TIDMRKT
RNS Number : 4111R
Reckitt Benckiser Group PLC
01 March 2023
1 March 2023
strong delivery in 2022. continuing momentum in 2023
Q4 2022 FY 2022
------------------------------ ------------------------- ---------------------------
Change(3) Change(3)
GBPm Actual Constant GBPm Actual Constant
----- -------- -------- ------- -------- --------
Net Revenue(1) 3,830 +14.0% +5.6% 14,453 +9.2% +3.9%
Like-for-Like (LFL) (2) +6.2% +7.6%
Adjusted(2) ex IFCN China
Operating Profit 3,439 +16.8% +9.2%
Operating Profit Margin 23.8% +90bps
Adjusted(2) inc IFCN China
Operating Profit 3,439 +19.5% +11.7%
Total EPS (diluted) 341.7p +18.4%
IFRS
Operating Profit 3,249 Nm
Operating Profit Margin 22.5% Nm
Total EPS (diluted) 324.7 p Nm
----- -------- -------- ------- -------- --------
1. Group excluding IFCN China net revenue growth on an IFRS
basis of +14.4% in Q4 and +12.5% for the full year.
2. Adjusted measures are defined on page 28
3. Change vs prior year presented. Constant measured on a
constant exchange rate basis (see page 28)
Q4 Highlights
-- Q4 like-for-like (LFL) net revenue growth of +6.2 . Our
Hygiene GBU returned to growth in the quarter (+1.3%) due to
further improved trends in Lysol, and mid-single digit growth in
the rest of the portfolio. Health (+6.7%) saw strong growth in OTC
brands, offset by weaker demand in China Intimate Wellness.
Nutrition delivered another strong quarter (+19.4%) with strong
demand in the US and the continued turn around in developing
markets. On an IFRS basis net revenue grew by +14.0%.
FY Highlights:
-- Group LFL net revenue growth of +7.6%. Growth was broad-based
and led by our market-leading brands across the Auto Dishwash,
Fabric Additives, OTC, Intimate Wellness, VMS and Nutrition
categories. The positive impact on net revenue from the US
Nutrition competitor supply issue is approximately +2.5%. On an
IFRS basis net revenue grew by +9.2%.
-- The Group delivered a three-year CAGR of +8.2% on a LFL net
revenue basis. This includes two consecutive years of mid-single
digit growth from 70% of the portfolio less sensitive to Covid
dynamics. During the year, these brands grew high-single digits.
Excluding the positive impact from US IFCN, growth was mid-single
digits.
-- Hygiene LFL net revenue decline of -3.1%, mostly due to tough
comparatives in Lysol. Excluding Lysol, the business delivered
mid-single digit growth. Lysol saw improving trends throughout the
year, and delivered net revenue growth of around +45% above
pre-pandemic levels. On an IFRS basis net revenue grew by
+0.8%.
-- Health LFL net revenue growth of +14.7% , driven by a
combination of strong demand and share gains in our OTC portfolio,
and continued momentum in our Intimate Wellness and VMS brands with
a stable performance in Germ Protection, which remains around +40%
ahead of pre-pandemic levels. On an IFRS basis net revenue grew by
+18.6%.
-- Nutrition LFL net revenue growth of +22.9% , driven by
mid-single digit growth in our Developing Markets business and
around +40% growth in the US with strong execution amidst temporary
competitor supply issues. On an IFRS basis net revenue grew by
+10.2%.
-- Double-digit adjusted operating profit (excluding IFCN China)
growth of +16.8% (+9.2% on a constant FX basis) driven by strong
top line growth, productivity and positive product mix. Adjusted
operating margin (excluding IFCN China) grew by +90bps to 23.8%.
The benefit on adjusted operating profit in 2022 from the US
Nutrition competitor supply issue is approximately +80bps. 2022
IFRS operating margin was 22.5%.
-- Double-digit adjusted EPS (diluted) growth +18.4% to 341.7p,
driven by net revenue growth, operating margin expansion, and
foreign exchange tailwinds. On an IFRS basis total diluted EPS was
324.7p.
-- Strong balance sheet with net debt reduced to 2.1x adjusted
EBITDA. Free cash flow generation of GBP2.0bn (2021: GBP1.3bn) and
cash conversion of 83% (2021: 61%).
-- Full year dividend increased by 5% to 183.3p (2021: 174.6p),
with the aim to deliver sustainable dividend growth in future
years.
2023 Outlook
-- We target LFL net revenue growth of mid-single digits for the
Group, excluding the lapping of a circa 2.5% impact of the
competitor supply disruption in our US Nutrition business in 2022
("US Nutrition impact").
-- We expect adjusted operating margins to be 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.
Commenting on the results, Nicandro Durante, Chief Executive
Officer, said:
"Reckitt delivered a year of strong growth in net revenue,
earnings, and free cash flow conversion amidst a continued
challenging environment. We are now 28% larger than we were in
2019. Our healthy balance sheet underpins our financial strength,
and we are delighted to grow the dividend in 2022 with the aim to
deliver sustainable dividend growth in future years.
We enter 2023 as a strengthened business with enhanced
financial, operational and brand resilience, and continued growth
momentum. The benefits of our reinvigorated innovation pipeline and
operational improvements are coming through - including a more
agile supply chain and improved customer relationships.
We have more to achieve, and will continue to see macroeconomic
and consumer pressures in the year ahead. However, our financial,
operational and brand strength position us well for the future. We
have a strong innovation pipeline in 2023 which will be supported
by increased brand equity investment. We remain fully focused on
the delivery of our strategy, to protect, heal and nurture in the
relentless pursuit of a cleaner, healthier world."
FY 2022 RESULTS PRESENTATION TODAY
There will be a results presentation for analysts and investors
at 08:30 GMT which will be held at The Auditorium, Bank of America,
2 King Edward Street, London, EC1A 1HQ.
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 910902
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
2023 outlook
Our outlook is as follows:
-- We target LFL net revenue growth of mid-single digits for the
Group, excluding the lapping of a circa 2.5% impact of the
competitor supply disruption in our US Nutrition business in 2022
("US Nutrition impact").
-- Our target includes a return to growth in our disinfection
portfolio from a circa +40% larger base versus pre-pandemic
levels.
-- We expect adjusted operating margins to be 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 GBP270m to GBP310m (2022: GBP256m). The increase versus 2022 is
primarily due to the higher interest expense to be incurred on our
variable rate debt.
-- The adjusted tax rate is expected to increase to around 24% (2022: 22%).
-- Capital expenditure is expected to be around 3% of net revenue (2022: 3.1%).
GROUP OVERVIEW
Net Revenue GBPm Volume Price / Mix LFL(1) Net M&A FX Actual
FY 2022 14,453 -2.2% +9.8% +7.6% -3.8% +5.4% +9.2%
============= ======== ======== ============ ======== ======== ======== ========
Q4 2022 3,830 -5.8% +12.0% +6.2% -0.5% +8.3% +14.0%
============= ======== ======== ============ ======== ======== ======== ========
Group net revenue
-- Q4 LFL net revenue growth was +6.2%. Price / mix improvements
were +12.0% and volume declined by -5.8%, with similar trends to Q3
but weaker volumes in China Intimate Wellness due to Covid related
lockdown. Our Hygiene GBU returned to growth in the quarter (+1.3%)
due to further improved trends in Lysol, and mid-single digit
growth in the rest of the portfolio. Health (+6.7%) saw strong
growth in OTC brands, offset by weaker demand in China Intimate
Wellness. Nutrition delivered another strong quarter (+19.4%) with
strong demand in the US and the continued turn around in Developing
Markets.
-- Group net revenue of GBP14,453m grew by +7.6% on a LFL basis
in 2022, reflecting price / mix improvements of +9.8% and volume
decline of -2.2%, driven by continued broad-based growth and
momentum. Excluding the negative impact of Lysol and positive
impact from US Nutrition, volume growth was +1.3%.
-- Total net revenue on an IFRS basis was up +9.2%, reflecting
net M&A impact of -3.8% and foreign exchange tailwinds of
+5.4%.
-- In 2022, the Group is +28% larger than 2019 on a LFL net
revenue basis with around 18% price / mix improvements and around
10% volume growth, with growth being broad-based across our three
GBUs (Hygiene +24%, Health +32%, and Nutrition +27%).
-- Our in-market competitiveness remains strong. 62% of our Core
Category Market Units (CMUs) held or gained share. In Hygiene it
was 43% and in Health and Nutrition it was 62% and 100%,
respectively (weighted by net revenue).
-- 70% of the portfolio less sensitive to Covid dynamics have
two consecutive years of mid-single digit growth. During the year,
these brands grew high-single digits. Excluding the positive impact
from US IFCN, growth was mid-single digits driven by continued
innovation, in-market execution and pricing across the
portfolio.
-- E-commerce net revenue grew by +14% in 2022. It has more than
doubled over the past three years on a LFL basis, and now accounts
for 13% of Group net revenue.
Group operating margins and profit
-- Adjusted gross margin was 57.8% (2021: 58.5% excluding IFCN
China), a reduction of -70bps. The reduction in gross margin was
principally driven by around 17% inflation in our cost of goods
base (-660bps), significantly mitigated by productivity
efficiencies (+230bps) and other factors including pricing and
positive product mix (+360bps).
-- Brand equity investment (BEI) (excluding IFCN China)
increased by +5.7% on an actual basis as we continue to invest
behind the long-term strength of our brands. Our BEI percentage of
net revenue was 11.8% (2021: 12.6%). The reduction of 80bps in 2022
was driven by a combination of leverage from the strong growth in
both our OTC and US Nutrition businesses, cessation of investment
in Russia, and productivity efficiencies.
-- Adjusted operating profit (excluding IFCN China) was
GBP3,439m (2021: GBP2,944m) at an adjusted operating margin of
23.8% (2021: 22.9%). The increase of +90bps was principally driven
by strong top line growth, strong productivity and positive mix.
This drove BEI (+80bps) and fixed cost (+80bps) leverage and
efficiencies, offset by modest gross margin decline (-70bps).
-- A non-cash goodwill impairment charge of GBP152m was
recognised during the year, in respect of our Biofreeze
acquisition, as a result of a short-term category slowdown and
increased discount rates due to current macroeconomic conditions.
Good progress has been made in the second half of the year and we
expect continued momentum for Biofreeze in 2023 and beyond. Our
growth plans remain in line with our expectations. Further details
of the impairment are set out on page 23 of this statement.
-- The IFRS operating profit was GBP3,249m (2021: GBP804m loss).
In 2022, the IFRS operating profit was impacted by the non-cash
impairment of our Biofreeze acquisition. The IFRS operating loss in
2021 included a pre-tax loss of GBP3,353m in relation to the
strategic review and disposal of IFCN China and pre-tax losses of
GBP234m from the sale of Scholl and EnfaBebé brand in
Argentina.
EPS and dividends
-- Total adjusted diluted EPS was 341.7p in 2022 (IFRS: 324.7p),
+18.4% above 2021 due to growth in net revenue and operating
margins, and the positive impact of foreign exchange.
-- Full year dividend increased by 5% to 183.3p (2021: 174.6p)
per share, with the aim to deliver sustainable dividend growth in
future years, subject to any significant internal or external
factors. Final dividend 110.3p (2021: 101.6p) per share.
Free cash flow
-- Free cash flow was GBP2,031m in 2022 (2021: GBP1,258m). The
improvement is due primarily to growth in adjusted operating
profit. Capital investment to support our growth and margin
ambitions was GBP443m, 3.1% of Group net revenue (2021: 3.4% of
Group net revenue).
-- Net debt ended the year 2.1x adjusted EBITDA (2021: 2.6x adjusted EBITDA).
OPERATING SEGMENT REVIEW
Hygiene 41% of net revenue in 2022
Net Revenue GBPm Volume Price / Mix LFL(1) Net M&A FX Actual
FY 2022 5,960 -12.6% +9.5% -3.1% - +3.9% +0.8%
============= ======== ======== ============ ======== ======== ======== ========
Q4 2022 1,554 -13.4% +14.7% +1.3% - +7.0% +8.3%
============= ======== ======== ============ ======== ======== ======== ========
Operating Profit GBPm Constant FX (CER)(1) Actual
Adjusted Operating Profit(1) 1,214 -17.9% -13.3%
Adjusted Operating Profit Margin(1) % 20.4% -330bps
======================================= ====== ===================== ========
(1) Adjusted measures are defined on page 28
Hygiene net revenue declined -3.1% on a LFL basis to GBP5,960m
for the full year (excluding Lysol, LFL net revenue grew +5.1%).
Volume declined by -12.6% driven by high comparatives in
disinfection and some market softness in the air care category.
Price / mix increased by +9.5% in the year with price increases
taken to mitigate the impact of inflation. 43% of Core Hygiene CMUs
(weighted by net revenue) gained or held share in 2022.
In 2022, Hygiene was +24% larger than 2019 on a LFL net revenue
basis (+7.6% three-year CAGR), with each of its core categories
growing at mid-single to double digit CAGR.
Lysol net revenue declined around -25%, but performance improved
sequentially throughout the year, and is around +45% higher than
2019 levels, driven by expansion in both core and new markets and
adjacent categories over the past three years. Consumer hygiene
behaviours also remain well above pre-pandemic levels. Importantly,
Lysol continues to outperform the market and has gained +300bps
global market share since 2019. We now have a larger, stronger
portfolio, and following a year of consumption normalisation, are
targeting the return to a growth trajectory in 2023.
Finish delivered low-double digit growth in LFL net revenue.
Growth was particularly strong in Europe and Developing Markets
driven by our continued focus on category growth through consumer
preferred innovation, premiumisation, and penetration.
Air Wick is broadly holding share in a declining market post
confinement. Vanish and Harpic showed strong double digit growth
benefitting from innovation and improved execution, both
demonstrating strong growth in our Developing Markets.
Adjusted operating profit for Hygiene at GBP1,214m was down
-17.9% on a constant FX basis and -13.3% on an actual basis.
Adjusted operating margin was 20.4%, down -330bps due to the
unprecedented inflationary impact on our cost of goods sold as well
as volume de-leverage from Lysol. These were partially mitigated by
productivity and pricing.
Fourth Quarter Performance
The Hygiene business delivered an improving net revenue profile
through the course of 2022, with Q4 returning to growth (+1.3%).
Volume declined -13.4%, mostly due to Lysol, and price / mix
improvements contributed +14.7% in the quarter. Excluding Lysol,
our Hygiene business grew mid-single digits on a LFL net revenue
basis. Lysol continued to show improving net revenue trends with
-10% decline in Q4 versus down around -30% in H1 and -15% in
Q3.
Health 42% of net revenue in 2022
Net Revenue GBPm Volume Price / Mix LFL(1) Net M&A FX Actual
FY 2022 5,992 +6.5% +8.2% +14.7% -1.5% +5.4% +18.6%
============= ======== ======== ============ ======== ======== ======== ========
Q4 2022 1,639 -1.6% +8.3% +6.7% -0.8% +7.7% +13.6%
============= ======== ======== ============ ======== ======== ======== ========
Operating Profit GBPm Constant FX (CER)(1) Actual
Adjusted Operating Profit(1) 1,648 +24.3% +32.7%
Adjusted Operating Profit Margin(1) % 27.5% +290bps
======================================= ====== ===================== ========
(1) Adjusted measures are defined on page 28
Health net revenue grew +14.7% on a LFL basis to GBP5,992m for
the full year. Volume increased +6.5%, with strong growth in our
OTC portfolio. Price / mix improvements were +8.2%. Growth was
driven by strong performances in our OTC brands, VMS and Intimate
Wellness portfolio, with a stable performance from our Dettol Germ
Protection portfolio.
In 2022, Health was +32% larger than 2019 on a LFL net revenue
basis (+9.0% three-year CAGR) , reflecting a significantly larger
Dettol business, the combination of higher incidences of cold and
flu and strong market share gains in our upper respiratory
portfolio (Mucinex and Strepsils) and a larger Intimate Wellness
portfolio.
62% of Core Health CMUs (weighted by net revenue) gained or held
share during the year.
Our OTC portfolio of brands, including Mucinex, Nurofen,
Strepsils and Gaviscon grew by over 35% in the year. This very
strong performance reflected both a longer and stronger cold and
flu season which was approximately 13% above a three-year average
season in the US (on a category unit volume basis), and strong
share gains across most of the portfolio. Mucinex further grew
penetration in the sore throat category with Mucinex InstaSoothe
lozenges and has achieved 6% penetration in the 18 months since
launch.
Dettol net revenue of GBP1.4bn was broadly flat in 2022 on a LFL
basis, and around +40% above pre-pandemic levels. Innovation
launches included Dettol Cool in India, and Dettol Laundry
Sanitiser 4in1 Pods in China. We increased total distribution
points share by +70bps in India, with penetration building
initiatives such as a tenth year of Banega Swasth ("Clean up
India"). Growth in adjacent categories and new geographies have all
contributed to building a larger, stronger health disinfection
portfolio from which we plan to grow in 2023.
The Biofreeze acquisition is our entry into the pain relief
category in the US, the world's largest pain relief market.
Following some supply challenges in the first half, we grew market
share in the second half from leveraging Reckitt's strong US
infrastructure and go-to-market capability with increased consumer
facing activities and innovation launches such as our new overnight
patches. In addition, we commenced our international rollout
programme with the commercial relaunch of Biofreeze products in
France in Q4. In spite of some short-term category slow down, we
are targeting double digit growth for Biofreeze in the near and
medium-term, underpinned by category growth, innovation and
improved execution in the US market, combined with international
rollouts in select markets.
Intimate Wellness delivered mid-single digit growth in 2022.
Growth was driven by the execution of our Durex lifestyle campaign,
which drove distribution gains across multiple channels. Developing
Markets growth was negatively impacted by Covid related lockdowns
in China throughout the year.
Our Vitamins, Minerals and Supplements portfolio grew
high-single digits, led by Airborne and Neuriva in the US and Move
Free in China.
Adjusted operating profit for Health at GBP1,648m increased
+24.3% on a constant FX basis and +32.7% on an actual basis.
Adjusted operating margin was 27.5%, an increase of +290bps
year-on-year. Cost inflation was more than offset by a combination
of operating leverage on mid-teens top line growth, positive
product mix from a strong performance in our high margin OTC
portfolio, productivity efficiencies and pricing.
Fourth Quarter Performance
Net revenue grew by +6.7% on a LFL basis in Q4 with -1.6%
decline in volume, and price / mix improvements of +8.3%. OTC
delivered a strong quarter of high teens growth driven by higher
incidences of cold and flu and continued market share gains. Dettol
returned to growth in the quarter with a strong performance from
South Asia and China, offset by weakness in ASEAN. Intimate
Wellness brands declined by low-single digits, driven by China
Covid related lockdowns, and VMS was soft with growth in China more
than offset by category-led weakness in the US. We expect to see a
positive impact from our business in China in 2023 as the country
emerges from lockdown restrictions.
Nutrition 17% of net revenue in 2022
Net Revenue GBPm Volume Price / Mix LFL(1) Net M&A FX Actual
FY 2022 2,501 +8.1% +14.8% +22.9% -21.8% +9.1% +10.2%
============= ======== ======== ============ ======== ======== ======== ========
Q4 2022 637 +4.1% +15.3% +19.4% -1.5% +14.0% +31.9%
============= ======== ======== ============ ======== ======== ======== ========
Operating Profit GBPm Constant FX (CER)(1) Actual
Adjusted Operating Profit(1) 577 +122.2% +146.6%
Adjusted Operating Profit Margin(1) % 23.1% +1,280bps
Adjusted Operating Profit Margin(1) ex IFCN China % 23.1% +710bps
===================================================== ====== ===================== ==========
(1) Adjusted measures are defined on page 28
Nutrition net revenue grew by +22.9% on a LFL basis to GBP2,501m
for the full year. Underlying growth was approximately +5.4% with
the impact from the competitor supply shortage adding approximately
+17.5% to growth in the year (+2.5% growth for the Group). Volume
growth was +8.1% driven by strong demand in the US and price / mix
was +14.8%. In 2022, Nutrition was +27% larger than 2019 on LFL net
revenue basis (+8.1% three-year CAGR) .
Market share performance was strong, with 100% of our Core
Nutrition CMUs - of which seven of these ten CMUs are outside of
North America - holding or gaining market share for the year.
US net revenue grew around +40% on a LFL basis in the year, with
strong growth across both our core Infant Formula and Specialty
segments. Significant market share growth was driven by strong
execution in response to increased demand. Our Enfamil brand is
currently the Number One Recommended Infant Formula by
Paediatricians and the Number One Trusted by Consumers in the
US.
Our focus remains on doing everything possible to put more
infant formula products on shelves, addressing concerns of parents
across North America, while safeguarding quality and safety.
The competitor supply shortages in the US started to reduce in
Q4, which resulted in a lower benefit from WIC sales in states
where Reckitt does not hold the government contract. We exit 2022
in the US with a larger, stronger business, and as the market
leader in Infant Formula.
Our Developing Markets business grew net revenue mid-single
digits for the year, and for the first time since the acquisition
of Mead Johnson, with market share improvements in our key
markets.
The net effect of M&A was a -21.8% reduction in net revenue,
representing the disposal of IFCN China and EnfaBeb é in Argentina
during 2021.
Adjusted operating profit (excluding IFCN China) for Nutrition
at GBP577m was +122.2% higher on a constant FX basis and +146.6%
higher on an actual basis. Adjusted operating profit margin
(excluding IFCN China) was 23.1%, up +710bps year-on-year
reflecting the positive leverage benefit from the competitor supply
shortage during the year.
Fourth Quarter Performance
Nutrition net revenue grew by +19.4% on a LFL basis in the
quarter, with growth in the US of +35% aided by the US competitor
supply issue, and continued mid-single digit growth in our
Developing Markets businesses driven by improved in-market
execution.
Performance by Geography
Net revenue GBPm Volume Price / Mix LFL(1) Net M&A FX Actual
FY 2022
North America 4,954 -4.4% +10.1% +5.7% +0.7% +11.6% +18.0%
==================== ======= ======= ============ ======= ======== ======= =======
Europe / ANZ 4,589 +0.9% +8.6% +9.5% -1.9% -1.3% +6.3%
==================== ======= ======= ============ ======= ======== ======= =======
Developing Markets 4,910 -2.9% +10.6% +7.7% -9.5% +5.9% +4.1%
==================== ======= ======= ============ ======= ======== ======= =======
Total 14,453 -2.2% +9.8% +7.6% -3.8% +5.4% +9.2%
Q4 2022
North America 1,369 -3.8% +12.4% +8.6% -0.5% +15.0% +23.1%
==================== ======= ======= ============ ======= ======== ======= =======
Europe / ANZ 1,205 -8.4% +11.6% +3.2% -0.3% +2.2% +5.1%
==================== ======= ======= ============ ======= ======== ======= =======
Developing Markets 1,256 -5.2% +12.1% +6.9% -0.9% +7.9% +13.9%
==================== ======= ======= ============ ======= ======== ======= =======
Total 3,830 -5.8% +12.0% +6.2% -0.5% +8.3% +14.0%
==================== ======= ======= ============ ======= ======== ======= =======
(1) Adjusted measures are defined on page 28
North America LFL net revenue grew by +5.7% for the full year
with strong growth in our OTC brands due to higher incidences of
cold and flu and market share gains, and our Nutrition portfolio of
brands. Our VMS brands of Airborne and Neuriva also delivered a
strong result with high-single digit LFL net revenue growth. This
growth was offset by declines in Lysol, and category-led weakness
in Air Wick. Q4 saw strong growth in cough, cold, and flu brands,
offset by weakness in Lysol, and category-led weakness in our Air
Care and VMS segments.
In Europe / ANZ LFL net revenue grew by +9.5% for the full year
with strong growth in Australia, the Nordics, Poland, and Turkey,
and modest growth in a number of Western European markets. Q4
delivered +3.2% LFL net revenue growth as certain of our Health
markets lapped strong OTC comparatives from Q4 2021 and experienced
some temporary supply challenges. In addition, a number of our
Hygiene Western European markets experienced some short-term market
share loss and category-led weakness in Air Wick.
Developing Markets LFL net revenue grew by +7.7% for the full
year with broad-based growth across Latin America, Africa Middle
East, South Asia, ASEAN and Greater China. Q4 saw similar trends,
but experienced weakness in our Intimate Wellness business in China
due to Covid related lockdowns during the period.
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.
ADDITIONAL FINANCIAL COMMENTARY
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 28.
Group operating profit
Adjusted operating profit was GBP3,439 million (2021: GBP2,877
million) at an adjusted operating margin of 23.8%, 210bps higher
than the prior year (2021: 21.7%) or 90bps higher excluding IFCN
China. The increase of 90 bps was principally driven by strong top
line growth, strong productivity and positive mix. This drove BEI
(+80bps) and fixed cost (+80bps) leverage and efficiencies, offset
by modest gross margin declines (-70bps). Adjusted operating profit
in both 2022 and 2021 also included the favourable effect of
adjustments to trade spend and operational expenditure accruals,
certain of which were subject to significant estimation uncertainty
when originally recorded, in part due to the ongoing effect of the
Covid pandemic.
IFRS operating profit was GBP3,249 million (2021: GBP804 million
IFRS operating loss) at an IFRS operating margin of 22.5% (2021:
-6.1%). IFRS operating profit in 2022 was impacted by a charge of
GBP152 million from impairment of goodwill relating to the
acquisition of Biofreeze. IFRS operating loss in 2021 included a
pre-tax loss of GBP3,353 million in relation to the strategic
review and disposal of IFCN China.
Net finance expense
Adjusted net finance expense was GBP256 million (2021: GBP220
million). Adjusted net finance expense was higher in 2022 due to
rising interest rates and foreign exchange losses on certain
financing liabilities. Adjusted net finance expense in 2021
included a credit on revaluation of a put option liability.
IFRS net finance expense of GBP161 million (2021: net finance
income of GBP547 million) includes a gain of GBP69 million from
translational foreign exchange gains resulting from the liquidation
of subsidiaries to simplify the Group's legal entity structure
(2021: GBP766 million net gain).
Tax
The adjusted effective tax rate (ETR) was 21.9% (2021: 22.0%).
Both the current and prior year included a benefit from the
reassessment of uncertain tax positions following progress on and
conclusions of tax authority audits.
The IFRS tax rate was 23.2% (2021: -80.0%). The IFRS ETR in 2021
benefited from the effect of non-taxable net foreign exchange gains
on the liquidation of subsidiaries, the deferred tax effect of
disposals in the period, and the impact of the UK tax rate change
on deferred tax on intangible assets.
Discontinued operations
The Group recognised a loss from discontinued operations of GBP7
million (2021: income of GBP31 million), in relation to the Group's
disposal of the RB Pharmaceuticals business (now Indivior plc).
Earnings per share (EPS)
Total adjusted diluted EPS was 341.7 pence (2021: 288.5 pence).
The increase of 18.4% was driven by higher adjusted operating
profit and the positive impact of foreign exchange.
Total IFRS diluted EPS was 324.7 pence (2021: loss per share of
4.5 pence). The loss per share in 2021 resulted from the net loss
incurred in relation to the IFCN China strategic review.
Balance sheet
At 31 December 2022, the Group had total equity of GBP9,483
million (31 December 2021: GBP7,453 million).
Current assets of GBP5,278 million (31 December 2021: GBP4,862
million) increased by GBP416 million, due to foreign exchange
appreciation of non-Sterling assets and reflecting higher inventory
values as a result of increased input costs.
Current liabilities of GBP8,341 million (31 December 2021:
GBP8,088 million) increased by GBP253 million. This increase is
primarily driven by the reclassification of GBP722 million of
uncertain tax provisions from non-current to current liabilities
during the year. Whilst the underlying disputes may take several
years to resolve, the presentation of uncertain tax provisions has
been reassessed to reflect that there is not an unconditional right
to defer settlement of these liabilities. This increase was offset
by lower short-term borrowings, which decreased by GBP764 million.
At 31 December 2022, the Group had GBP413 million of bonds due
within one year (31 December 2021: GBP2.4 billion) in addition to
GBP1.2 billion of commercial paper (31 December 2021: GBPnil).
Non-current assets of GBP23,457 million (31 December 2021:
GBP21,941 million) primarily comprise goodwill and other intangible
assets of GBP20,203 million (31 December 2021: GBP18,868 million)
and property, plant and equipment. The increase of GBP1,516 million
is predominantly due to the foreign exchange retranslation of
USD-denominated assets.
Non-current liabilities of GBP10,918 million (31 December 2021:
GBP11,405 million) have decreased by GBP487 million. This is
principally due to the reclassification of uncertain tax provisions
to current liabilities, offset by adverse foreign exchange
movements on USD-denominated debt.
Net working capital
During the period, net working capital decreased by GBP347
million from negative GBP1,882 million to negative GBP1,535
million. Net working capital as a percentage of 12-month net
revenue is -11% (31 December 2021: -14%) due to higher inventory
values resulting from input cost inflation only being partially
offset by lower trade and other payables (as a percentage of net
revenue) driven by lower non-product cost liabilities.
Cash flow
31 Dec 31 Dec
2022 2021
GBPm GBPm
Adjusted operating profit 3,439 2,877
Depreciation, share-based payments and gain on disposal of fixed assets (net of proceeds) 521 410
Capital expenditure (443) (450)
Movement in working capital and provisions (408) (356)
Cash flow in relation to adjusting items (38) (86)
Interest paid (209) (222)
Tax paid (831) (915)
========================================================================================== ====== ======
Free cash flow 2,031 1,258
Free cash flow conversion 83% 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 increased by GBP773 million due to higher
operational profit being converted into cash. Free cash flow
conversion was 83% (2021: 61%), largely driven by lower tax paid in
the year, as 2021 included tax paid as a result of the sale of IFCN
China. In 2021, excluding the cash outflows and transaction costs
relating to the sale of IFCN China, FCF conversion was 71%. In
2022, a greater proportion of net income was converted into free
cash, due to higher non-cash charges in the year.
Net cash generated from operating activities has increased by
GBP700 million to GBP2,397 million (2021: GBP1,697 million),
reflecting higher operating profits and lower tax paid in the
period.
Net debt
31 Dec 31 Dec
2022 2021
GBPm GBPm
Opening net debt (8,378) (8,954)
Free cash flow 2,031 1,258
Shares reissued 54 80
Acquisitions, disposals and purchase of investments 220 694
Dividends paid (1,284) (1,263)
New lease liabilities in the period (134) (109)
Exchange and other movements (500) (82)
Cash flow attributable to discontinued operations 7 (2)
==================================================== ======= =======
Closing net debt (7,984) (8,378)
==================================================== ======= =======
At 31 December 2022, net debt was GBP7,984 million, a decrease
of GBP394 million from 31 December 2021, as free cash flows of
GBP2.0 billion were offset by GBP1.3 billion of dividends and
unfavourable foreign exchange movements on USD-denominated debt.
This decrease results in net debt being 2.1 times adjusted EBITDA
at 31 December 2022 (31 December 2021: 2.6 times).
The Group regularly reviews its banking arrangements and
currently has adequate facilities available to it. The Group has
committed facilities totalling GBP4,500 million (31 December 2021:
GBP4,500 million), GBP4,450 million 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 a final 2022 dividend of 110.3
pence (2021: 101.6 pence). The ex-dividend date will be 6 April
2023 and the dividend will be paid on 24 May 2023 to shareholders
on the register at the record date of 11 April 2023. The last date
for election for the share alternative to the dividend is 17 May
2023. The final 2022 dividend will be accrued once approved by
shareholders.
Return on Capital Employed (ROCE)
ROCE in 2022 was 13.2% (2021: 10.1%), an increase of 310bps from
2021, as adjusted operating profit has increased against lower
average capital employed. The lower capital employed reflects the
disposal of IFCN China over a full year, following its removal from
capital employed in September 2021.
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.
Repatriating cash to shareholders through a growing dividend
remains a long-term goal of the business. In February 2020, the
Board committed to maintain the dividend at 2019 levels as
investments were made to benefit long-term sustainable growth. The
Board has 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 has been increased by 5% in line with this objective.
We will return surplus cash to shareholders as appropriate.
Condensed Financial Statements
Group Income Statement
For the 12 months ended 31 December 2022
2022 2021
For the year ended 31 December GBPm GBPm
-------------------------------------------------------------------- ------- -------
CONTINUING OPERATIONS
Net Revenue 14,453 13,234
Cost of sales (6,092) (5,558)
-------------------------------------------------------------------- ------- -------
Gross profit 8,361 7,676
Gain/(loss) on disposal of intangible assets and related businesses 14 (3,518)
Other net operating expenses (5,126) (4,962)
-------------------------------------------------------------------- ------- -------
Total net operating expenses (5,112) (8,480)
-------------------------------------------------------------------- ------- -------
Operating profit/(loss) 3,249 (804)
-------------------------------------------------------------------- ------- -------
Foreign exchange net gain on liquidation of subsidiaries 69 766
Other net finance expense (230) (219)
-------------------------------------------------------------------- ------- -------
Net finance (expense)/income (161) 547
Impairment of equity-accounted investments (19) -
Share of loss of equity-accounted investments, net of tax (2) (3)
-------------------------------------------------------------------- ------- -------
Profit/(loss) before income tax 3,067 (260)
-------------------------------------------------------------------- ------- -------
Income tax (charge)/credit (711) 208
-------------------------------------------------------------------- ------- -------
Net income/(loss) from continuing operations 2,356 (52)
-------------------------------------------------------------------- ------- -------
Net (loss)/income from discontinued operations (7) 31
-------------------------------------------------------------------- ------- -------
Net income/(loss) 2,349 (21)
-------------------------------------------------------------------- ------- -------
Attributable to non-controlling interests 19 11
Attributable to owners of the parent company 2,330 (32)
-------------------------------------------------------------------- ------- -------
Net income/(loss) 2,349 (21)
-------------------------------------------------------------------- ------- -------
Basic earnings/(loss) per ordinary share
From continuing operations (pence) 326.7 (8.8)
From discontinued operations (pence) (1.0) 4.3
-------------------------------------------------------------------- ------- -------
From total operations (pence) 325.7 (4.5)
-------------------------------------------------------------------- ------- -------
Diluted earnings/(loss) per ordinary share
From continuing operations (pence) 325.7 (8.8)
From discontinued operations (pence) (1.0) 4.3
-------------------------------------------------------------------- ------- -------
From total operations (pence) 324.7 (4.5)
-------------------------------------------------------------------- ------- -------
Group Statement of Comprehensive Income
For the 12 months ended 31 December 2022
2022 2021
For the year ended 31 December GBPm GBPm
------------------------------------------------------------ ------ -------
Net income/(loss) 2,349 (21)
Other comprehensive income/(expense)
Items that have or may be reclassified to the Income
Statement in subsequent years
Net exchange gain/(loss) on foreign currency translation,
net of tax 1,065 (374)
Reclassification of foreign currency translation reserves
on disposal or liquidation of foreign operations, net
of tax (56) (550)
(Losses)/gains on net investment hedges, net of tax (115) 84
Gains on cash flow hedges, net of tax 2 30
------------------------------------------------------------ ------ -------
896 (810)
------------------------------------------------------------ ------ -------
Items that will not be reclassified to the Income Statement
in subsequent years
Remeasurements of defined benefit pension plans, net
of tax 24 133
Revaluation of equity instruments, net of tax (87) (1)
------------------------------------------------------------ ------ -------
(63) 132
------------------------------------------------------------ ------ -------
Other comprehensive income/(expense), net of tax 833 (678)
------------------------------------------------------------ ------ -------
Total comprehensive income/(expense) 3,182 (699)
------------------------------------------------------------ ------ -------
Attributable to non-controlling interests 20 11
Attributable to owners of the parent company 3,162 (710)
------------------------------------------------------------ ------ -------
Total comprehensive income/(expense) 3,182 (699)
------------------------------------------------------------ ------ -------
Total comprehensive income/(expense) attributable to owners
of the parent company arising from:
Continuing operations 3,169 (741)
Discontinued operations (7) 31
------------------------------------------------------------ ------ -------
3,162 (710)
------------------------------------------------------------ ------ -------
Group Balance Sheet
For the 12 months ended 31 December 2022
As at 31 December 2022 2021
GBPm GBPm
--------------------------------------------- -------- --------
ASSETS
Non-current assets
Goodwill and other intangible assets 20,203 18,868
Property, plant and equipment 2,473 2,178
Equity instruments 86 194
Deferred tax assets 244 197
Retirement benefit surplus 294 355
Other non-current receivables 157 149
--------------------------------------------- -------- --------
Total non-current assets 23,457 21,941
--------------------------------------------- -------- --------
Current assets
Inventories 1,825 1,459
Trade and other receivables 2,082 1,926
Derivative financial instruments 59 61
Current tax recoverable 155 155
Cash and cash equivalents 1,157 1,261
--------------------------------------------- -------- --------
Total current assets 5,278 4,862
Assets held for sale 7 143
--------------------------------------------- -------- --------
Total assets 28,742 26,946
--------------------------------------------- -------- --------
LIABILITIES
Current liabilities
Short-term borrowings (1,721) (2,485)
Provisions for liabilities and charges (227) (191)
Trade and other payables (5,547) (5,267)
Derivative financial instruments (55) (52)
Current tax liabilities (791) (93)
--------------------------------------------- -------- --------
Total current liabilities (8,341) (8,088)
--------------------------------------------- -------- --------
Non-current liabilities
Long-term borrowings (7,163) (7,078)
Deferred tax liabilities (3,037) (2,806)
Retirement benefit obligations (240) (318)
Provisions for liabilities and charges (59) (44)
Derivative financial instruments (249) (71)
Non-current tax liabilities (54) (826)
Other non-current liabilities (116) (262)
--------------------------------------------- -------- --------
Total non-current liabilities (10,918) (11,405)
--------------------------------------------- -------- --------
Total liabilities (19,259) (19,493)
--------------------------------------------- -------- --------
Net assets 9,483 7,453
--------------------------------------------- -------- --------
EQUITY
Capital and reserves
Share capital 74 74
Share premium 254 253
Merger reserve (14,229) (14,229)
Other reserves (294) (1,189)
Retained earnings 23,638 22,490
--------------------------------------------- -------- --------
Attributable to owners of the parent company 9,443 7,399
Attributable to non-controlling interests 40 54
--------------------------------------------- -------- --------
Total equity 9,483 7,453
--------------------------------------------- -------- --------
Group Statement of Changes in Equity
For the 12 months ended 31 December 2022
Total
attributable
to owners
of the
Share Share Merger Other Retained parent Non-controlling
capital premium reserves reserves earnings company interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Balance at 1 January
2021 74 252 (14,229) (379) 23,397 9,115 44 9,159
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Comprehensive income
Net (loss)/income - - - - (32) (32) 11 (21)
Other comprehensive
(expense)/income - - - (810) 132 (678) - (678)
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Total comprehensive
(expense)/income - - - (810) 100 (710) 11 (699)
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Transactions with
owners
Treasury shares
reissued - 1 - - 79 80 - 80
Purchase of ordinary
shares by employee
share ownership trust - - - - (5) (5) - (5)
Issuance of shares
to non-controlling
interest - - - - - - 7 7
Share-based payments - - - - 30 30 - 30
Cash dividends - - - - (1,246) (1,246) (17) (1,263)
Transactions with
non-controlling
interests - - - - 135 135 - 135
Disposal of
non-controlling
interest in IFCN China - - - - - - 9 9
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Total transactions
with owners - 1 - - (1,007) (1,006) (1) (1,007)
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Balance at 31 December
2021 74 253 (14,229) (1,189) 22,490 7,399 54 7,453
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Comprehensive income
Net income - - - - 2,330 2,330 19 2,349
Other comprehensive
income/(expense) - - - 895 (63) 832 1 833
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Total comprehensive
income - - - 895 2,267 3,162 20 3,182
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Transactions with
owners
Treasury shares
reissued - 1 - - 53 54 - 54
Issuance of shares
to non-controlling
interest - - - - - - 1 1
Share-based payments - - - - 78 78 - 78
Tax on share awards - - - - (1) (1) - (1)
Cash dividends - - - - (1,249) (1,249) (35) (1,284)
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Total transactions
with owners - 1 - - (1,119) (1,118) (34) (1,152)
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Balance at 31 December
2022 74 254 (14,229) (294) 23,638 9,443 40 9,483
----------------------- -------- --------- --------- --------- --------- ------------- --------------- -------
Group Cash Flow Statement
For the 12 months ended 31 December 2022
2022 2021
For the year ended 31 December GBPm GBPm
------------------------------------------------------------------------------------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax 3,067 (260)
Net finance expense/(income) 161 (547)
Share of loss and impairment of equity-accounted investments 21 3
------------------------------------------------------------------------------------- ------- -------
Operating profit/(loss) from continuing operations 3,249 (804)
(Profits)/losses on sale of property, plant and equipment and intangible assets (82) 3,442
Depreciation, amortisation and impairment 607 481
Share-based payments 78 30
Increase in inventories (254) (57)
Increase in trade and other receivables (23) (130)
Decrease in payables and provisions (145) (126)
------------------------------------------------------------------------------------- ------- -------
Cash generated from continuing operations 3,430 2,836
Interest paid (243) (251)
Interest received 34 29
Tax paid (831) (915)
Net cash flows attributable to discontinued operations 7 (2)
------------------------------------------------------------------------------------- ------- -------
Net cash generated from operating activities 2,397 1,697
------------------------------------------------------------------------------------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (362) (373)
Purchase of intangible assets (81) (77)
Proceeds from the sale of property, plant and equipment 84 9
Proceeds from sale of intangible assets and related businesses, net of cash disposed 247 1,622
Acquisition of businesses (12) (915)
Other investing activities (15) (27)
------------------------------------------------------------------------------------- ------- -------
Net cash (used in)/generated from investing activities (139) 239
------------------------------------------------------------------------------------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury shares reissued 54 80
Purchase of ordinary shares by employee share ownership trust - (5)
Proceeds from borrowings 2,274 38
Repayment of borrowings (3,807) (1,044)
Dividends paid to owners of the parent company (1,249) (1,246)
Dividends paid to non-controlling interests (35) (17)
Other financing activities 383 (92)
------------------------------------------------------------------------------------- ------- -------
Net cash used in financing activities (2,380) (2,286)
------------------------------------------------------------------------------------- ------- -------
Net decrease in cash and cash equivalents (122) (350)
Cash and cash equivalents at beginning of the year 1,259 1,644
Exchange gains/(losses) 19 (35)
------------------------------------------------------------------------------------- ------- -------
Cash and cash equivalents at end of the year 1,156 1,259
------------------------------------------------------------------------------------- ------- -------
Cash and cash equivalents comprise:
Cash and cash equivalents 1,157 1,261
Overdrafts (1) (2)
------------------------------------------------------------------------------------- ------- -------
1,156 1,259
------------------------------------------------------------------------------------- ------- -------
Notes to Condensed Financial Statements
1 ACCOUNTING POLICIES
General
Reckitt Benckiser Group plc is a public limited company listed
on the London Stock Exchange and incorporated and domiciled in
England. The address of its registered office is 103-105 Bath Road,
Slough, Berkshire, SL1 3UH.
Basis of Preparation
The financial information for the year ended 31 December 2022 is
derived from the full Annual Report which was approved by the Board
of Directors on 28 February 2023. The consolidated financial
statements in the full Annual Report are prepared in accordance
with UK-adopted International Financial Reporting Standards
('IFRS'), with IFRS as issued by the International Accounting
Standards Board ('IASB') and with the requirements of the Companies
Act 2006.
The auditor's report on those consolidated financial statements
was unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under section 498(2) or 498(3) of the Companies Act
2006. This financial information does not comprise statutory
accounts within the meaning of section 434(3) of the Companies Act
2006. The Annual Report for the year ended 31 December 2022 will be
delivered to the Registrar of Companies following the Group's
Annual General Meeting on 3 May 2023. The Annual Report for the
year ended 31 December 2021 has been delivered to the Registrar of
Companies.
This financial information does not itself contain sufficient
information to comply with IFRS. A separate announcement will be
made in accordance with Disclosure and Transparency Rules (DTR) 6.3
when the annual report and audited financial statements for the
year ended 31 December 2022 are made available on the Group's
website on 22 March 2023.
The preparation of this financial information requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the end of the reporting
period and the reported amounts of revenue and expenses during the
reporting period. Actual results could vary from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Going Concern
The Directors consider it appropriate to adopt the going concern
basis of accounting in preparing the consolidated Financial
Statements. When reaching this conclusion, the Directors took into
account the Group's overall financial position, exposure to
principal risks and future business forecasts. At 31 December 2022,
the Group had cash and cash equivalents of GBP1.2 billion. The
Group also had access to committed borrowing facilities of GBP4.5
billion, which were undrawn at year end and of which GBP4.45
billion are not subject to renewal until 2025 onwards.
Accounting Estimates
The Group's critical accounting judgements and estimates are
disclosed in the Group's Annual Report for the year ended 31
December 2022.
New Standards, Amendments and Interpretations
On 1 January 2022, the Group adopted certain new accounting
policies where necessary to comply with amendments to IFRS, none of
which had a material impact on the consolidated results, financial
position or cash flows of the Group. Further details are provided
in the Group's Annual Report for the year ended 31 December
2022.
2 OPERATING SEGMENTS
The Group's operating segments comprise of the Hygiene, Health
and Nutrition business units reflecting the way in which
information is presented to and reviewed by the Group's Chief
Operating Decision Maker (CODM) for the purposes of making
strategic decisions and assessing Group-wide performance. The CODM
is the Group Executive Committee. This Committee is responsible for
the implementation of strategy (approved by the Board), the
management of risk (delegated by the Board) and the review of Group
operational performance and ongoing business integration.
The Group Executive Committee assesses the performance of these
operating segments based on Net Revenue from external customers and
segment profit being adjusted operating profit. Intercompany
transactions between operating segments are eliminated. Finance
income and expense are not allocated to segments, as each is
managed on a centralised basis.
The segment information for the operating segments for the year
ended 31 December 2022 and 31 December 2021 is as follows:
Hygiene Health Nutrition Adjusting Items Total
Year ended 31 December 2022 GBPm GBPm GBPm GBPm GBPm
Net revenue 5,960 5,992 2,501 - 14,453
Depreciation and amortisation (135) (177) (90) (35) (437)
---------------------------------------------------------- ------- ------ --------- --------------- ------
Operating profit 1,214 1,648 577 (190) 3,249
Net finance expense (161)
Impairment of equity-accounted investments (19)
Share of loss of equity-accounted investments, net of tax (2)
Profit before income tax 3,067
Income tax charge (711)
Net income from continuing operations 2,356
---------------------------------------------------------- ------- ------ --------- --------------- ------
Hygiene Health(1) Nutrition(1,2) Adjusting Items Total
Year ended 31 December 2021 (restated)(1) GBPm GBPm GBPm GBPm GBPm
Net revenue 5,911 5,053 2,270 - 13,234
Depreciation and amortisation (111) (155) (96) (61) (423)
--------------------------------------------------------- ------- --------- -------------- --------------- ------
Operating loss 1,401 1,242 234 (3,681) (804)
Net finance income 547
Share of loss of equity-accounted investments, net of tax (3)
Loss before income tax (260)
Income tax credit 208
--------------------------------------------------------- ------- --------- -------------- --------------- ------
Net loss from continuing operations (52)
--------------------------------------------------------- ------- --------- -------------- --------------- ------
1. Segmental information for the year ended 31 December 2021 has
been restated to reflect the Group's current operating segments,
the composition of which changed with effect from 1 January 2022
when the Vitamins, Minerals and Supplements (VMS) business was
moved from Nutrition to Health.
2. Following the start of the strategic review of IFCN China,
the CODM also reviewed financial information for net revenue and
adjusted operating profit excluding IFCN China (which was disposed
in September 2021). In the year ended 31 December 2021, Nutrition
net revenue based on current operating segments and excluding IFCN
China was GBP1,887 million and Nutrition adjusted operating profit
excluding IFCN China was GBP301 million.
3 NET FINANCE (EXPENSE)/INCOME
2022 2021
GBPm GBPm
------------------------------------------------------------------ ----- -----
Foreign exchange net gain on liquidation of subsidiaries
------------------------------------------------------------------ ----- -----
Gains on liquidation 69 1,048
Losses on liquidation - (282)
------------------------------------------------------------------ ----- -----
Total foreign exchange net gain on liquidation of subsidiaries 69 766
------------------------------------------------------------------ ----- -----
Other finance income
Interest income on cash and cash equivalents 29 29
Pension net finance income 5 1
Movement on put option liability - 14
Finance income on tax balances 26 1
Other finance income 1 -
------------------------------------------------------------------ ----- -----
Total other finance income 61 45
------------------------------------------------------------------ ----- -----
Other finance expense
Interest payable on borrowings (233) (244)
Foreign exchange losses on intercompany financing, net of hedging (24) -
Other finance expense (34) (20)
------------------------------------------------------------------ ----- -----
Total other finance expense (291) (264)
------------------------------------------------------------------ ----- -----
Other net finance expense (230) (219)
------------------------------------------------------------------ ----- -----
Net finance (expense)/income (161) 547
------------------------------------------------------------------ ----- -----
As a result of the simplification of the Group's legal entity
structure, a number of entities have been liquidated. Upon
liquidation, the cumulative foreign exchange reserves were recycled
to the Income Statement, resulting in a net foreign exchange gain
of GBP69 million (2021: gain of GBP766 million), principally from
the liquidation of intermediate financing and holding
companies.
4 INCOME TAXES
2022 2021
GBPm GBPm
------------------------------------------------------------------ ----- -------
Current tax 766 711
Adjustment in respect of prior periods (23) 53
------------------------------------------------------------------ ----- -------
Total current tax 743 764
------------------------------------------------------------------ ----- -------
Origination and reversal of temporary differences (20) (1,089)
Impact of changes in tax rates (5) 185
------------------------------------------------------------------ ----- -------
Total deferred tax (25) (904)
------------------------------------------------------------------ ----- -------
Cumulative foreign exchange on deferred tax balances reclassified
to the Income Statement (7) (68)
------------------------------------------------------------------ ----- -------
Income tax charge/(credit) 711 (208)
------------------------------------------------------------------ ----- -------
5 EARNINGS PER SHARE
2022 2021
pence pence
---------------------------------------- ------ ------
Basic earnings/(loss) per share
From continuing operations 326.7 (8.8)
From discontinued operations (1.0) 4.3
---------------------------------------- ------ ------
Total basic earnings/(loss) per share 32 5.7 (4.5)
Diluted earnings/(loss) per share
From continuing operations 325.7 (8.8)
From discontinued operations (1.0) 4.3
---------------------------------------- ------ ------
Total diluted earnings/(loss) per share 324.7 (4.5)
---------------------------------------- ------ ------
Basic
Basic earnings per share is calculated by dividing the net
income/(loss) attributable to owners of the parent company from
continuing operations (2022: GBP2,337 million income, 2021: GBP63
million loss) and discontinued operations (2022: GBP7 million loss;
2021: GBP31 million income) by the weighted average number of
ordinary shares in issue during the year (2022: 715,284,629; 2021:
713,758,909)
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of shares outstanding to assume conversion
of all potentially dilutive ordinary shares. The company has the
following categories of potentially dilutive ordinary shares:
Executive Share Awards (including Executive Share Options and
Executive Restricted Share Scheme Awards) and Employee Sharesave
Scheme Options. The options only dilute earnings when they result
in the issue of shares at a value below the market price of the
share and when all performance criteria (if applicable) have been
met. As at 31 December 2022 there were 14,219,133 (2021:
10,683,109) Executive Share Awards excluded from the dilution
because the exercise price for the options was greater than the
average share price for the year or the performance criteria have
not been met.
2022 Average 2021 Average
number of shares number of shares
----------------------------------------------- ----------------- -----------------
On a basic basis 715,284,629 713,758,909
Dilution for Executive Share Awards 1,858,996 -
Dilution for Employee Sharesave Scheme Options
outstanding 350,982 -
----------------------------------------------- ----------------- -----------------
On a diluted basis 717,494,607 713,758,909
----------------------------------------------- ----------------- -----------------
As there was a loss in 2021, the effect of potentially dilutive
shares was anti-dilutive.
6 GOODWILL AND INTANGIBLE ASSETS
Brands Goodwill Software Other Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------- -------- -------- ----- -------
Cost
At 1 January 2021 17,673 11,408 490 185 29,756
Additions 5 - 72 - 77
Arising on business combinations 596 370 - 76 1,042
Disposals (4,494) (1,543) (2) - (6,039)
Reclassifications to held for sale (112) (28) - - (140)
Exchange adjustments (220) 5 (13) 5 (223)
---------------------------------------- ------- -------- -------- ----- -------
At 31 December 2021 13,448 10,212 547 266 24,473
---------------------------------------- ------- -------- -------- ----- -------
Additions - - 77 4 81
Arising on business combinations - (2) - 7 5
Disposals (59) (6) (3) - (68)
Reclassifications - - 16 (16) -
Exchange adjustments 1,136 832 16 17 2,001
---------------------------------------- ------- -------- -------- ----- -------
At 31 December 2022 14,525 11,036 653 278 26,492
---------------------------------------- ------- -------- -------- ----- -------
Accumulated amortisation and impairment
At 1 January 2021 449 6,039 190 99 6,777
Amortisation and impairment 39 - 66 27 132
Disposals (143) (1,176) (2) - (1,321)
Exchange adjustments (3) 21 (2) 1 17
At 31 December 2021 342 4,884 252 127 5,605
Amortisation and impairment 21 167 68 19 275
Disposals - - (1) - (1)
Reclassifications - - 8 (8) -
Exchange adjustments 16 376 8 10 410
---------------------------------------- ------- -------- -------- ----- -------
At 31 December 2022 379 5,427 335 148 6,289
---------------------------------------- ------- -------- -------- ----- -------
Net book value
At 31 December 2021 13,106 5,328 295 139 18,868
At 31 December 2022 14,146 5,609 318 130 20,203
---------------------------------------- ------- -------- -------- ----- -------
Annual Impairment Review
Goodwill and other indefinite life intangible assets must be
tested for impairment on at least an annual basis. An impairment
loss is recognised when the recoverable amount of a group of cash
generating units (GCGU) or cash generating unit (CGU) falls
materially below its net book value at the date of testing.
The determination of recoverable amount, being the higher of
value-in-use and fair value less costs to dispose, is inherently
judgemental and requires management to make multiple estimates, for
example around individual market pressures and forces, future price
and volume growth, future margins, terminal growth rates and
discount rates.
When forecasting the annual cash flows that support the
recoverable amount, the Group generally uses its short-term budgets
and medium-term strategic plans, with additional senior management
and Board-level review. Cash flows beyond the five-year period are
projected using terminal growth rates. These rates do not exceed
the long-term average growth rate for the products and markets in
which the GCGU or CGU operates.
The cash flows are discounted back to their present value using
a pre-tax discount rate considered appropriate for each GCGU and
CGU. These rates have been derived from management's views on the
relevant weighted average cost of capital, subsequently converted
to the pre-tax equivalent discount rate.
Biofreeze
On 12 July 2021, the Group acquired 100% of the equity interests
in Lanai Holdings, owner of the Biofreeze and TheraPearl brands,
for cash consideration of $1,060 million (GBP766 million).
Biofreeze is a leader in over-the-counter topical pain relief, with
a strong footprint in the North America retail and clinical
channels and a growing international presence.
2022
During 2022, Biofreeze performed below expectations following a
short term category slowdown, in part due to the current
macroeconomic conditions. The outlook for the category remains
positive and the Group remains confident in the long-term potential
for Biofreeze.
This underperformance, together with the current macroeconomic
environment, has introduced additional uncertainty into future
Biofreeze cash flows. To reflect this uncertainty, management has
increased the pre-tax discount rate used to determine value-in-use
to 12.0%. This resulted in the book value of the Biofreeze CGU
exceeding its recoverable amount at 31 December 2022, therefore
management has recorded a goodwill impairment of GBP152 million to
record Biofreeze at its recoverable amount of GBP698 million ($843
million).
The recoverable amount for the Biofreeze CGU at 31 December 2022
has been determined on a value-in-use basis using a discounted cash
flow approach, with future cash flows derived from a detailed
five-year plan. Cash flows beyond the five-year plan have been
projected using a terminal growth rate of 2.5%.
The determination of the recoverable amount for Biofreeze at 31
December 2022 incorporates certain key assumptions, some of which
are subject to considerable uncertainty. These assumptions include
but are not limited to anticipated market share improvement, the
commercial success of new product launches and international market
expansion. As no headroom exists between the Biofreeze recoverable
amount and net book value, any changes to these assumptions, or any
deterioration in other macroeconomic or business-level assumptions
supporting the Biofreeze recoverable amount could necessitate the
recognition of impairment losses in future periods.
The key assumptions used in the estimation of value-in-use of
Biofreeze are outlined below.
2022
------------------------------------------------------------------------ -----
Pre-tax discount rate 12.0%
Terminal growth rate 2.5%
Net revenue compound annual growth rate (CAGR) for the period 2022-2027 11%
Gross margin CAGR for the period 2022-2027 14%
The key estimates incorporated within the determination of the
Biofreeze recoverable amount are summarised below:
Key estimates Commentary
-------------------- ------------------------------------------------------------------------------------------------
Net Revenue In the short to medium term, the valuation model assumes a five-year CAGR of 11%, to be
delivered
through category growth and market share growth driven by a mix of innovation arising from
format expansion of existing products and international expansion.
-------------------- ------------------------------------------------------------------------------------------------
Margins In the short to medium term, the valuation model assumes Biofreeze margins (both gross and
operating) to increase from current levels as the temporary factors which impacted margins
in 2022 unwind and Biofreeze benefits from productivity initiatives on integrating into Reckitt.
-------------------- ------------------------------------------------------------------------------------------------
Discount rate Management determined the Biofreeze specific weighted average cost of capital (WACC) and the
implied pre-tax discount rate with the support of a third-party expert. For valuation purposes
management used the upper end of the calculated range to reflect uncertainty in certain key
assumptions.
-------------------- ------------------------------------------------------------------------------------------------
Terminal growth rate Management is satisfied with the reasonableness of the terminal growth rate when compared
against independent market growth projections and long-term country inflation rates.
-------------------- ------------------------------------------------------------------------------------------------
The table below shows the sensitivity of the 2022 recoverable
amount to reasonably possible changes in key assumptions. The table
assumes no related response by management (e.g., to drive further
cost savings) and is hence theoretical in nature.
2022
GBPm
Expected Net Revenue growth rates (2023 to 2027) adjusted by 100bps +40 / -35
Expected EBIT growth rates (2023 to 2027) adjusted by 100bps +25 / -25
Terminal growth rate (applied from 2028) adjusted by 50bps +25 / -25
Pre-tax discount rate adjusted by 50bps +40 / -35
-------------------------------------------------------------------- ---------
7 FINANCIAL LIABILITIES - BORROWINGS
2022 2021
Current GBPm GBPm
---------------------------------------------------------------------------------- ----- -----
Bank loans and overdrafts(1) 40 22
Commercial paper 1,190 -
Bonds 413 2,401
Lease liabilities 78 62
----------------------------------------------------------------------------------- ----- -----
Total short-term borrowings 1,721 2,485
----------------------------------------------------------------------------------- ----- -----
Bonds 5,461 5,568
Senior notes 1,369 1,229
Other non-current borrowings 22 15
Lease liabilities 311 266
----------------------------------------------------------------------------------- ----- -----
Total long-term borrowings 7,163 7,078
----------------------------------------------------------------------------------- ----- -----
Total borrowings 8,884 9,563
----------------------------------------------------------------------------------- ----- -----
Derivative financial instruments 257 76
Less overdrafts presented in cash and cash equivalents in the Cash Flow Statement (1) (2)
----------------------------------------------------------------------------------- ----- -----
Total financing liabilities 9,140 9,637
----------------------------------------------------------------------------------- ----- -----
1. Bank loans are denominated in a number of currencies: all are
unsecured and bear interest based on market short-term interest
rates.
The Group uses derivative financial instruments to hedge certain
elements of interest rate and exchange risk on its financing
liabilities. The split between these items and other derivatives on
the Balance Sheet is shown below:
Assets Liabilities
---------------- ------------------
2022 (GBPm) Current Non-current Current Non-current
------------------------------------------------------------- ------- ----------- --------- -----------
Derivative financial instruments (financing liabilities) 25 - (34) (248)
Derivative financial instruments (non-financing liabilities) 34 - (21) (1)
------------------------------------------------------------- ------- ----------- --------- -----------
At 31 December 2022 59 - (55) (249)
------------------------------------------------------------- ------- ----------- --------- -----------
Assets Liabilities
------------------- -------------------
Non-
2021 (GBPm) Current Non-current(1) Current current
------------------------------------------------------------- ----------- -------------- ------------- --------
Derivative financial instruments (financing liabilities) 31 - (36) (71)
Derivative financial instruments (non-financing liabilities) 30 1 (16) -
------------------------------------------------------------- ----------- -------------- ------------- --------
At 31 December 2021 61 1 (52) (71)
------------------------------------------------------------- ----------- -------------- ------------- --------
1. Included within Other non-current receivables on the Balance Sheet
Reconciliation of movement in financing liabilities to
Cash Flow Statement 2022 2021
-------------------------------------------------------
GBPm GBPm
------------------------------------------------------- ------- -------
At 1 January 9,637 10,598
Proceeds from borrowings 2,274 38
Repayment of borrowings (1) (3,807) (1,044)
Other financing cash flows(2) 383 (92)
Total financing cash flows (1,150) (1,098)
------------------------------------------------------- ------- -------
New lease liabilities 134 109
Exchange, fair value and other movements 519 28
Total non-cash financing items 653 137
------------------------------------------------------- ------- -------
At 31 December 9,140 9,637
------------------------------------------------------- ------- -------
1. In 2021, GBP1,190 million proceeds from borrowings with
maturities greater than three months are presented net within
repayment of borrowings above. In 2022, the equivalent amounts are
presented gross between proceeds from and repayment of
borrowings.
2. Other financing cash flows are principally composed of cash
receipts and payments on derivative contracts used to hedge foreign
exchange gains or losses on non-Sterling financing assets and
financing liabilities between the Group's treasury company and
fellow Group subsidiaries.
8 CURRENT AND NON-CURRENT TAX ASSETS AND LIABILITIES
2022 2021
GBPm GBPm
---------------------------------------------- ----- -----
Current tax liabilities 791 93
Non-current tax liabilities 54 826
---------------------------------------------- ----- -----
Total current and non-current tax liabilities 845 919
---------------------------------------------- ----- -----
Certain tax positions taken by us are based on industry
practice, tax advice and drawing similarities from our facts and
circumstances to those in case law. In particular, international
transfer pricing is an area of taxation that depends heavily on the
underlying facts and circumstances and generally involves a
significant degree of judgement. Tax assets and liabilities are
offset where there is a legally enforceable right to do so.
Included within current tax liabilities is an amount of GBP722
million (2021: GBP770 million) relating to uncertain tax positions
primarily in respect of transfer pricing. Within this, GBP194
million (2021: GBP155 million) relates to amounts recognised using
the most likely outcome method, where the resolution of the
uncertainty is concentrated on one binary outcome. There is no
individual tax uncertainty calculated with this method that is
material to the Financial Statements.
Also within uncertain tax positions is an amount of GBP528
million (2021: GBP615 million) recognised using the expected value
method. The liabilities calculated using this method are not
material in isolation, are individually assessed and cover multiple
jurisdictions and issues. Therefore, it is not meaningful to
provide aggregated sensitivity estimates.
The recognition of uncertain tax positions is reviewed regularly
for changes in circumstances and estimates are updated as potential
resolutions for the tax uncertainties are encountered through
specific audits or wider case law. As a result, given the size,
possible range of outcomes and timing of resolution, there is a
significant risk of material adjustment to the aggregate carrying
amount of these liabilities within the next financial year.
The disputes underlying the liability recognised in respect of
uncertain tax positions may take several years to resolve.
Notwithstanding this, the presentation of corporation tax
liabilities has been reassessed to reflect that there is not an
unconditional right to defer settlement of these liabilities and
the carrying amount of GBP722 million (2021: GBP770 million) has
been presented as a current liability (2021: non-current). The
associated interest accrued on uncertain tax positions of GBP105
million (2021: GBP135 million) has also been presented as a current
liability (2021: non-current).
The remaining non-current tax liability in 2022 relates to the
U.S. transition tax (introduced as part of the 2017 Tax Cuts and
Jobs Act) on non-US earnings and profits not previously taxed in
the U.S. as of 31 December 2017. The Group has a right to defer
this liability until after 31 December 2023.
9 DIVIDS
2022 2021
GBPm GBPm
------------------------------------------------------- ----- -----
Cash dividends on equity ordinary shares:
2021 Final paid: 101.6p (2020: Final 101.6p) per share 726 725
2022 Interim paid: 73p (2021: Interim 73p) per share 523 521
------------------------------------------------------- ----- -----
Total dividends for the year 1,249 1,246
------------------------------------------------------- ----- -----
The Directors are proposing a final dividend in respect of the
financial year ended 31 December 2022 of 110.3 pence per share
which will absorb an estimated GBP789 million of Shareholders'
funds. If approved by Shareholders it will be paid on 24 May 2023
to Shareholders who are on the register on 11 April 2023, with an
ex-dividend date of 6 April 2023.
10 CONTINGENT LIABILITIES AND ASSETS
Humidifier Sanitiser issue
The Humidifier Sanitiser (HS) issue in South Korea was a tragic
event. The Group continues to make both public and personal
apologies to the victims who have suffered lung injury as a result
of the Oxy HS product and the role that the Oxy HS product played
in the issue.
As previously reported, over the last several years the South
Korean government has designated a number of diseases as HS
injuries, in addition to the HS lung injury for which Reckitt
Korea's compensation plan was established. These include asthma,
toxic hepatitis, child interstitial lung disease (ILD), bronchitis,
upper airway disease, pneumonia, skin disease (accompanied by
respiratory injuries) and depression (accompanied by respiratory
injuries). On 29 October 2021, the Ministry of Environment (MOE)
published a report that concluded epidemiological correlation
exists between HS use and asthma, ILD and pneumonia. On 24 October
2022, the MOE published a second edition of the EC report which
updated the epidemiological studies supporting asthma, ILD and
pneumonia, while designating two new HS injuries, bronchiectasis
and acute upper respiratory inflammation. Our expert advisors are
currently reviewing the second edition EC report, but their initial
assessment remains that it does not clearly support causation
between HS use and the above injuries.
The Korean National Assembly passed a bill on 6 March 2020 to
amend the HS law. The amendment became effective on 25 September
2020. The main changes in the amendment relate to: (i) the
definition of HS injury (removing the requirement for 'substantial
causation' with HS exposure); (ii) the legal presumption of
causation (shifting the burden of proof for causation to the
defendant if the plaintiff demonstrates 'epidemiological
correlation' between HS exposure and their injury), and (iii)
amendments to the fund set up by the government and funded by the
government and HS companies (the Special Relief Fund (SRF), now
called the Injury Relief Fund (IRF)) to provide expanded support
payments to HS victims (which would cover all elements of court
awarded damages except mental distress, aside from KRW 100 million
consolation payments for death cases, and partial lost income). The
government can also impose on HS manufacturers an additional levy
for the IRF up to the amount previously collected for the SRF. In
December 2022, the MOE began the process to review the second IRF
levy and the levy notice was issued to Reckitt Korea on 27 February
2023.
The pending civil actions filed by HS claimants against Reckitt
Korea has also been impacted by the amended HS law, for example due
to the lowered causation standard of 'epidemiological correlation'.
Thus, we have seen the number of civil claimants increase,
primarily seeking awards for mental distress and lost income (for
portions not already covered by the IRF). Recently, however, the
trend has steadily declined to about 2 to 4 new civil actions per
month, which we expect to continue.
The HS mediation committee (HSMC) was established in October
2021 and has been meeting with claimant groups and HS companies to
discuss various issues related to designing a comprehensive
mediation plan to cover all HS victims. In March 2022, the HSMC
communicated a mediation proposal to the HS industry, including
Reckitt Korea. Reckitt Korea has rejected the mediation proposal as
it did not provide a comprehensive resolution to the HS issue. In
addition, Reckitt Korea could not accept this or any future
mediation proposals from HSMC without financial support from the
Group.
The Group currently has a provision of GBP77 million (2021:
GBP75 million) in relation to the HS issue in South Korea. In
addition, there are further potential costs that are not considered
probable and cannot be reliably estimated at the current time. The
impact of the HS law amendments will require further monitoring and
analysis, in particular those which will be subject to court
interpretation, such as the new epidemiological correlation
standard, any limitation applied by courts to damage awards, the
interest rate applied by individual courts to damage awards and
external factors such as the rate of future IRF
applications/recognitions. Accordingly, it is not possible to make
any reliable estimate of liability for individuals recognised by
the government as having HS injuries.
Necrotizing Enterocolitis (NEC)
Product liability actions relating to NEC have been filed
against the Group, or against the Group and Abbott Laboratories, in
state and federal courts in the United States. The actions allege
injuries relating to NEC in preterm infants. Plaintiffs contend
that human milk fortifiers (HMF) and preterm formulas containing
bovine-derived ingredients cause NEC, and that preterm infants
should receive a diet of exclusively breast milk. The Company has
denied the material allegations of the claims. It contends that its
products provide critical tools to expert neonatologists for the
nutritional management of preterm infants for whom human milk, by
itself, is not nutritionally sufficient. The products are used
under the supervision of medical doctors. Any potential costs
relating to these actions are not considered probable and cannot be
reliably estimated at the current time.
Other
From time to time, the Group is involved in discussions in
relation to ongoing tax matters in a number of jurisdictions around
the world. Where appropriate, the Directors make provisions based
on their assessment of each case.
11 POST BALANCE SHEET EVENTS
There have been no events subsequent to the Balance Sheet date
which require disclosure.
APPIX - ALTERNATIVE PERFORMANCE MEASURES
The financial information included in these preliminary results
is prepared in accordance with International Financial Reporting
Standards (IFRS) as well as information presented on an adjusted
(non-IFRS) basis.
Financial information presented on an adjusted basis excludes
certain cash and non-cash items. These items have a pattern of
recognition that is largely uncorrelated with the trading
performance of the business. Management reviews the business on
this basis for the purpose of making operating decisions and
showing these adjusted measures in addition to the IFRS measures
provides useful additional information on trading performance to
the users of the Financial Statements. These adjusted measures
should not be considered in isolation from, as substitutes for, or
superior to the financial measures prepared in accordance with
IFRS.
The following items (adjusting items) are excluded from IFRS
earnings in calculating adjusted earnings.
-- Impact of business combinations where IFRS accounting results
in the recognition of certain costs that are not comparable with
those for internally generated assets, (although the net revenues
and other costs of these business combinations are not adjusted
for):
-- Amortisation of (a) acquired brands, trademarks and similar
assets and (b) certain other intangible assets recorded as the
result of a business combination;
-- Inventory fair value adjustments;
-- Professional and advisor costs recorded as the result of a
business combination; and
-- Changes to deferred tax liabilities relating to (a) acquired
brands, trademarks and similar assets and (b) certain other
intangible assets recorded as the result of a business combination
as the amortisation or profit on disposal of these brands would be
treated as an adjusting item.
-- Profits or losses relating to the sale of brands and related
intangible assets as the continued active management of our
portfolio results in the recognition of profits or losses relating
to disposals of brands and related intangible assets which are
largely uncorrelated with the trading performance of the
business.
-- Re -cycled foreign exchange translation reserves upon the
sale, liquidation, repayment of share capital or abandonment of a
subsidiary previously controlled by the Group, as the gain or loss
relates to mainly exchange movements in previous periods rather
than the current period.
-- The reclassification of finance income/(expenses) on tax
balances into income tax expense , to align with the Group's tax
guidance. As a result, the income/(expenses) are presented as part
of income tax expense on an adjusted basis.
-- Other individually material items of expense or income . Some
of these items are resolved over a period of time such that the
impact may affect more than one reporting period.
Adjusted measures
-- Adjusted Operating Profit and Adjusted Operating Profit
margin: Adjusted operating profit reflects the IFRS operating
profit/(loss) excluding items in line with the Group's adjusted
items policy. See page 29 for details on the adjusting items and a
reconciliation between IFRS operating profit/(loss) and adjusted
operating profit. The adjusted operating profit margin is the
adjusted operating profit expressed as a percentage of net
revenue.
-- Adjusted tax rate: The adjusted tax rate is defined as the
adjusted continuing income tax expense as a percentage of adjusted
profit before tax.
-- Adjusted diluted EPS: Adjusted diluted EPS is the IFRS
diluted EPS excluding items in line with the Group's adjusted items
policy. See page 29 for details on the adjusting items and a
reconciliation between IFRS net income/(loss) and adjusted net
income. The weighted average number of shares for the period is the
same for both IFRS diluted EPS and adjusted diluted EPS.
-- Adjusted EBITDA (earnings before interest depreciation and
amortisation): Adjusted operating profit less depreciation and
amortisation (excluding adjusting items).
Other non-GAAP measures
-- Like-for-like (LFL): Net revenue growth or decline at
constant exchange rates (see below) excluding the impact of
acquisitions, disposals and discontinued operations. Completed
disposals are excluded from LFL revenue growth for the entirety of
the current and prior years. Acquisitions are included in LFL
revenue growth twelve months after the completion of the relevant
acquisition. LFL growth also excludes countries with annual
inflation greater than 100% (Venezuela).
-- Constant exchange rate (CER): Net revenue and profit growth
or decline adjusting the actual consolidated results such that the
foreign currency conversion uses the same exchange rates as were
applied in the prior period.
-- Brand Equity Investment (BEI): BEI is the marketing support
designed to capture the voice, mind and heart of our consumers.
-- Net working capital (NWC): NWC is the total of inventory,
trade and other receivables and trade and other payables less
interest accrued on tax balances. NWC is calculated as a % of last
twelve months net revenue to compare changes in NWC to the growth
of the business.
-- Net Debt: The Group's principal measure of net borrowings
being a total of cash and cash equivalents, short-term and
long-term borrowings, lease liabilities and derivative financial
instruments on debt.
-- Free Cash Flow and Free Cash Flow Conversion: The Group's
principal measure of cash flow defined as net cash generated from
continuing operating activities less net capital expenditure. A
reconciliation of cash generated from operations to Free Cash Flow
is shown on page 32. The Group tracks Free Cash Flow as a % of
adjusted net income to understand the conversion of adjusted profit
into cash.
Other definitions and terms
-- Category Market Unit (CMU): Reckitt analyses its market share
by CMUs, which represent country and either brand or category,
e.g., US Lysol. This allows us to analyse the components of market
share growth taking into account both geography and brand/category.
Management has identified those Core CMUs that are the most
strategically important. The list of Core CMUs is kept under
continual review and will change over time based on strategic
decisions. Currently, Core CMUs cover c.65% of Group net revenue
and between c.55% to c.80% of each Global Business Unit's (GBU) net
revenue. As a measure of competitiveness, management tracks the
percentage of Core CMUs holding or gaining market share, weighted
by net revenue.
-- E-commerce: E-commerce channel net revenue is direct sales
from Reckitt to online platforms or directly to consumers.
Estimates of total e-commerce sales as a percentage of Group net
revenues are calculated by adding e-commerce channel net revenue to
an estimate of e-commerce sales achieved by our brands through
omnichannel distributors and retailer websites.
-- Discontinued operations: Includes credits or charges related
to the previously demerged RB Pharmaceuticals business that became
Indivior plc. Net (loss)/income from discontinued operations is
presented as a single line item in the Group Income Statement.
-- Return on Capital Employed (ROCE): Defined as adjusted
operating profit after tax divided by monthly average capital
employed. Capital employed comprises total assets less current
liabilities other than borrowings-related liabilities. Total assets
exclude cash, retirement benefit surplus, current tax and a
technical gross-up to goodwill that arises because of deferred tax
liabilities recorded against identified assets acquired in business
combinations. Total assets has been adjusted to add back
impairments of Goodwill except where the impaired asset has been
disposed or partially disposed. Current liabilities exclude legal
provisions recorded as a result of exceptional items and current
tax.
-- Net revenue attributable to 'more sustainable' products: A
product is defined as 'more sustainable' when it scores 'better' on
one of the five parameters (carbon, water, plastics, packaging and
ingredients) at time of launch using our Sustainable Innovation
Calculator (a streamlined Lifecycle Assessment tool that models the
environmental impacts of products). The net revenue from 'more
sustainable' products is expressed as a percentage of total net
revenue. The calculation is done on the basis of a 12 month period
ending September (to allow assembling the related data).
The table below reconciles the Group's IFRS measures to its
adjusted measures for the year ended 31 December 2022.
Adjusting items
------------------------------------------------------------------------------
Reclassified
foreign Other
exchange individually
Impact of Gain on translation on material items
business disposal of liquidation of Finance income of income and
IFRS combinations brands subsidiaries reclass expense Adjusted
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net revenue 14,453 - - - - - 14,453
Cost of sales (6,092) - - - - - (6,092)
================= ======= ============== ============== ============== ============== ============== ========
Gross profit 8,361 - - - - - 8,361
Net operating
expenses (5,112) 33 (14) - - 171 (4,922)
================= ======= ============== ============== ============== ============== ============== ========
Operating profit 3,249 33 (14) - - 171 3,439
Net finance
expense (161) - - (69) (26) - (256)
Share of loss and
impairment of
equity-accounted
investments (21) - - - - - (21)
================= ======= ============== ============== ============== ============== ============== ========
Profit before
income tax 3,067 33 (14) (69) (26) 171 3,162
Income tax charge (711) (11) (7) - 26 12 (691)
================= ======= ============== ============== ============== ============== ============== ========
Net income from
continuing
operations 2,356 22 (21) (69) - 183 2,471
Less:
Attributable to
non-controlling
interests (19) - - - - - (19)
================= ======= ============== ============== ============== ============== ============== ========
Net income from
continuing
operations
attributable to
owners of the
parent company 2,337 22 (21) (69) - 183 2,452
Net loss from
discontinued
operations (7) - - - - 7 -
================= ======= ============== ============== ============== ============== ============== ========
Total net income
attributable to
owners of the
parent company 2,330 22 (21) (69) - 190 2,452
================= ======= ============== ============== ============== ============== ============== ========
Earnings per
share (EPS)
================= ======= ============== ============== ============== ============== ============== ========
Continuing
operations(1)
Basic 326.7 3.1 (2.9) (9.6) - 25.5 342.8
Diluted 325.7 3.1 (2.9) (9.6) - 25.4 341.7
Discontinued
operations(1)
Basic (1.0) - - - - 1.0 -
Diluted (1.0) - - - - 1.0 -
Total
operations(1)
Basic 325.7 3.1 (2.9) (9.6) - 26.5 342.8
Diluted 324.7 3.1 (2.9) (9.6) - 26.4 341.7
================= ======= ============== ============== ============== ============== ============== ========
(1) EPS is calculated using 715.3 million shares (basic) and
717.5 million shares (diluted)
Impact of business combinations of GBP33 million relates
principally to amortisation of acquired intangible assets
recognised through historical business combinations. Income tax
relates to an GBP11 million tax credit in relation to this
amortisation.
Gain on disposal of brands and related intangible assets of
GBP14 million relates to the disposal of Dermicool (GBP49 million
loss) and E45 and related brands (GBP63 million gain). Included
within income tax expense is a deferred tax credit of GBP28 million
arising on the derecognition of deferred tax liabilities, offset by
a GBP21 million tax charge incurred in relation to the
disposals.
Reclassified foreign exchange translation on liquidation of
subsidiaries of GBP69 million is the gain following the liquidation
of legal entities as part of simplification of the Group's legal
entity structure.
Reclassification of finance income of GBP26 million relates to
the reclassification of net interest income on income tax balances
from net finance expense to income tax.
Other individually material items of income and expense of
GBP171m is composed of:
-- GBP152 million expense relating to the impairment of
Biofreeze goodwill
-- GBP14 million expense relating to the reorganisation of the
Nutrition business subsequent to the disposal of IFCN China in
2021.
-- GBP5 million expense relates to costs incurred in relation to
the Korean HS issue.
Included within income tax expense is a GBP12 million net tax
charge in relation to the IFCN China strategic review.
The table below reconciles the Group's IFRS measures to its
adjusted measures for the year ended 31 December 2021.
Adjusting items
------------------------------------------------------------------------------
Reclassified
foreign Other
exchange individually
Impact of Loss on translation on material items
business disposal of liquidation of Finance income of income and
IFRS combinations brands subsidiaries reclass expense Adjusted
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net revenue 13,234 - - - - - 13,234
Cost of sales (5,558) 14 - - - - (5,544)
================= ======= ============== ============== ============== ============== ============== ========
Gross profit 7,676 14 - - - - 7,690
Net operating
expenses (8,480) 77 234 - - 3,356 (4,813)
================= ======= ============== ============== ============== ============== ============== ========
Operating
(loss)/profit (804) 91 234 - - 3,356 2,877
Net finance
income/(expense) 547 - - (766) (1) - (220)
Share of loss of
equity-accounted
investments (3) - - - - - (3)
================= ======= ============== ============== ============== ============== ============== ========
(Loss)/profit
before income
tax (260) 91 234 (766) (1) 3,356 2,654
Income tax
credit/(charge) 208 170 (117) - 1 (846) (584)
================= ======= ============== ============== ============== ============== ============== ========
Net (loss)/income
from continuing
operations (52) 261 117 (766) - 2,510 2,070
Less:
Attributable to
non-controlling
interests (11) - - - - - (11)
================= ======= ============== ============== ============== ============== ============== ========
Net (loss)/income
from continuing
operations
attributable to
owners of the
parent company (63) 261 117 (766) - 2,510 2,059
Net income from
discontinued
operations 31 - - - - (31) -
================= ======= ============== ============== ============== ============== ============== ========
Total net
(loss)/income
attributable to
owners of the
parent company (32) 261 117 (766) - 2,479 2,059
================= ======= ============== ============== ============== ============== ============== ========
Earnings per
share (EPS)
================= ======= ============== ============== ============== ============== ============== ========
Continuing
operations(1)
Basic (8.8) 36.6 16.4 (107.3) - 351.6 288.5
Diluted (8.8) 36.6 16.4 (107.3) - 351.6 288.5
Discontinued
operations(1)
Basic 4.3 - - - - (4.3) -
Diluted 4.3 - - - - (4.3) -
Total
operations(1)
Basic (4.5) 36.6 16.4 (107.3) - 347.3 288.5
Diluted (4.5) 36.6 16.4 (107.3) - 347.3 288.5
================= ======= ============== ============== ============== ============== ============== ========
(1) EPS is calculated using 713.8 million shares (basic) and
713.8 million shares (diluted)
Impact of business combinations is composed of:
-- Amortisation of acquired intangibles of GBP61 million relates
to the amortisation of certain intangible assets recognised through
historical business combinations. Included within income tax
expense is a GBP14 million tax credit in respect of this
amortisation.
-- Acquisition advisor costs relate to acquisition related costs
of GBP19 million as a result of acquisitions in 2021, GBP3 million
of which has been charged to cost of sales. Included within income
tax expense is a GBP4 million tax credit in relation to these
costs.
-- Inventory fair value adjustment of GBP11 million relates to
the amount charged to cost of sales for the fair value step-up of
acquired inventories as these inventories are sold. Included within
income tax expense is a GBP1 million tax credit in relation to
these charges.
-- Changes to deferred tax liabilities of GBP189 million relate
principally to the revaluation of deferred tax liabilities for
acquired intangible assets due to the change in the UK corporate
tax rate, which was substantively enacted during the year.
Reclassified foreign exchange translation on liquidation of
subsidiaries of GBP766 million is the net gain following the
liquidation of legal entities as part of simplification of the
Group's legal entity structure.
Reclassification of finance income of GBP1 million relates to
the net interest income on tax liabilities that is shown within the
adjusted tax charge.
Losses related to disposals of brands and related intangible
assets : the pre-tax loss of GBP234 million relates to the disposal
of Scholl (GBP165 million) and the disposal of EnfaBebé (GBP69
million). Included within income tax expense are associated tax
credits of GBP94 million in relation to these disposals, and a
deferred tax credit of GBP23 million on classification of the E45
brand as held for sale at 31 December 2021.
Other individually material items of income and expense
principally relate to charges in relation to the strategic review
of IFCN China, which resulted in the disposal of the IFCN China
business, the closure of factories in Australia dedicated to IFCN
China and the subsequent re-organisation of the remaining Reckitt
Nutrition business. Amounts charged to the IFRS operating loss in
relation to the IFCN China strategic review include:
-- Loss on disposal of IFCN China of GBP3,284 million;
-- Impairment of the Australian factory assets, GBP48 million
along with associated termination fee GBP3 million; and
-- Costs of GBP18 million relating to the subsequent
restructuring of the Reckitt Nutrition business.
Included within income tax expenses is a GBP846 million net tax
credit in relation to the IFCN strategic review.
Also included within the IFRS operating loss is a charge of GBP3
million in relation to the Korea HS issue. Income from discontinued
operations of GBP31 million relates to amounts agreed with Indivior
plc to settle indemnity claims relating to the DoJ settlement in
2019.
Reconciliation of IFRS to Like-for-Like Net Revenue (by GBU)
For the year ended 31 December
--------------------- ------------------------------------
Hygiene Health Nutrition Group
Net revenue GBPm GBPm GBPm GBPm
--------------------- -------- ------- --------- ------
2021 IFRS 5,911 5,053 2,270 13,234
M&A - (142) (403) (545)
Exchange - - - -
2021 Like-for-like 5,911 4,911 1,867 12,689
--------------------- -------- ------- --------- ------
2022 IFRS 5,960 5,992 2,501 14,453
M&A - (90) - (90)
Exchange (231) (268) (206) (705)
2022 Like-for-like 5,729 5,634 2,295 13,658
Like-for-like growth (3.1%) 14.7% 22.9% 7.6%
Reconciliation of IFRS to Like-for-Like Net Revenue (by
Geography)
For the year ended 31 December
--------------------- ---------------------------------------------
Developing
North America Europe/ANZ Markets Group
Net revenue GBPm GBPm GBPm GBPm
--------------------- ------------- ---------- ---------- ------
2021 IFRS 4,200 4,316 4,718 13,234
M&A (16) (101) (428) (545)
Exchange - - - -
2021 Like-for-like 4,184 4,215 4,290 12,689
--------------------- ------------- ---------- ---------- ------
2022 IFRS 4,954 4,589 4,910 14,453
M&A (48) (30) (12) (90)
Exchange (485) 58 (278) (705)
2022 Like-for-like 4,421 4,617 4,620 13,658
Like-for-Like Growth 5.7% 9.5% 7.7% 7.6%
Adjusted measures excluding IFCN China (Group)
2021
Adjusted
2022 2021 ex. IFCN
Adjusted Adjusted China
GBPm GBPm GBPm
---------------------------------------- --------- --------- ---------
Net revenue 14,453 13,234 12,851
Adjusted operating profit 3,439 2,877 2,944
Adjusted operating margin 23.8% 21.7% 22.9%
Adjusted operating margin vs prior year 90bps
excluding IFCN China
Adjusted measures excluding IFCN China (Nutrition)
2021
Adjusted
2022 2021 ex. IFCN
Adjusted Adjusted China
GBPm GBPm GBPm
---------------------------------------- --------- --------- ---------
Net revenue 2,501 2,270 1,887
Adjusted operating profit 577 234 301
Adjusted operating margin 23.1% 10.3% 16.0%
Adjusted operating margin vs prior year 710bps
excluding IFCN China
Reconciliation of operating cash flow to free cash flow
31 Dec 31 Dec
2022 2021
GBPm GBPm
-------------------------- ------ ------
Cash generated from
continuing operations 3,430 2,836
Less: interest paid (209) (222)
Less: tax paid (831) (915)
Less: purchase of
property, plant &
equipment (362) (373)
Less: purchase of
intangible assets (81) (77)
Plus: proceeds from
the sale of property,
plant & equipment 84 9
-------------------------- ------ ------
Free cash flow 2,031 1,258
-------------------------- ------ ------
Free cash flow conversion 83% 61%
-------------------------- ------ ------
12 months Adjusted EBITDA to Net Debt
31 Dec 31 Dec
2022 2021
Adjusted EBITDA GBPm GBPm
---------------------------- ------- -------
Operating profit/(loss) 3,249 (804)
Less: adjusting items 190 3,681
Adjusted operating
profit 3,439 2,877
Less: adjusted depreciation
and amortisation 402 362
---------------------------- ------- -------
Adjusted EBITDA 3,841 3,239
---------------------------- ------- -------
31 Dec 31 Dec
2022 2021
Net debt GBPm GBPm
---------------------------- ------- -------
Cash and cash equivalents
(inc. overdrafts) 1,156 1,259
Financing liabilities (9,140) (9,637)
---------------------------- ------- -------
Net debt (7,984) (8,378)
---------------------------- ------- -------
Adjusted EBITDA/Net
debt (times) 2.1 2.6
---------------------------- ------- -------
Dividend Cover
31 Dec 31 Dec
2022 2021
GBPm GBPm
------------------------ ------ ------
Interim dividend paid
in year 523 521
Final dividend proposed 789 726
Total dividends 1,312 1,247
Adjusted net income 2,452 2,059
------------------------ ------ ------
Dividend cover (times) 1.9 1.7
------------------------ ------ ------
Net Working Capital
31 Dec 31 Dec
2022 2021
GBPm GBPm
---------------------------- ------- -------
Inventories 1,825 1,459
Trade and other receivables 2,082 1,926
Trade and other payables (5,547) (5,267)
Less: Interest accrued
on tax balances 105 -
---------------------------- ------- -------
Net working capital (1,535) (1,882)
---------------------------- ------- -------
Net working capital
as percentage of 12-month
net revenue (11%) (14%)
---------------------------- ------- -------
ROCE Calculation
31 Dec 31 Dec
2022 2021
GBPm GBPm
------------------------------ ------- -------
Adjusted operating
profit 3,439 2,877
Less: taxation on
adjusted operating
profit (753) (633)
Adjusted net operating
profit after tax 2,686 2,244
IFRS total assets 28,742 26,946
IFRS total current
liabilities (8,341) (8,088)
------------------------------ ------- -------
IFRS total assets
less current liabilities 20,401 18,858
Less IFRS items not
included in capital
employed:
Short-term borrowings 1,721 2,485
Current tax liabilities 791 93
Legal provisions 90 86
Interest accrued on
tax balances 105 -
Cash and cash equivalents (1,157) (1,261)
Current tax recoverable (155) (155)
Retirement benefit
surplus (294) (355)
------------------------------ ------- -------
IFRS balances included
in capital employed 21,502 19,751
Add: impact back unrealised
impairments 3,490 3,143
Less: goodwill due
to deferred tax on
intangibles (4,385) (4,133)
Impact of average
in year vs closing
balance (289) 3,442
------------------------------ ------- -------
Average capital employed 20,318 22,203
------------------------------ ------- -------
Return on capital
employed 13.2% 10.1%
------------------------------ ------- -------
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END
FR SELFAAEDSEEE
(END) Dow Jones Newswires
March 01, 2023 02:00 ET (07:00 GMT)
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