Reckitt to Focus on 'Powerbrands' in Wide-Ranging Shake-up

It also announced its next £1 billion share buyback programme will 'commence imminently'

Alliance News 24 July, 2024 | 11:18AM
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Reckitt Benckiser UK Main

Reckitt Benckiser Group (RKT) on Wednesday announced plans to streamline its business, which could see the sale of famous home care brands such as Air Wick and Calgon, as well as infant formula business Mead Johnson Nutrition.

The consumer goods and hygiene products maker said it hoped to "reshape" the business creating an organisation, "with one of the strongest growth and margin profiles among its peer group".

Reckitt plans to focus on a portfolio of 'powerbrands', which it defined as high-growth, high-margin businesses that it thinks have the potential for long-term growth.

These include Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex and Veet.

These brands generated 7% net revenue compound annual growth between 2018 and 2023, Reckitt noted, and a gross margin of 61% in 2023.

The portfolio could also include likely future Powerbrands such as Move Free and Biofreeze, plus Lemsip, Airborne, KY, Veja, Jik, Tempra and Jontex, Reckitt added.

The company plans to sell non-core home care brands including Air Wick, Mortein, Calgon and Cillit Bang, which delivered 2023 net revenue of £1.9 billion. Reckitt aims to complete the disposals by the end of 2025.

In addition, Reckiit said it considers Mead Johnson Nutrition, the business behind Enfamil infant nutrition, and currently the subject of ongoing US litigation, to be non-core.

Reckitt said it will consider "all strategic options" for that division.

The $17 billion acquisition of Mead Johnson in 2017 has been an unhappy one for Reckitt. Back in 2020, it took a £5.04 billion impairment on goodwill in the business. In 2021, it sold its infant nutrition business in China for $2.2 billion. This year, in March, a jury in the US awarded $60 million in damages to a mother who said her baby died after consuming Mead Johnson's Enfamil baby formula.

"This sharpened portfolio creates the opportunity to move to a simpler, faster and more efficient organisation," Reckitt said in its statement on Wednesday.

Reckitt pledged to continue to pay a progressive dividend and return surplus cash to shareholders, including excess proceeds from future business disposals. It announced a new share buyback programme on Wednesday.

As part of the strategic revamp, Reckitt plans further cost savings, aiming to deliver a 300 basis points reduction in fixed costs by the end of 2027.

Reckitt expects to incur estimated one-off cash restructuring and transformation costs during this period of around £1.0 billion.

Savings will come from organisation simplification, greater use of shared services, right-sizing investments, automation, and digital and generative artificial opportunities.

Chief Executive Kris Licht said: "our core portfolio of market-leading Powerbrands and simpler, more effective organisation position us to better serve our consumers and customers. This will deliver attractive long-term value creation for Reckitt's shareholders through our earnings model and cash returns."

In addition, Reckitt unveiled first-half results.

Revenue in six months to June 30 declined 3.7% to £7.17 billion from £7.45 billion. Pretax profit fell 7.3% to £1.52 billion from £1.64 billion.

Reckitt raised its interim dividend by 5.0% to 80.4 pence from 76.6p. It also announced its next £1 billion share buyback programme will "commence imminently".

Licht said the results were "broadly in line with our expectations".

"Hygiene grew mid-single-digit [like-for-like] net revenue and delivered volume growth despite a more competitive market environment. Health delivered broad-based revenue and volume growth, reduced by softness in seasonal [over the counter] brands," he noted.

However, Reckitt said short-term disruption to its Nutrition business, due to the tornado that hit its Mount Vernon, Indiana distribution centre last week, has led to a reduction in its net revenue growth outlook for the year to 1% to 3% from 2% to 4% before.

"Notwithstanding this, our business remains resilient. We expect revenue growth to accelerate in [the second half] and continue to target operating profit growth ahead of net revenue growth," Licht added.

The market gave a guarded welcome to the news. Shares in Reckitt rose 0.3% to 4,422.00 pence in London on Wednesday. The wider FTSE 100 index was down 0.3%.

By Jeremy Cutler, Alliance News reporter

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