27 July 2022                                                                                                                                  

 

STRONG MOMENTUM CONTINUES 

FULL-YEAR REVENUE AND MARGIN TARGETS UPGRADED

	Q2 2022			H1 2022
		Change2			Change2
	£m	Actual	Constant	£m	Actual	Constant
Net Revenue	3,464	+12.0%	+5.9%	6,888	+4.4%	+2.2%
Like-for-like (LFL)			+11.9%			+8.6%
Adjusted1 ex IFCN China
Operating Profit				1,765	+23.9%	+20.0%
Operating Profit Margin				25.6%	+290bps
Adjusted1 inc IFCN China
Operating Profit				1,765	+23.9%	+20.0%
Total EPS (diluted)				178.6p	+25.2%
IFRS
Operating Profit				1,745	Nm
Operating Profit Margin				25.3%	Nm
Total EPS (diluted)				187.8p	Nm

1. Adjusted measures are defined on page 25

2. Change vs prior year presented. Constant measured on a constant exchange rate basis (see page 25)

All amounts £m, unless otherwise stated

Highlights (H1 unless indicated):

·    Group like-for-like (LFL) revenue growth of 8.6%.  Price/mix was 7.4% and volume 1.2%.  Continued broad-based growth and momentum across all Business Units and geographies.  Growth includes an estimated 2.4% benefit from US Nutrition temporary competitor supply issues.

·    Q2 Group LFL growth of 11.9%.  Price/mix was 9.7% and volume 2.2%.  Strong growth across our Health (+24.2%), Nutrition (+26.8%) and Hygiene (-2.5%, +8.9% excluding Lysol) portfolios, with Lysol in line with expectations.  Growth includes an estimated 3.3% benefit from US Nutrition temporary competitor supply issues.

·    70% of the portfolio less sensitive to Covid dynamics grew low double digits (Q2: mid-teens). Excluding the positive impact from US IFCN, growth was high-single digits (Q2: low-double digits), driven by continued innovation and in-market execution across the portfolio.

·    Our Health GBU delivered 22.4% LFL growth driven by a combination of strong demand and share gains in our OTC portfolio, and continued momentum in our Intimate Wellness, VMS and germ protection brands.

·   Disinfection performance fully in line with expectations.  Dettol in growth for Q2 with stable revenue trends at c.40% above pre-pandemic levels.  Lysol was down by around 30% from Covid peaks in H1 2021 plus some retailer de-stocking in H1. Lysol consumption trends were strong at 50-65% above pre-pandemic levels.  

·     Nutrition growth in Q2 of 26.8% driven by low-teens growth in Latin America / ASEAN and around 40% growth in the US with strong execution amidst temporary competitor supply issues.

·    H1 adjusted operating margin of 25.6%: Growth of +290bps was driven by the combination of favourable product mix, productivity initiatives, pricing and phasing of investments, aided by leverage benefits in US Nutrition and the gain on sale of surplus land in Asia (+85bps).

·     H1 adjusted EPS (diluted) of 178.6p (+25.2%). Strong growth driven by a combination of revenue growth, margin expansion, and foreign exchange benefits.

·     H1 2022 dividend recommended to be 73.0p: in line with H1 2021.

 

Outlook:

·     Following a strong H1 we are increasing our expectations for 2022.  We now expect LFL net revenue growth of +5 - 8% for 2022, and growth in adjusted operating margins.

·     We are already delivering sustainable mid-single digit net revenue growth and remain firmly on track to deliver our medium-term goal of mid-20s adjusted operating margins by the mid-2020s.

 

 

Commenting on the results, Laxman Narasimhan, Chief Executive Officer, said:

 

"We have delivered an excellent first half performance in 2022.  Innovation and improved in-market execution are driving sustained, broad-based revenue growth and market share momentum across our portfolio. Our brands less sensitive to the impact of Covid are growing ahead of our mid-single digit target, whilst our disinfection brands are performing as expected, well above pre-pandemic levels. The actions we have taken to broaden the shoulders of our Lysol and Dettol franchises, combined with our innovation and penetration building initiatives have built a significantly larger, sustainable base from which we will grow.

Driving our earnings model to mitigate the very challenging inflationary environment is a key focus throughout our entire organisation. Our productivity programme has delivered over £370m of savings in the first half, well ahead of our ingoing expectations.  This, combined with favourable product mix and pricing, accompanied by one-off and short-term benefits, have enabled us to deliver adjusted operating profit growth in H1 well above net revenue growth.

Imperative to our strong performance this period is the exceptional execution across our global operations. I want to thank each and every one of our colleagues for their tireless commitment during our transformation journey, and for their outstanding delivery amidst extremely challenging circumstances.  It is this embedded ownership culture that continues to be a unique factor in our success for the future.

We have built a stronger, more resilient business around our portfolio of trusted brands in growth categories.   Despite challenging conditions, we are confident about the rest of the year, we are already delivering sustainable mid-single digit net revenue growth, and remain firmly on track to deliver our medium-term adjusted operating margin goal".

 

There will be a results presentation for analysts and investors at 08:30 BST which will be held at the Auditorium, UBS, 5 Broadgate, London, EC2M 2QS.

 

To attend in person, please email your details to ir@reckitt.com to register

 

For those wishing to follow the webcast please click on the link below:

https://www.reckitt.com/investors/results-and-presentations/.  Alternatively, dial in details are as follows:

 

United Kingdom:	0800 640 6441
All other locations:	+44 20 3936 2999
Participant access code:	926790

 

Richard Joyce                                                                                                     +44 (0)7807 418516

Head of Investor Relations

Patty O'Hayer                                                                                                      +44 (0)7825 755688

Director, External Relations and Government Affairs

Finsbury

Faeth Birch                                                                                                         +44 (0)7768 943171

 

Cautionary note concerning forward-looking statements

This announcement contains statements with respect to the financial condition, results of operations and business of the Reckitt Benckiser Group plc group of companies (the Group) and certain of the plans and objectives of the Group that are forward-looking statements. Words such as 'intends', 'targets', or the negative of these terms and other similar expressions of future performance or results, and their negatives, are intended to identify such forward-looking statements. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including targets for net revenue, operating margin and cost efficiency, are forward-looking statements. Such statements are not historical facts, nor are they guarantees of future performance.

By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including many factors outside the Group's control. Among other risks and uncertainties, the material or principal factors which could cause actual results to differ materially are: the general economic, business, political and social conditions in the key markets in which the Group operates; the ability of the Group to manage regulatory, tax and legal matters, including changes thereto; the reliability of the Group's technological infrastructure or that of third parties on which the Group relies; interruptions in the Group's supply chain and disruptions to its production facilities; increases or volatility in the cost of raw materials and commodities; the reputation of the Group's global brands; and the recruitment and retention of key management.

These forward-looking statements speak only as of the date of this announcement. Except as required by any applicable law or regulation, Reckitt expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

LEI: 5493003JFSMOJG48V108

 

Following a strong H1 performance we now expect LFL net revenue growth of +5-8% (previously towards the upper end of +1-4%).  This reflects OTC and IFCN normalising in H2, disinfection products performing in line with expectations, and the remainder of the business growing mid-single digits. 

The input environment remains unpredictable.  We continue to expect inflation on our cost of goods sold to remain in the high teens for the full year, based on current commodity pricing. 

In H1 our adjusted operating margin benefitted from favourable product mix, productivity initiatives, pricing and phasing of investments.  In addition, margins benefited in the half from a gain on sale of surplus land in Asia (+85bps) plus volume leverage and mix benefits from the temporary supply shortages of infant nutrition products in the US.   

In H2, we expect Nutrition margins to normalise, a less favourable phasing of investments and to face a tougher inflationary environment as more favourable hedge positions prevailing in the first half are renewed at higher rates impacted by inflation.  

For the full year we now expect growth in operating margins (previously "in-line with the prior year" (excluding IFCN China)).

Guidance for interest and capital expenditure and our effective tax rate remains unchanged from that indicated on 29 April 2022. 

We are already delivering sustainable mid-single digit net revenue growth and remain firmly on track to deliver our medium-term goal of mid-20s adjusted operating margins by the mid-2020s.

 

 

 

H1 2022

Group net revenue

·    Group net revenue grew by 8.6% on a LFL basis in H1 with volume growth of 1.2% and price / mix improvements of 7.4%.  Volume was impacted by lower Lysol, down from Covid peaks, and the temporary benefit in US IFCN. Excluding Lysol and US IFCN, volumes remained strong, growing by around 7%.  On an IFRS basis, net revenue grew 4.4%.

·   Growth has been broad-based across the business, with brands less sensitive to Covid dynamics, representing around 70% of the portfolio, growing low double digits.  Excluding US IFCN, growth was high-single digits, with strong growth in Finish, Harpic, Vanish, Nurofen, our VMS portfolio and our emerging markets Nutrition business. 

·     Net revenue growth benefitted from the temporary uplift in demand for Reckitt US Nutrition products due to the supply shortages of infant nutrition products in the US.  We estimate this benefit to have added approximately 2.4% to our LFL growth rate in H1. 

·     The supply chain environment in H1 continues to be challenging, both in terms of logistical availability and certain raw material constraints.  While our supply team works to find mitigations, we continue to monitor the situation and look to continue to improve our customer service.

·     The net effect of M&A was a 6.4% reduction in net revenue in the half, representing the disposal of IFCN China, EnfaBebé in Argentina, Scholl, E45 and Dermicool, offset by the acquisition of Biofreeze.

·     FX tailwinds increased net revenue by 2.2% primarily as the result of a strengthening of the US Dollar against Sterling.

·     eCommerce LFL net revenue grew 19% in the half and represents 13% of Group net revenue.

 

Group operating margins and profit

·     Adjusted operating profit (excluding IFCN China) in H1 2022 was £1,765m (H1 2021: £1,425m) at an adjusted operating margin of 25.6% (H1 2021: 22.7%).

·     The margin accretion of 290bps versus H1 2021 reflects favourable product mix, productivity initiatives, pricing and phasing of investments mitigating significant inflation in our cost base.  Margin growth in H1 was aided by an 85bps (£59m) benefit from the gain on sale of surplus land in Asia, and volume leverage and mix benefit arising from the temporary supply issue of infant nutrition products in the US.

·     IFRS operating profit was £1,745m, versus a loss of £1,828m in 2021 which included a £2,997m loss on re-measurement of IFCN China to its fair value and a £165m loss on the sale of Scholl.

EPS and dividends

·     Adjusted diluted EPS was 178.6p in H1 2022 (H1 2021: 142.6p), 25.2% higher than H1 2021 driven by higher adjusted operating profit and the positive impact of foreign exchange.  IFRS diluted total EPS was 187.8p (2021: 241.7p loss).

·     The dividend in H1 2022 is recommended to be 73.0p, in line with H1 2021.

Free cash flow

·     Free cash flow was £727m in H1 2022 (H1 2021: £520m), with net working capital levels at -10% as a percentage of 12-month net revenue (including IFCN China) and cash conversion of 57% on adjusted net income.   Capital investment to support our growth and margin ambitions was £175m, 2.5% of group net revenue (H1 2021: £187m, 2.8% of group net revenue).

Portfolio

·     In the first half of 2022 we completed the sale of our E45 and Dermicool brands for a net cash consideration of around £240m. 

 

Hygiene                                                                                        42% of net revenue in H1 2022

Net Revenue	£m	Volume	Price / Mix	LFL1	FX	Actual
H1 2022	2,879	-12.0%	+6.0%	-6.0%	+1.1%	-4.9%
Q2 2022	1,414	-11.1%	+8.6%	-2.5%	+4.5%	+2.0%

 

Operating Profit	£m	Constant FX (CER)1	Actual
Adjusted Operating Profit1	621	-21.9%	-19.8%
Adjusted Operating Profit Margin1 %	21.6%		-400bps

¹ Adjusted measures are defined on page 25

Hygiene net revenue was -6.0% on a like-for-like basis (grew by +6.3% excluding Lysol) in H1 with strong, broad-based growth across our core brands, offset by Lysol, down as expected due to tough comparatives, consumption normalisation and some reduction in retailer inventory levels. Volume was -12.0% (due to Lysol) and price / mix improvements of +6.0% reflects the impact of pricing, partially offset by the normalisation of Lysol trade initiatives. 

41% of Core Hygiene CMUs (weighted by net revenue) held or gained market share (H1 2022 versus H1 2021) with share gains in Air Wick, Finish, Mortein and Harpic.  Lysol saw share gain in the core disinfection spray category, as well as the laundry sanitiser segment, offset by a reduction in wipes which is lapping a branded competitor's distribution challenges last year.

By brand, Lysol net revenue is over 50% higher than pre-pandemic levels driven by expansion in both core and new markets and adjacent categories over the past two years, and as consumers continue to exhibit elevated hygiene behaviours.  We continue to focus on new demand spaces, with innovation across the "On the Go" range and accelerating penetration of Laundry Sanitisers.  In addition, we launched new fragrances in our Lysol "Neutra Air" and "Brand New Day" portfolios. Versus the prior year Lysol was down in line with expectations by around 30% (in both Q2 and H1), following strong growth in H1 2021.

Finish net revenue grew high-single digits with particularly strong growth across Europe and Developing markets underpinned by our latest Finish Quantum "All in 1" innovation, delivering better performance to mid-tier consumers, leveraging thermoforming technology to deliver higher quality and more sustainable auto-dish solutions.

Air Wick net revenue was broadly flat, with strong market shares gains and innovation offsetting weak market conditions which lap a high base.  Net revenue remains well above 2019 levels as consumers continue to spend more time at home than pre-pandemic.  Our Liquid Electrical range has benefitted from strong innovation with both new fragrances to address the growing trend of authentic, natural fragrances as well as larger pack sizes to offer consumers better value for money.

Vanish net revenue grew low-teens as consumers return to a more normalised environment versus the prior year, and strong market and distribution gains in a number of key markets.

Harpic net revenue grew mid-teens with strong growth in emerging markets, driven by market share gains, innovation, such as our new thicker Harpic Power Plus, a 20% more viscous liquid with better cleaning performance.

Our pest business delivered high-single digit growth driven by penetration growth and the launch of innovations.

Adjusted operating profit for Hygiene at £621m was down 21.9% on a constant FX basis. Adjusted operating margin was 21.6%, 400bps lower than last year due to significant inflationary increases impacting the COGS base and lapping strong Lysol comparatives, partially offset by pricing and productivity.

 

Second Quarter Performance

Net revenue was -2.5% (grew by +8.9% excluding Lysol) on a like-for-like basis in the second quarter, with strong trading across most brands and major markets. Volume declined by -11.1%, mostly on Lysol, while price / mix grew by +8.6%.

Lysol US consumption remained strong between 50% to 65% above pre-pandemic levels. Whilst consumption was down year-on-year for the quarter due to strong comparatives, this returned to growth in June driven by growth in Lysol bathroom and kitchen products, multi-purpose cleaners and laundry sanitisers.

Lysol net revenue was down by around 30% compared to the prior year, due to tough comparatives and adjustments in retailer inventory levels.  We expect some further retailer inventory normalisation during H2.

Finish, Harpic and Vanish continued to show strong momentum in the quarter, led by innovation (Finish Quantum, Harpic Power Plus and Aeroguard Insect Repellent) combined with penetration improvements and market share gains.

Health                                                                                             41% of net revenue in H1 2022

Net Revenue	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2022	2,820	+15.3%	+7.1%	+22.4%	-3.0%	+2.2%	+21.6%
Q2 2022	1,418	+15.1%	+9.1%	+24.2%	-2.6%	+6.4%	+28.0%

 

Operating Profit	£m	Constant FX (CER)1	Actual
Adjusted Operating Profit1	799	+61.1%	+66.5%
Adjusted Operating Profit Margin1 %	28.3%		+760 bps

¹ Adjusted measures are defined on page 25

Health net revenue grew 22.4% on a LFL basis in H1 to £2,820m.  This reflected volume growth of 15.3% and price / mix improvements of 7.1%, with mix benefitting from a strong OTC performance.

54% of Core Health CMUs held or gained market share with gains across cold and flu, intimate wellness and most disinfection markets.

OTC net revenue grew over 60% in H1 due to the combination of Omicron, a cold and flu season against a weak comparator for Mucinex and Strepsils, plus significant market share gains across the portfolio.  Recent launches including Mucinex Instasoothe, the brand's first entry into the sore throat relief segment, has gained significant market share since its launch at the end of 2021. Our recent innovation, Nurofen Meltlets, have also made a strong start.

Our Intimate Wellness portfolio grew mid-single digits in H1 resulting from a continued renewed focus on execution, innovation and investment behind omnichannel growth.  Growth was impacted in the latter part of H1 due to Covid related lockdowns in parts of mainland China.  Durex has recently launched its softest polyurethane condom driving superior comfort, fit, and sensation to maximise the consumer's sensorial experience.

Dettol net revenue declined low-single digits in H1, as it laps tough comparators, but continues to stabilise at around 40% above pre-pandemic levels.  Growth returned in Q2, underpinned by innovation such as Dettol Tru Protect 4in1 laundry pods, with germ protection, cleaning power, softness and colour protection.

Our Vitamins, Minerals and Supplements grew double digits, driven by strong growth in Move Free in China, continued penetration growth in our cognitive health brand, Neuriva, in the US and our immunity support brand, Airborne.

Our personal care portfolio grew by mid-single digits.  We have recently launched our new Veet Intimate kit for men, enabling improved hair removal solutions.

The net effect of M&A was a 3.0% reduction in net revenue in H1, representing the disposal of Scholl, Dermicool and E45, offset by the acquisition of Biofreeze.

Adjusted operating profit for Health at £799m was up 61.1% on a constant FX basis. Adjusted operating margin was 28.3%, up 760 basis points year on year.  Growth was driven by favourable mix from a strong OTC performance, volume leverage and pricing. 

 

Second Quarter Performance

Net revenue increased by 24.2% on a like-for-like basis in Q2 driven by a 15.1% increase in volume and a 9.1% improvement in price / mix. Growth was broad-based and led by OTC which saw continued trends consistent with Q1 and strong growth in Mucinex, Strepsils and Nurofen.  Our Intimate Wellness portfolio grew by mid-single digits, with China down, due to Covid related lockdowns.  Dettol grew by mid-single digits with strong growth in China, and our VMS portfolio also delivered strong growth across both the US and China.

 

Nutrition                                                                                         17% of net revenue in H1 2022

Net Revenue	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2022	1,189	+10.7%	+12.9%	+23.6%	-33.3%	+4.7%	-5.0%
Q2 2022	632	+12.3%	+14.5%	+26.8%	-29.6%	+8.5%	+5.7%

 

Operating Profit	£m	Constant FX (CER)1	Actual
Adjusted Operating Profit1	345	+97.6%	+102.9%
Adjusted Operating Profit Margin1 %	29.0%		+1,540 bps
Adjusted Operating Profit Margin (ex IFCN China) %	29.0%		+1,060bps

¹ Adjusted measures are defined on page 25

Nutrition net revenue grew 23.6% on a LFL basis to £1,189m.  This reflected volume growth of 10.7% and price / mix improvements of 12.9% (which includes c.7.5% of gross price).

The benefit from competitor supply issues is estimated to be 16.1% in the first half, reflected across both volume and price/mix. This growth was driven by a combination of substitution purchases in the absence of competitor product availability in store, consumers building up 'safety stocks' out of concerns on availability and additional WIC sales, which do not incur rebate claims from the US government.

95% of Core Nutrition CMUs held or gained market share with particularly strong share gains across the US and Canada.

IFCN US net revenue grew around 40% on a LFL basis, with strong growth in both our core Enfa and specialty brands.  Significant market share growth was driven by strong execution in response to increased demand.

Our focus remains doing everything possible to put more infant formula on shelves, addressing concerns of parents across the US, while safeguarding the highest levels of quality.  We have recently been granted a temporary import approval by the Food and Drug Administration (FDA) which enables us to import additional infant formula supplies into the US from our manufacturing facilities in Singapore.

We understand that the temporary supply disruptions in the US will likely reduce in the coming weeks.  As a result we expect both the competitive environment to intensify and the temporary benefits from additional WIC sales for which Reckitt will not incur rebates claims from the Government, to dissipate.  We therefore expect to exit 2022 in the US with a larger, stronger business, but with more normalised sales volumes and operating profit margins.

Latin America and ASEAN both grew high-single-digits in H1, driven by improved in-market execution and increased expert recommendations for our products.  Growth was broad-based across markets and our product base of core infant formula, specialty and adult products.

The net effect of M&A was a 33.3% reduction in net revenue in H1, representing the disposal of IFCN China and EnfaBebé in Argentina.

Adjusted operating profit for Nutrition at £345m was 97.6% higher on a constant FX basis. Adjusted operating margin was 29.0%, up 1,540 basis points year on year reflecting a 480bps benefit from the exclusion of IFCN China, a 500bps benefit from a gain on sale of surplus land in Asia, plus the combination of strong volume leverage, positive mix benefits in the US and responsible pricing, more than offsetting a high inflationary impact on the cost base.  We expect operating margins to normalise as we exit 2022 due to the expected resolution of competitor supply issues, and their increased investment to regain market share.

Second Quarter Performance

Nutrition net revenue grew by 26.8% on a LFL basis in the quarter as trends seen in Q1 continue in Q2.  The US business grew by around 40% as competitor supply issues continue, and the recovery in our Latin America and ASEAN business maintains momentum.

Performance by Geography

	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2022
North America	2,256	-4.4%	+7.7%	+3.3%	+1.8%	+7.2%	+12.3%
Europe / ANZ	2,215	+7.5%	+5.4%	+12.9%	-3.9%	-4.3%	+4.7%
Developing Markets	2,417	-0.1%	+9.6%	+9.5%	-15.5%	+3.7%	-2.3%
Total	6,888	+1.2%	+7.4%	+8.6%	-6.4%	+2.2%	+4.4%
Q2 2022
North America	1,102	-3.9%	+7.8%	+3.9%	+2.3%	+12.0%	+18.2%
Europe / ANZ	1,108	+9.4%	+8.6%	+18.0%	-3.8%	-1.3%	+12.9%
Developing Markets	1,254	+1.1%	+12.3%	+13.4%	-14.2%	+7.2%	+6.4%
Total	3,464	+2.2%	+9.7%	+11.9%	-5.8%	+5.9%	+12.0%

¹ Adjusted measures are defined on page 25

North America H1 net revenue grew 3.3% on a LFL basis, with strong growth in our IFCN, OTC and VMS portfolios, offset by the expected performance in Lysol given the tough comparative base.

Europe / ANZ H1 net revenue grew 12.9% on a LFL basis.  Growth was broad-based with every main market in growth. Growth was broad-based across the product portfolio, with Finish, Lysol, Vanish, Nurofen and Strepsils growing double-digit.

Developing markets H1 net revenue grew 9.5% on a LFL basis, with each of our regions in growth.  Each of our GBUs (Hygiene, Health and Nutrition) grew around double-digits in the half.  Growth was particularly strong in Greater China, led by Dettol and our VMS portfolio.

 

Russia

On 13 April 2022, Reckitt announced it had begun a process aimed at transferring ownership of its Russian business, which may include a transfer to a third party or to local employees. The net assets of the Russian business at 30 June 2022 were c.£260m and on disposal foreign exchange losses of c.£40m would be recycled to the income statement. At 30 June 2022 the assets and liabilities had not met the criteria to be reclassified as held for sale.

 

The following section should be read in conjunction with the condensed financial statements and the adjusted and other non-IFRS measures, definitions and terms section.

Group operating profit

Adjusted operating profit was £1,765m (2021: £1,424m) at an adjusted operating margin of 25.6%, 400bps higher than the prior year (2021: 21.6%) or 290bps higher excluding IFCN China. The margin improvement reflects favourable product mix, productivity initiatives, pricing and phasing of investments mitigating significant inflation in our cost base. Margin growth in the first half was aided by a £59m benefit (+85bps) from a gain on sale of surplus land in Asia, and a volume and mix benefit arising from the temporary supply issue of infant nutrition products in the US.

IFRS operating profit was £1,745m (2021: £1,828m IFRS operating loss) at an IFRS operating margin of 25.3% (2021: -27.7%). IFRS operating loss in 2021 included a pre-tax loss of £2,997m on re-measurement of IFCN China to its fair value on classification as held for sale and a loss of £165m on disposal of Scholl.

Net finance expense

Adjusted net finance expense was £110m (2021: £116m). The decrease is due to lower average net debt and the impact of higher interest rates on the Group's deposits.

IFRS net finance expense of £33m (2021: £115m) includes £69m of reclassified translational foreign exchange gains resulting from the liquidation of a number of subsidiaries to simplify the Group's legal entity structure (2021: £nil).

Tax

The adjusted effective tax rate ('ETR') was 21.1% (2021: 22.0%) reflecting the reassessment of uncertain tax positions following progress on and conclusions of tax authority audits.

The IFRS tax rate for the six months to 30 June 2022 is 19.8% (2021: 9.8%). The IFRS ETR in 2022 reflects the reassessment of uncertain tax positions following progress on and conclusions of tax authority audits. The IFRS tax charge in 2022 benefits from largely non-taxable gains on sale of E45 and foreign exchange gains on liquidation of subsidiaries.  The IFRS ETR in 2021 benefited from a £591m net deferred tax credit in relation to the disposal of IFCN China as deferred tax liabilities were adjusted to reflect estimated tax payable in relation to the disposal.

Discontinued operations

Income from discontinued operations was £nil (2021: £29m).  Income from discontinued operations in 2021 represented income, net of tax, recognised in relation to an agreement with Indivior plc to settle indemnity claims related to the Group's previous settlement with the DoJ, and related matters.

Earnings per share (EPS)

Total adjusted diluted EPS was 178.6p (2021: 142.6p), the increase of 36.0p or 25.2% was driven by higher adjusted operating profit and the positive impact of foreign exchange.

Total IFRS diluted EPS was 187.8p (2021: loss per share of 241.7p). The loss per share in 2021 resulted from the post-tax loss of £2.4bn on re-measurement of IFCN China to its fair value.

Balance sheet

At 30 June 2022, the Group had total equity of £8,972m (31 December 2021: £7,453m).

Current assets of £5,550m (31 December 2021: £4,862m) increased by £688m, due to higher trade receivables and inventories, reflecting strong business growth in the first half of 2022.

Current liabilities of £7,939m (31 December 2021: £8,088m) decreased by £149m. The repayment of £2.4bn ($3.2bn) of bonds which matured in the first half of 2022 has been offset by the issuance of new commercial paper of £2.1bn.

Non-current assets of £23,455m (31 December 2021: £21,941m) primarily comprise of goodwill and other intangible assets of £20,282m (31 December 2021: £18,868m) and property, plant and equipment. The increase of £1,514m is predominantly due to the foreign exchange retranslation of USD-denominated assets.

Non-current liabilities of £12,095m (31 December 2021: £11,405m) have increased by £690m. This is principally due to the adverse foreign exchange movements on USD-denominated debt.

Net working capital

During the period, net working capital increased by £547m from negative £1,882m to negative £1,335m. Net working capital as a percentage of 12-month net revenue (incl. IFCN China) is -10% (31 December 2021: -14%) due to higher trade receivables and inventories, and lower payables following the settlement of variable pay liabilities.

Cash Flow

	30 Jun 2022	30 Jun 2021
	£m	£m
Adjusted Operating Profit	1,765	1,424
Depreciation, share based payments and gain on disposal of fixed assets (net of proceeds)	238	197
Capital expenditure	(175)	(187)
Movement in working capital and provisions	(592)	(416)
Cash flow in relation to adjusting items	(24)	(26)
Interest paid	(113)	(105)
Tax paid	(372)	(367)
Free Cash Flow	727	520
Free Cash Flow Conversion	57%	51%

 

Free cash flow (FCF) is the amount of cash generated from continuing operating activities after net capital expenditure on property, plant and equipment and intangible software assets. Free cash flow reflects cash flows that could be used for payment of dividends, repayment of debt or to fund acquisitions or other strategic objectives.

Free cash flow as a percentage of continuing adjusted net income was 57% (2021: 51%) as a result of the effect of adverse movements in working capital in the first half of 2022.

Net cash generated from operating activities has increased by £125m to £837m (2021: £712m), as higher profitability has been offset by the movement in net working capital.

Net debt

	30 Jun 2022	30 Jun 2021
	£m	£m
Opening net debt	(8,378)	(8,954)
Free cashflow	727	520
Shares reissued	37	57
Acquisitions, disposals and purchase of investments	217	87
Dividends paid	(745)	(739)
New lease liabilities in the period	(30)	(85)
Exchange and other movements	(416)	25
Cash flow attributable to discontinued operations	6	5
Closing net debt	(8,582)	(9,084)

At 30 June 2022 net debt was £8,582m, an increase of £204m from 31 December 2021, as higher free cash flow and proceeds from the disposal of brands were offset by unfavourable foreign exchange movements on USD-denominated debt.

The Group regularly reviews its banking arrangements and currently has adequate facilities available to it.  The Group has committed facilities totalling £4,500m (31 December 2021: £4,500m), £3,500m of which expire after more than two years, which are undrawn and available to draw. The Group remains compliant with its banking covenants. The committed borrowing facilities, together with cash and cash equivalents, are considered sufficient to meet the Group's projected cash requirements.

Dividends

The Board of Directors recommends an interim 2022 dividend of 73.0 pence (2021: 73.0 pence), consistent with its policy and guidance from February 2020. The ex-dividend date will be 4 August 2022 and the dividend will be paid on 14 September 2022 to shareholders on the register at the record date of 5 August 2022. The last date for election for the share alternative to the dividend is 23 August 2022.

Capital returns policy

Reckitt has consistently communicated its intention to use its strong cash flow for the benefit of shareholders. Our priority remains to reinvest our financial resources back into the business, including through value-adding acquisitions, in order to deliver sustainable growth in net revenue and improving earnings per share over time.

In managing the balance sheet, we intend to maintain key financial ratios in line with those expected of an A-grade credit-rated business. This will broadly define acceptable levels of leverage overtime.

Repatriating cash to shareholders through a growing dividend remains a long-term goal of the business. As set out in February 2020, we will maintain the dividend pay-out per share at 2019 levels until we rebuild dividend cover to target levels, at which time we will be able to resume growth in dividends in line with the growth in adjusted net income.

We will return surplus cash to shareholders as appropriate.

The Group's principal risks and uncertainties are detailed on pages 88-102 of the Annual Report for the year ended 31 December 2021. The headings for these risks are listed below:

·   Operational: Covid-19, product safety, supply disruption, cyber-security, employee health and safety, sustainability, adherence to product quality standards

·     Strategic: Innovation, disruption, China

·     People

·   Financial and Compliance: Tax disputes, product regulations, legal & compliance, and South Korea Humidifier Sanitiser (HS)

·     Other: 'Black Swan' event.

The Group's emerging risks included geopolitical, sector consolidation, emergence of environmental tax instruments and science and technology "disruptors".

In 2021 the Group reported a further emerging risk titled 'Economic Volatility in a post-Covid-19 World'. In light of changing market conditions over the last 6-12 months, this risk has now been elevated to become a new principal risk. The risk addresses the economic challenges that we are currently facing or may face in the future and includes: increasing commodity prices, most acutely energy costs; rising inflation; volatility in global trade and financial markets; and the impact of changing local economic conditions. The risk also acknowledges the current crisis in Ukraine/Russia, specifically the likelihood of further price rises attributed to the conflict and the impact of sanctions on financial markets. We have taken, and continue to take, appropriate measures to mitigate any adverse impacts arising during periods of volatility. These include leveraging the strength of our brands to balance price and volume-led growth and using the benefits from productivity and investment programmes to offset inflation and make the business more resilient.

The nature and potential impact of the other principal and emerging risks remain essentially unchanged for the second half of 2022.