This week I am revisiting Reckitt Benckiser, the global consumer goods company. In November of last year I mentioned how the company had a good start to 2016, supported by a successful cost savings programme and sales figures beating expectations. This year however, things have turned a little sour for the company with the news of a cyberattack taking its toll on operations and revenue.
The global cyberattack on multinational companies last month disrupted Reckitt’s ability to manufacture and distribute products to customers in multiple markets. Some of its factories are currently still not functioning normally but plans are in place to return them to full operation. Management stated that while it expects some of the sales lost in the past 3 months to be recouped in the current quarter, continuing supply chain disruptions mean that they could lose customers. As a result of these problems, Reckitt now forecasts a 2% revenue growth instead of the 3% originally expected.
Acquisition speculation is also in the news for Reckitt Benckiser as Unilever and Hormel Foods are believed to be bidding to acquire its £2.2 billion food division known for brands such as French’s Mustard and Worcestershire sauce. All three companies involved have not commented about the speculation, but we will surely find out more in the coming weeks.
Although Reckitt Benckiser is facing a tough period at a time when its shares are valued relatively highly, the company has historically shown resilience in difficult periods and consistent growth over the long run. Furthermore, its non-cyclical nature continues to be attractive to the long term investor.
Reckitt Benckiser (RB) has been in the spotlight this week following the company’s announcement that it will be spinning off its pharmaceutical division, which once accounted for a fifth of the group’s earnings. The fate of RB Pharma has been the subject of lengthy speculation as it sits at odds with the rest of the group’s focus on cleaning and hygiene goods. The division derives almost all of its £780m million of revenue from Suboxone, a market leader in drugs to treat addiction to opioids, including heroin. However, it has become the group’s problem child of late as patents on the drug have expired and cheaper generic rivals are entering the market. Indeed, CEO Rakesh Kapoor had already made it clear that addiction treatment is not “a space they want to be in” following the reclassification of RB Pharma as a non-core division of the group.
The demerger is expected to complete on December 23 and the new company, named Indivior, is estimated to be worth around £2.7bn. Its strategy will be to push through the development of new products (the likes of an injectable Suboxone, a nasal spray to treat opioid overdoses, and drugs for alcohol, cocaine and cannabis addiction are in the pipeline) and to expand beyond the United States, which currently accounts for 80% of revenue.
Ultimately, the aim of demerger appears twofold; to create a cleaner investment case for RB’s remaining consumer goods business, and to help attract a buyer for the standalone Indivior.