Alongside the release of its half-year results today, Reckitt revealed that it had launched a strategic review of its infant formula business and outlined plans to potentially sell some of its portfolio of home care brands in an effort to streamline the business and accelerate its growth.
The moves are part of Reckitt’s strategy set out last year to focus on its portfolio of ‘powerbrands’, which include Muciniex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex and Veet. It noted that these high-growth, high-margin brands hold leading market shares in categories with “significant headroom” for long-term growth. The group stated that a sharpened portfolio would create a “simpler, faster and more efficient organisation”.
As a result, Reckitt is now seeking to exit its portfolio of home care brands that are “no longer core” and lower growth, including Air Wick, Mortein, Calgon and Cillit Bang, by the end of 2025. The affected brands generated net revenue of £1.9bn last year.
Meanwhile, Reckitt said it was considering “all strategic options” for its Mead Johnson Nutrition business, which makes brands Enfamil and Nutramigen. The unit has been plagued by problems since Reckitt acquired it in 2017 for $17bn, most recently facing litigation in the US over a premature infant formula product.
The company also announced a wide-ranging business restructuring, which will see the removal of a number of management layers to “accelerate speed of decision making and improve efficiency”. The business will move to a unified category structure operated through three geographies, namely North America, Europe and Emerging Markets, removing its Global Business Unit structure.
Meanwhile, Reckitt will expand its existing fixed cost optimisation initiative to “drive improved effectiveness and efficiency of the organisation”. The programme is expected to deliver at least a 300bps reduction in fixed costs as it exits 2027, with savings coming from “organisation simplification, greater use of shared services, right-sizing investments, automation, and digital and generative AI opportunities”.
Reckitt expects to see its new organisation and revised leadership structure in place by the beginning of next year. It will then report its financials as three divisions: Reckitt, which includes the best-performing brands; Essential Home, with the lower-growth homecare brands; and Mead Johnson.
“Today, we announce an important step forward to firmly establish Reckitt as a world-class consumer health and hygiene company, with one of the strongest growth and margin profiles in the industry,” said Chief Executive Kris Licht.
“Our core portfolio of market-leading Powerbrands, and simpler, more effective organisation positions 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 its half-year results, the group cut its sales growth expectations for this year, forecasting revenue to rise by 1% to 3% in 2024, down from previous expectations of 2% to 4%, due to disruption to its Nutrition business.
Over the six months to 30 June, Reckitt’s like-for-like revenue edged up 0.8%, after a mixed performance across its current divisions – Hygiene (+4.5%), Health (+1.3%), and Nutrition (-9.0%).
The group saw volume growth of 0.4% in its Hygiene and Health portfolios, despite high-single-digit declines in seasonal OTC brands caused by retailer destocking following a weaker-than-expected season. However, it noted its ‘powerbrands’ delivered strong volume growth.
Operating profit fell 4.3% to £1.68bn after margin slipped 30bps to 23.5% due to increased brand investment and fixed costs.
