Reckitt is rocked as it writes off £5bn from value of baby formula maker Mead Johnson
Reckitt Benckiser has written off £5billion from the value of baby formula maker Mead Johnson, just three years after it bought the troubled business.
The owner of Dettol and Nurofen paid £13billion for the American firm under former boss Rakesh Kapoor but yesterday admitted its prospects were more modest than originally claimed.
It blamed tough conditions in China, which is Mead Johnson’s biggest market, and said that these had dented its potential for growth.
Reckitt Benckiser, the owner of Dettol and Nurofen paid £13bn for Mead Johnson under former boss Rakesh Kapoor but has admitted its prospects were more modest than originally claimed
The embarrassing writedown raised questions about the wisdom of the takeover, which has been causing Reckitt difficulties for some time as it struggles to integrate the subsidiary.
But new boss Laxman Narasimhan has set out a £2billion plan to revitalise Reckitt.
The 52-year-old, who replaced Kapoor in September, said there was increasing regulation in China and tougher competition, while the birth rate had also fallen.
He added: ‘Were these issues looked at [before] the acquisition? They were. The team did their best with the data available, and bought the business based on that. Clearly things have evolved since then.’
…but disinfectant sales are soaring
Sales of Dettol and Lysol disinfectants are rocketing as fears grow about coronavirus, Reckitt Benckiser revealed.
Demand in China is outstripping provision, partly because of problems in the supply chain. Governments are promoting hand washing as a crucial way of stopping the virus’s spread, and Dettol and Lysol are among the world’s best-known disinfectants.
Chief executive Laxman Narasimhan said: ‘What we are seeing is a focus on hygiene, and that is a good thing.’
Reckitt has donated supplies of cleaning products and protective equipment to Chinese hospitals.
When asked if Reckitt regretted the takeover, he replied: ‘It’s a good business with growth prospects, it’s just that we are recognising the changed circumstances. We are very happy with the portfolio.’
His comments came as the writedown helped tip Reckitt from a £2.2billion profit to a £3.7billion loss in 2019.
It took an £890million charge for a settlement struck with the US Department of Justice over claims a former subsidiary had fraudulently marketed opioid addiction drugs.
Narasimhan said the company would spend £2billion over three years on upgrading its factories, improving its online sales capabilities and growing its presence in countries where it has limited numbers of sales and marketing staff.
And despite Mead Johnson’s troubles with the infant market, he also revealed the business now had its sights on customers at the other end of the age spectrum.
The firm is developing nutritional supplements aimed at elderly people, he said, in a bid to cash in on the ageing population.
Narasimhan also said savings of £1.3billion would be wrung out of Reckitt to help pay for the coming investment.
He said the overhaul would temporarily hit profits, as the company works to get back to sales growth.
The shares closed down 4.2 per cent, or 258p, at 5841p yesterday.