Cillit Bang-to-Strepsils owner Reckitt Benckiser (RB.) has rocked investors. The consumer products giant revealed that last month’s WannaCry ransomware cyber-attack has put a serious dampener on second quarter sales.

That has added to the drag of new product taxes in India, an important emerging market for Reckitt. It means that the Slough-based company is cutting its full year like-for-like sales growth guidance from 3% to 2%, sending the high-flying shares 2% lower to £75.50.

The highly-rated consumer health and hygiene giant, prized for its resilient internationally-derived earnings, dependable cash flows and progressive dividend, has updated the market ahead of half year results to end-June.

Lamenting lost sales

CEO Rakesh Kapoor explains the cyber-attack on 27 June, seemingly part of a global ransomware virus attack that hit many companies and organisations, disrupted his charge’s ability to make and distribute products in a number of markets.

Frustratingly, this meant the FTSE 100 titan couldn’t ship and invoice some orders to customers before the end of the second quarter (Q2).

‘Some of our factories are currently still not operating normally but plans are in place to return to full operation,’ insists Reckitt, whose other well-known brands include Gaviscon, Durex, Nurofen, Dettol and Air Wick.


Reckitt adds: ‘Separately, and to a lesser extent, the implementation of the new Goods and Services Tax (GST) in India resulted in reduced orders from some customers during June.'

‘We expect that some of the revenue lost from Q2 will be recovered in Q3,’ reads the statement. ‘However, the continued production difficulties in some factories mean that we also expect to lose some further revenue permanently.’

Can Reckitt make the numbers?

Reckitt now expects Q2 like-for-like sales to fall by 2%; a flat performance was on the cards before these twin issues struck the company.

Liberum Capital warns Reckitt will now need to deliver 5% like-for-like growth in the second half of 2017 in order to meet even its downgraded full year sales guidance.

This ‘may still prove ambitious in light of lingering effects from the cyber-attack, Indian GST and competitive end markets.’

Mead moves the dial

Yet under the heading ‘Building a Consumer Health powerhouse’, the broker says it rates Reckitt as a ‘buy’ with a £81.50 price target.

‘Reckitt's strategic focus on faster growing, higher margin Health and Hygiene categories, coupled with strong execution, powers top quartile 4-5% organic sales growth in the medium-term (ex-Mead Johnson),’ writes Liberum.

Reckitt Benckiser - JULY 2017For the uninitiated, Reckitt recently completed (15 Jun) the US$17.9bn acquisition of US baby formula maker Mead Johnson, a transformational deal fitting snugly with Kapoor’s strategy to move Reckitt further into higher margin consumer health and boost its emerging markets presence.

The broker also explains that ‘while leverage rises to 3.5 times net debt-to-EBITDA in 2017 pro-forma for the deal, we estimate strong free cash flow generation will result in a reduction to 2.4 times by 2019 with a further reduction from a probable sale of the under-review food business.'

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Issue Date: 06 Jul 2017