24 July 2024                                                                                                             

 

RECKITT ANNOUNCES H1 RESULTS AND STRATEGIC UPDATE

 

Adjusted1			IFRS
£m	2024 H1	YoY2	£m	2024 H1	YoY2
First Half
Like-for-like (LFL) net revenue growth3		+0.8%	Net revenue	7,167	-3.7%
Hygiene		+4.5%	Hygiene	3,060	+0.1%
Health		+1.3%	Health	2,941	-4.3%
Nutrition		-9.0%	Nutrition	1,166	-11.4%
Gross profit margin	60.6%	+120bps	Gross profit margin	60.6%	+120bps
Operating profit	1,683	-4.9%	Operating profit	1,678	-4.3%
Operating profit (constant FX)3		+0.6%
Operating profit margin	23.5%	-30bps	Operating profit margin	23.4%	-20bps
Diluted EPS	161.3p	-6.8%	Diluted EPS	161.0p	-6.8%
Free cash flow	821	+8.3%	Cash generated from operating activities	982	+5.0%
Cash returns to shareholders4	1,583	+100%
Q2
LFL net revenue growth		0.0%	Net revenue	3,430	-2.8%

1.     Adjusted measures are defined on page 24.

2.     All growth rates are presented on an actual basis, except for LFL net revenue growth and where separately noted.

3.     LFL net revenue and adjusted operating profit growth is measured on a constant exchange rate basis (see page 24).

4.     Cash returns to shareholders represents dividends paid during the period plus cash returned to shareholders through share buybacks.

 

Commenting on the results, Kris Licht, Chief Executive Officer, said:

"Today I am pleased to announce a set of actions to significantly sharpen our portfolio and simplify our organisation for accelerated growth and value creation. This follows a thorough review of our portfolio against the three principles I set out in October 2023*.

We delivered H1 broadly in line with our expectations. Hygiene grew mid-single-digit LFL net revenue and delivered volume growth despite a more competitive market environment. Health delivered broad-based revenue and volume growth, reduced by softness in seasonal OTC brands.

The investments we have made in innovation are driving growth across our brands, and our industry-leading gross margins have funded both increased brand investment and an attractive adjusted operating margin. We grew free cashflow by 8% and increased cash returns to shareholders by 100%.

Short-term disruption to our Nutrition business, which performed above expectations in H1, due to the Mount Vernon tornado has caused us to reduce our net revenue growth outlook for the year to +1% to +3%. Notwithstanding this, our business remains resilient. We expect revenue growth to accelerate in H2 and continue to target operating profit growth ahead of net revenue growth.

We also announce that we will further increase returns to shareholders through an increase in our dividend and our next share buyback programme of £1bn over the next 12 months."

*details set out in a separate RNS.

 

H1 Highlights:  

·      H1 growth and earnings delivery broadly in line with expectations. Group LFL net revenue growth of +0.8%. Mid-single-digit LFL net revenue growth across Hygiene, led by Finish and Lysol. Health delivered strong growth in Intimate Wellness, VMS and non-seasonal OTC brands, partially offset by declines in Mucinex and Strepsils due to a softer end to the cold & flu season and retailer inventory destocking. Nutrition saw stable US market share throughout the half while continuing to rebase from high comparatives.

 

·      Volume growth of 0.4% in our Hygiene and Health portfolios, despite high-single digit declines in seasonal OTC brands caused by retailer destocking following a weaker than expected season. The balance of Health and Hygiene Powerbrands delivered strong volume growth.

 

·      Group reported net revenue decline of -3.7%. LFL growth of +0.8% offset by FX headwinds of -4.2% and a net M&A impact of -0.3%.

 

·      Gross margin of 60.6% (+120bps), reflecting carry-over pricing, lower freight costs and a more benign commodity price environment.

 

·      Brand Equity Investment (BEI) (+100bps) as we continue to increase investment behind our brands.

 

·      Adjusted operating profit margin of 23.5% (-30bps). Gross margin expansion is offset by increased BEI and fixed costs.

 

·      100% increase in cash returns to shareholders, delivered through a first half dividend of 80.4p (+5%) and £0.8bn of shares repurchased under the share buyback programme. Cash returns are enabled by strong free cashflow generation of £0.8bn (+8% versus 2023 H1).

 

·      Next share buyback programme to commence imminently, with £1.0 billion of shares to be repurchased over the next twelve months.

 

Q2 Performance:

·      Like-for-like (LFL) net revenue was flat, with volume decline of -2.2% of and price/mix growth of 2.2%. Health and Hygiene net revenue growth was 1.8% with volume decline of -0.8% (volume growth of 0.3% excluding the unwind of a 2.0% net revenue and volume sell-in benefit ahead of a SAP implementation in Brazil during Q1).

·      Hygiene +1.9% LFL net revenue growth (+3.9% excluding Brazil SAP impact). Growth was led by Lysol and Finish.

·      Health +1.7% LFL net revenue growth. Broad-based revenue and volume growth offset by seasonal OTC weakness and continued retailer destocking. Growth in Intimate Wellness brands, VMS, Gaviscon and Dettol was partially offset by Mucinex and Strepsils.

·      Nutrition -8.1% LFL net revenue decline. Stable market shares and value share leadership in the US while volume is rebasing from temporary market share gains from the competitor supply issue in prior years continues.   

 

Our 2024 outlook:

 

·      Due to the temporary supply disruption caused by the July 9 tornado in Mount Vernon, Indiana, and its impact on our Nutrition business, we are updating our Group full year LFL net revenue growth outlook to +1% to +3% (previously +2% to +4%).

o We now expect a low double-digit decline for Nutrition (previously mid- to high-single-digit decline), reflecting an assumed short-term impact to the business from the Mount Vernon tornado.

o We reiterate mid-single-digit growth for our Health and Hygiene portfolios, albeit at the low end of this range reflecting a more competitive environment in developed markets.

·      Adjusted operating profit to grow ahead of net revenue growth (no change).

 

 

 

Technical guidance:

·      Adjusted net finance expense is expected to be £300m to £320m. (No change).

·      The adjusted tax rate is expected to be 25-26%. (No change). 

·      Capital expenditure is expected to be 3-3.5% of net revenue. (No change).

·      If foreign exchange rates were to hold end-June 2024 closing rates for the remainder of 2024, the estimated negative impact on 2024 Sterling net revenue would be around -3.5%, and 2024 Sterling adjusted diluted EPS would be around -4.5% (as published on our website).

 

Net Revenue Unaudited	LFL1	Volume	Price / Mix	£m	Net M&A	FX	IFRS
H1	+0.8%	-1.3%	+2.1%	7,167	-0.3%	-4.2%		-3.7%
Q2	0.0%	-2.2%	+2.2%	3,430	-0.2%	-2.6%		-2.8%

1.     Adjusted measures are defined on page 24.

Group net revenue

·      Group net revenue grew by 0.8% LFL to £7,167m, with price / mix improvements of +2.1% and a volume decline of 1.3%. Hygiene delivered broad-based growth of +4.5% across our brand portfolio with a return to volume growth in the half. Health's growth of +1.3% was led by our Intimate Wellness portfolio, partially offset by the expected declines in seasonal OTC products from both a weak end to the cold & flu season and retailer inventory destocking. Nutrition declined -9.0% as the US lapped the prior year competitor supply issue. 

·      Total net revenue on an IFRS basis declined -3.7%, reflecting net M&A impact of -0.3% and foreign exchange headwinds of -4.2%.

·      38% of our Core Category Market Units (CMUs) held or gained share on a YoY basis during the half (5 months to 31 May), impacted by Nutrition (14%) which is seeing stable market share in the US this year but continues to rebase from high prior year comparatives. Health is 43% over the same period, with improving trends, particularly in OTC. Hygiene is 44%, impacted by a return to a more normal promotional environment in Europe and competitive pressures in the US. We expect a continued improving trend in our Health business and for competitive pressures to remain in Hygiene.

·      At the regional level, our Developing Markets grew by mid-single digits across Hygiene and Health, led by strong double-digit growth in Dettol, Durex and VMS in China. Europe grew mid-single digit, and North America declined, reflecting the ongoing rebasing in our Nutrition business and weakness in seasonal OTC.

·      Q2 LFL net revenue was flat. Price / mix improvements were +2.2% and volume declined by -2.2%. Hygiene delivered +1.9% LFL growth but both net revenue and volumes were impacted by the reversal of a 2.0% sell-in benefit ahead of an SAP implementation in Brazil during Q1, as previously communicated. Health delivered +1.7% LFL net revenue growth, with broad-based revenue and volume growth offset by seasonal OTC weakness and continued retailer destocking. US Nutrition (-8.1% LFL net revenue decline) continues to rebase.       

Group operating margins and profit

·      Adjusted gross margin was 60.6% (2023 H1: 59.4%), an increase of +120bps, driven primarily by pricing actions, lower freight costs and a more benign commodity price environment.

·      Brand equity investment (BEI) increased by +7.9% on a constant FX basis as we continued to invest behind innovation launches and the long-term strength of our brands. BEI percentage of net revenue was up +100bps to 13.3% of net revenue (2023 H1: 12.3%). 

·      Adjusted operating profit was £1,683m (2023 H1: £1,769m) at an adjusted operating margin of 23.5% (2023 H1: 23.8%), -30bps lower than prior year, with gross margin expansion offset by increased brand equity investments and inflation-led cost base increases.  

·      IFRS operating profit was £1,678m (2023 H1: £1,754m) with an operating profit margin of 23.4% (2023 H1: 23.6%). 

EPS and dividends

·      Total adjusted diluted EPS was 161.3p (2023 H1: 173.0p), -6.8% below 2023, as an increase in adjusted operating profit at constant exchange rates was offset by adverse foreign exchange and a higher adjusted effective tax rate Total IFRS diluted EPS was 161.0p (2023 H1: 172.8p).

·      Half year dividend increased by 5% to 80.4p (2023 H1: 76.6p) per share, in line with our policy to deliver sustainable growth through a progressive dividend, which in turn reflects strong free cashflow generation and the Board's confidence in the future growth and cash generation of the business.

Free cash flow

·      Free cash flow was £821m (2023 H1: £758m), an +8% increase year on year.   

·      Net debt ended the half at 2.2x adjusted EBITDA (2023 H1: 2.0x adjusted EBITDA).

Hygiene                                                                                         43% of net revenue in 2024 H1

Net Revenue	LFL1	Volume	Price / Mix	£m	Net M&A	FX	IFRS
H1 2024	+4.5%	0.9%	+3.6%	3,060	-	-4.4%		+0.1%
Q2 2024	+1.9%	-1.1%	+3.0%	1,452	-	-2.9%		-1.0%

 

Operating Profit	£m	Constant FX (CER)1	IFRS
Adjusted Operating Profit1	654	+18.6%	12.2%
Adjusted Operating Profit Margin1 %	21.4%		+230bps

1.     Adjusted measures are defined on page 24.

Half Year Performance

Hygiene net revenue grew +4.5% on a LFL basis to £3,060m, with broad-based volume growth of +0.9% and price / mix improvements of +3.6%, driven by carry over pricing and some minor in-year pricing actions.

 

44% of Core Hygiene CMUs (weighted by net revenue) gained or held share during the first half. Successful innovation launches and strengthened marketing have been positive growth drivers, while increased competitive pressures, particularly in developed markets, had some negative impact, especially in Auto Dish.

Lysol delivered strong high-single-digit growth in the half, led by double-digit LFL growth in surface disinfection and bathroom hygiene. Wipes benefitted from distribution gains, and Lysol Laundry Sanitiser continued to drive penetration and share growth. Our recently launched Lysol Air Sanitiser continues to successfully build a new category with strong penetration gains as we expand our product range.

In the Auto Dish category, Finish delivered mid-single-digit LFL net revenue growth. We continue to grow through premiumisation with increased household penetration of our customer-preferred Finish thermoformed tablets, which now account for 74% of our tablet net revenue.

We saw broad-based growth across our other Hygiene brands, including Vanish, Mortein and Harpic, where our 10X Advanced Harpic formulation is delivering category share gains in India.

Adjusted operating profit was £654m was up +18.6% on a constant FX basis and +12.2% on an actual basis. Adjusted operating profit margin was 21.4%, up 230bps. Gross margin expansion was offset by increased investment behind brand building initiatives and inflation-driven fixed costs.

Second Quarter Performance

Hygiene net revenue grew +1.9% in the quarter on a LFL basis, with volume decline of -1.1% and price / mix improvements of +3.0%. As communicated previously, both net revenue and volume in the quarter were impacted by the reversal of a 2.0% sell-in benefit ahead of an SAP implementation in Brazil during Q1.

Net revenue growth in the quarter was driven by growth in Lysol and Finish.

 

Health                                                                                             41% of net revenue in 2024 H1

Net Revenue	LFL1	Volume	Price / Mix	£m	Net M&A	FX	IFRS
H1 2024	+1.3%	-0.2%	+1.5%	2,941	-0.7%	-4.9%		-4.3%
Q2 2024	+1.7%	-0.4%	+2.1%	1,403	-0.7%	-2.9%		-1.9%

 

Operating Profit	£m	Constant FX (CER)1	IFRS
Adjusted Operating Profit1	819	-0.8%	-7.1%
Adjusted Operating Profit Margin1 %	27.8%		-90bps

1.     Adjusted measures are defined on page 24.

Half Year Performance

Health net revenue grew +1.3% on a LFL basis to £2,941m, with price / mix improvements of +1.5% and volume decline of -0.2%. Volume performance in the half was impacted by a slow end to the cold & flu season and associated retailer stocking actions. Our Intimate Wellness portfolio, our VMS franchise, Dettol and Gaviscon all delivered volume growth in H1.  

43% of Core Health CMUs (weighted by net revenue) gained or held share during the half. We are seeing improving trends in our competitiveness. Our volume competitiveness is strong, with over 70% of CMUs holding or gaining share YTD.    

Our OTC portfolio saw a low-single digit decline in LFL net revenue. Seasonal brands (Mucinex, Strepsils, Delsym, Lemsip) declined, impacted by a weak end to the cold & flu season retailer inventory movements - both inventory rebuild comparatives from the prior year, and de-stocking actions in the current year. This was partially offset by growth in non-seasonal brands.

The underlying strength of our OTC portfolio remains strong, with volume share gains on a YTD basis and good performances from our recent innovations like Mucinex InstaSoothe and our new Strepsils Herbal Chesty Cough product, launched in Australia during the half.   

Intimate Wellness delivered high single-digit growth H1. Growth was broad-based across Europe and Developing Markets. We are seeing strong market share gains across these geographies as we benefit from improved in-store execution actions, distribution gains and recent innovation launches. These include Durex Fetherlite HA, our new hyaluronic acid condom with water-based lubricant to provide a natural moisturisation experience, which is enjoying strong consumer adoption and growth in China, our largest market for Durex.

Dettol was flat in the half, with volume growth mitigated by the impact of competitive pricing actions taken in certain markets. A number of markets delivered growth, underpinned by product innovations including our Dettol Washing Machine Cleaner and 4-in-1 Tru-Protect Laundry Pods, and we saw market share gains in China.

Adjusted operating profit for Health at £819m was down -0.8% on a constant FX basis and -7.1% on an actual basis.  Adjusted operating margin was 27.8%, a decrease of 90bps, as gross margin expansion was offset by increased BEI.

Second Quarter Performance

Net revenue grew by +1.7% on a LFL basis in the quarter, with price / mix improvements of +2.1% and volume decline of -0.4%. Growth in Intimate Wellness, Dettol, VMS and non-seasonal OTC brands was offset by a weak end to the cold & flu season and retailer inventory destocking. 

 

Nutrition                                                                                         16% of net revenue in 2024 H1

Net Revenue	LFL1	Volume	Price / Mix	£m	Net M&A	FX	IFRS
H1 2024	-9.0%	-9.0%	0.0%	1,166	-0.1%	-2.3%		-11.4%
Q2 2024	-8.1%	-8.6%	+0.5%	575	+0.4%	-1.5%		-9.2%

 

Operating Profit	£m	Constant FX (CER)1	IFRS
Adjusted Operating Profit1	210	-29.4%	-30.9%
Adjusted Operating Profit Margin1 %	18%		-510bps

1.     Adjusted measures are defined on page 24.

 

Half Year Performance

Nutrition net revenue declined -9.0% on a LFL basis to £1,166m. Volume declined -9.0% due to the lapping of peak market shares in the US from the competitor supply shortage in the prior year, and category-led volume declines in LATAM and ASEAN. Price / mix was flat, with carry over pricing partially offset by more normalised trade conditions in the US.

14% of Core Nutrition CMUs (weighted by net revenue) gained or held share on a YTD basis, impacted by the market share rebasing in the US.

US net revenue declined mid-teens on a LFL basis in the half, with non-WIC market shares stable during H1 but rebasing versus higher prior year comparators reflecting the competitor supply issue at that time. We have maintained our value market leadership position. Our Enfamil brand remains the number one recommended infant formula by paediatricians in the US.

 

Our US business has benefitted from temporary supply issues experienced by a private label competitor. This has helped deliver a H1 performance above our initial expectations.

 

Our Developing Markets business saw a low-single-digit decline in LFL growth, with category-led volume declines partially offset by growth in premium products in ASEAN.

Adjusted operating profit for Nutrition at £210m was down -29.4% on a constant FX basis and -30.9% on an actual basis. Adjusted operating margin was 18.0%, down -510bps, reflecting the year-on-year volume deleverage as we lap the competitor supply issue in the US.

Second Quarter Performance

Nutrition net revenue declined by -8.1% on a LFL basis in the quarter. This performance was driven by a low-double-digit decline in North America due to lapping the impact of the competitor supply issue in the US. We exited Q2 and H1 with a non-WIC value market share in the high 30s. Our US business has benefitted from temporary supply issues experienced by a private label competitor, which contributed to a better performance versus our expectations during the quarter.

Other Matters

The Group faces contingent liabilities in respect of product liability actions filed against Mead Johnson entities relating to Necrotizing Enterocolitis. A trial in one of these actions is currently scheduled to begin on 30 September 2024 in St. Louis, Missouri. Further details on this matter can be found on page 22.

On 9 July 2024, a tornado struck our Mount Vernon, Indiana USA warehouse which sustained significant damage. We are working closely with all our stakeholders, including customers and suppliers, to minimise disruption, taking into account the inventory held by our retail partners, managing inventory at other facilities, and leveraging our global supply chain. Additionally, Reckitt holds comprehensive property damage and business interruption insurance which we currently expect will largely offset the impact on earnings.

 

 

Performance by Geography

Net Revenue	LFL1	Volume	Price / Mix	£m	Net M&A	FX	IFRS
H1 2024
North America	-4.6%	-3.4%	-1.2%	2,321	-0.1%	-2.5%	-7.2%
Europe / ANZ	+3.9%	-1.9%	+5.8%	2,435	-0.1%	-5.0%	-1.2%
Developing Markets	+3.3%	+1.5%	+1.8%	2,411	-0.8%	-5.4%	-2.9%
Total	+0.8%	-1.3%	+2.1%	7,167	-0.3%	-4.2%	-3.7%
Q2 2024
North America	-3.6%	-3.1%	-0.5%	1,123	-0.1%	-0.6%	-4.3%
Europe / ANZ	+2.2%	-1.8%	+4.0%	1,137	0.0%	-2.6%	-0.4%
Developing Markets	+1.4%	-1.6%	+3.0%	1,170	-0.6%	-4.3%	-3.5%
Total	0.0%	-2.2%	+2.2%	3,430	-0.2%	-2.6%	-2.8%

1.     Adjusted measures are defined on page 24.

North America H1 net revenue declined -4.6% on a LFL basis, with growth in Lysol more than offset by the expected decline in seasonal OTC brands as we lap both the prior year retailer inventory rebuilding, and current year retailer inventory destocking. Growth was also impacted by the continued market share rebasing of our Nutrition business and competitive challenges to our Air Wick and Finish brands.  

Europe / ANZ H1 net revenue grew +3.9% on a LFL basis, driven by broad based, mid-single digit growth across both Hygiene and non-seasonal OTC Health. Volume growth was broad-based across Health and Hygiene brands, including Finish, Air Wick, Vanish, Durex, Dettol and Gaviscon, offset by declines in seasonal OTC brands.

Developing Markets H1 net revenue grew +3.3% on a LFL basis, led by volume growth from Dettol and Durex in South Asia and Greater China, where ecommerce continues to be an important driver of sales.

 

There will be a results presentation for analysts and investors at 08:30 BST which will be held at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.

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

For those wishing to follow the webcast (listen-only), please click on the link below:

https://www.reckitt.com/investors/results-and-presentations/

Alternatively, dial in details (listen-only) are as follows:

 

United Kingdom:                       0800 358 1035

All other locations:                    +44 20 3936 2999

Participant access code            011264

 

Richard Joyce  / Andrew Orchard                                     +44 (0)7807 418516 / +44 (0)7408 852753

Investor Relations         

 

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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

 

The following section should be read in conjunction with the full-year financial review from page 4 and the alternative performance measures section from page 24.

 

Group operating profit

Adjusted operating profit was £1,683 million (2023 H1: £1,769 million) at an adjusted operating margin of 23.5%, 30bps lower than the prior year (2023 H1: 23.8%). Gross Margin improved +120bps to 60.6% driven primarily by pricing actions, lower freight costs and a more benign commodity price environment. These improvements were more than offset by increased BEI investments (-100bps) to support our innovation and the long-term strength of our brands. Fixed costs increased by 50bps as inflation driven people costs, offset by fuel for growth savings. 

 

IFRS operating profit was £1,678 million (2023 H1: £1,754 million) at an IFRS operating margin of 23.4% (2023 H1: 23.6%).

 

Net finance expense

Adjusted net finance expense was £147 million (2023 H1: £105 million). Adjusted net finance expense in 2023 benefited from foreign exchange gains of around £30 million on certain financing liabilities, as expected did not recur. The remaining increase was due to higher average interest rates on debt as long-dated fixed rate debt is refinanced, and lower level of short-term debt.  

 

IFRS net finance expense was £160 million (2023 H1: £116 million).

 

Tax

The adjusted effective tax rate (ETR) was 25.4% (2023 H1: 24.7%). The 2024 ETR was higher due to increased tax rates in some countries. This was offset by 2024 ETR benefiting from a higher level of reassessment of uncertain tax positions following progress on and conclusions of tax authority audits.

 

The IFRS tax rate was 24.6% (2023 H1: 24.1%).

 

Earnings per share (EPS)

Adjusted diluted EPS was 161.3 pence (2023 H1: 173.0 pence), a decrease of 6.8% as higher adjusted operating profit at constant exchange rates and reduction in number of shares due to the share buyback was more than offset by adverse foreign exchange and a higher adjusted interest costs.

 

IFRS diluted EPS was 161.0 pence (2023 H1: 172.8 pence).

 

Balance sheet

At 30 June 2024, the Group had total equity of £8,091 million (31 December 2023: £8,469 million).

 

Current assets of £4,885 million (31 December 2023: £5,302 million) decreased by £417 million including cash and cash equivalents that fell by £401 million. This group held additional surplus at December 2023 to help fund the ongoing share buyback programme that completed on 2 July 2024.

 

Current liabilities of £7,042 million (31 December 2023: £8,338 million) decreased by £1,296 million. The decrease principally relates to repayment of £1,571 million of bonds due in June 2024, lower trade and other payables and lower share buyback liability as the existing programme completed in July 2024. This was offset by new commercial paper borrowing.

 

Non-current assets of £21,523 million (31 December 2023: £21,834 million) primarily comprise goodwill and other intangible assets of £18,420 million (31 December 2023: £18,588 million) and property, plant and equipment. The decrease in goodwill and other intangible assets of £168 million is predominantly due to the strengthening of sterling reducing the value of foreign currency denominated assets.

 

Non-current liabilities of £11,275 million (31 December 2023: £10,329 million) increased by £946 million principally due to the issue of new bonds which were used to finance the repayment of existing bonds due in June 2024.

 

Net working capital

During the year, net working capital decreased by £449 million to negative £1,030 million. Net working capital as a percentage of 12-month net revenue is -7% (31 December 2023: -10%, 30 June 2023: -7%) mainly due to lower payables from the timing of annual variable compensation payments and higher receivables due to the timing of sales in Q2 2024 vs Q4 2023.

 

Cash flow

 

	30 Jun 2024 £m	30 Jun 2023 £m
Adjusted operating profit	1,683	1,769
Depreciation, share-based payments and gain on disposal of fixed assets (net of proceeds)	268	264
Capital expenditure	(169)	(189)
Movement in working capital and provisions	(503)	(451)
Cash flow in relation to adjusting items	(16)	(44)
Interest paid, net	(101)	(121)
Tax paid	(341)	(470)
Free cash flow	821	758
Free cash flow conversion	72%	61%

 

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 £821m increased by £63m or 8.3% as lower cash profits were offset by lower tax paid. Free cash flow conversion improved by 11 percentage points to 72% mainly due to lower tax paid.   

 

Net cash generated from operating activities increased by £47 million to £982 million (2023 H1: £935 million). 

 

Net debt

 

	30 Jun 2024	30 Jun 2023
	£m	£m
Opening net debt	(7,290)	(7,984)
Free cash flow	821	758
Share buyback	(763)	-
Purchase of ordinary shares by employee share ownership trust	(2)	-
Treasury shares reissued	2	33
Acquisitions, disposals and purchase of investments	56	(1)
Dividends paid to owners of the parent company	(820)	(790)
Dividends paid to non-controlling interests	-	(4)
Acquisition of non-controlling interest	(17)	-
New lease liabilities in the period	(23)	(21)
Exchange and other movements	(47)	103
Cash flow attributable to discontinued operations	(1)	(8)
Closing net debt	(8,084)	(7,914)

 

At 30 June 2024, net debt was £8,084 million, an increase of £794 million from 31 December 2023, as continued strong free cash flow has enabled higher capital returns through dividends (£820 million) and the new share buy-back program (£763 million). Net debt was 2.2x adjusted EBITDA at 30 June 2024 (31 December 2023: 1.9x).

 

The Group regularly reviews its banking arrangements and currently has adequate facilities available to it. The Group has committed borrowing facilities totalling £4,750 million (31 December 2023: £4,500 million), £4,700 million of which expire after more than two years, which are undrawn at period end. 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 2024 dividend of 80.4 pence (2023 H1: 76.6 pence). The ex-dividend date will be 1 August 2024 and the dividend will be paid on 13 September 2024 to shareholders on the register at the record date of 2 August 2024. 

 

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. In October 2023, our strong free cash flow generation and healthy balance sheet enabled us to announce a £1 billion share buy-back programme which completed in June 2024. On 24 July 2024, the Group will announce a follow-on buy-back programme of £1 billion over the next twelve months.

 

Growing the dividend is a long-term goal of the business. The Board's dividend policy aims to deliver sustainable dividend growth in future years, subject to any significant internal or external factors. Accordingly, the 2024 interim dividend was increased by 5% in line with this objective.