Reckitt Benckiser 2017 LFL revenues flat

2017 pre-tax profit rose to £2.5bn from £2.3bn the year before, while reported revenue was up 21% including the Mead Johnson acquisition, but like-for-like sales were flat.

The company said it achieved synergies of around $25m during the year from the Mead Johnson deal and is now expecting to achieve around $300m in annual cost savings by the end of the third full year of ownership, an increase over its original target of $250m (£200m).

Reckitt declared a final dividend of 97.7p per share, up from 95p in 2016 and bringing the total dividend 164.3p, up 7%.

Meanwhile, total group adjusted operating margin was down 70 basis points to 27.1%.

Chief executive officer Rakesh Kapoor said: "2017 was a significant year in RB's journey to become a global leader in consumer health. We returned to growth after a solid finish to the year, our acquisition of MJN is firmly on track and the creation of two business units - RB Health and RB Hygiene Home - will drive long-term growth.

“For 2018 we are targeting +13-14% total revenue growth1 (implying +2-3% LFL revenue growth). Whilst 2018 will see some specific factors impacting margin, we reiterate our medium-term target of moderate operating margin2 expansion."

Russ Mould, investment director at AJ Bell, said: "The problem may not be the numbers themselves, but the tepid sales growth guidance for 2018 and the reliance on cost-cutting for earnings surprises (as this is lower quality than growth for organic revenue increases) as neither help to support a valuation that already represents a big premium to the wider UK market.

"A forward price/earnings ratio of around 18 times for 2018, based on consensus earnings forecasts, compares to 14 to 15 times for the FTSE 100 and to justify that higher rating Reckitt needs to provide quality as well as quantity of earnings.

"Reckitt’s shares have already de-rated from 22 times earnings at their peak near £81 last summer to reflect investors’ concerns that relying on acquisitions and cost-cutting is not enough, especially as a target of 2% to 3% organic sales growth does not really argue in favour of a higher valuation for the stock."

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Reckitt has managed to crawl over the line and make its target of flat sales performance for the year, thanks to more positive trading in the final quarter. However flat sales and falling margins are not a combination that is going to win many supporters on the stock market."

At 1155 GMT, the shares were down 5.8% to 6,185p.