Reckitt battles tough markets and disappointing Mead margins

For Mead Johnson, which was acquired 15 days before the end of the half-year, management are targeting like-for-like net revenue growth of between -2% in the second half, with operating margins in the period just before the deal closed "slightly weaker than initially expected", but Reckitt management still seeing "significant opportunity" to expand margins over the medium term in line as planned.

For the first six months of the year, the group generated £5.02bn revenues, an increase of 14% or 2% at constant exchange rates, as the consumer goods company indicated earlier this month when it warned of the effects of a cyber attack.

Operating profits for continued operations grew 50% year on year to £1.06bn, or 27% at CERs, while adjusted results excluding £150m of one-off items were up just 1% CER.

Earnings per shares from continues operations grew 62% tp 109.3p, or 15% to 124.9p on an adjusted basis.

Total operations, included the effects of discontinued businesses which includes a charge of £318m in the second quarter set against potential litigation related to drug business spun out in 2014 as Indivior, saw reported net income fall 20% to £505m, with EPS down 3% to 71p.

The half year has seen "significant progress" on the transformation of the portfolio, said chief executive Rakesh Kapoor, as RB looks to become a more focused consumer health and hygiene business, with both the acquisition of Mead Johnson for $16.6bn and the agreement to sell the food business to McCormick for $4.2bn.

"From an operational perspective, as expected we had a tough first half, with challenging conditions exacerbated by a sophisticated cyber-attack.

"Notwithstanding this, the business remains strong and our earnings model intact. We saw broad-based growth across the majority of our consumer health brands. We continue to innovate strongly across our Hygiene segment with good success, and Home (ex-Korea) continues to perform in line with our expectations.

"I expect the RB business to return to growth progressively over the second half of the year."

For the full year, the base RB business is expected to grow net revenue 2% on a LFL basis, which Kapoor admitted was a challenging target.

"We are experiencing tough market conditions, and we still have work to do on addressing the full implications of the recent cyber-attack. Operating margin continues to make satisfactory progress and we reiterate our medium-term target of moderate expansion."