Reckitt to spend £2 billion on growth after big writedown

© Reuters. FILE PHOTO: Products produced by Reckitt Benckiser; Vanish, Finish, Dettol and Harpic are seen in London

By Siddharth Cavale

(Reuters) – Reckitt Benckiser (L:) will invest 2 billion pounds ($2.6 billion) to spur growth, its new CEO announced on Thursday, as it reported a 5 billion pound writedown on baby formula maker Mead Johnson.

The British maker of Dettol antiseptic and Strepsils lozenges reported like-for-like 2019 sales growth of 0.8% in line with guidance but that lagged peers such as Procter & Gamble (N:) which are targeting 3-5% expansion.

Reckitt bought Mead Johnson for about $17 billion in 2017 to expand in developing markets, especially China.

But slowing birthrates and competition from local players in China have resulted in a loss of market share.

Its writedown on the business meant a 3.7 billion net loss for 2019.

Reckitt shares fell as much as 5% before rebounding into positive territory.

New CEO Laxman Narasimhan announced the results of a strategic review in which 2 billion pounds in investment over three years is expected to help return to Reckitt to mid-single digit sales and earnings per share growth of 7-9%.

Past problems have included slow integration of the Mead business, especially in Latin America and in Asian markets, the company said.

Former Pepsico (NASDAQ:) executive Narasimhan shied away from selling businesses in the review, however.

Instead the company plans to fund new investment through internal “productivity savings” of 1.3 billion pounds that will lower its adjusted margins by about 3.5 percentage points in 2020, it said.

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“I think this is the right approach. However, it does mean earnings downgrades for 2020… We will have to see if the margins bounce back to 25% as suggested,” Tineke Frikkee, head of UK equities at shareholder Waverton Investment Management told Reuters.

It will align its brands around three categories – Hygiene, Health and Nutrition, and focus more on Greater China, integrating its businesses there and rebranding its “Hygiene and Home” unit “Hygiene”.

It said it was too early to fully assess the impact of the coronavirus outbreak but it had seen disruption at retailers, in distribution and supply chains.

The virus was driving online orders for Dettol and Lysol disinfectant, it said.

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