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Reckitt's Fading Star Calls For Boardroom Elbow Grease: Gadfly

Published on Sep 19 2017 1:10 PM in A-Brands tagged: Reckitt Benckiser / Rakesh Kapoor / Christopher Sinclair

Reckitt's Fading Star Calls For Boardroom Elbow Grease: Gadfly

Reckitt Benckiser Group, the maker of Cillit Bang, has appointed a new chairman. He has some cleaning up to do.

Adrian Bellamy, longtime non-executive chairman, will step down next year and will be succeeded by Christopher Sinclair, the company said on Tuesday.

Sinclair has been a Reckitt non-executive director since 2015, so he has had some hand in developing the strategy. But Reckitt has always been a CEO-show, first with Bart Becht, and now Rakesh Kapoor as the driving force. The new chairman should use the opportunity provided by his elevation to take a hard look at strategy and management.

Sinclair will take over at a delicate time. Growth is slowing at Reckitt. Though it's not the only one - rival groups are also struggling to eke out sales as emerging markets run out of steam, and consumers elsewhere are stretched - given that its growth has been pretty spectacular up until now, this is a worry for investors.

Company Issues

Earlier this year, it acquired Mead Johnson Nutrition for $17 billion, and has to integrate the purchase. It looks a tough task, given that the business lies outside of its core focus on consumer health, offers limited synergies, and has suffered slumping sales.

The deal has also increased the group's complexity and stretched management. While Reckitt has helped itself here by selling its food business - for an eye-watering price - it should go further, by putting some of its home-care brands on the block too.

A recent series of departures, including the heads of marketing and developing markets, adds to evidence that management bandwidth is stretched.

The Mead Johnson deal has also increased Reckitt's borrowings: net debt will be 3.4 times earnings before interest, tax, depreciation and amortisation this year, according to Bloomberg estimates.

That's unhelpful, given that Merck KGaA is considering selling its consumer health arm, which could be worth about $5 billion. While purchasing this could be a boon for Reckitt, given its neat fit with its core strategy, the Mead Johnson deal means it has less financial flexibility for purchases in this area.

While Reckitt could raise funds through a share placing, its higher debt burden makes this deal less straightforward. Adding this division would further increase complexity.

Falling Shares

Shares in Reckitt have fallen about 16% since their peak this year in June, losing their premium to rivals Unilever and Nestlé.

For the shares to recover, the new chairman needs to show that the loss of form is not the end of the Reckitt growth story.

His tenure is likely to include deciding on the successor to Kapoor, who has been chief executive since September 2011.

It's probably still a little early for this to be on the agenda. After all, Becht was CEO for 12 years. And Sinclair's been on the board for a while. That's a more comfortable position for Kapoor than if the new chairman was an outside appointment.

But if Reckitt's slowdown turns out to be more than a temporary aberration, then a succession plan could move up Sinclair's to-do list.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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