Reckitt boss rocked by factory troubles
Disruption at baby formula plant hits sales
MORE than £2bn was wiped off the value of Reckitt Benckiser after the consumer goods giant revealed its Dutch factory had been hit by major disruption.
In a blow to chief executive Rakesh Kapoor’s efforts to recover from a torrid year, the company revealed baby milk production in the Netherlands had been affected by a so-called ‘technical engineering’ problems.
The disruption left Reckitt’s unable to meet demand in key markets such as Asia, taking a £70m bite out of third quarter sales. Kapoor said it could also affect the fourth quarter.
The setback sent shares plunging by 4.5pc, or 298p, to 6313p, and prompted analysts to slash the company’s share price target.
Kapoor said the disruption was ‘ desperately disappointing’ but insisted it would not impact the company’s sales forecasts for the year, which predict likefor-like sales will grow by up to 3pc.
The chief executive said: ‘I cannot tell you how disappointed I am. I’m really disappointed. But if we do not take these things as seriously as we do, it’s not the right thing for the business.’
Facing questions from analysts and journalists, Kapoor would not give more information about the factory disruption but said it was not related to safety or quality issues, or cost- cutting. He described it as a ‘ disruption of supply’. The disruption led to a 6pc fall in sales in the child nutrition division, compared to expectations for growth of 5.3pc.
The Dutch factory supplies Europe and Asia – including the critical China market – and the problems left Reckitt unable to meet high demand for its baby milk powder. It was another blow for the maker of Cillit Bang cleaner after two years of disappointing results, caused by a failed footwear product launch, a cyber attack and a safety scandal which led to the deaths of children in South Korea.
Andrew Wood, an analyst at Bernstein, said: ‘Reckitt has been plagued by “one-off” items in the last two years, and to suffer another one is very disappointing.’
Reckitt stood by its targets for the full year, predicting an uptick in the fourth quarter.
Like rivals Nestle and Unilever, the company predicted more price increases helped by higher commodity costs. Like-for-like sales rose 2pc in the quarter which ended in September, missing analyst predictions of 4pc. Overall sales fell 2pc to £3.1bn. However, Kapoor said Reckitt had been investing to expand its manufacturing and distribution capacity as part of efforts to turn around its performance.
Steve Clayton, manager of the Hargreaves Lansdown Select funds, which holds Reckitt stock, said: ‘This latest issue is clearly of Reckitt’s own making and the company will need to convince investors that they have fixed this and that there is nothing else on the horizon.’