Reckitt Benckiser suffer £3.6bn net loss after Mead Johnson write-down

The consumer goods group will have to make some short-term sacrifices to get to where they want to be, so we maintain our ‘Hold’ recommendation.

Article updated: 27 February 2020 9:00am Author: Joe Healey

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  • The stand-out in these results relates to the write down of £5.037bn for Mead Johnson, it acquired back in 2017 dragging the Group to a net loss of around £3.6bn
  • Like for like net revenue growth in 2019 improved by 80bps with balanced growth in its Hygiene home segment offsetting the volume decline in its health segment
  • Despite the health segment remaining relatively weak, the group see consumption and market share trends improving which should help settle some investor concerns
  • The full-year dividend for 2019 came in at 174.6p compared to 170.7p in 2018
  • Recommendation: Group will have to make some short-term sacrifices in the form of margin reduction in order to get to where they want to be, so we maintain our ‘Hold’ recommendation

Reckitt Benckiser, the staple product group, posted adjusted operating profits slightly ahead of consensus estimates this morning, totalling £3.37bn. Like for like net revenue growth in 2019 improved by 80bps, with balanced growth in its Hygiene home segment offsetting the volume decline in its health segment. In Q4 the group did note some supply challenges, causing net revenues to decline by 2.2%. Despite the health segment remaining relatively weak, the group see consumption and market share trends improving which should help settle some investor concerns. The full-year dividend for 2019 came in at 174.6p, a rise from 170.7p in 2018. Shares are down roughly 2.7% in early trading.

The stand-out in these results relates to the write-down of £5.037bn for Mead Johnson, the US baby milk producer it acquired back in 2017, dragging the group to a net loss of around £3.6bn. In light of a tougher than expected Chinese market, the group have struggled to progress as planned, with increased competition hindering results.

The business have found it harder in recent times to sustain longer-term performance which has been reflected in the consolidated share price over the last two years; therefore, as expected, the business released their three-phase restructuring plan in a bid to rebuild a strong earnings model, including mid-single digit top-line growth, mid 20s margins and 7-9% EPS growth. From a future strategic standpoint, the restructuring makes sense as its clear the business needs a face-lift, especially in markets such as China where the group sees longer-term potential.

All in all, these results on an adjusted basis were generally as expected. The business still faces short-term uncertainties, including the Covid-19 disruption in their Asian markets alongside tougher market environments globally. It’s clear the group will have to make some short-term sacrifices in the form of margin reduction in order to get to where they want to be. In light of these factors, we currently see the shares as a ‘HOLD’ for investors willing to accept lower to medium risk.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Joe Healey

Investment Research Analyst

Following his completion of the graduate scheme, Joe is an Investment Research Analyst covering equities. He holds a BA Hons Business Management degree and is currently studying towards CFA Level II after passing CFA Level I in June 2019.

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