Reckitt Benckiser FY Profit Rises, To Buy Mead Johnson For $16.6 Bln

(RTTNews) - Reckitt Benckiser Group plc (RBGPF.PK, RB.L) reported net income to shareholders of parent, as reported, of 1.83 billion pounds for the 12 months ended 31 December 2016, an increase of 5% (down 5% constant) from 2015. On an adjusted basis, net income was 2.16 billion pounds, up 15% (up 4% constant). Earnings per share was 256.5 pence, up 6% on a reported basis; on an adjusted basis, the growth was 17% to 302.0 pence.

Full year operating profit, as reported, was 2.41 billion pounds, up 8% from 2015 (down 3% constant), reflecting the impact of an exceptional pre-tax charge of 367 million pounds. The exceptional items relate mainly to the HS issue in Korea. On an adjusted basis, operating profit was up 17% (up 6% constant) to 2.78 billion pounds.

Total full year net revenue was 9.89 billion pounds, an increase of 2% at constant exchange rates, and an increase of 3% on a LFL basis. Gross margin increased by 180bps to 60.9%, driven by favourable input costs, margin accretive innovation, pricing, Project Fuel initiatives, and supply related Supercharge savings.

Rakesh Kapoor, CEO, said: "In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half. We are targeting LFL net revenue growth of 3%. For operating margin, we reiterate our medium term target of moderate margin expansion."

Separately, Reckitt Benckiser announced it has signed a merger agreement with Mead Johnson Nutrition Company (MJN) under which Mead Johnson shareholders will receive $90 in cash for each share of common stock, valuing the total equity at $16.6 billion. Mead Johnson noted that the transaction is valued at approximately $17.9 billion (including net debt).

Reckitt Benckiser expects the acquisition to be accretive to adjusted earnings per share in the first full year following completion and double-digit accretive by year three. The acquisition is expected to deliver a post-tax return on invested capital in excess of RB's cost of capital by year five. RB intends to maintain its current dividend payout policy of about 50% of its adjusted net income.

Rakesh Kapoor, CEO of RB, said: "Mead Johnson's geographic footprint significantly strengthens our position in developing markets, which will account for approximately 40% of the combined group's sales, with China becoming our second largest Powermarket."

The boards of RB and Mead Johnson have both approved the transaction and have resolved to recommend that their respective shareholders vote in favour of the deal. Mead Johnson may continue to pay its normal quarterly dividend until completion, not to exceed $0.4125 per share, to be declared and paid on dates consistent with the 2016 quarterly dividend declaration and payment dates.

The Board of Reckitt Benckiser recommended a final dividend of 95.0 pence to give a full year dividend of 153.2 pence. The dividend, if approved by shareholders at the AGM on 4 May 2017, will be paid on 25 May to shareholders on the register at the record date of 18 April.