24th Jul 2024 11:26
(Alliance News) - Reckitt Benckiser Group PLC on Wednesday announced a strategic shake-up, with the firm putting a number of brands on the chopping block.
The early share price move suggested the plans overshadowed weaker half-year earnings and a guidance cut, amid hopes the wide-ranging shake-up can help Reckitt establish "one of the strongest growth and margin profiles among its peer group". The stock suffered some late-morning selling pressure, however.
Reckitt shares traded up 0.7% at 4,440.00 pence late Wednesday morning in London.
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 GBP1.9 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.
"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 GBP1.0 billion.
Savings will come from organisation simplification, greater use of shared services, right-sizing investments, automation, and digital and generative artificial opportunities.
Analysts at Barclays commented: "Put together, Reckitt is reviewing GBP4 billion of revenue, or just over a quarter of the company. We think this strategic review is likely to be well received, and offset any disappointment over a modest guidance downgrade."
On the Mead unit, Barclays said a sale may be tough to achieve.
"Reckitt says its nutrition business is non-core and that it will consider all strategic options. Non-core assets tend to ultimately be exited, although the litigation issues around infant formula will likely make a sale challenging until they have been resolved," it added.
The USD17 billion acquisition of Mead Johnson in 2017 has been an unhappy one for Reckitt. Back in 2020, it took a GBP5.04 billion impairment on goodwill in the business. In 2021, it sold its infant nutrition business in China for USD2.2 billion. This year, in March, a jury in the US awarded USD60 million in damages to a mother who said her baby died after consuming Mead Johnson's Enfamil baby formula.
In addition, Reckitt unveiled first-half results.
Revenue in six months to June 30 declined 3.7% to GBP7.17 billion from GBP7.45 billion. Pretax profit fell 7.3% to GBP1.52 billion from GBP1.64 billion.
Reckitt raised its interim dividend by 5.0% to 80.4 pence from 76.6p. It also announced its next GBP1 billion share buyback programme will "commence imminently".
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.
By Eric Cunha, Alliance News news editor
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