10th Feb 2017 08:37
LONDON (Alliance News) - Reckitt Benckiser Group PLC reached a deal on Friday to buy US baby formula maker Mead Johnson Nutrition Co but said its like-for-like revenue growth missed its expectations for 2016, though profit still grew.
Reckitt shares were up 1.2% to 7,322.00 pence on Friday.
Already a consumer health and hygiene products giant, Reckitt had confirmed last week it was in negotiations with New York-listed Mead Johnson, and the terms of the deal revealed on Friday are similar to what Reckitt had set out previously.
On Friday, Reckitt said it will pay USD90.00 per share for Mead Johnson, valuing the company at USD16.60 billion and with the deal worth USD17.90 billion including Mead Johnson's debt.
Reckitt said it already counts mothers as a key customer base with its Nurofen painkillers and Mucinex cold and flu medicine and through the hygiene education programmes it runs. It said this will be further enhanced by adding Mead Johnson's Enfa infant and children's nutrition brands to its books.
Enfa is the leading infant and children's nutrition brand globally by sales and generates about 80% of Mead Johnson's group sales. The deal will increase revenue from Reckitt's consumer health business by around 90% and Enfa will become Reckitt's largest 'Powerbrand', the name given to its key growth brands.
Reckitt, which also owns products like Durex condoms and Scholl foot care, added the deal will considerably strengthen Reckitt's emerging markets exposure, particularly in China. Mead Johnson makes around 65% of its sales from three markets - China, the US and Mexico.
Reckitt said it expects to generate GBP200.0 million in annual cost savings by the end of the third year of ownership, and it anticipates Mead Johnson will be accretive to its adjusted earnings in the first year of ownership, before becoming double-digit percentage accretive in the third year.
Reckitt said it expects the deal to complete by the end of the third quarter of 2017.
"The acquisition of Mead Johnson is a significant step forward in RB's journey as a leader in consumer health. With the Enfa family of brands, the world's leading franchise in infant and children's nutrition, we will provide families with vital nutritional support," said Reckitt Chief Executive Rakesh Kapoor.
"We are confident that our culture of consumer-centric innovation and our expertise in scaling global brands will deliver significant growth for the Mead Johnson portfolio," he added.
The deal was announced as Reckitt said it made a pretax profit of GBP2.39 billion in 2016, up from GBP2.21 billion the year prior. Net revenue grew to GBP9.89 billion from GBP8.87 billion. In constant currencies, revenue increased 2.0%.
Like-for-like net revenue growth in the year, stripping out any one-off effects, was 3.0%, below the 4.0% guidance Reckitt provided at its third quarter update in October.
Like-for-like sales growth had been at around 4.0% at the nine-month stage but grew only 1.0% in the fourth quarter. Reckitt's Europe & North America unit saw like-for-like revenue fall 2.0% in the quarter against a tough prior year comparative, weakness in its Scholl foot care and Amope foot and nail care franchises, and due to a late start to the flu season in the US. It was also weighed down by a weak performance in Russia.
The group said it delivered like-for-like revenue growth of 1.0% in its Europe & North America division and 8.0% in its emerging markets unit, though the latter was held back by issues it faced in Korea.
In 2011, it was found that Reckitt's Humidifier Guard product in South Korea contained ingredients linked to lung and respiratory injuries and deaths. In 2016, a number of Korean supermarkets withdrew Reckitt products from their shelves in protest over the scandal, hitting sales.
Reckitt said its Health & Hygiene portfolio saw like-for-like revenue growth of 4.0%, despite weakness for Scholl and Amope. The rest of its consumer health products performed well and its hygiene products also were robust.
The company recommended a final dividend of 95.00p per share, up from 88.70p a year before, meaning its total dividend payout rises 10% to 153.20p from 139.00p.
"2016 was a good year in which we achieved broad-based growth and excellent margin expansion, despite challenging markets and an unusual number of issues," Kapoor said.
For 2017, Kapoor said Reckitt sees macroeconomic conditions in its key markets remaining challenging but remains confident in the strength of its business. It expects to deliver like-for-like net revenue growth of 3.0% in 2017.
By Sam Unsted; [email protected]; @SamUAtAlliance
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