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Reckitt Benckiser cuts guidance as sales squeezed by lower Chinese birth rates

Published: 08:29 30 Jul 2019 BST

baby
Infant formula and child nutrition sales were flat in the second quarter

Reckitt Benckiser Group PLC’s (LON:RB.) blamed a decline in birth rates in China on a disappointing first-half performance that led to the consumer goods giant cutting sales guidance for the full year. 

As he steps down after 32 years at the company, eight of which as chief executive, Rakesh Kapoor said the performance was “somewhat below our expectations”, with progress in health “disappointing”.

READ: Reckitt Benckiser agrees to pay US$1.4bn to settle US Indivior lawsuit

After the slow start to the year and the turnarund in the consumer health business “still work in progress” it had been decided to cut the 2019 net revenue target to 2-3% like-for-like (LFL) growth from the previous 3-4% guidance, with the target of maintaining adjusted operating margins remaining unchanged.

A flat second quarter led to net revenue of £6.2bn for the six months to 30 June, up 1% on a LFL basis against the same period last year, while another 1% was added to total revenue as pound weakened against the currencies in which it generates sales. 

Health products have been RB’s achilles heel this year, with LFL sales falling 1% as infant formula and child nutrition (IFCN) was up 2%, over-the-counter medicines dropped 5% and other products such as Scholl, Dettol and Durex fell 1%.

The second quarter saw a flat performance for IFCN as it met what RB described as “slowing category growth trends in China due to the reduction in birth rates over the previous two years”.

Growth in the Hygiene Home business of 3% on a LFL basis was led by strong performances from Finish, Harpic, Vanish and Lysol.

Adjusted operating profit contracted 1% to £1.5bn, just beating analysts forecasts as profit margins declined only very slightly, with adjusted earnings per share up 4% to 145.4p.

Plans to revive growth

Kapoor, whose replacement Laxman Narasimhan has been poached from Pepsi and will start at the beginning of September, said much of the health turnaround has been done and “strong plans are in place to restore growth, including an exciting innovation pipeline”.  

He said RB was further stepping up investment in "brand equity investment" and medical marketing to drive growth and therefore expects the second half “to be back to our more normal level of growth”. 

RB shares fell more than 4% to 6,397p in early trade on Tuesday.

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