The head of Reckitt heralds a new era with the sale of China’s baby formula unit

When Reckitt Benckiser acquired baby son formula maker Mead Son Onson four years ago for միլի 13 billion, the then-CEO of the consumer goods group called it a “mother’s enrichment solution”.

However, the deal for Rekkit did not ensure the enrichment of Rakesh Kapoor.

Sales in China’s mid-son onson continued to decline due to declining birth rates and growing local competition. When the company had sold Last month, most of the Chinese portion of its children’s formula was written off at a cost of 8 8 billion.

Kapoor’s successor, Laxman Narasimhan, is now trying to build on Reckitt’s growing demand for hygiene items to revitalize a company that some investors and analysts say has been hurt by Mead Johnson’s integration focus.

Narasimhan, who took over in 2019, “inherited a business that needed a lot of turnaround, a business that was chronically uninvested [in]Said Ian Simpson, a Barclays analyst.

Simpson says Narasimhan drew a line under the “galaxy size error” in addition to the sale of all but 8 percent of the Chinese children’s formula section.

Adapting to market flow

Now Narasimhan’s challenge is to restore Reckitt’s competitiveness in the consumer market, which is in flux due to Covid-19. Sales of affiliate products, such as Reckitt’s Durex condoms, resume with the launch of vaccination programs. Durex recorded double-digit sales growth in the first quarter compared to the previous year.

But demand for cough products such as Reckitt’s Lemsip, Mucinex and Strepsils has fallen. The company estimates that coughs, colds and flu have been reduced by 90 percent over the past winter thanks to antidotes such as social distance.

Narasimhan rejects the drop in sales as an epidemic blip. “As everything opens up, the mandates of the mask go away, people communicate, we see bigger cases of flu,” he said. “Now, some of them will be drawn next year. But the flu will return. “

Outside of China, sales of former Mead Johnson baby formula brands such as Enfamil, Enfapro և Lactum have been relatively strong, including in the US and the Philippines, although there has been evidence of a declining birth rate due to the epidemic.

An even bigger issue for Reckitt is the resilience of the disinfectant boom, which has greatly increased sales of its Dettol և Lysol products, helping to increase its quarterly revenue by 28.5% year on year.

This reflects the geographies in which the brands are sold, the company said, as Dettol is sold in countries that have performed better under epidemic control. But observers are divided over how long it will take disinfectant rush especially given that Covid-19 is airborne and is rarely transmitted to surfaces.

Dettol products from the shelves of the London grocery store

Epidemic boosts sales of Reckitt’s Dettol by helping increase quarterly revenue in its hygiene division © Facundo Arrizabalaga / EPA / Shutterstock

Simpson said one legacy of the epidemic would be to “raise awareness of the risk of infection in general.” It will last a long, long time. “

But Steve Clayton, the UK’s select fundraiser at Hargreaves Lansdown, which until two years ago had a stake in Reckitt through its share-raising stock, is more skeptical. “Of course, the world is tired of sticky, over-cleaned tables for too long?” he said.

“Reckitt will face the challenge of having the right stocks in the right markets. Understand that it’s wrong, և the group may have to discount the brands in order to reverse the progress by threatening the winning brand premiums in the process. ”

Shares of the group fell more than a fifth of its value by February, after reaching a high of 77.54 pounds in July last year, Terry Smith, manager of a well-known UK fund and former loyal investor Reckitt, sold his shares in late 2020. ,

However, investors later regained some optimism, returning the share price to 11.3%.

Revised stock price chart showing that Reckitt has outperformed its partners

Wrong steps of the past

Kapoor’s predecessor, Bart Becht, has been credited with building Reckitt Consumer Health, which includes brands such as Nurofen and Gaviscon. But this division has led to wrong steps.

“We believe that Reckitt’s history in the hygiene market has sometimes left him blindly trying to figure out how best to regulate consumer health brands. A culture of rapid innovation մշակ aggressive marketing. “It does not always fit well into the very first culture of health care,” said Clayton.

Under Kapoor, whose salary was the highest in the FTSE 100, Reckitt was condemned by Australian regulators for marketing Nurofen as a target rather than a common anti-inflammatory product. The company also suffered in 2016 after the failure of Scholl’s footprint electronic file. He also apologized that year for dozens of deaths caused by defective moisturizers sold in South Korea.

Scholl was sold to a US private equity firm this year, while Reckitt is investing more in research and development.

Narasimhan does “all the right things. “This is a much better invested business than it used to be. The market share seems to be much better. It is a business that communicates better with stakeholders,” Simpson said.

The acquisition of Mead Johnson came after Kapor’s failed approach to acquiring Pfizer Consumer Health, which is now part of a joint venture with GlaxoSmithKline.

One of the reasons for buying Mead Johnson was to strengthen Reckitt’s presence in China. It “gave them a critical mass in China, one of the fastest growing և largest consumer markets in the world.” “They were small there,” Simpson said.

However, in the Chinese formula business, sales remained on a steady downward trajectory as the birth rate dropped, and the government pushed for infant formula manufacturers. The new owner of the department, Primavera, is Chinese.

A woman was carrying her baby in a shopping mall in Beijing, China

Chinese government demands new baby formula makers © Andy Wong / AP

Still, Reckitt’s Chinese business, even without baby formula, looks very different now. Last year, it was about 700 million pounds, compared to 861 million pounds of baby food.

Sales of vitamins, minerals, and supplements, such as the Move Free brand, have skyrocketed. “Prevention [of illnesses] “It is now rooted in our behavior,” Narasimhan said.

Late last year, Reckitt chose China to launch the polyurethane version of Durex, which is allergenic while offering greater softness and elasticity, according to the company. “We expect China to continue to serve as a potential market for innovation,” Narasimhan said.

Margin challenge

Samuel Har Ohar, chairman of the London-based Buchanan Harvey Advisory Group, said Narasimhan was in his early years in office. problems originally from Kapoor, while Kapoor spent his early years reaping the benefits of the changes made by Bakht.

“In a company of this size, what is happening during the first three or four years of the CEO’s tenure is less than what they have done, right or wrong,” he said.

Clayton said Narasimhan had made a “welcome start”, but added that he would “face the challenge of a multi-year margin”. “Reckitt earns a fat margin, and mechanical changes, and keeping the margin stable, are always fraught with pitfalls.”

But beating the Reckitt segment, which is a more positive legacy from Kapoor, will also help isolate it from the cost. inflation hitting the section, Simpson said.

“In this area, they are less exposed to many other household and personal care companies, as their gross profit is quite high,” he added.

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