Reckitt Benckiser predicts rosy outlook after record 2020

(Reuters) – British consumer goods group Reckitt Benckiser expects to maintain strong sales this year, it said on Wednesday as it posted record pandemic-driven sales in 2020 and announced the sale of its Scholl footcare business.

Reckitt boss Laxman Narasimhan described 2020 as a turning point for the maker of cleaning products such as Lysol and Dettol, creating a much larger market even though sales are likely to dip from levels reached at the height of the COVID-19 pandemic.

The company said it expects 2021 sales to come in between flat and 2%, beating the 0.4% decline forecast in a company-supplied poll of analysts.

Reckitt shares, down about 7% over the past year, were up 1.7% at 60.70 pounds in morning trade.

The Slough-based company reported an 11.8% rise in like-for-like sales growth last year, the largest increase since Reckitt’s formation in 1999, but marginally lower than the 11.9% analysts had expected.

The boost has mainly come from its hygiene business, a unit once expected to be spun off from Reckitt, with like-for-like annual sales rising by more than a quarter last year.

Chief Executive Narasimhan said that, while he expects some of this hygiene demand to moderate over the long term, it would still be a “substantially larger underlying market” than before the pandemic.

EXPANSION INVESTMENT

The company spent about 745 million pounds ($1.1 billion)last year to spur what has been stubbornly slow growth in recent years, including expansion of its disinfectant product distribution to more countries.

By the end of 2021, Reckitt expects Dettol and Lysol products to be in 70 more countries than in 2019.

Separately, Reckitt announced that it would sell its Scholl footcare products business to private equity firm Yellow Wood Partners and acquire Biofreeze pain relief gel from rehabilitation and sports drug manufacturer Performance Health.

Terms of both transactions were not disclosed, but the company said deals would initially be earnings-neutral.

Brokerage Jefferies said it estimates Scholl had sales of about 250 million pounds in 2020, representing about 2% of group sales.

“(Reckitt’s) latest update triggered a positive market reaction, but there is still the lingering question of whether it can deliver sustainable growth over the longer term, particularly as competition is tough in many of its product areas,” said AJ Bell investment director Russ Mould.

Reckitt also said on Wednesday that it had started a strategic review of its infant formula business in Greater China, which represents 6% of group sales, saying multiple options were being explored.

Like rivals such as Danone, Reckitt has been facing intense competition from Chinese baby formula brands that have regained the trust of consumers since a baby milk scandal in 2008.

($1 = 0.7056 pounds)

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