Company

In 1818, Isaac Reckitt founded his own milling business with his brother Thomas in Boston (East England). They built wind-powered mills and later expanded their business into cement production. In 1833, however, Isaac left the company to get into the corn business. That failed, though, so in 1840 Reckitt rented a starch factory in Hull. Under his leadership, the factory produced soluble starch from both flour and sago. After his death, the management of the company passed to his 3 sons and the firm was renamed Reckitt and Sons. In the 1850s the company focused on producing laundry blue, a dye that kept white clothes from yellowing. In 1857 it also got into the biscuit business, and soon its own biscuit and rice starch factories were built. In 1888 Reckitt and Sons became a public limited company - with this event it began expanding radically. In 1938 it merged with its biggest competitor in the starch market, J & J Colman. Jeremiah Colman had started grinding mustard and flour in a water mill near Norwich in 1814. Together under the new name Reckitt & Colman Ltd., they made a number of acquisitions. Among them were the well-known brands Air Wick and Carpet Fresh.

But let's go back to 1823 once more, when the entrepreneur Johann Adam Benckiser founded his chemicals business in Pforzheim. In his factory he mainly produced ammonia and hydrochloric acid. In 1828 the chemist Ludwig Reimann joined the company and later even married Benckiser's daughter. When Benckiser died in 1851, Reimann became the owner of the business - at that time it mostly produced tartaric, citric and food acids. In 1854 it established its first business relationship with Jeremiah Colman, who supplied his laundry starch to Germany. At that time, nobody could have guessed that almost 150 years later they would merge ...

Reimann's descendants drove the company's growth enormously. From 1956 onward, Benckiser developed a number of household and industrial cleaners. Well-known brands such as Calgon, Calgonit, Clearasil and Sagrotan were established. Benckiser also bought into the American cosmetics manufacturer Coty Inc.. Branded products such as Vanish and Cillit Bang followed. The step onto the stock market didn't come until 1997. 2 years later it merged with its long-time business partner Reckitt & Colman, and finally Reckitt Benckiser was born.

What can we expect from Reckitt Benckiser in the future?

Reckitt Benckiser's stock has been doing rather poorly in recent years. A cyberattack caused the company a lot of trouble. It had logistical supply problems and had to deal with a lawsuit from the US Department of Justice. And what is the board doing about it? In the future, it will try to gain an even stronger foothold in emerging markets. Going forward, a proud 40% of revenue is supposed to come from developing countries. China in particular is seen as the largest market besides the USA. To position itself better here, in 2017 it bought the baby food manufacturer Mead Johnson for 16.6 billion US dollars. As is well known, more children are born in emerging markets than in our developed countries.

In addition, the company has launched a restructuring program. It wants to clearly separate the hygiene and cleaning division from the health division so that both can develop better and faster. For this purpose it also sold its food division. The focus here is clearly on its 20 power brands - after all, they account for 80% of total revenue. Hello, Pareto. Last but not least, a new CEO will take office on September 1. The Indian-born Laxman Narasimhan was previously head of Latin America at PepsiCo. and is now supposed to help get Reckitt Benckiser back on the road to success.

What about the dividend?

Shareholders have been receiving a share of the profits since 1988 (back then still from Reckitt & Colman). Since 2003 the dividend has even been raised every year, so the company gets to count itself among the dividend nobility. Over the last 10 years, the payout was raised by around 12% per year. I find that quite decent. The current dividend yield is 2.8% and the payout ratio a solid 55%. That leaves enough money in the coffers for crisis years.

Conclusion:
Reckitt Benckiser makes products you'll inevitably stumble across on the supermarket shelf. Even though the stock hasn't done particularly well in recent years, I still think the company is very well positioned for the future. Investors who have been in RB for a while will surely be rather cautious - but buying more or even getting in for the first time can certainly pay off here in the long run.