Reckitt warns of slowing markets despite beating its prof it forecasts

RECKITT Benckiser, the consumer goods giant behind Cillit Bang, Brasso and Strepsils, has beat forecasts with its second-quarter profits but warned of shrinking European growth just days after agreeing to buy Durex-maker SSL.

The group, which generates more than two-fifths of its sales in Europe, said growth had virtually disappeared in its markets there, forcing it to raise spending to hold on to market share as rivals turned up the competitive pressure.

Chief executive Bart Becht said: "Six months ago we were seeing 4 per cent growth in our markets in Europe, now it is below 1 per cent. In Europe there is now virtually no market growth."

Despite his cautious stance, the group stuck by its full-year targets after posting a 23 per cent rise in second-quarter net profits to 380 million, ahead of city estimates.

It is targeting a 5 per cent rise in full-year revenues and 10 per cent growth in operating profit, helped by new products such as Airwick Aqua Mist and its no-touch hand soap system under the Dettol brand.

Revenues grew by 6 per cent at constant exchange rates in the first half, with growth of 26 per cent in developing markets offsetting a 2 per cent drop in Europe. The group's half-year dividend rose 16 per cent to 50p.

Reckitt said margins improved as a result of savings in raw material costs, exchange rate benefits and general cost savings. It has also benefited from a favourable trend in marketing rates.

Panmure Gordon analyst Graham Jones said: "The market's concerns about weak performance in Europe and fabric care - largely the same issue - are not going to be alleviated by these results, but Reckitt is clearly set to deliver, in our view, another year of double-digit growth."

Analysts expect competition to intensify with Procter & Gamble's new Actilift stain remover being rolled out in Europe while the US giant keeps up the pressure on Reckitt with its Fairy dishwash products and its recent AmbiPur aircare acquisition.

James Edwards Jones, an analyst at brokerage Execution Noble, said: "We believe that competitive activity will get more difficult in the second half and now see significant risks to full-year targets."

Reckitt, which agreed to buy SSL International for just over 2.5 billion last week, said if its offer was successful it hoped to close the deal in the fourth quarter of 2010.

Becht declined to comment on the deal while the offer was open, but most anlaysts do not see any rivals coming forward to crash the party.

Headquartered in Slough, Reckitt employs some 24,000 staff globally and its stable of well-known household brands also includes Dettol and Nurofen.

SSL is headquartered in London and also makes Scholl footcare products, employing about 10,000 people worldwide with operations in more than 30 countries including India, Thailand and China.