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Obsessive delivery of consumer-driven, margin-increasing
and fast incremental innovation across all markets

HOUSEHOLD GOODS

Profile: Reckitt Benckiser

Reckitt Benckiser, the world’s #1 household cleaning products firm, came into being as the result of a 1999 merger between the UK’s Reckitt & Colman and the Dutch group Benckiser. The company leads the sector in the manufacture and sales of household cleaning products with sales increasing on average by 7% a year since its formation and a share price rise of 356% - compared with a 13% decline in the FTSE 100 index. From its European origins it continues to expand globally with its brands now available in more than 180 countries. Nearly half of its revenues now come from outside its home markets, with the US and Australia accounting for 28% of net revenues and developing markets 18%.

Reckitt Benckiser is passionate about delivering innovation. In fact, 40% of net revenues are from products which are less than 3 years old. Over the last year new products were introduced across major brands with numerous line-extensions and regional roll-outs maintaining momentum. The associated growth across the business is outpacing much of the industry and, with the establishment of what it calls its Power Brands, the company has achieved number one or two positions in 75% of its markets.

Alongside the incessant organic growth, 2006/2007 saw the first major acquisition for many years with the £1.9bn investment in Boots Healthcare International (BHI). The logic behind this acquisition was the assumption that an innovation focused consumer goods firm is more able to successfully support the retail of health care products than pharmaceutical companies. Healthcare is acknowledged to have a steadier, longer-term innovation cycle driven by medical claims and regulatory approvals rather than rapid new product launches. The acquisition has provided Reckitt Benckiser a new platform for growth and margin improvement through products like Stepsils, Nurofen, and Clearasil which are all now performing above expectations. Following the success of the BHI acquisition, at the end of 2007 Adams Respiratory Therapeutics, which owns cough and congestion drugs Mucinex and Delsym, was also brought into the fold to further add to the OTC portfolio, giving Reckitt a stronger foothold in the US.

Driving all this growth is a company that has innovation as its #1 objective. In a sector where it really is a case of innovate or die, from the CEO down, everyone is motivated and rewarded by contribution to innovation driven growth. Reckitt Benckiser’s culture is one which encourages innovation through a combination of limited bureaucracy, ambitious product targets and performance based reward structures. This system clearly works as multiple products are launched in different markets and the winners are spotted quickly. Successful new launches such as that of Cillit Bang in Hungary are spotted within weeks and then scaled up for global launch in a couple of months. While competitors struggle to find the next big thing to drive growth, Reckitt Benckiser gets on with launching numerous incremental innovations, from which it selects the high performers and then rapidly builds and extracts value.

Alongside its culture, another major differentiator of Reckitt Benckiser against many of its peers is the way that consumer insight, rather than high R&D investment drives product development. The company works hard to identify new cross-sector trends and highlight new opportunities for improved supplier-led innovation and employees across the business are encouraged to challenge traditional assumptions and approaches. Having raised operating margin from 14.4% to 22.6% over the past six years and achieved double the like-for-like sales growth of the sector’s two largest companies in 2007, Reckitt Benckiser has now set a target of 7% sales growth and 10% profit growth going forward. At this rate, there are few in the industry who would doubt that this innovation powerhouse will make it.

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