RB..L Regulatory News (RB.)

24 July 2017

SIGNIFICANT PROGRESS ON PORTFOLIO TRANSFORMATION

Notes:

* Continuing operations includes Mead Johnson Nutrition ("MJN") since its acquisition on 15 June 2017 and excludes RB Food and the charge related to the previously demerged RB Pharmaceuticals business that became Indivior. Both RB Food and the previously demerged RB Pharmaceuticals business are presented as discontinued operations. Net income from discontinued operations is presented as a single line item in the Group income statement. Comparative figures have been restated to exclude discontinued operations.

** Like-for-like ("LFL") growth excludes the impact of changes in exchange rates, acquisitions, disposals and discontinued operations.

*** Continuing adjusted results excludes adjusting items of £127 million in operating profit and £23 million of adjusting items in net finance costs, as well as their associated tax impacts (refer to Note 5).

**** Total adjusted results excludes adjusting items for both continuing and discontinued businesses of £429 million (HY 2016: £296 million). Refer to the reconciliations of total reported results to adjusted results in Basis of Presentation and Non-GAAP Measures (Note 5).

Highlights: Half Year (HY) and continuing unless otherwise stated

· Significant progress on our portfolio transformation:

o Mead Johnson Nutrition (MJN) acquired on 15 June, earlier than expectations and integration progressing well.

o Food disposal announced. Proceeds to be used to reduce debt.

o RB base business on track in a challenging environment.

· LFL net revenue decline of -1% (Q2: -2%) - in line with our announcement on 6 July. (specific issues: Scholl, Korea, GST and cyber-attack)

· ENA (-3% LFL) and DvM (+3% LFL growth) - impacted by specific issues in challenging market conditions.

· Health (-2% LFL) - continuing strong dynamics offset by specific issues. Hygiene (+1% LFL growth), Home (-3% LFL).

· Adjusted operating margin expansion of +30bps to 23.7%, (ex MJN: +50bps to 23.9%).

· Adjusted net income growth of +14% (-1% at constant rates); adjusted diluted EPS of 124.9p (+15%).

· Adjusting items of £127m principally in respect of the MJN acquisition.

· £318m provision in respect of Indivior / DoJ discussions taken within discontinued operations. Further details on p15, 26.

· Reported net income increased by +61% (+34% constant); reported diluted EPS of 109.3p (+62%).

· Strong free cash flow generation of £1,251m. Further details on p13.

· Full year net revenue target adjusted to +2% (previously +3%) as previously announced. MJN net revenue target for H2 of -2% to flat.

· The Board declares an interim dividend of 66.6p per share (2016: 58.2p), an increase of 14%.

Commenting on these results, Rakesh Kapoor, Chief Executive Officer, said:

"In the first half of the year, we have made significant progress on portfolio transformation and becoming a more focused consumer health and hygiene business, with both the acquisition of Mead Johnson Nutrition, and the agreed sale of our Food business.

We completed the acquisition of Mead Johnson Nutrition a quarter earlier than expected. Our integration team have done an excellent job in anticipating an earlier close such that we are now targeting accelerated phasing of our cost synergies. The strategic review of our Food division has been completed, culminating in the agreed sale of this high quality business.

From an operational perspective, as expected we had a tough first half, with challenging conditions exacerbated by a sophisticated cyber-attack. Notwithstanding this, the business remains strong and our earnings model intact. We saw broad-based growth across the majority of our consumer health brands. We continue to innovate strongly across our Hygiene segment with good success, and Home (ex-Korea) continues to perform in line with our expectations.

I expect the RB business to return to growth progressively over the second half of the year. As set out in our statement of 6 July, we are targeting full year net revenue +2% LFL growth** for the RB base business. I see this as a challenging target. We are experiencing tough market conditions, and we still have work to do on addressing the full implications of the recent cyber-attack. Operating margin continues to make satisfactory progress and we reiterate our medium-term target of moderate expansion.

For Mead Johnson Nutrition, we target -2% to flat LFL net revenue growth in H2. Operating margin prior to closing was slightly weaker than initially expected. We see significant opportunity within the business and remain confident that operating margin expansion over the medium term will be in line with our plan.

There is no doubt that despite the operational issues RB is becoming a better, stronger company. The strategic transformation enabled by the recent acquisition of Mead Johnson Nutrition and disposal of Food will position RB well to deliver superior shareholder returns for years to come."

Throughout the Interim Report, certain measures are used to describe RB's financial performance which are not recognised under IFRS. The Executive Committee of the Group assesses the performance of the operating segments based on net revenue and adjusted operating profit, which excludes the effect of adjusting items. Management believes that the use of adjusted measures such as adjusted operating profit, adjusted net income and adjusted earnings per share provide additional useful information about underlying trends to Shareholders.

Non-GAAP measures:

Like-for-Like (LFL) growth on Net Revenue excludes the impact of changes in exchange rates, acquisitions, disposals and discontinued operations. A reconciliation of LFL to reported net revenue growth by operating segment is shown on page 5 and by category on page 7.

Constant exchange rate adjusts the actual consolidated results such that the foreign currency conversion applied is made using the same exchange rates as was applied in the prior year.

As described in Note 5, the Group has refined its accounting policy in respect of its adjusted earnings measures as a consequence of the acquisition of Mead Johnson Nutrition. Adjusting items now include the amortisation of acquired, finite-life intangible assets as well as exceptional items previously included.

The table below provides a reconciliation of the Group's reported statutory earnings measures to its adjusted measures for the six months ended 30 June 2017. Descriptions of the adjusting items are included in Note 5.

In addition to the breakdown of adjusting items detailed in Note 5, a reconciliation of Adjusted Net Income is given in Note 7, which is used in the calculation of Adjusted EPS.

Adjusted Earnings per share is defined as Adjusted Net Income attributable to owners of the parent divided by weighted average of ordinary shares (refer to Note 7).

The Group's principal measure of cash flow is Free cash flow, which is defined as net cash generated from operating activities less net capital expenditure. A reconciliation of cash generated from operations to Free cash flow is shown on page 13.

Other measures and terms:

Actual exchange rates show the statutory performance and position of the Group, which consolidates the results of foreign currency transactions at period end closing rates (Balance Sheet) or average rates (Income Statement).

BEI represents our Brand Equity Investment and is the marketing support designed to capture the voice, mind and heart of our consumers.

Project Fuel

Project Fuel is our ongoing cost optimisation programme within cost of goods sold ("COGS").

Group

Note: This section describes our continuing operations. It therefore excludes commentary in respect of our Food business and the exceptional charge relating to RB Pharmaceuticals (also discontinued), but includes two weeks of MJN as the acquisition completed on 15 June. Commentary on discontinued operations is set out on p14.

Half year ("HY") 2017

HY net revenue was £5,017m, a LFL decrease of -1%. Mead Johnson Nutrition ("MJN") was acquired on 15 June and half a month of trading has been consolidated within the RB Group results. This combined with the Hypermarcas acquisition from last year added approximately £140m in Net Revenue for the period, taking total constant growth for the continuing business to +2%. The weakening of the pound versus many currencies added a further +12% to growth, taking the total reported growth to +14%.

ENA net revenue declined by -3% on a LFL basis, with North America flat and "Rest of ENA" -5%. Weakness was primarily driven by the known issue of Scholl / Amopé Wet & Dry Express Pedi launch in 2016, which failed to meet our expectations, and the recent, cyber-attack on 27 June (refer p11 for further details on this issue). Russia showed an improved performance, returning to growth in the half. DvM grew at +3% on a LFL basis against a backdrop of continued mixed market conditions. Volatility has been seen in India, particularly in Q2 as many customers delayed their orders due to the implementation of GST (refer to details on p7). China remained strong, as did parts of Africa.

The issues noted above have impacted category growth rates also. Most of our powerbrands in Health grew well. However, this growth was more than offset by Scholl / Amopé decline and the cyber-attack halting production, shipping and invoicing in a number of sites across Europe shortly before the close of the half. For these reasons, LFL growth reported in the half was -2% despite broad-based growth and strong performance across much of our consumer health portfolio. Hygiene grew at +1% LFL led by Dettol and Harpic in our emerging markets, and Veet across both developed and emerging markets. Home declined -3% LFL due to a combination of Vanish declines in Korea and weakness of Air Wick in the US.

HY gross margin increased by +10bps to 60.4%. Innovation-led mix improvement and Project Fuel initiatives were offset by input cost headwinds.

We remain committed to investing in the long-term growth of our brands and in HY 2017 we invested 14.9% of our net revenue in brand equity investment ("BEI"). This represents -40bps decline versus the prior year (actual rates) and an absolute decline of £26m (constant) for our base RB business. Investment behind most brands increased in the half with the exception of Scholl / Amopé where we reduced investment behind the Wet & Dry Express pedi.

Overhead costs remained relatively stable in HY, with a small reduction in the RB base business offset by a higher fixed cost base in the MJN business.

Operating profit was £1,063m, +50% versus HY 2016 (+27% constant). The reported performance was positively impacted by a net reduction in adjusting items of £192m to £127m (HY 2016: £319m). These items largely relate to the acquisition of MJN (HY 2016: costs associated with the HS issue in Korea). A more detailed description of the adjusting items is set out on pages 26-28 of this report. On an adjusted basis, operating profit was up +16% (+1% constant) to £1,190m. The adjusted operating margin increased +30bps to 23.7%. Excluding MJN, adjusted operating margin increased by +50bps.

Net finance expense was £47m (HY 2016: £11m), reflecting the cost of increased net debt required to finance the acquisition of MJN. The underlying tax rate was 23% (HY 2016: 23%). The effective tax rate is 23% (HY 2016: 30%), in the prior period the difference driven by tax on adjusting items.

Net income attributable to owners of the parent (as reported) was £777m, an increase of 61% versus HY 2016 (+34% constant), impacted by exceptional items. On an adjusted basis, net income grew +14% at actual exchange rates, and declined by -1% on a constant basis. Diluted earnings per share of 109.3 pence +62% on a reported basis; on an adjusted basis, +15% to 124.9 pence.

Second quarter ("Q2") 2017

Total Q2 net revenue was £2,479m, a LFL decrease of -2%. Total growth at constant rates was +3% due to the additive impact of the MJN and Hypermarcas acquisitions, and a positive translational FX impact of +11% drove total reported growth at actual rates of +14%.

ENA (-4% LFL) saw a resilient performance from North America (flat LFL) and a weak quarter from the rest of ENA (-6% LFL). Western Europe was impacted by a combination of slower market growth, a decline in the Scholl brand across many markets, and delays in shipping and invoicing due to the cyber-attack which occurred on 27 June. Russia / CIS had a good quarter of growth, although the market remains fragile. 

DvM grew by +2% in the quarter on a LFL basis with strong performances from China, South Africa, Nigeria and Pakistan. Growth was impacted by India, which declined in the quarter due to some customers delaying orders ahead of the implementation of GST on 1 July. The issues in South Korea also impacted trading in the quarter, albeit to a lesser extent than Q1. The underlying performance of our DvM business remains strong.

On a category basis Health was weak at -4% LFL in the quarter. Whilst we continued to see strong growth in Durex and Mucinex, a number of Western European weighted brands were impacted by the cyber-attack and Scholl continued to be weak. Hygiene growth was -1% LFL decline, with a slowdown in Dettol in India and weak pest (lapping the outbreak of the Zika virus) more than offsetting strong growth in Veet and Harpic in DvM. Vanish and a number of local laundry detergent brands are a significant part of the South Korean portfolio, which impacted the performance in Home and portfolio brands.

Summary: % net revenue growth by Operating Segment

* Reflects the impact of acquisitions and disposals within continuing operations

** IFCN is the Infant Formula and Child Nutrition operating segment (the acquired MJN business)

Note: due to rounding, this table will not always cast

Analysis of net revenue and adjusted operating profit by operating segment, and of net revenue by category are set out below. The Executive Committee of the Group assesses the performance of the operating segments based on net revenue and adjusted operating profit. This measurement basis excludes the effect of adjusting items.

Review by Operating Segment - continuing operations

* IFCN is the Infant Formula and Child Nutrition operating segment (comprising solely of the entire MJN business)

** Restated to exclude discontinued operations.

*** Adjusted to exclude the impact of adjusting items.

The Business Review below is given at constant exchange rates.

HY 2017 total net revenue was £3,189m, with LFL performance of -3%.

North America performance was resilient, net revenue was flat versus the prior year supported by Mucinex growth but offset by declines in the Amopé franchise and continued market challenges in Air Wick

In the rest of ENA performance in Russia was strong particularly in Durex and in Nurofen. Across Europe market conditions remain challenging. The impact of the cyber-attack in the run up to our half year end was felt most strongly in our European markets and these markets have been significantly impacted by the decline in Scholl as we continue to lap the strong sell in of our Wet & Dry initiative in H1 2016.

HY Adjusted Operating Profit decreased -2% (constant) to £827m; the adjusted operating margin increased by +60bps to 25.9% driven by gross margin expansion and BEI savings from reduced spending on Scholl / Amopé.

Q2 total net revenue was £1,520m, with LFL performance of -4%. The recent cyber-attack impeded our ability to ship and invoice orders in the days leading up to half year and Scholl / Amopé declines continued to have an impact. Russian performance in Q2 was encouraging.

HY 2017 total net revenue was £1,702m, with LFL growth of +3%.

The underlying performance in India business remains strong and in growth for the half year but has been negatively impacted by demonetisation and, to a greater extent, destocking by our customers in the lead up to GST changes introduced on 1 July 2017.

Our Africa region saw strong and broad growth across our portfolio, with some weakness in Middle East, particularly Saudi. In China we continued to see strong growth primarily in Durex and particularly through growth in online sales channels. We also saw a boost from the growth of Move Free.

Elsewhere in DvM market conditions remain challenging including in Brazil, which also benefitted in the prior year comparative from increased demand for pest products resulting from the Zika virus. The integration of the Jontex and Olla brands following the acquisition which completed in Q4 2016 has given us a leading market position in the Sexual Wellbeing category.

HY Adjusted Operating Profit increased +4% (constant) to £344m; the adjusted operating margin increased by +50bps to 20.2%.

Q2 total net revenue was £833m, with LFL performance of +2%. The remaining impact from HS in Korea was supplemented by the shipping losses of the cyber-attack and the de-stocking by customers in India in relation to GST.

The Indian Government implemented a Goods and Service Tax (GST) from 1 July 2017. The GST will be deducted from the sales value invoiced to customers and replaces the multiple taxes previously levied through the supply chain and accounted for in cost of sales. The full year accounting impact of the move to GST is expected to be a reduction of c.£50m in Net Revenue - which, as previously flagged, we will adjust for in our LFL net revenue reporting. The ongoing impact on profit is expected to be small.

HY 2017 total net revenue was £126m for the period between completion of the acquisition on 15 June and 30 June.

Summary: % net revenue growth by Category

* Reflects the impact of acquisitions and disposals within continuing operations

** Health now includes the Infant Formula and Child Nutrition (IFCN) business.

*** 2016 Portfolio Brands has been restated to exclude RB Food, which is a discontinued operation.

Note: due to rounding, this table will not always cast.

* Health now includes the Infant Formula and Child Nutrition (IFCN) business.

** 2016 Portfolio Brands has been restated to exclude RB Food, which is a discontinued operation.

In the following Category Review, growth rates are given at constant exchange rates. Margins are at actual rates.

HY 2017 total net revenue was £1,797m, with LFL performance of -2%.

A strong underlying performance across our Health categories offset by the lapping of strong sell-in of Scholl/Amopé in the prior period.

Mucinex delivered strong growth both as a result of the increased incidence of cold and flu this year and our Cool & Clear innovation. Our GI relief products had good growth particularly Gaviscon in Turkey and Picot in Mexico.

Our Durex Powerbrand grew strongly, driven by our 'Invisible' range. Durex growth is particularly strong in China and Russia but we also saw good growth in European markets.

Q2 2017 total net revenue was £893m, with LFL performance of -4%. Scholl/Amopé declines continued to have an impact on growth and cyber-attack issues at the very end of the quarter contributed to the decline.

HY 2017 total net revenue was £2,196m, with LFL growth of +1%.

Growth continues to be led by our Hygiene Health brand of Dettol particularly across DvM including the successful launch of Dettol Deep Cleanse soap. Harpic also saw strong growth in emerging markets such as India where penetration continues to benefit from our involvement in the Banega Swachh campaign

Innovation has helped drive success in Veet with the continued strong performance of our recently launched Sensitive Precision Hair Trimmer, in particular in ENA markets. Finish grew in the HY helped by a Quantum relaunch and penetration-led growth in emerging markets.

Pest category declines were a result of lapping the strong performance due to the Zika virus in 2016.

Q2 total net revenue was £1,072m with LFL performance of -1%. The significant de-stocking by customers in India in relation to GST was felt most strongly in Hygiene and the cyber-attack at the end of Q2 also contributed to Hygiene declines in the Quarter.

HY 2017 total net revenue was £912m, with LFL performance of -3%.

Vanish declines were predominantly driven by the Korea HS issue but DvM outside of Korea showed good growth particularly from Brazil, and in Turkey behind innovative new products such as Vanish Gold. Within ENA our growth in the UK was a result of our recently launched Platinum powder and gel innovation but in the US competitive pressure led to a decline in the period.

Challenging market conditions in the US also contributed to declines in Air Wick but revenue in the Rest of ENA grew in H1 helped by the recent innovation which extended our Pure range of aerosols to Freshmatic. The Pure aerosol range helped deliver good performance in DvM, particularly in Brazil and Mexico.

Q2 total net revenue was £454m with LFL performance of -2%. Air Wick performance in DvM was encouraging with strong growth in Brazil, Turkey and Mexico. The Korea HS issue had a lower impact than in Q1 but the cyber-attack at the very end of the quarter reduced revenue to below expectations.

HY 2017 total net revenue was £112m, with LFL performance of -15%.

Portfolio Brands now exclude Food and mainly comprise Laundry Detergents, Fabric Softeners and certain sales to institutional customers. The nature of the brands and the route-to-market leads to a high level of volatility in revenue. The Korea HS issue has contributed significantly to the decline.

Q2 total net revenue was £60m with LFL performance of -8%.

On the 15 June 2017, RB completed the acquisition of Mead Johnson Nutrition ("MJN") for cash consideration of £13.0 billion. Taking into account MJN net debt, this transaction increased the Group's net debt by £14.3 billion. Two weeks have been consolidated into RB's group results in Q2 and H1.

In order to facilitate an understanding of the trends in the MJN business we have disclosed net revenue on a pro-forma basis consistent with the previously disclosed segments, and pro-forma Non-GAAP EBIT for the total company.

*Constant growth has been calculated on an MJN 'constant dollar' basis which excludes the impact of changes in foreign currency exchange rates

Review of MJN's pro-forma results (at constant rates for H1 unless otherwise noted):

MJN net revenue declined by -3% in H1 comprising a -5% decline in Q1 and a -1% decline in Q2.

Asia returned to growth in Q2 with a strong performance in China, offset by declines in South Asian markets, most notably Philippines. The macro trends in China, which we saw through our due diligence process, continue as expected. Specialist retail and e-commerce channels saw strong growth, as did MJN's premium imported brands. Offline cross-border sales between Hong Kong and China declined, as did locally manufactured products within the Enfa range.

ENA, which is predominantly the US, declined by -4% in Q2 and -3% in H1. The US business has taken steps to address market share loss, through increased investment in consumer education and reaching new mums. However, the H1 result was somewhat weaker than expected.

LATAM saw a decline of -3% in Q2 and +1% in H1. This fragmented region saw weakness in Argentina in Q2, and competitive pressures / category weakness in Central America, somewhat offset by growth in Mexico behind a new product launch.

Non-GAAP EBIT margins for the MJN business fell by -500bps to 19.9%. The decline was driven by a gross margin decline due to increased commodity input costs, especially for full fat milk powder, pricing corrections taken in a number of markets, and lower margins for the growing channel in China.  Advertising and promotion costs increased due to additional investment behind brands, especially China and USA. Fixed costs also increased as a proportion of net revenue, largely as a result of negative operational leverage.

Basis of Preparation of MJN's pro-forma results

The summary pro-forma financial information about MJN has been extracted from its underlying accounting records, prepared in accordance with US Generally Accepted Accounting Principles ("US GAAP"). There are no differences between US GAAP and IFRS in respect of Total Net Revenue. The Group's most comparable measure to Non-GAAP EBIT used by MJN is Adjusted Operating Profit. Non-GAAP EBIT excludes the impact of MJN's specified items, which approximate the Group's adjusting items. MJN's constant exchange rates eliminate the impact of both translational foreign exchange and certain transactional exchange differences, whereas the Group's constant exchange rate calculation does not adjust for transactional foreign exchange.

The H1 presentation will feature a selection of new product initiatives for the second half of 2017:

In Health:

· Scholl ® value priced electronic foot file. Soft feet effortlessly. More convenient than a manual foot file, offering a visible difference 

· Durex ® Naturals Intimate Gel - Water based lubricant - uses 100% natural ingredients with pre-biotics that support natural flora and pH balance

· Digestive Advantage ® Probiotic Bites Dark Chocolate - The probiotic that survives stomach acid 100x better - now available in great tasting dark chocolate bites

· MegaRed ® Advanced Triple Absorption - Absorbed by your body 3x better than standard fish oil, so you can get more Omega-3 power from just one softgel

· Mucinex® - new news on FastMax - Powerful multi-symptom relief - One Dose addressing 9 Symptoms

In Hygiene:

· SiTi® powered by Dettol® - a protective ecosystem against air pollution - connected at the heart

· Lysol® Disinfecting Wipes - Our best yet - new & improved wipe that kills 99.9% of germsAlso available in a new range of fragrances

· Finish® - All-in-1 Compact tablets launch in China - Tablets specifically designed for China and compact (table-top) dishwashers

· Veja® Gold - Re-launch across the range - Best ever Veja formula with increased actives to provide 2x more cleaning power, throughout the house

In Home:

· VIPoo by Air Wick® - keep nasty smells in your bowl!

· Vanish® Gold - new initiative - "whites instantly whiter after one wash". There's nothing nicer than crisp whites when it comes to shirts, linen and towels

On Tuesday 27 June many companies, including RB, were impacted by a new type of sophisticated cyber-attack. We believe the attack was focused on companies that do business with the Ukraine.

Once activated, the virus was able to avoid many of the measures in place to prevent its spread. As a consequence it rendered many systems and servers, using a certain operating system, inoperable very quickly.

Systems were recovered progressively from 3 July. By 11 July most of our manufacturing sites were producing close to normal capacity. There are, however, a number of activities which will take until the end of August to complete in full and we continue to face some operational disruption.

Key impacts have been reduced factory operations, delayed shipping and invoicing, and in some circumstances, lost sales. We believe we have materially quantified the impact of this cyber-attack on our trading. The recovery is however ongoing.

RB has significant cyber security measures in place. With attacks becoming ever more sophisticated in nature, we are reviewing what further measures can be implemented to minimize both the likelihood and potential impact of any future attacks.

There have been no material changes to our expectations surrounding the tragic HS issue in South Korea since our Q1 trading update in April.

- No additional assessments have been reported by the Government since our Q1 trading update. The status to date is set out in the table below:

- Following a consultation process with currently identified Round 3 victims, Oxy RB has initiated a compensation plan for the 52 Oxy RB category I or II users identified in tranches 3.1 - 3.3. The terms of this plan are broadly the same as Rounds 1 & 2.

- Round 4 remains open and the applicant numbers are reported on the Korea Environmental Industry & Technology Institute (KEITI) website. The number of applicants as at 17 July was 4,380.

The status of the four rounds of applications established to date is therefore as follows:

* Round 4 remains open to applicants. The number of applicants shown in the table are the applicants set out on the KEITI website as at 17 July 2017.

** both sole Oxy RB users and users of multiple manufacturers' products, including Oxy RB.

In 2016 a provision was made for certain costs arising as a result of the HS issue, including costs arising from compensating Oxy HS category I and II victims classified within Rounds 1, 2 and 3 of the Korean Centre for Disease Control (KCDC) classification process.

There are in addition a number of further costs / income relating to the HS issue that are either not able to be estimated or quantified or are considered not probable at the current time, including those relating to Round 4 applicants and costs associated with the wider HS issue. Further details of these contingent liabilities are set out in note 13.

Basis of preparation. The unaudited financial information is prepared in accordance with IAS 34 Interim Financial Reporting, and with the accounting policies to be applied in the Group's consolidated financial statements for the year ending 31 December 2017. These are not materially different from those set out in the Group's 2016 Annual Report and Accounts, unless separately disclosed. Unless otherwise stated, information contained herein is in respect of continuing operations.

Net finance expense. Net finance expense is £47 million (2016: £11 million), including £23m of accelerated finance fees recorded as a direct result of the MJN acquisition which have been treated as an exceptional adjusting item.

Tax. The continuing statutory effective tax rate is 23% (2016: 30%). The continuing adjusted effective tax rate is 23% (2016: 23%).

Net working capital Largely as a result of the MJN acquisition, inventories increased to £1,322 million (2016: £752 million), trade and other receivables increased to £1,846 million (2016: £1,377 million) and trade and other payables increased to £4,783 million (2016: £3,400 million). This has led to a decrease in net working capital to minus £1,615 million (2016: minus £1,271 million). Net working capital as a percentage of net revenue is -16% (2016: -14%). On a pro-forma basis, excluding the fair value adjustment made to inventory on acquisition and including 12 months of net revenue for MJN, then NWC as a percentage of net revenue would be -14%.

Cash flow. Cash generated from operations was £1,603 million (2016: £1,389 million). The increase largely reflects the operating performance and improved working capital position.

Free cash flow is the amount of cash generated from operating activities after capital expenditure on property, plant and equipment and intangible assets and any related disposals. Free cash flow reflects cash flows that could be used for payment of dividends, repayment of debt or to fund our strategic objectives. Free cash flow conversion as a percentage of continuing adjusted net income was 141% (2016: 114%).

Net debt at the end of the half year was £14,751 million (31 December 2016: £1,391 million), an increase of £13,360 million. This reflected the acquisition of MJN and the payment of the final 2016 dividend, offset by strong free cash flow generation. The Group regularly reviews its banking arrangements and has adequate facilities available.

Adjusting items. In HY 2017 pre-tax adjusting items of £127 million were recorded in operating profit (HY 2016: £319 million), relating primarily to the acquisition of Mead Johnson Nutrition. Further details of these items can be found in Note 5 to this report.

Discontinued operations: The results of the Food business are reported as a discontinued operation. Food net income was £46 million. (HY 2016: £42 million). The adjusting item (see Note 5) in respect of Indivior of £318 million (HY 2016: nil) is also reported within discontinued operations.

Balance sheet. The acquisition of MJN resulted in an increase of £17.3 billion to goodwill and intangible assets and an associated deferred tax liability of £3.2 billion (see note 15). The Group acquired MJN for cash consideration of £13.0 billion, which together with the net debt acquired increased the Group's net debt by £14.3 billion.

At 30 June 2017, the Group had shareholders' funds of £8,269 million (31 December 2016: £8,426 million), a decrease of 2%. Net debt was £14,751 million (31 December 2016: £1,391 million) and total capital employed in the business was £23,020 million (31 December 2016: £9,817 million).

This finances non-current assets of £32,165 million (31 December 2016: £14,569 million), of which £1,810 million (31 December 2016: £878 million) is property, plant and equipment, the remainder being goodwill, other intangible assets, deferred tax, retirement benefit surplus and other receivables. The Group has net working capital of minus £1,615 million (31 December 2016: minus £1,102 million), current provisions of £659 million (31 December 2016: £251 million) and long-term liabilities other than borrowings of £6,910 million (31 December 2016: £3,388 million).

Assets held for sale. At 30 June 2017, the Group's assets held for sale of £146 million and liabilities held for sale of £109 million comprises the carrying value of RB Food, which meets the definition of a disposal group at 30 June 2017.

Dividends. The Board of Directors declares an interim dividend of 66.6p (2016: 58.2p) in line with its stated policy to pay out about 50% of basic adjusted earnings per share.

The ex-dividend date will be 17 August 2017 and the dividend will be paid on 28 September 2017 to shareholders on the register at the record date of 18 August 2017. The last date for election for the share alternative to the dividend is 7 September 2017.

Legal provisions. The Group is involved in litigation, disputes and investigations in multiple jurisdictions around the world. It has made provisions for such matters, where appropriate. Where it is too early to determine the likely outcome of these matters or to make a reliable estimate, the Directors have made no provision for such potential liabilities.

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.

As a matter of policy and practice, the Group co-operates with all government investigations. The Group maintains and continues to improve a robust compliance training programme and ensures that all executive managers sign a periodic disclosure and reporting document certifying compliance with the Group's Code of Conduct.

Contingent liabilities. The Group is involved in a number of civil and/or criminal investigations by government authorities as well as litigation proceedings and has made provisions for such matters where appropriate. Where it is too early to determine the likely outcome of these matters or to make a reliable estimate, the Directors have made no provision for such potential liabilities. Contingent liabilities are explained in Note 13.

As explained elsewhere in this report, the following are treated as discontinued operations for the six months ended 30 June 2017, in accordance with IFRS 5:

- RB Food

- An exceptional cost relating to the Group's previously demerged RB Pharmaceuticals business

Comparatives have also been restated.

A breakdown of the discontinued result for H1 is as follows:

* 2016 adjusted operating profit has been restated to exclude an allocation of RB central costs of £11m. The annualised value of RB "stranded" fixed costs is £23m and has been allocated to ENA and DvM on a pro-rata basis.

RB Food

The assets and liabilities related to RB Food have been presented as held for sale at 30 June 2017 having met the IFRS 5 criteria. On 19 July, the Group announced that it had agreed to sell the Food business to McCormick, with completion of the transaction expected during Q3 2017.

H1 net revenue was £208 million, a flat performance versus the prior year. Adjusted operating profit was £62 million, a 29.8% margin and +30bps versus the prior year.

Indivior - litigation matters

We noted in our 2016 annual report that the Group was involved in ongoing investigations by the US Department of Justice (DoJ) and the US Federal Trade Commission and related litigation proceedings arising from certain matters relating to the RB Pharmaceuticals (RBP) business prior to its demerger in December 2014 to form Indivior plc and may incur liabilities in relation to such matters.

These investigations and related proceedings are continuing and we are in active discussions with the DoJ. As a consequence of these discussions we have recorded a charge of £318 million in our second quarter results. It has been recorded within our discontinued operations line, as RBP was demerged in December 2014.

The Group remains committed to ensuring these issues are concluded or resolved satisfactorily but we cannot predict with any certainty whether we will be able to reach any agreement with the DoJ or other parties who are involved in the related proceedings. The final cost for the Group may be materially higher than this reserve.

Following the acquisition of Mead Johnson Nutrition we target the following:

Net Revenue target (Full Year)

- As set out in our statement of 6 July, we are now targeting full year net revenue +2% LFL growth1 for the RB base business.

- For Mead Johnson Nutrition, we target -2% to flat LFL growth1 in H2.

Operating margin (medium term)

- For the RB base business operating margin continues to make satisfactory progress and we reiterate our medium-term target of moderate margin expansion2.

- For Mead Johnson Nutrition, operating margin prior to closing was slightly weaker than initially expected. We see significant opportunity within the business and remain confident that operating margin expansion2 over the medium term will be in line with our plan.

1 At constant rates, excluding the impact of acquisitions, disposals and discontinued operations.

2 Adjusted to exclude the impact of adjusting items.

Except for the impact of the recently completed acquisition of Mead Johnson Nutrition, the Directors consider that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining six months of 2017 are largely the same as those described on pages 46 to 53 of the Annual Report and Financial Statements for the year ended 31 December 2016. These include:

· Risk of not having a robust process for assessment of product safety, this may result in customer safety issues, reputational damage, significant financial losses and possible criminal liability for RB senior management.

· Risk that non-compliance with regulations (e.g. licences, manufacturing, products and laws) results in significant financial losses arising from regulator-enforced factory closures, product recalls, delayed launches, penalties, possible criminal liability etc.

· Risk of financial and reputational risk as a result of health issues in South Korea, caused by prolonged inhalation of a humidifier sanitiser product acquired in 2001.

· Risk that targets cannot be delivered due to technology failures or a lack of growth-enabling systems and infrastructure capabilities, leading to business disruption.

· Risk that our business continuity plans, including monosourcing (materials and products) are inadequate and we face interruptions to our supply chain and disruptions in our production facilities, which could materially adversely affect our results of operations.

· Risk that we are not fully compliant with UK and local laws including the UK Bribery Act, Competition laws and Data and Privacy Protection laws, resulting in damage to RB's reputation, significant potential fines and possible criminal liability.

· Risk of significant unprovisioned cash outflows as a result of tax authority challenge to filed positions in key territories.

· Risk that RB cannot implement its strategies and meet objectives as a result of key management leaving the business who cannot be readily replaced by equally experienced / qualified candidates.

· Risk of significant reputational impact as a result of systemic product quality issues resulting in undermining of consumer confidence in our brands, particularly in the growing Health Care portfolio.

· Risk that work accidents harm RB employees or other workers on RB premises, or premises under RB supervision in the case of outsourced operations, result in loss of life or other injuries, factory closure, reputational damage and possible criminal liability.

· Risk that RB is subject to increasingly sophisticated cyber-attacks aimed at causing business disruption, capture of data for financial gain, general embarrassment and reputational damage or that RB's data privacy protective measures are considered by regulators to be inadequate.

The acquisition of Mead Johnson Nutrition will have an impact on the Group's principal risks and uncertainties. The Directors will be incorporating this into a more complete risk assessment in the second half of 2017, as the two businesses begin to integrate. That said, based on our preliminary assessment of risk and uncertainty, and as highlighted in the Shareholder Circular dated 5 May 2017, the principal risks and uncertainties expected to be incorporated as a result of the acquisition are:

· Risk of greater exposure to certain developing markets and, in particular, China.

· Heightened risks associated with a new portfolio of products and the associated regulations, including compliance with US FDA requirements as well as similar regulations in other territories, including China, as well as related product quality and liability risks.

· An increased exposure to commodity price risk.

· Increased risks posed by the increase in the Group's borrowings used to fund the acquisition.

The Group's Annual Report and Financial Statements for the year ended 31 December 2016 is available on the Group's website at www.rb.com. 

The Group at a Glance - continuing operations (unaudited)

 * Adjusted to exclude the impact of adjusting items.

** Restated to exclude discontinued operations.

For further information, please contact:

LEI: 5493003JFSMOJG48V108

Disclaimers

Cautionary note concerning forward-looking statements

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

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

Group Income Statement

For the six months ended 30 June 2017

1Restated for the impact of discontinued operations (see note 10)

Group Statement of Comprehensive Income

For the six months ended 30 June 2017

1Restated for the impact of discontinued operations (see note 10)

Group Balance Sheet

As at 30 June 2017

Group Statement of Changes in Equity

For the six months ended 30 June 2017

Group Cash Flow Statement

For the six months ended 30 June 2017

1. General Information

Reckitt Benckiser Group plc is a public limited company listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is 103-105 Bath Road, Slough, Berkshire SL1 3UH.

The Half Year Condensed Financial Statements were approved by the Board of Directors on 24 July 2017. The Half Year Condensed Financial Statements have been reviewed, not audited.

2. Basis of Preparation

The Half Year Condensed Financial Statements for the six months ended 30 June 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 Interim Financial Reporting as endorsed by the European Union. The Half Year Condensed Financial Statements should be read in conjunction with the Annual Report and Financial Statements for the year ended 31 December 2016, which have been prepared in accordance with European Union endorsed International Financial Reporting Standards (IFRS) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements for the year ended 31 December 2016 are also in compliance with IFRS as issued by the International Accounting Standards Board (IASB).

These Half Year Condensed Financial Statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2016 were approved by the Board of Directors on 22 March 2017 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

Having assessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

3. Accounting Policies and Estimates

With the exception of the revision for adjusting items described in Note 5, the accounting policies adopted in the preparation of the Half Year Condensed Financial Statements are consistent with those described on pages 110-114 of the Annual Report and Financial Statements for the year ended 31 December 2016.

There are no new standards, amendments or interpretations which have been adopted for the first time which have a significant impact on the accounting policies applied in preparing the Half Year Condensed Financial Statements.

Management continues to assess the impact of IFRS 15 Revenue from contracts with customers, which will be effective for annual periods beginning on or after 1 January 2018, the revised issuance of IFRS 9 Financial Instruments, which will be effective for annual periods beginning on or after 1 January 2018 and IFRS 16 Leases which will be effective for annual periods beginning or after 1 January 2019.  A number of other new standards, amendments and interpretations are effective for annual periods beginning on or after 1 January 2018 and have not been applied in preparing these financial statements.

In preparing these Half Year Condensed Financial Statements, the significant estimates and judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Group financial statements for the year ended 31 December 2016. However, the acquisition of Mead Johnson Nutrition has significantly increased the carrying value of goodwill and other intangible assets, for which the measurement at initial recognition on 15 June 2017 is subject to estimation uncertainty.

Income tax expense for the six months is accrued using the expected tax rate that would be applicable to the total annual profit, before the impact of adjusting items, for the year ending 31 December 2017. Refer to Note 6 for further details.

4. Operating Segments

The Executive Committee is the Group's Chief Operating Decision-Maker (CODM). The Group's operating segments are reported based on the segment information reviewed by the Executive Committee for the purposes of making strategic decisions and assessing performance. As a result of the acquisition of Mead Johnson Nutrition, the Group has created a new operating segment, Infant Formula and Child Nutrition (IFCN). In addition, because of its classification as a discontinued operation, the previously reported operating segment for Food is no longer presented and the comparatives have been restated. The ENA and DvM operating segments remain unchanged.

ENA comprises Europe, Russia/CIS, Israel, North America, Australia and New Zealand. DvM principally comprises North Africa, Middle East (excluding Israel), Turkey, Africa, South Asia, North Asia, Latin America, Japan, Korea and ASEAN.

ENA and DvM derive their revenue primarily from the sale of branded products in the Health, Hygiene and Home categories. IFCN revenue is allocated to the Health category.

The Executive Committee assesses the performance of the operating segments based on net revenue from external customers and Adjusted Operating Profit. Intercompany transactions between operating segments are eliminated. Finance income and expense are not allocated to segments, as they are managed on a central Group basis.

The segment information provided to the Executive Committee for the periods ending 30 June 2017 and 30 June 2016 is as follows:

1Restated to exclude discontinued operations.