Reckitt is considering selling its infant nutrition division and a portfolio that includes Air Wick, Cillit Bang and other home care brands as part of an overall restructuring of the largest consumer healthcare group in the world.
Reckitt, amid investor unrest and the arrival a new Chairman, plans to sell a portfolio that it deems as “no-longer core” of home care products, including Calgon, before the end of 2025. Together, they generated revenues of £1.9 billion in 2018.
Reckitt will examine all strategic options to maximize shareholder value for its Mead Johnson Nutrition business, including the Enfamil Brand, and instead focus on market-leading power brands in consumer health and safety, such as Strepsils. Nurofen, Dettol, and Durex.
Reckitt, as part of the major changes made by Kris Licht, the chief executive of the company, will also restructure its group. It will introduce a “simpler”, more streamlined organisation, with fewer layers in the management. It will adopt a single category structure that is based on three geographic regions: North America, Europe, and Emerging Markets.
The company intends to accelerate its cost-cutting efforts in order to reduce fixed costs to 19% by 2027, from the current 22 percent. The cost of implementing this programme is estimated to be around £1 billion.
Reckitt reiterated their commitment to paying a progressive dividend to its shareholders and returning surplus cash, including the “excess profits” from future disposables.
The strategic update follows a share price slump in Reckitt in March due to fears of multi-billion dollar liabilities arising from safety lawsuits filed in the US against the Enfamil brand premature baby formula.
New York-based Eminence Capital acquired a stake in that month, and Sir Jeremy Darroch has been appointed as chairman. Darroch is a boardroom veteran, and was previously the boss of Sky.
Licht, 47 years old, who became Reckitt’s chief executive in October last year, stated that the board “did not feel any significant pressure” to make any changes and said it was in keeping with the direction set in the fall.
“That’s the reason I feel very confident in this plan,” said he. This is not a hasty plan. We have worked methodically on this for the past nine months. “We’ve done a thorough evaluation.”
He said: “I think large shareholders are very supportive.” We will continue to talk about our plans with the shareholders.
Reckitt “did not make a definitive statement” about the timing of “action against Mead Johnson”, according to Licht.
He said, “We are at the beginning of a complex and large litigation.” This does cause some uncertainty as to the outcome of this litigation. Fundamentally, Mead Johnson is a strong company with leading brands that have good growth and margins.
Reckitt was surprised by a surprising ruling at an Illinois state court, where a jury awarded $60,000,000 to a mother whose premature baby had died after eating the baby formula. Reckitt has pledged to reverse the “incorrect ruling” and reject any “causal connection” between its products, necrotising enterocolitis – a serious bowel condition.
Reckitt bought Mead Johnson in 2017 for $18 billion. Since then, the deal has been questioned. It was more expensive than Reckitt’s previous deals put together. Licht stated on Wednesday that the deal was not “a neat fit” for Reckitt.
Along with the half-year results, the strategic update was presented. The like-for-like growth in net revenue was 0.8% for the six-month period ending June. Growth in hygiene and health businesses were up 4.5 percent, but nutrition sales dropped by 9 percent. The growth of the group’s net revenue was flat in its second quarter.
Reckitt’s net revenue growth forecast for the year has been reduced to 1 to 3 percent due to recent disruption from damage to an important warehouse in Indiana for its Mead Johnson Infant Nutrition business.
The shares of Reckitt, which have fallen by over a fifth in the last 12 months, increased 4.4 percent, or 192p to £46 on Wednesday morning in London.
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