26 July 2023              

 

Strong first half - Growth across all business units

	Q2 2023			H1 2023
		Change2			Change2
	£m	Actual	Constant	£m	Actual	Constant
Net Revenue	3,529	+1.9%	+4.2%	7,446	+8.1%	+6.0%
Like-for-like (LFL)1			+4.1%			+6.0%
Adjusted1
Operating Profit				1,769	+0.2%	-2.4%
Operating Profit Margin				23.8%	-180bps
Diluted EPS				173.0p	-3.1%
IFRS
Operating Profit				1,754	+0.5%
Operating Profit Margin				23.6%	-170bps
Diluted EPS				171.6p	-8.6%

1. Adjusted measures are defined on page 24.

2. Change vs prior year presented. Constant measured on a constant exchange rate basis (see page 24).

H1 Highlights:

·      The strong first-half performance across our business units and through our earnings model reflects continued delivery from the investments we have made.  We delivered like-for-like net revenue growth of +6.0%, drove gross margin expansion and increased brand investment (by around £100m) behind our innovation programme.

·      Group like-for-like (LFL) net revenue growth of +6.0%.  Growth was broad-based across our Global Business Units (GBUs), with a strong innovation programme.  On an IFRS basis net revenue grew by +8.1%.    

·      Hygiene LFL net revenue growth of +3.6%.  Growth was driven by Finish, Harpic, Vanish and Air Wick, and underpinned by early success of innovation launches.   

·      Health LFL net revenue growth of +8.8%.  Growth was led by our OTC portfolio and Intimate Wellness brands with an improving performance in China.  Dettol declined by mid-single digits with category decline and in-market challenges across certain Asian markets - we expect an improvement in H2.

·      Nutrition LFL net revenue growth of +5.3%.  Continued strong market share in North America and mid-single digit growth in LATAM, against the lapping of tough prior year comparatives due to the US competitor supply issue.  

·      Adjusted operating margin of 23.8% (-180bps).  Productivity efficiencies and carry-over pricing drove gross margin expansion, and funded increased investment behind innovation launches. 

·      Adjusted diluted EPS of 173.0p (-3.1%). Net revenue growth and positive impact from foreign exchange is offset by lower operating margins and a higher effective tax rate. 

·      H1 2023 dividend recommended to be 76.6p. The increase of 5% is consistent with our aim to deliver sustainable dividend growth.

 

Q2 Highlights:

·      LFL net revenue growth of +4.1%. Mid-single digit growth was delivered across our Hygiene (+5.5%) and Health (+4.9%) portfolios whilst Nutrition declined (-0.9%).  On an IFRS basis net revenue grew by +1.9%.

·      Lysol grew high-single digits, driven by innovation launches, distribution gains and category growth.   

·      Nutrition - North America maintained strong market-leading share, whilst lapping the competitor supply issue in the prior year.

 

Outlook:

·      We maintain our Group LFL net revenue growth target of +3% to +5% in 2023 (including the lapping of the US Nutrition impact in 2022), and now expect adjusted operating margins to be slightly above 2022 levels (previously "in line with or slightly above 2022 levels") when excluding the one-off benefit of circa 80bps in 2022 related to US Nutrition.

 

Commenting on the results, Nicandro Durante, Chief Executive Officer, said:

 

"Reckitt's strong first-half performance across our business units and through our earnings model reflects continued delivery from the investments we have made.  We delivered like-for-like net revenue growth of +6.0%, drove gross margin expansion and increased brand investment (by around £100m) behind our innovation programme.

Our investments in R&D and innovation are now delivering.  Finish "Ultimate Plus All-in-One" has contributed to market share gains across Europe, and our recent launches of Air Wick "Active Fresh" and "Vibrant" have helped return Air Wick to growth in H1.  In June, we launched our latest Lysol innovation, "Air Sanitiser", that kills 99.9% of viruses and bacteria in the air.  Whilst early days, I am particularly excited about this ground-breaking innovation, the first and only antimicrobial product to effectively kill both viruses and bacteria in the air. Across Health, we launched the Mucinex "InstaSoothe Sore Throat and Pain Relief Spray", further strengthening our position in the US sore throat category, and have seen good early success of our new Durex "Invisible" and Biofreeze "Overnight Relief" innovations. 

The strong first-half performance gives us confidence in our full year targets, despite some tough comparatives in our OTC portfolio and an expected tougher competitive environment in US Nutrition in H2.

We look to the future with confidence under Kris Licht's leadership.  Amidst a backdrop of challenging market conditions and uncertainty, the business has strong momentum, yet with an opportunity to further strengthen our execution, optimise our cost base, and deliver improved returns to shareholders."

 

 

 

H1 2023 RESULTS PRESENTATION TODAY

There will be a results presentation for analysts and investors at 08:30 BST which will be held at the Auditorium, Deutsche Bank, 1 Great Winchester Street, London, EC2N 2DB.

 

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:	+44 20 4587 0498
All other locations:	+44 800 358 1035
Participant access code:	520841

 

Further Information and Contacts

Richard Joyce / Hazel Chung                                             +44 (0)7807 418516 / +44 (0) 7408 850537

Investor Relations

Patty O'Hayer                                                                                                      +44 (0)7825 755688

External Relations and Government Affairs

FGS

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 Reckitt Benckiser Group plc and the Reckitt 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, geopolitical and social conditions in the key markets in which the Group operates; the Group's ability to innovate and remain competitive; the Group's investment choices in its portfolio management; the ability of the Group to address existing and emerging environmental and social risks and opportunities; 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 including the risk of cyber-attack; interruptions in the Group's supply chain and disruptions to its production facilities; economic volatility including increases in the cost of labour, raw materials and commodities; the execution of acquisitions, divestitures and business transformation projects; product safety and quality, and 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, the Group 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

 

Outlook

·      We have made a strong start across all our GBUs.  We expect more challenging competitive dynamics in our US Nutrition business in future quarters.  We therefore continue to target Group LFL net revenue growth of +3% to +5% in 2023 (including the lapping of the US Nutrition impact in 2022). 

·      We now expect adjusted operating margins to be slightly above 2022 levels (previously "in line with or slightly above 2022 levels") when excluding the one-off benefit of circa 80bps in 2022 related to US Nutrition. Within our guidance we expect to significantly increase BEI to support an exciting innovation programme in 2023. 

·      In the medium-term, as previously guided, we expect adjusted operating profit to grow ahead of net revenue growth, achieving mid-20s margins by the mid-2020s.

 

Other technical guidance

·      Adjusted net finance expense is expected to be in the range of £250m to £280m (previously £270m to £300m).    

·      The adjusted tax rate is expected to be 24% to 25% (previously "around 24%"). 

·      Capital expenditure is expected to be around 3% of net revenue (no change).

·      We expect to deliver free cashflow of over £2bn for the year and net debt / adjusted EBITDA to be below 2.0x by the end of the year.  In line with our capital allocation policy, we are committed to returning excess cash to shareholders. 

Group Overview

 

	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2023	7,446	-4.4%	+10.4%	+6.0%	-0.3%	+2.4%	+8.1%
Q2 2023	3,529	-4.3%	+8.4%	+4.1%	-0.3%	-1.9%	+1.9%

1 Adjusted measures are defined on page 24.

Group net revenue

·      Q2 LFL net revenue growth was +4.1%. Price / mix improvements were +8.4% and volume declined by -4.3%.  Our Hygiene GBU grew +5.5% with a broad-based delivery across our major brands, including a return to growth for Lysol.  Our Health GBU grew +4.9%, with strong growth across the OTC and Intimate Wellness portfolios, and parts of the Dettol franchise.  Nutrition declined -0.9%, however we maintained a leading market share position in the US.

·      H1 group net revenue of £7,446m grew by +6.0% on a LFL basis, reflecting price / mix improvements of +10.4% driven by carry-over pricing from the previous year and innovation-led price increases during the first half of this year.  Volume declined -4.4% but saw continued improving trends from previous quarters.

·      North America and Europe delivered a strong performance in the half.  Developing Markets also delivered a strong performance with the exception of ASEAN, which faced some category weakness and in-market challenges.  We expect an improved performance in the second half.

·      Total net revenue on an IFRS basis grew +8.1% in the half, reflecting net M&A impact of -0.3% and foreign exchange tailwinds of +2.4%.

·      49% of our Core Category Market Units (CMUs) (weighted by net revenue) held or gained market share (H1 2023 versus H1 2022).  In Hygiene and Health, it was 43% and 58% respectively.  Nutrition was 49%, with the US maintaining high absolute market shares but declining as a result of lapping the competitor supply issue in the prior year.

·      E-commerce LFL net revenue grew +7% in the half and represents 14% of Group net revenue.

 

Group operating margins and profit

·      Adjusted operating profit in H1 2023 was £1,769m (H1 2022: £1,765m) at an adjusted operating margin of 23.8% (H1 2022: 25.6%), 180bps lower than H1 2022.

·      Gross margin improved +130bps, with high single digit inflation more than offset by carry over pricing, mix benefits and further productivity efficiencies. This improvement was more than offset by increased BEI investments and higher fixed costs, due to cost inflation, higher variable employee compensation and lapping the gain on sale of surplus land in Asia last year.

·      IFRS operating profit was £1,754m (H1 2022: £1,745m).

EPS and dividends

·      Continuing adjusted diluted EPS was 173.0p in H1 2023 (H1 2022: 178.6p), -3.1% lower than H1 2022 driven by net revenue growth and the positive impact from foreign exchange, offset by lower adjusted operating margin and a higher effective tax rate.  Continuing IFRS diluted EPS was 171.6p (H1 2022: 187.8p).

·      The dividend in H1 2023 is recommended to be 76.6p (H1 2022: 73.0p).

Free cash flow

·      Free cash flow was £758m in H1 2023 (H1 2022: £727m), with net working capital levels at -7% as a percentage of 12-month net revenue and cash conversion of 61% on adjusted net income.  Net working capital reflects lower payables principally due to a reduction in production volumes and our focus on reducing finished goods inventory levels.

 

·      Capital investment to support our growth and margin ambitions was £189m, 2.5% of group net revenue (H1 2022: £175m, 2.5% of group net revenue).

Operating Segment Review

 

Hygiene                  41% of net revenue in H1 2023

 

Net Revenue	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2023	3,057	-8.9%	+12.5%	+3.6%	-	+2.6%	+6.2%
Q2 2023	1,466	-7.3%	+12.8%	+5.5%	-	-1.8%	+3.7%

 

Operating Profit	£m	Constant FX (CER)1	Actual
Adjusted Operating Profit1	583	-8.1%	-6.1%
Adjusted Operating Profit Margin1%	19.1%		-250bps

1 Adjusted measures are defined on page 24.

First Half Performance

In H1, Hygiene net revenue grew +3.6% on a LFL basis to £3,057m. Price / mix improvements were +12.5% driven by carry-over pricing from 2022 and innovation-led pricing this year. Volume declined -8.9%.

 

43% of Core Hygiene CMUs (weighted by net revenue) gained or held market share (H1 2023 versus H1 2022) with improving trends across all regions.

 

Finish LFL net revenue grew double digits with broad-based growth across developed and developing markets. Our recent innovation, "Ultimate Plus All-in-One" launched across Europe, has seen good early success.

 

Following a decline in Q1 due to high Omicron comparisons, Lysol returned to growth in Q2, behind strong brand-building, innovation driving category growth and share expansion across key segments.

Air Wick grew mid-single digits with early success from our recent innovations "Active Fresh" (our first non-aerosol-based auto-spray, combined with new natural and light fragrances) and "Vibrant" (our most luxurious fragrance experience with 2x more essential oils and anti-fade technology).

 

Vanish grew high-single digits due to successful innovation launches, including Vanish "Oxi Action", "amazing stain removal, even at 20 degrees Celsius".

 

Harpic grew double digits driven by innovation, expanding its strong position in developing markets.

Adjusted operating profit for Hygiene at £583m was down 8.1% on a constant FX basis. Adjusted operating margin was 19.1%, 250bps lower than last year due to inflationary increases impacting our cost of goods sold, and increased BEI behind innovation launches.

 

Second Quarter Performance

Hygiene momentum strengthened in Q2. Net revenue grew +5.5% on a LFL basis, with strong trading across most brands and major markets.  Volume declined by -7.3%, an improving trend. Price / mix grew by +12.8% behind strong carry-over pricing and in-year pricing behind our innovation launches.

 

Lysol returned to growth in Q2 delivering high-single digit net revenue growth, and is around 50% above 2019 levels. Lysol laundry sanitisers continue to grow double digits. We increased distribution in wipes in the US and commenced the sell-in of our new Lysol "Air Sanitiser" innovation in June, the first and only antimicrobial product approved by the EPA that kills 99.9% of airborne viruses and bacteria while eliminating odours.

 

Finish, Air Wick, Vanish, and Harpic continued their very strong growth momentum, fueled by their innovation and brand building programs that are designed to grow the category and to deliver penetration gains.

Health      41% of net revenue in H1 2023

Net Revenue	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2023	3,073	+0.5%	+8.3%	+8.8%	-0.9%	+1.1%	+9.0%
Q2 2023	1,430	-0.1%	+5.0%	+4.9%	-0.7%	-3.4%	+0.8%

 

Operating Profit	£m	Constant FX (CER)1	Actual
Adjusted Operating Profit1	882	+8.0%	+10.4%
Adjusted Operating Profit Margin1%	28.7%		+40bps

1 Adjusted measures are defined on page 24.

First Half Performance

Health net revenue grew +8.8% on a LFL basis in H1 to £3,073m.  This reflected volume growth of +0.5% and price / mix improvements of +8.3%, benefitting from carry-over pricing actions from 2022.

 

58% of Core Health CMUs (weighted by net revenue) gained or held market share (H1 2023 versus H1 2022) with improving trends since Q1.

 

Growth was led by our OTC portfolio which grew by over 20% in the first half, with category growth moderating in Q2, following a very strong Q1.  Mucinex, Nurofen, Strepsils, Gaviscon and Biofreeze all delivered double digit growth in the half.  This was driven by strong category growth, some retailer inventory rebuilding in Europe, market shares gains, and geographic expansion with the launch of Biofreeze in France and Nurofen adult products in Germany in the second half of 2022.  We also launched a number of innovations such as Mucinex "InstaSoothe Sore Throat and Pain Relief Spray", further strengthening our position in the US sore throat category, and Biofreeze "Overnight Relief" in the US, an overnight pain relief gel scented with lavender essential oil for a restful sleep.

 

Our Intimate Wellness portfolio grew by high-single digits.  Growth across Europe and most Developing Markets was aided by the launch of our latest "Invisible" innovation across multiple markets, and China began to see the benefit of re-opening post Covid-related lockdowns.  

 

Dettol declined by mid-single digits with a mixed performance across markets.  A number of markets delivered growth and market share gains, underpinned by distribution improvements and innovation (long lasting germ protection and Dettol "Cool" launches).  Growth was more than offset by declines in some Asian markets due to category weakness and specific in-market challenges.  We expect performance to improve in the second half.  

 

Adjusted operating profit for Health at £882m was up +8.0% on a constant FX basis. Adjusted operating margin was 28.7%, up 40bps year on year.  Growth was driven by favourable mix from a strong OTC performance, volume leverage and carry-over pricing from 2022 pricing actions. 

 

Second Quarter Performance

 

Net revenue increased by +4.9% on a like-for-like basis in Q2 with a -0.1% decline in volume and a +5.0% improvement in price / mix. Growth was led by our OTC and Intimate Wellness brands.

 

Our Intimate Wellness portfolio grew double digits, with continued success of our recent innovation launches and a return to growth in China, which began to see the benefit of re-opening post Covid-related lockdowns.

 

Dettol declined in the quarter.  Growth in a number of markets was more than offset by declines in some Asian markets due to category weakness and specific in-market challenges.  We expect performance to improve in the second half.  

.

 

Nutrition        18% of net revenue in H1 2023

Net Revenue	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2023	1,316	-5.2%	+10.5%	+5.3%	-	+5.4%	+10.7%
Q2 2023	633	-6.9%	+6.0%	-0.9%	-	+1.1%	+0.2%

 

 

Operating Profit	£m	Constant FX (CER)1	Actual
Adjusted Operating Profit1	304	-16.1%	-11.9%
Adjusted Operating Profit Margin1%	23.1%		-590bps

1 Adjusted measures are defined on page 24.

First Half Performance

 

Nutrition net revenue grew +5.3% on a LFL basis in H1 to £1,316m.  Price / mix improvements of +10.5% were driven by price increases across all geographies, in particular the US, where pricing actions were delayed in 2022 due to the infant formula supply shortage.  In addition, there was a mix benefit from residual WIC sales in states where Reckitt does not hold the government contract. Volume declined by -5.2%.

 

49% of Core Nutrition CMUs (weighted by net revenue) gained or held market share (H1 2023 versus H1 2022).  Our US business maintained its leading market share position but is losing share versus the prior year as it laps the competitor supply issue.  Our Developing Markets businesses continue to deliver strong market share performances. 

 

IFCN US net revenue grew high-single digits with our Enfamil brand remaining the Number One Recommended Infant Formula by Paediatricians and the Number One Trusted by Consumers in the US.  In addition, we benefitted from restocking of retailer inventories.   

 

Our Developing Markets business was broadly stable. Our LATAM business grew net revenue mid-single digits as we continue to drive momentum through improved in-market execution.  We also saw good growth across South Asia which was offset by some category weakness and in-market challenges in certain ASEAN markets, and we have taken actions to improve future performance.

 

Adjusted operating profit for Nutrition at £304m was 16.1% lower on a constant FX basis. Adjusted operating margin was 23.1%, down -590bps year-on-year reflecting a 500bps lapping impact from a gain on sale of surplus land in Asia last year, year-on-year volume deleverage as we lap the competitor supply issue in the US, and negative mix as we lose the benefit from WIC sales in states where Reckitt does not hold the government contract.

 

Second Quarter Performance

 

Nutrition net revenue declined by -0.9% on a LFL basis in the quarter.  This performance was driven by low-single digit growth in North America, with strong growth in Canada offset by lapping the impact of the competitor supply issue in the US.  Our US business has maintained its leading market share position in the high forties of non-WIC formula.  Across Developing Markets, we saw growth in LATAM.  This was more than offset by category weakness and in-market challenges across certain ASEAN markets.

Performance by Geography

	£m	Volume	Price / Mix	LFL1	Net M&A	FX	Actual
H1 2023
North America	2,500	-3.0%	+9.5%	+6.5%	-	+5.0%	+11.5%
Europe / ANZ	2,464	-2.9%	+12.6%	+9.7%	-0.7%	+1.6%	+10.6%
Developing Markets	2,482	-7.3%	+9.5%	+2.2%	-0.4%	+0.9%	+2.7%
Total	7,446	-4.4%	+10.4%	+6.0%	-0.3%	+2.4%	+8.1%
Q2 2023
North America	1,174	+0.0%	+7.8%	+7.8%	-	-0.7%	+7.1%
Europe / ANZ	1,142	-5.3%	+10.5%	+5.2%	-0.7%	-1.9%	+2.6%
Developing Markets	1,213	-7.2%	+6.8%	-0.4%	-0.2%	-2.7%	-3.3%
Total	3,529	-4.3%	+8.4%	+4.1%	-0.3%	-1.9%	+1.9%

1 Adjusted measures are defined on page 24.

North America H1 net revenue grew +6.5% on a LFL basis. All GBUs were in growth with strong growth in Mucinex, a return to growth in Q2 for Lysol and continuing strong market shares in our Nutrition business.

 

Europe / ANZ H1 net revenue grew +9.7% on a LFL basis, with broad-based growth across markets.  On a category basis, growth was led by Finish and our OTC and Intimate Wellness portfolios.

 

Developing Markets H1 net revenue grew +2.2% on a LFL basis, with growth across all regions except for ASEAN, which declined due to category weakness and specific in-market challenges.  We expect performance to improve in the second half.

 

Other Matters

 

Russia

 

Reckitt is continuing the process aimed at transferring ownership of its Russian business, which may include a transfer to a third party or to local employees.

Detailed financial review - six months ended 30 June 2023

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 £1,769m (2022: £1,765m) at an adjusted operating margin of 23.8%, 180bps lower than the prior year (2022: 25.6%). Gross margin improved +130bps to 59.4% with high single digit inflation more than offset by carry over pricing, mix benefits and further productivity efficiencies. These improvements were more than offset by increased BEI investments -60bps (around £100m), to support our innovation and higher fixed costs (-250bps) predominantly due to cost inflation, higher variable employee compensation and lapping the £59m gain on the sale of surplus land in Asia in 2022.

 

IFRS operating profit was £1,754m (2022: £1,745m) at an IFRS operating margin of 23.6% (2022: 25.3%).

 

Net finance expense

Adjusted net finance expense was £105m (2022: £110m). Adjusted net finance expenses in 2023 included foreign exchange gains of around £30m on certain financing liabilities which are not expected to recur, offsetting the effect of higher interest rates in 2023 as compared to 2022.  

 

IFRS net finance expense of £116m (2022: £33m). IFRS net finance expense in 2022 included £69m (2023: £nil) of translational foreign exchange gains resulting from the liquidation of a number of subsidiaries to simplify the Group's legal entity structure.

 

Tax

The adjusted effective tax rate ('ETR') was 24.7% (2022: 21.1%). The 2022 ETR benefitted from 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 2023 is 24.1% (2022: 19.8%). The IFRS ETR in 2022 benefited from the reassessment of uncertain tax positions following progress on and conclusions of tax authority audits, and largely non-taxable gains on sale of E45 and foreign exchange gains on liquidation of subsidiaries.

 

Earnings per share (EPS)

Continuing adjusted diluted EPS was 173.0p (2022: 178.6p), the decrease of 5.6p or 3.1% was driven by net revenue growth and the positive impact of foreign exchange offset by lower adjusted operating margin and a higher effective tax rate.

Continuing IFRS diluted EPS was 171.6p (2022: 187.8p).

 

Balance sheet

 

At 30 June 2023, the Group had total equity of £9,208m (31 December 2022: £9,483m).

Current assets of £4,992m (31 December 2022: £5,278m) decreased by £286m. Excluding the impact of foreign exchange, higher receivables offset the reduction in inventories.

 

Current liabilities of £9,264m (31 December 2022: £8,341m) increased by £923m. The increase principally relates to a bond of £1,572m ($2bn), which will mature in June 2024, being reclassified from non-current to current liabilities. This increase is partially offset by a decrease in trade and other payables and current tax liabilities.

 

Non-current assets of £22,516m (31 December 2022: £23,457m) primarily comprise of goodwill and other intangible assets of £19,360m (31 December 2022: £20,203m) and property, plant and equipment. The decrease of £941m is predominantly due to the strengthening of sterling reducing the value of foreign currency denominated intangibles.

 

Non-current liabilities of £9,043m (31 December 2022: £10,918m) have decreased by £1,875m. This is principally due to a bond of £1,572m ($2bn) reclassified from non-current to current liabilities and a £115m decrease in deferred tax liabilities. This decrease has been partially offset by the recognition of a liability of £190m related to the forward purchase of shares from non-controlling interests in mainland China and Hong Kong.

 

Net working capital

During the period, net working capital reduced by £500m to negative £1,035m. Net working capital as a percentage of 12-month net revenue is -7% (31 December 2022: -11%) mainly due to lower payables from the timing of annual variable compensation payments and lower trade payables due to production volumes, partially offset by lower inventories.

 

Cash Flow

	30 Jun 2023	30 Jun 2022
	£m	£m
Adjusted Operating Profit	1,769	1,765
Depreciation, share based payments and gain on disposal of fixed assets (net of proceeds)	264	238
Capital expenditure	(189)	(175)
Movement in working capital and provisions	(451)	(592)
Cash flow in relation to adjusting items	(44)	(24)
Interest paid	(121)	(113)
Tax paid	(470)	(372)
Free Cash Flow	758	727
Free Cash Flow Conversion	61%	57%

 

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 of £758m increased by £31m or 4.3%, as a lower outflow from working capital more than offset higher cash tax payments. As a percentage of continuing adjusted net income was 61% (2022: 57%).

Net cash generated from operating activities has increased by £98m to £935m (2022: £837m).

Net debt

	30 Jun 2023	30 Jun 2022
	£m	£m
Opening net debt	(7,984)	(8,378)
Free cashflow	758	727
Shares reissued	33	37
Acquisitions, disposals and purchase of investments	(1)	217
Dividends paid	(794)	(745)
New lease liabilities in the period	(21)	(30)
Exchange and other movements	103	(416)
Cash flow attributable to discontinued operations	(8)	6
Closing net debt	(7,914)	(8,582)

At 30 June 2023 net debt was £7,914m, a decrease of £70m during the period as higher free cash flow and favourable foreign exchange was offset by the increased dividend.

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 2022: £4,500m), £4,450m 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 2023 dividend of 76.6 pence, an increase of 5% (2022: 73.0 pence). The ex-dividend date will be 3 August 2023 and the dividend will be paid on 15 September 2023 to shareholders on the register at the record date of 4 August 2023.

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 over time.  As we reduce leverage we will return surplus cash to shareholders as appropriate.  

Growing the dividend remains a long-term goal of the business. In February 2023, the Board updated its dividend policy and now aims to deliver sustainable dividend growth in future years, subject to any significant internal or external factors. Accordingly, the 2022 dividend was increased by 5% in line with this objective.

 

 

Principal Risks And Uncertainties

The nature and potential impact of The Group's principal and emerging risks for the second half of 2023 are unchanged from 31 December 2022 (as detailed on pages 80-86 of the Annual Report and Accounts for the year ended 31 December 2022) and are listed below:

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

·      Strategic: innovation, changes in the commercial environment, adverse geopolitical events, economic volatility

·      People: attracting, developing and retaining talent

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

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