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Reckitt Benckiser could see stars align as coronavirus boosts demand for target products in China

The consumer goods giant said it was seeing “increased demand” for cleaning products such as Dettol and Lysol amid a surge in hygiene consciousness among customers as a result of the outbreak

Reckitt Benckiser - Reckitt Benckiser could see stars align as coronavirus boosts demand for target products in China

Reckitt Benckiser Group PLC (LON:RB.) seems to be one of the few retailers receiving a boost from the coronavirus outbreak as sales of its hygiene products received a boost in demand, particularly from China.

In its full-year results on Thursday, the consumer goods giant said it was seeing “increased demand” for cleaning products such as Dettol and Lysol amid a surge in hygiene consciousness among customers, while quarantine measures across the world were also spurring online orders for its goods.

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

“It goes to show that not all businesses are being hurt by the crisis”, said David Madden at CMC Markets.

The ability to maintain sales in China despite disruption will also provide some relief to Reckitt as it looks to improve its business in the country and take advantage of its rapidly expanding consumer market.

To help accomplish this, Reckitt has said it will invest £2bn over the next three years into “growth-led initiatives” to improve its competitiveness.

“From a future strategic standpoint, the restructuring makes sense as it’s clear the business needs a face-lift especially in markets such as China where the group sees longer-term potential”, said Joe Healey, an investment research analyst at The Share Centre.

A key focus for this investment is sustaining the growth of the group’s Hygiene business, which includes products such as Dettol and Lysol.

The group is also focusing on boosting its e-commerce capabilities, another area that is seeing growing customer demand as the coronavirus spreads and buyers rely more on online ordering and delivery rather than going out to visit stores.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, also pointed out that Reckitt will invest more into “consumer analytics and data insight”, a process that is likely to become easier following the current influx of digital orders.

Other issues

While the uptick in hygiene sales from the coronavirus pandemic provides something of a silver lining, Reckitt is also facing down several other obstacles to its rejuvenation plans.

Perhaps the biggest was a massive £5bn impairment charge the firm unveiled on Thursday from a writedown of its acquisition of baby formula maker Mead Johnson (MJN) in 2017.

In this case, the Chinese market was proving to be a handicap rather than a benefit, with the company saying prospects for MJN had “lowered” since it made the purchase due to the increased likelihood of a “sustained materially lower birth rate”.

The firm is also facing “evolving regulation” in China and a number of local competitors, which meant maintaining its supply network will be “more capital intensive” than originally expected.

Shares in the firm were down 3.3% at 5,897p in mid-afternoon.

Quick facts: Reckitt Benckiser

Price: 6010 GBX

LSE:RB.
Market: LSE
Market Cap: £42.66 billion
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