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Reckitt Benckiser hit by £5bn charge from Mead Johnson acquisition

The firm said changes in the Chinese market, including a “materially lower birth rate“ and slower than expected integration meant the prospects for market growth at had been lowered

Reckitt Benckiser - Reckitt Benckiser hit by £5bn charge from Mead Johnson acquisition

Reckitt Benckiser Group PLC (LON:RB.) dipped on Thursday after the maker of Vanish and Durex saw its earnings whacked by a £5bn writedown from its acquisition baby formula maker Mead Johnson (MJN).

The FTSE 100 firm said changes in the Chinese market, including a “materially lower birth rate“, as well as slower than expected integration with its other Asian businesses meant the prospects for market growth at MJN had been lowered.

READ: Reckitt Benckiser cuts targets as new CEO takes stock

The firm had previously warned of the possible impact in October when it cut sales and profit guidance following what chief executive Laxman Narasimhan said at the time had been an “extended period of significant change and disruption in the company”.

As a result of the hefty charge, Reckitt reported an operating loss for continuing operations in 2019 of £1.9bn, down 166% on the previous year, despite a 0.8% rise in revenues to £12.8bn. The final dividend, meanwhile, was raised to 101.6p from 100.2p, taking the full year payout to 174.6p.

Like-for-like net revenues were up 0.8% in the year as growth in the company’s Hygiene Home business offset a decline in its Health division.

Looking ahead, Reckitt said it expected to “generate a higher level” of LFL revenue growth in the coming year, although it warned of “a number of challenges” including the impact of the coronavirus.

However, the firm said amid the outbreak it was seeing “some increased demand” in China for its Dettol and Lysol cleaning products as well as increased activity online.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said that while the £5bn write-down of MJN “won’t have washed well” with investors, the silver lining was the company’s cash flow had remained “robust”, although the coronavirus could see conditions in China become “tougher still”.

Shares in the company rose 2.4% to 6,242p in mid-morning deals.

-Adds analyst comment and updates share price--

Quick facts: Reckitt Benckiser

Price: 7446 GBX

Market: LSE
Market Cap: £52.95 billion

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