Reckitt Benckiser cleans up spilt milk in China

China Feihe

23/03/2021 09:19

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
    HONG KONG, March 23 (Reuters Breakingviews) - Reckitt
Benckiser  RB.L  wants to wean itself from China’s
hyper-competitive infant-formula market, but it is going to
sting. The British giant plans to sell the unit for some $2
billion, Reuters reported on Monday. That might be less than
half the price it paid in 2017, but Chief Executive Laxman
Narasimhan has few good reasons to keep pumping. 
    The numbers are stark. When Reckitt Benckiser first bought
the business four years ago as part of its $17 billion
acquisition of Mead Johnson, China accounted for around a third
of sales. That implied an enterprise value of close to $6
billion for the formula business, according to Jefferies
analysts. Since then it has suffered hefty impairments, most
recently a $985 million loss recorded in 2020.
    Although China’s wealthy middle classes continue to lap up
dairy, the cream is not evenly shared. Local brands, long
despised after a series of product quality scandals, have
recovered to take share back from foreign rivals. Reckitt
Benckiser’s most popular brand Enfamil, for example, has lost a
fifth of its market share since 2017 according to Euromonitor,
while domestic rival China Feihe’s  6186.HK  top brand more than
doubled its portion to become the market leader, beating Danone
 DANO.PA  and Nestle’s  NESN.S  bestsellers.
    Demographics present another problem. Beijing’s decision to
relax the one-child policy has not produced a perceptible rise
in the birth rate. Covid-19 compounded the trend. Despite being
locked down together, couples produced 15% fewer newborns in
2020 compared with a year earlier. 
    Investors seem be happy with the decision, even though the
business accounted for some 6% of group revenue in 2020. Shares
rose 2.8% after the source-based report, which appeared to
confirm the outcome of a strategic review announced by Reckitt
Benckiser just last month. Narasimhan will also be relieved to
have cleaned up some of the mess left behind by his predecessor,
who stepped down in 2019: It gives him more resources to try a
different approach. 
    An aging population presents new opportunities; the company
is launching a line of adult nutrition. Its condom brand Durex
is selling well too. But the first task is mopping up the spilt
milk.
    On Twitter https://twitter.com/KatrinaHamlin

    CONTEXT NEWS
    - British consumer goods company Reckitt Benckiser is
considering selling its infant formula business in Greater
China, in a deal that could value the business at more than $2
billion, Reuters reported on March 22, citing sources. The
company declined to comment on the report. 
    - In its full-year earnings released on February 24, Reckitt
Benckiser said it was conducting a strategic review of its
infant formula business in China, citing falling birth rates and
growing competition from local rivals.
    - For previous columns by the author, Reuters customers can
click on  HAMLIN/  
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
2020 results    https://www.rb.com/media/7722/rb-fy-2020-rns-final.pdf
Reckitt Benckiser considers over $2 bln sale of Mead Johnson
Greater China -sources      urn:newsml:reuters.com:*:nL1N2LK1KD
BREAKINGVIEWS – Danone has plenty more cash cows to milk in
China     urn:newsml:reuters.com:*:nL3N2KZ0DV
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Pete Sweeney and Sharon Lam)
 ((katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))