27th Feb 2020 07:57
(Alliance News) - Consumer goods giant Reckitt Benckiser Group PLC posted an annual loss on Wednesday after a monster impairment of more than GBP5 billion.
The impairment, worth GBP5.04 billion, has been made on goodwill related to its acquisition of Mead Johnson Nutrition. MJN, a US baby formula maker, was bought for USD18 billion in the summer of 2017.
Slough-headquartered Reckitt as a result posted a pretax loss for 2019 of GBP2.11 billion, swung from a pretax profit of GBP2.72 billion the year prior.
Net revenue rose 2.0% at actual exchange rates to GBP12.85 billion, and was 0.8% higher at constant rates. This compares to company-compiled consensus of GBP12.83 billion of net revenue.
Like-for-like revenue growth at actual rates was 0.3%, and at constant rates, 0.8%.
The 0.8% constant rate like-for-like revenue growth, Reckitt said, came despite volumes falling by 2%, with prices rising by 3%.
Reckitt has declared a final dividend of 101.6 pence per share for the year, taking the year's total to 174.6p. This is 2.3% higher than the dividend of 170.7p in 2018.
Returning to the MJN impairment, at the time of the acquisition, Reckitt said it expected medium-term market growth of 3% to 5% for MJN, and it targeted annual growth for the business itself of 5%.
"The most significant changes, evident over the last year, have been in the China market. The prospects for market growth have lowered, as a sustained materially lower birth rate has become likely. In addition, the competitive dynamics have changed with evolving regulation and the progress of a number of local competitors," said Reckitt.
Reckitt now sees annual revenue growth in the MJN business at 3% over the next five years, rather than the 5% envisaged at purchase, and only a "moderate" net margin improvement.
Reckitt has two main operating units, Health and Hygiene Home. Health revenue rose by 0.7% at actual rates, but fell 0.9% at constant rates, to GBP7.82 billion, while Hygiene Home revenue was GBP5.03 billion, up 4.1% at actual rates and 3.6% at constant rates.
Health's like-for-like revenue fell 1.0%, hit by lower volumes due to market share loss and destocking from retailers. Hygiene Home had a stable year, Reckitt said, with 3.6% like-for-like growth.
The Health unit includes brands such as Nurofen painkillers and Strepsils lozenges, with Hygiene Home owning brands such as Air Wick air freshener.
Reckitt has now concluded a strategy review, setting up a three-phase plan targeting mid-single-digit revenue growth, margins in the mid-20s as a percentage, and 7% to 9% earnings per share growth.
Recent performances issues, Reckitt said, are executional and not structural, driven by "significant recent disruption".
Reckitt will be investing GBP200 million extra in 2020, as well as a further GBP250 million over the following two years. This will mean 2020 adjusted operating margins will be around 350 basis points lower than 2019.
"2020 is a transitional year, as we rejuvenate Reckitt to accelerate growth to deliver long-term shareholder value. For 2020 we should generate a higher level of revenue growth on a like-for-like basis than achieved in 2019 and make steady progress toward our medium-term target," said Reckitt.
"While we have started the year strongly, there are a number of challenges, including the uncertainty already being seen around the impact of COVID-19. In addition, we expect our 2020 revenue growth to be stronger in the second half as we lap weaker quarters in 2019 and we start to see the benefit of the strategic actions announced today."
By George Collard; [email protected]
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