Headache for Nurofen f irm
INVESTORS in Reckitt Benckiser felt the pain yesterday as the Nurofen maker posted flat annual sales and warned downward pressure on prices would squeeze profit margins, wiping nearly £3.5billion from its market value.
The FTSE 100 company behind brands from Durex to Dettol and Cillit Bang had its worst share price fall in seven years, down 493p to 6075p, as its forecast of 2-3 per cent comparable sales growth this year failed to impress, while it faces pressure from higher commodity costs and price competition among retailers.
It follows a “challenging” period for the company, which was already reeling from a safety scandal in South Korea, as it struggled with a costly cyber attack and the failure of a Scholl footcare product.
Despite improving sales in the fourth quarter, Reckitt’s annual like-for-like revenue was flat at £11.5billion.
It has raised its cost-saving target following last year’s £13.3billion takeover of US baby formula maker Mead Johnson Nutrition by $50million to $300million (£214million) over the next three years, but declined to comment on speculation it could look to buy Pfizer’s consumer healthcare business.
Reckitt chief executive Rakesh Kapoor said: “We returned to growth after a solid finish to the year, our acquisition of Mead Johnson is firmly on track and the creation of two business units – health and hygiene home – will drive long-term growth.
“While 2018 will see some specific factors impacting margin, we reiterate our medium-term target of moderate operating margin expansion.”
Laith Khalaf at investment firm Hargreaves Lansdown warned: “Flat sales and falling margins are not a combination that is going to win many supporters on the stock market.
“Reckitt has a reputation for consistent, reliable growth and its shareholders consequently have high expectations. It still has a stable of strong brands like Durex, Dettol and Nurofen, and well-diversified income streams from a range of international markets.
“However the Mead Johnson acquisition means Reckitt’s balance sheet is looking more stretched, with net debt rising by over £9 billion through the course of the year. 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.”