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Reckitt Benckiser takes £5bn writedown on Mead Johnson purchase

The consumer goods company acquired Mead Johnson for £13bn in 2017 but said increased competition in China, lower birth rates and fewer consumers crossing the border to buy in Hong Kong had cut into what had been seen as a promising market.

Article originally published by The Financial Times. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Reckitt Benckiser has taken a £5bn writedown on its 2017 acquisition of baby formula maker Mead Johnson after a tougher Chinese market cut into performance at a unit that the UK group has struggled to integrate. 

The consumer goods company acquired Mead Johnson for £13bn in 2017 but said increased competition in China, lower birth rates and fewer consumers crossing the border to buy in Hong Kong had cut into what had been seen as a promising market. 

The impairment charge pushed Reckitt to a £3.7bn net loss for 2019. The group said it would take a hit to margins in order to invest £2bn in growth initiatives under its new chief executive Laxman Narasimhan after three years of faltering performance. 

Reckitt shares opened down 3.5 per cent on Thursday morning.

Reckitt Benckiser Group Plc

Sell: 6,176.00 | Buy: 6,180.00 positive 74.00 (1.21%)
Graph
Prices delayed by at least 15 minutes.

Reckitt said it would reduce adjusted operating margins for 2020 by about 3.50 percentage points to help enable the investment. Like-for-like net revenue growth came in at 0.8 per cent for the year, a figure that the group said would increase in 2020. 

“In 2020 we will increase investment behind our digital capability, in-market competitiveness and operational resilience, particularly in customer service, as well as innovations, as we align around our new organisation,” said Mr Narasimhan. 

Reckitt has underperformed peers such as Procter & Gamble and Unilever over the past three years after a series of problems including a cyber attack, a failed product launch and the struggle to integrate Mead Johnson. 

In recent years it has faced investor pressure for a break-up that would spin off or sell its smaller household products arm, leaving the larger consumer health division. But stronger performance in household products has eased some of that pressure.


This article was written by Judith Evans from The Financial Times and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Article originally published by The Financial Times. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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