Reckitt Benckiser Group PLC (LON:RB.) reported flat revenue for the year as a cyber-attack in June disrupted operations but expects a return to growth in 2018 after a pick-up in the final quarter.
The consumer goods giant said net revenue for the year to the end of December 2017 was £11.5bn, unchanged from the previous year on a like-for-like basis.
Shares fell 5.6% to 6,202p around midday.
READ: Reckitt Benckiser rallies on JP Morgan upgrade
Supply challenges resulting from the cyber-attack, pricing pressures in developed markets and a weak performance in footcare brand Scholl, offset strong sales from new products and healthcare brands such as Mucinex and Durex.
Adjusted net income, excluding discontinued operations, came to £2.3bn, up 4% at constant exchange rates or 10% at actual exchange rates.
Including discontinued operations, adjusted net income rose 1% at constant currency or 7% on a reported basis to £2.4bn.
Total group adjusted operating margin fell 70 basis points to 27.1%.
Reckitt's restructuring efforts
During the period, the company agreed to sell its food business to US-based McCormick & Company Inc. (NYSE:MKC) for US$4.2bn in an effort to streamline the business and cut debt.
READ: Reckitt Benckiser shares rise as it sells its food business to McCormick & Company for US$4.2bn
The group has also created two separate business units – health and hygiene – as part of its reorganisation and the new structure has been in place since January 2018.
The company said the integration of Mead Johnson Nutrition is firmly on track since completing its US$16.6bn acquisition of the US baby formula maker in February of last year. Growth has returned after nine quarters and the takeover has delivered US$25mln of cost savings earlier than planned.
Reckitt raised its cost synergy expectations for the takeover to around US$300mln from the US$250mln previously estimated.
"However, the Mead Johnson acquisition means Reckitt’s balance sheet is looking more stretched, with net debt rising by over £9bn through the course of the year," said Laith Khalaf, senior analyst at Hargreaves Lansdown.
"This raises the stakes and leaves less room for error. With margins heading in the wrong direction, shareholders will be looking for some reassurance from Reckitt’s performance as we head through 2018."
Net debt stood at £10.7bn at the end of the year, up from £1.3bn in 2016.
Reckitt returns to like-for-like growth
It returned to like-for-like revenue growth in the fourth quarter with a 5% increase, led by sales of Durex, Nurofen, Mucinex and Strepsils.
“For 2018 we are targeting +13-14% total revenue growth (implying +2-3% LFL revenue growth),” said chief executive Rakesh Kapoor.
“Whilst 2018 will see some specific factors impacting margin, we reiterate our medium-term target of moderate operating margin expansion."
The company recommended a final dividend of 97.7p, compared to 95p the previous year, bringing its total dividend for the year to 164.3p, up from 153.2p in 2016.
Analyst questions revenue guidance
AJ Bell investment director, Russ Mould, said Reckitt promised the same revenue guidance for 2017 but only delivered flat sales, meaning it has "limited credibility with the market".
Jefferies left its rating on the stock at 'hold', saying the guidance was in line with consensus forecast but pointed to the company's warning about margin pressures.
"In 2018, we expect puts and takes on margin will be i.) increased MJN synergies offset by ii.) incremental cost of the new organisation and iii.) underlying MJN margin dilution," the broker said.
Market debates Reckitt's bid to buy Pfizer unit
Meanwhile, analysts expect speculation around Reckitt's bid to buy Pfizer's consumer business to dominate the market debate today.
Earlier this month, it emerged that Reckitt and GlaxoSmithKline PLC (LON:GSK) submitted rival bids for the business, which owns pain reliever brand Advil.
The unit is expected to fetch between US$15bn to US$20bn.