Consumer products company Reckitt Benckiser Group plc, which makes Nurofen painkillers and Durex condoms, plans to reorganize its businesses to provide a "platform for growth" and reported that third-quarter net revenue shrank 1% as it dealt with the impact of a cyberattack and challenging market conditions.
The Anglo-Dutch company, which completed the $17.9 billion acquisition of baby formula maker Mead Johnson & Company in June, said in an Oct. 18 statement that it would create two focused units, RB Health and RB Hygiene Home.
RB Health will comprise the infant formula and child nutrition businesses that account for about 60% of group net revenue and will be led by Reckitt Benckiser CEO Rakesh Kapoor. It will include brands such as formulated throat lozenges Strepsils, over-the-counter heartburn and indigestion medicine Gaviscon, and skincare treatment Clearasil.
Rob de Groot, executive vice president for RB Europe and North America, will lead RB Hygiene Health, which will represent about 40% of group net revenue. It will contain brands such as dishwashing detergent Finish, Harpic toilet care products and Air Wick air fresheners.
Reckitt Benckiser said it expected that the new organization would have "somewhat higher" total fixed costs in some markets. It confirmed that it was committed to delivering £200 million in fixed-cost synergies from the integration of Mead Johnson.
"I am very excited about our medium- and long-term prospects," Kapoor said in the statement. "We expect strong growth trends in the broader consumer health category in the medium term, and our new organizational structure will provide us with a platform for growth and outperformance."
Kapoor called Reckitt Benckiser's third quarter "soft" due to what he described as "known issues" and difficult market conditions. The "known issues" refer to a cyberattack in June in which Reckitt Benckiser was among a range of companies and institutions worldwide whose computer systems were infected with a ransomware virus.
Reckitt Benckiser said the cyberattack had a significant impact on its supply chain, which cost it about 2% in sales in the third quarter as the disruption in manufacturing gave rise to a loss of shelf space and promotional slots for its products, including Scholl footwear and foot care items.
"A protracted period required to restore some of the support systems, especially in our health factories, led to a backlog in a finely balanced supply system, with which we have still not fully caught up," the company said.
While third-quarter like-for-like group net revenue slipped 1% year over year to £3.21 billion, Reckitt Benckiser said the Mead Johnson business posted 1% growth in pro forma like-for-like net revenue due to strong market growth in China and some customer stocking in the U.S.
The company said in its statement that it was targeting flat like-for-like revenue growth for 2017. For Mead Johnson, its goal is net revenue growth of minus 2% to flat on a pro forma basis.
Analysts at Alliance Bernstein said in an Oct. 18 research note that they were "perturbed" by the new business structure, which they argued would likely further reduce already poor disclosure. They also were concerned about the company's exclusion of the impact of India's goods and services tax in like-for-like revenue calculations, which they called "a rather cavalier approach."
"Our estimates will need to be cut, and we expect a negative stock reaction today," they said. Their target price for the stock is 8,800 pence per share.
In mid-morning trading in London, Reckitt Benckiser's shares traded down 57 pence, or 0.8%, at 6,978 pence.