Single stain on spotless results

ON the surface, these results are sparkling, as if they’ve been polished up with a can of Reckitt Benckiser’s Brasso. Full year sales are up 18 per cent, pre-tax profit is up 28 per cent and the final dividend of 57p brings the total to £1 – a 25 per cent hike. Emerging markets are falling in love with British brands like Harpic and Cillit Bang, with sales in these regions up 19 per cent. The balance sheet is also as clean as a whistle: Reckitt ended the year with net cash of £220m versus debt of £1.1bn in 2008.

But there is an unsightly stain on the firm’s otherwise spotless performance. The pharmaceuticals division was the star performer in the final quarter, with revenues up 66 per cent and adjusted operating profit up 109 per cent. Operating margins were boosted by an astonishing 13.6 per cent to 69 per cent. This was all down to Suboxone – Reckitt’s lucrative drug for heroin addicts. The only problem is that the patent on Suboxone expired in October; there is no generic rival yet, but it’s just a matter of time.

Reckitt is almost as dependent on Suboxone as its users are on opioids. The drug accounted for 22 per cent of group operating profit in the final quarter, and there is no replacement in the pipeline. Margins were actually flat in the final quarter, if you strip out pharma, lower marketing costs and a European restructuring charge.

Of course, Reckitt still has much to offer besides Suboxone. Ignoring the pharma arm, organic growth was around six per cent in the three months to the end of December – outstanding for a consumer facing business in these times. Investors should still buy, but remember the wonder drug will soon stop working.