Royal Numico Reports Layoffs, Reorganization, Possible Divestitures

ZOETERMEER, The Netherlands--Royal Numico NV, in announcing its second quarter (2Q02) results, reported that the first half of the year was disappointing compared to the strong performance delivered in the same period last year.

Net sales for the quarter, ended June 30 and reported Aug. 15, were down to US$1.05 billion compared to 2Q01's US$1.11 billion. However, raw material costs and operating expenses ate away at the company's revenues, leaving the company with an EBITDA (earnings before interest, taxes, amortization and depreciation) of US$131 million, almost half of the US$225 million earned in 2Q01. In the end, net profit after extraordinary items were deducted came to US$2 million compared to 2Q01's US$549 million. Royal Numico reported it would pay an interim dividend of US$.27 per certificate of share on Sept. 5 to shareholders.

Sales for the company's 5,658 General Nutrition Centers (GNC) were down 5.6 percent to US$395 million due to soft sales in vitamin and herbal products, even as sales increases were reported for weight-loss and sports products. Overall comparable sales for company-owned stores were down 1.2 percent and franchise store sales were down 0.4 percent.

GNC's restructuring program, which was announced in March, is continuing onward. For the first half of the fiscal year, 46 unprofitable stores were closed, and an additional 28 are expected to shut down by the end of the year. Approximately 250 GNC employees have been laid off, with another 180 jobs still on the chopping block.

In the meantime, a US$20 million remodeling project that includes 4,200 GNC corporate and franchise stores is underway. The four-month makeover is expected to be completed by October. Royal Numico reported that customer response to the new look as been positive.

Rexall Sundown sales fell by 23.1 percent to US$130 million, primarily due to underperformance in three key brands: Sundownr, Metab-O-LITET and Osteo Bi-flexr. According to Royal Numico, lower sales volume was the main factor behind the decline in gross margins, as well as higher production costs. In the meantime, Rexall Sundown is working to address these issues, including reducing SKUs by 20 percent (to 1,457 SKUs) and lowering costs by aligning personnel costs with the currently smaller sales volume.

Looking on the positive side, Royal Numico reported GNC's like-for-like sales improved over 1Q02, and Rexall Sundown sales appeared to have stabilized over the last six months. In addition, the company's infant nutrition and enteral clinical nutrition units continue to perform well, especially in Europe.

"Royal Numico is an international group with strong businesses in high potential growth areas," said Jan Bennink, the newly instated president and chief executive officer of the company (www.numico.com). "However, we face many challenges, and the results that we [announced Aug. 15] are disappointing." He went on to say that the company is looking into how the business can improve its strategy, markets and performance. "We will also be looking at our organizational structure, evaluating our asset base and considering possible divestments."

Bennink outlined how he expects to get the company back on the path to growth, including working to eliminate operational inefficiencies, better utilizing R&D capabilities and investing in refitting GNC stores. Royal Numico has also created three new board positions to improve overall operating efficiency: an R&D director, an operations director and someone to work with the infant and enteral clinical nutrition units.

At press time, Royal Numico shares were US$18.11 per share, down 18 percent from US$22.03.