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

"2016 was a good year in which we achieved broad-based growth and excellent margin expansion, despite challenging markets and an unusual number of issues. 

We have remained focused on our Powermarkets, Powerbrands and virtuous earnings model.  We continue to apply our culture of consumer centric innovation to address unmet consumer needs.  We brought some successful innovations to market, including Veet Sensitive Trimmer, and Wave toilet block, launched under Harpic, Cillit Bang and Lysol.  We also had poor in-market results from the new Wet & Dry, rechargeable pedi product, launched under the Scholl / Amopé franchise. 

We are never happy when an innovation misses the mark, and we are proud of a culture that allows people to push ideas they passionately believe in. As such, we have to also accept that with a multitude of successes, comes the occasional failure.  The important lessons have been learned. I am confident we have an exciting innovation pipeline for 2017 which has the right balance for growth and outperformance.

From a market perspective, we saw slower growth in 2016, across both Developed and a number of Emerging markets.  Russia and the US in particular were tough, Turkey and Saudi were impacted by geopolitical issues.  This was in part offset by strong performances in India, China, Indonesia and Thailand.

For the full year we achieved a top line growth of +3% LFL.   Our virtuous earnings model continued to deliver significant value creation for shareholders. Strong gross margin expansion, combined with efficient fixed cost management, created the room in our P&L to both increase investment behind our brands (BEI) and to deliver another year of excellent operating margin expansion of +130bps. 

RB has a long and proud history; in 2011 the tragic events in Korea first came to light. We have made a public and personal apology to the victims who suffered lung damage from using Oxy RB's humidifier sanitiser product, and I reiterate that here.  The harm that resulted from the use of humidifier sanitizers sold by Oxy RB and other manufacturers can never be allowed to happen again.  We are committed to reinforcing our focus on safety for the future.

We have made significant strides in 2016 to do the right thing for affected Korean consumers and I have outlined these in the special report within this release.  As a responsible company Oxy RB will continue to work with other manufacturers and stakeholders towards a fair and sustainable solution for all those who have been affected.

In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half.  We remain confident in the strength of our business and choices across Powerbrands and Powermarkets.  We are targeting LFL net revenue growth of +3%¹.  For operating margin², we reiterate our medium term target of moderate margin expansion. "

¹ At constant rates.

² Adjusted to exclude the impact of exceptional items. 

Throughout the Report, certain measures are used to describe RB's financial performance which are not recognised under IFRS or other generally accepted accounting principles (GAAP).  The Executive Committee of the Group assesses the performance of the operating segments based on net revenue and adjusted operating profit, which excludes effect of exceptional 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 on underlying trends to Shareholders.

Like-for-Like ("LFL") growth on Net Revenue excludes the impact of changes in exchange rates, acquisitions and disposals. A reconciliation of LFL to reported net revenue growth by operating segment is shown on page 6 and by category on page 9.

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.

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.

Adjusted results exclude exceptional items, defined as material, non-recurring expenses or income. A breakdown of exceptional items is detailed in Note 3. A reconciliation of adjusted operating profit is shown in Note 2 and a reconciliation of Adjusted Net Income is given in Note 5, used in the calculation of Adjusted EPS.

Free cash flow 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 in the Financial Review section on page 12.

Project Supercharge

Project Supercharge was announced in February 2015 (refer to details on p12 of the 11 February 2015 announcement for a detailed description).  The project focuses on:

-     creating a simpler, more agile organisation

-     reducing cost and driving efficiencies.

Project Fuel

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

Full Year 2016

RB delivered a year of robust growth and excellent margin expansion, against a backdrop of slowing market trends and some negative company specific items. 

Total full year (FY) Net Revenue was £9,891m, an increase of +2% at constant exchange rates, and +3% on a LFL basis.  The impact of net M&A was slightly negative, as a positive impact from our Hypermarcas sexual wellbeing brands acquisition was more than offset by the disposal of the Medcom Hospital business and a couple of small homecare brands.  The devaluation of sterling following the UK referendum in June had a significant positive impact on reported results as the majority of the Group's revenue and profits are earned outside of the UK.  The positive foreign exchange on translation increased Net Revenue by +9%.  From a geographic perspective growth was broad based.  Our developed market area of ENA delivered LFL growth of +1% in slowing market conditions.  Russia in particular saw very weak consumer demand, and the US was impacted by a later flu season than in the previous year.  Our emerging market area (DvM) delivered +8% LFL growth in mixed market conditions.  India and China continue to be strong, with improving trends in Indonesia, Thailand and Pakistan.  Geopolitical issues and/ or challenging macro backdrop impacted performance in Turkey, Saudi Arabia and Brazil.  Indian demonetization had a small impact in 2016, but will also impact the early part of 2017. 

On a category basis, growth continues to be driven by our strategic priorities of Consumer Health and Hygiene brands.  Consumer Health saw broad based growth across the portfolio, with the exception of the Scholl / Amopé franchise which was significantly impacted by an innovation (the Wet & Dry express pedi) which failed to deliver to our expectations.  Hygiene had an improved performance in the year with growth across most powerbrands, driven by innovation and penetration building initiatives.  Our Home care category had a weak year, due to specific issues in Korea (the HS issue).  The underlying performance was in line with our goal of performing in line with the market.

Gross Margin increased by +180bps to 60.9%, an excellent performance driven by favourable input costs, margin accretive innovation, pricing, Project Fuel initiatives, and supply related Supercharge savings.  The impact of commodity driven input costs will vary from year to year, and in 2016 these were a significant tailwind. As previously reported, we expect input costs to become headwinds in 2017.  Gross Margin has, and will continue to, drive our virtuous earnings model, as we focus on favourable mix, driven by consumer health led growth, Project Fuel, pricing and gross margin enhancing innovations across our Powerbrands. 

We increased investment behind our brands (as defined by our Brand Equity Investment (BEI) metric), by +£63m (constant exchange), +50bps to 13.2% of Net Revenue.  The efficiencies we have driven from our Supercharge programme, (eg:  consolidation of creative agencies and media buying savings), have been re-invested back into brand equity building initiatives throughout the year. 

On Project Supercharge, we have completed the majority of the programme of our planned £150m cost savings over three years. 

Operating profit as reported was £2,410m, +8% versus FY 2015 (-3% constant), reflecting the impact of an exceptional pre-tax charge of £367m (2015: £133m).  The exceptional items relate mainly to the HS issue in Korea.  Details of the exceptional charge are set out in Note 3.  On an adjusted basis, operating profit was ahead +17% (+6% constant) to £2,777m. The Adjusted Operating Margin increased by +130bps to 28.1%, due to the strong gross margin expansion, and fixed cost containment.  

Net finance expense was £16m (2015: £33m).  Borrowing levels and the cost of finance remained broadly the same in 2016 and benefitted from some cash temporarily held in high interest countries.   

The tax rate (excluding exceptionals) was 22% and in line with our guidance.  We continue to expect our underlying group effective tax rate to be in the region of 23%.

Net income as reported was £1,832m, an increase of +5% (-5% constant) versus 2015.  On an adjusted basis, net income was £2,157m +15% (+4% constant).  Diluted earnings per share of 256.5 pence was +6% on a reported basis; on an adjusted basis, the growth was +17% to 302.0 pence.

Fourth quarter 2016

Q4 net revenue was £2,760m, an increase of +1% on a LFL basis.  On a geographic basis ENA had a weaker quarter (-2% LFL), as a result of a high comparative, the Scholl / Amopé launch miss, the tough Russian market and a late start to the flu season.  DvM continued its strong underlying performance with double digit growth excluding Korea.  The demonetisation issue caused growth to slow in India.

Consumer Health sales were impacted by significant decline in the Scholl / Amopé franchise and a late start to the cold and flu season in the US.  The rest of the portfolio experienced broad based growth.  Hygiene continued its improved trend versus the prior year with good growth in Dettol, Harpic Mortein and Veja in Brazil.  Lysol had a light quarter in the US due also to the late start to the cold and flu season.  Within Home, Air Wick and Vanish declined, predominantly due to Korea.  

Summary: % Net Revenue growth

* Reflects the impact of acquisitions and disposals.

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

Analyses by operating segment of net revenue and adjusted operating profit, and of net revenue by product group 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 exceptional items.

Review by Operating Segment

* Adjusted to exclude the impact of exceptional items.

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

FY 2016 total net revenue was £6,410m, with LFL growth of +1%.  North America had a tough year with a flat LFL performance.  Good growth in our VMS brands, Mucinex and Finish was offset by weakness in Amopé (Wet & Dry pedi innovation).

Russia had a very weak year with double digit decline in LFL growth.  Volume declines arose from a combination of customer and consumer destocking and weakness in Scholl.  Whilst Russia remains volatile, we are looking for an improving performance in 2017.

The rest of ENA saw robust growth during the year.  Growth in our larger markets of Germany, UK, France, Spain and Australia was innovation led, with strong performances from Veet precision trimmer, Harpic Waves and Air Wick Pure.  Scholl had a mixed performance, with a strong performance from our GelActive insoles more than offset by weakness from the Wet & Dry pedi. 

FY Adjusted Operating Profit increased +2% (constant) to £1,978m; the adjusted operating margin increased +100bps to 30.9%, due to strong gross margin expansion.

Q4 total Net Revenue was £1,803m, with a LFL decline of -2%.  Within North America (-3% LFL) Mucinex and Lysol were impacted by a late start to the flu season and Amopé.  Russia continued to see significant negative volumes. The rest of ENA continued to perform well. 

FY 2016 total net revenue was £3,070m, with LFL growth of +8%; a strong underlying performance of double digit LFL growth ex Korea.  The impact of the disruption on reported revenue was reduced by a focussed programme of support to distributors with some increase in channel inventory, which will reverse in 2017.  In South Asia, India delivered strong growth, despite a significant slowdown in Q4 caused by the demonetization market disruption.  We achieved further strong penetration gains in our leading brands of Dettol and Harpic, underpinned by innovation and consumer education programmes.  China had another strong year with e-commerce driven initiatives and the launch of Move Free driving the growth.  Over 30% of China's net revenue is now via e-commerce channels and we have the ambition to achieve 50% by 2020.  Indonesia and Thailand also had strong performances.  The Brazil macro environment remains challenging, although a strong performance from Veja and pest brands helped mitigate some of the weakness.  Turkey and Saudi had a weaker year due to the geopolitical issues in the second half.

FY Adjusted Operating Profit increased by +19% (constant) to £681m; the adjusted operating margin was +260bps higher at 22.2%. This was due to gross margin expansion, combined with Supercharge initiatives.

Q4 total Net Revenue was £825m, with LFL growth of +6%.  A further strong quarter with strength in China, India (though slower due to demonetization), offset by Korea, geopolitical issues in Turkey, and the Middle East.  

FY 2016 total Net Revenue was £411m, a +5% LFL increase versus prior year and +7% LFL increase in Q4.  French's continues to deliver a strong performance, driven by growth of French's ketchup, regaining share in French's mustard, outperformance on Frank's Red Hot and continued expansion in International markets, most notably Canada. 

Operating margins declined by -50bps to 28.7% as we continue to invest for growth and international expansion.

Summary: % net revenue growth by Category

* Reflects the impact of acquisitions and disposals. Note: due to rounding, this table will not always cast.

* Adjusted to exclude the impact of exceptional items.

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

FY 2016 total Net Revenue was £3,332m, with LFL growth +4%.  Overall growth slowed in 2016, following an exceptional +14% LFL growth in 2015. This was an average result versus the market but lower than our ambition to outperform.  We remain steadfast in our commitment to driving outperformance in this strategic category. 

Scholl / Amopé:  This franchise experienced double digit decline.  The cause of this was twofold - an exceptional year of product launches and geographic expansion in 2015, followed by the launch of the Wet & Dry rechargeable pedi in 2016 which failed to meet expectations.  We have taken some key learnings from this launch and continue to innovate in this underpenetrated and important category.        

The remainder of the Health portfolio: All of our Powerbrands in the remainder of our Health portfolio grew in 2016, and the overall performance of our consumer health portfolio (ex Scholl / Amopé) was the same as 2015, exceeding both in-year and medium term category growth rates.  This broad based growth included:

-     Durex / KY: "Invisible" ultra thin condom and the launch of our KY Duration spray in the US,

-     Gaviscon: continued strong growth of our recent Double Action innovation,

-     VMS brands: All of our key brands (Megared, Move Free, Digestive Advantage and Airborne) grew during the year.  Move Free was particularly strong following its launch in China.

-     Mucinex: successful launch of our Clear & Cool range of liquids within Fast Max and Sinus Max.     

We believe we are well positioned to outperform long-term category growth within Consumer Health, led by our market leading, trusted brands, strong consumer centric innovation pipeline, and significant investment behind medical professional and consumer education programmes.   

Q4 total Net Revenue was £967m, with LFL decline of -1%.  We saw no significant trend changes during the quarter, with broad-based growth across most or our brands.  This growth was offset by declines in Scholl / Amopé and weakness in Mucinex due to a combination of reduced consumer consumption from lower incidences of cold and flu, and additional private label competition in some SKUs.

FY 2016 total Net Revenue was £4,066m, with LFL growth of +4%.  This was an improved performance versus the previous year and we saw growth across both ENA and DvM.  Growth continues to be led by our key emerging market brands of Dettol and Harpic, as we focus on the right combination of relevant and appropriately targeted innovations (eg; Dettol Squeezy / Harpic bathroom cleaner) and consumer awareness programmes. Finish was a growth driver in ENA, with particular success in the US behind instore initiatives and our successful Max-in-1 innovation.  Veet had a successful year with the launch and scaling of our new precision trimmer innovation.  Our pest brands and Veja also had strong performances in Brazil.      

Q4 total Net Revenue was £1,086m with LFL growth +3% with good growth in Veet, Dettol and Harpic offset by declines in Lysol due to a late start to the flu season in the US. 

FY 2016 total Net Revenue was £1,828m with a LFL decline of -1%.  Air Wick grew with a good performance from our recent innovation (Air Wick Pure), which we scaled across a number of ENA markets during the year.  Vanish declined in 2016, driven solely by the impact of events in Korea.  Our overall performance in Home care, excluding the impact of Korea, was at the upper end of our long term category growth rates.      

Q4 total net revenue was £501m. LFL growth was -2%.  Trends were similar to those of the full year, with Korea disproportionately impacting growth in this segment.   

FY 2016 total Net Revenue was £665m, with a flat LFL performance versus the prior year.  Laundry detergents and fabric softeners suffered from the twin impact of weakness in Southern Europe and Korea.  Food continues to perform well.

Q4 total Net Revenue was £206m, with LFL performance of +7%.  This was driven by an excellent performance in Food of +7% growth, solid laundry sales and high sales in the other small, volatile items in the segment.

RB announces a number of new product initiatives for the first half of 2017:

Health:

·     Scholl Electronic Hard Skin remover, with Marine Minerals - addition of Marine Minerals to Roller-heads, known as natural exfoliators

·     Scholl In-Growing Toenail - Complete Clip & Spray Kit.  1^st Ever Solution that allows at-home successful treatment of Ingrowing toenails

·     KY Duration Spray - Last Longer. Stay in the Moment! Just a few sprays of KY Duration before having sex will help him last longer to prolong the intimate sexual experience for both

·     Nurofen Long, Russia and Nuromol Australia - stronger pain relief, combining the power of ibuprofen and paracetamol

·     Nurofen FeverSmart Thermometer - Continuous, real-time temperature monitoring for reassurance & control of your child's fever

Hygiene:

·     Dettol Protect+ Smart Mask - Breakthrough protection against the damaging effects of air pollution, plus enhanced breathability for optimal comfort

·     Dettol Deep Cleanse Soap - 100% better skin protection with micro scrubbing beads for deep skin cleansing

·     Lysol Laundry Sanitiser - Sanitize all your family's clothes without the use of chlorine bleach

·     SBP Advanced - Personal Insect Repellent range.  Protection that lasts twice as long

Home:

·     Air Wick Freshmatic Pure - a better way to keep your home fresh.  More fragrance in the air, less on the floor

·     Vanish Platinum Powder & Gel - Works 1^st time on 100% of stain types

Net finance expense.  Net finance expense was £16m (2015: £33m).

Tax.  The effective tax rate was 23% (2015: 21%) and the tax rate on adjusted profit excluding the effect of exceptional items was 22% (2015: 20%). The effective rate in the year was reduced by 1% by the deferred tax effect of the enactment of a 1% reduction in the UK corporate tax rate in 2020.

Exceptional Items.  In 2016 a pre-tax exceptional charge of £367m (2015: £133m) was incurred, relating primarily to costs associated with the HS issue in Korea.  Further details of this charge can be found in Note 3 to this report.

Net working capital. During the year, inventories increased to £770m (2015: £681m), trade and other receivables increased to £1,623m (2015: £1,331m), and trade and other payables increased to £3,495m (2015: £2,948m). These increases were principally driven by a depreciation in the British pound during 2016. There was an improvement in net working capital to minus £1,102m (2015: minus £936m).  Net working capital as a percentage of net revenue is -11% (2015: -11%).

Cash flow.  Cash generated from operations was £2,951m (2015: £2,295m). Net cash generated from operating activities was £2,422m (2015: £1,784m) after net interest payments of £16m (2015: £31m) and tax payments of £513m (2015: £480m).

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 acquisitions or other strategic objectives. Free cash flow as a percentage of adjusted net income was 94% (2015: 89%).

Net debt at the end of the year was £1,391m (2015: £1,620m).  This reflected strong free cash flow generation, offset by the payment of dividends totalling £1,036m (2015: £926m), net share purchases of £723m (2015: £730m) and net M&A of £158m (2015: £10m). The Group regularly reviews its banking arrangements and currently has adequate facilities available to it.

Balance sheet.  At the end of 2016, the Group had total equity of £8,426m (2015: £6,906m), an increase of 22%.  Net debt was £1,391m (2015: £1,620m) and total capital employed in the business was £9,817m (2015: £8,526m).

This finances non-current assets of £14,569m (2015: £12,386m), of which £878m (2015: £730m) is property, plant and equipment, the remainder being goodwill, other intangible assets, deferred tax, retirement benefit surplus, available for sale assets and other receivables.  The Group has net working capital of minus £1,102m (2015: minus £936m), current provisions of £251m (2015: £229m) and long-term liabilities other than borrowings of £3,388m (2015: £2,652m).

The Group's financial ratios remain strong.  Return on shareholders' funds (net income divided by total shareholders' funds) was 21.7% on a reported basis and 25.6% on an adjusted basis (2015: 25.2% on a reported basis and 27.1% on an adjusted basis).

Dividends.  The Board of Directors recommends a final dividend of 95.0 pence (2015: 88.7 pence), to give a full year dividend of 153.2 pence (2015: 139.0 pence). The dividend, if approved by shareholders at the AGM on 4 May 2017, will be paid on 25 May to shareholders on the register at the record date of 18 April. The ex-dividend date is 13 April. The final dividend will be accrued once approved by shareholders.

Capital returns policy.  RB 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.  The Group has net debt of approximately £1.4bn. It is not possible to be definitive on future needs, but we consider that this provides the Group with appropriate liquidity. 

We intend to continue our current policy of paying an ordinary dividend equivalent to around 50% of adjusted net income.

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. Further details can be found in Note 8 to this report.

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. Further details can be found in Note 10 to this report.

In 2017, we expect macro conditions to remain challenging, and for a number of existing headwinds to persist in the first half.  We remain confident in the strength of our business and choices across Powerbrands and Powermarkets. 

We are targeting LFL net revenue¹ growth of 3% in 2017. 

For operating margin², we reiterate our medium term target of moderate margin expansion.

¹ at constant rates.

² Adjusted to exclude the impact of exceptional items.