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Healthier
Happier
Stronger
Reckitt Benckiser Group plc
Annual Report and Financial Statements 2012
Contents
1 Chairman’s Statement
2 Chief Executive’s Statement
10 Business Review 2012
18 Board of Directors and Executive Committee
19 Report of the Directors
22 Chairman’s Statement on Corporate Governance
24 Corporate Governance Report
30 Statement of Directors’ Responsibilities
31 Directors’ Remuneration Report
38 Independent Auditors’ Report to the members of
Reckitt Benckiser Group plc
39 Group income statement
39 Group statement of comprehensive income
40 Group balance sheet
41 Group statement of changes in equity
42 Group cash flow statement
43 Notes to the financial statements
75 Five-year summary
76 Parent Company – Independent Auditors’ Report
to the members of Reckitt Benckiser Group plc
77 Parent Company balance sheet
78 Notes to the Parent Company financial statements
84 Shareholder information
Chairman’s Statement
Strong Performance as Refreshed
Strategy Delivers
I am pleased to report that our
Company delivered a strong
performance in 2012, with results
coming both from the world’s
emerging markets and also a return to
growth in the developed markets of
Europe and North America.
The Company announced a refreshed
strategy last year, which sees it focusing its
brand portfolio on the faster growth and
higher margin consumer health and
hygiene categories, and redeploying its
resources to deliver a more evenly balanced
revenue stream from emerging and
developed markets. The Company’s results
for 2012 are a testament to the quality of
this strategy and the speed with which
management has moved in support of it.
Like-for-like1 sales (net revenue) growth
was up +5% (both excluding and including
RB Pharmaceuticals), adjusted operating
profit2 grew +6% and adjusted diluted
earnings per share2 was 264.4p which is
+7% versus 2011.
Acquisitions, Disposals and Cash
The Company made some strategic
acquisitions in support of the health and
hygiene focus, strengthening the
Company’s health care capabilities in Latin
America and China. Additionally, the
Company made its first move into the
largest consumer health care category in
the world with the acquisition of Schiff
Nutrition International, Inc. (Schiff) and
its leading US brands in the vitamins,
minerals and supplements market. There
were also a few disposals of non core
assets. Net debt at the end of 2012, after
paying for dividends, net acquisitions and
organisation restructuring, stood at
£2,426m (2011: £1,795m).
Your Board proposes an increase in the final
dividend of +11%, taking it to 78p per
share, and bringing the total dividend for
2012 to 134p (which is +7% versus 2011).
Social Responsibility
The Company reached its goal of reducing
its carbon emissions per dose of product
by 20% several years ahead of plan.
It has now set a further goal for 2020
of reducing this by a further third,
reducing its water impact by a third
and ensuring that a third of sales comes
from more sustainable products than
previously existed.
Additionally the Company has increased
its support of Save the Children by 60%
which has enabled a significant expansion
of their work in bringing health through
hygiene to many more vulnerable children,
especially those under five years of age.
2
0
0
0
Adjusted net income £m
Board of Directors
Since the Annual General Meeting (AGM)
held 3 May 2012 we have changed the
Company’s Chief Financial Officer (CFO).
On 12 February 2013 Liz Doherty stepped
down from the Board and Adrian Hennah
was appointed. The Board’s many thanks
go to Liz for her contributions to Reckitt
Benckiser (RB) during her tenure, and we
welcome Adrian to the Company. Adrian
was previously CFO of Smith & Nephew
PLC, the international medical devices
company. Adrian is also a Non-Executive
Director of Reed Elsevier. There have been
no other Board changes.
2010
1,938*
1,418*
1,143*
1,661*
1,818*
2009
2012
2011
2008
1
6
0
0
1
2
0
0
8
0
0
4
0
0
0
*adjusted to exclude the impact of exceptional items and
tax effects thereon
The Board conducted its regular reviews
of the Company’s brands, geographic area
and functional performance together with
detailed reviews of its human resources.
The Board also completed its annual
assessment of corporate governance
including Board performance, corporate
responsibility, and reputational and
business risk.
AGM Resolutions
The resolutions, which will be voted
upon at our AGM of 2 May 2013 are
fully explained in the Notice of Meeting.
I encourage all our Shareholders to attend
our AGM.
Thanks
On behalf of the Board, I would like to
thank Rakesh Kapoor and his leadership
team for their excellent management of
the business and nurturing of its employee
culture that drive such excellent results
both commercially and in corporate
responsibility. Many thanks go to our
employees globally for their achievement
in delivering such a strong year for RB.
Adjusted net income £m
1,938*
1,661*
1,818*
2
0
0
0
1
6
0
0
1,418*
4
0
0
8
0
0
1
2
0
0
1,143*
My thanks go also to my Board colleagues
for their continued commitment and
guidance. The Board is grateful for the
support of our Shareholders and we
thank you for your ongoing confidence
in our Company.
2008
2009
2012
The strategy the Company is pursuing
*adjusted to exclude the impact of exceptional items and
is, in your Board’s view, the right one
tax effects thereon
and the management team has our
utmost confidence.
Diluted earnings per share pence
2011
2010
0
3
0
0
2000
Adrian Bellamy Chairman
264.4*
247.1*
1600
1200
157.8*
226.5*
194.7*
1 Like-for-like growth excludes the impact of
800
changes in exchange rates, material acquisitions
and disposals.
2 Adjusted results exclude exceptional items.
400
0
0
2008
2009
2010
2011
2012
*adjusted to exclude the impact of exceptional items and
tax effects thereon
2
4
0
1
8
0
1
2
0
6
0
Adjusted net income £m
Diluted earnings per share pence
Declared dividend per share pence
134.0
125.0
115.0
100.0
2009
2010
2011
2012
1
1
5
0
1
2
0
9
0
6
0
3
0
0
300
240
180
80.0
120
60
0
2008
150
120
90
60
30
0
3
0
0
2
4
0
1
8
0
1
2
0
6
0
0
1
5
0
1
2
0
9
0
6
0
3
0
0
2
0
0
0
1
6
0
0
1
2
0
0
8
0
0
4
0
0
0
3
0
0
2
4
0
1
8
0
1
2
0
6
0
0
1
5
0
1
2
0
9
0
6
0
3
0
0
1,938*
1,818*
1,661*
1,418*
1,143*
2008
2009
2010
2011
2012
*adjusted to exclude the impact of exceptional items and
tax effects thereon
Diluted earnings per share pence
264.4*
247.1*
226.5*
194.7*
157.8*
2008
2009
2010
2011
2012
*adjusted to exclude the impact of exceptional items and
tax effects thereon
Declared dividend per share pence
134.0
125.0
115.0
100.0
80.0
2008
2009
2010
2011
2012
2000
1600
1200
157.8*
800
400
0
2008
264.4*
247.1*
226.5*
194.7*
2009
2010
2011
2012
*adjusted to exclude the impact of exceptional items and
tax effects thereon
Declared dividend per share pence
134.0
125.0
115.0
100.0
2008
2009
2010
2011
2012
300
240
180
80.0
120
60
0
150
120
90
60
30
0
2000
1600
1200
800
400
0
300
240
180
120
60
0
150
120
90
60
30
0
2012 Chief Executive’s Statement – Results Highlights
Outperformance continues
RB has once again met or exceeded its targets.
• Like-for-like net revenue grew +5% to £9,567m.
• Excellent growth in emerging market areas of LAPAC1 & RUMEA1;
• ENA1 performance improved progressively and now back to growth
over the year. The last quarter was +3% growth like-for-like.
• Health & hygiene Powerbrands Durex, Gaviscon, Strepsils, Dettol,
Lysol, Harpic and Finish led the growth.
• Suboxone film reached 64% volume share of the US market.
• Operating margins2 increased by +70 bps, ahead of target.
• Adjusted net income2 grew +7% (+10% constant); adjusted
diluted earnings2 per share of 264.4p (+7%).
• Strong cash flow took net debt to £2,426m after dividends,
acquisitions and restructuring.
These results are very encouraging and give us confidence that we
have the right business strategy, the right organisation, the right
£9,567m
our net revenue in 2012
£2,570m
growth platforms and the right culture to deliver our long-term goals.
adjusted operating profit in 2012
2013 targets
• Net revenue growth of 5-6% at
Medium-term KPIs
• Health and hygiene revenues
constant exchange rates, excluding
RB Pharmaceuticals.
to be 72% of core3 net revenue
by end of 2015.
• Maintain operating margin2,
excluding RB Pharmaceuticals.
For 2012 our health and hygiene
revenues were 68% of our core3
geographic portfolio (67% in 2011)
and LAPAC and RUMEA were 44% of
our core3 geographic portfolio (42%
in 2011). This strategic reshaping of
our portfolio is ahead of schedule
and we have accelerated two of our
medium-term KPIs from 2016 to 2015.
• LAPAC and RUMEA combined to be
equal in net revenue size to ENA by
end of 2015.
• Achieve 200 bps pa of net revenue
growth on average above our
market growth.
• Achieve moderate operating
margin expansion (excluding
RB Pharmaceuticals).
1 Latin America, North Asia, South East Asia, and
2 Adjusted to exclude the impact of exceptional items
Australia and New Zealand (LAPAC), Russia and CIS,
Middle East, North Africa, Turkey and Sub-Saharan
Africa (RUMEA), Europe and North America (ENA)
3 Core includes health, hygiene, home and
portfolio brands
2
2
2012
2012
Chief Executive’s Statement
Healthier lives
Happier homes
Stronger business
2012 was a seminal year for RB. We announced our new vision
and purpose, and laid out a strategy to deliver our second decade
of market outperformance.
HEALTH
Our vision is a world where people are healthier and live better.
HYGIENE
HOME
Our purpose is to make a difference by giving people
innovative solutions for healthier lives and happier homes.
To do something, we need to stand for something. Our vision
and clear purpose inspires everything we do. In the fast changing,
consumer-led global world we live in, our purpose inspires our
people to deliver health, hygiene and home products of superior
quality, value and convenience, and creates demand for suppliers
who rely on our success, and employment and wealth creation
across the more than 60 countries in which we operate. Our
purpose also inspires us to work in over 40 countries with mums,
children and health-workers educating them on practices to
improve hygiene and so health.
The success of our strategy enables us also to give more
to society by improving the sustainability of our products
and by funding life-saving health and hygiene programmes
through our global partnership with Save the Children.
In the early part of 2012, we rapidly reorganised ourselves
and our resources behind our new strategy. As a result,
we made very good progress across a number of areas.
Rakesh Kapoor Chief Executive
2012
3
Chief Executive’s Statement – RB Strategy
Powerbrands focus
A key pillar of RB’s strategy is to deliver
outperformance – growth ahead of
the rate prevailing in our markets –
through a disproportionate focus on 19
Powerbrands in the health, hygiene
and home categories.
As an example, even in the world’s
most developed and highly penetrated
markets, dishwashers are present in
less than 65% of homes, compared
with washing machines which are
present in well over 90%.
Representing the potent core of our
total portfolio, these Powerbrands are
in health: Durex, Gaviscon, Nurofen,
Mucinex, Scholl and Strepsils. In
hygiene: Bang, Clearasil, Dettol, Finish,
Harpic, Lysol, Mortein and Veet. In
home: Air Wick, Calgon, Vanish and
Woolite. And French’s in Food. Mostly
they are the global No.1 or No.2 brand
in their category.
In 2012 our Powerbrands together
delivered 70% of our net revenue.
All our Powerbrands have significant
potential for future growth through
increased penetration, consumption
and category expansion within markets
where they already have a presence.
In emerging markets the opportunities
are even greater. The Powerbrands
also have potential for growth through
rollout into countries where we do not
yet have a Powerbrand presence. On
average, our Powerbrands are present
in only 50 markets of the near 200
available. That represents a sizeable
opportunity for long-term growth.
Within our three categories it is health
and hygiene that take precedence. They
are faster growing across the world and
offer higher margin opportunities. Our
medium-term goal is to grow our health
and hygiene categories faster so they
become 72% of our core by 2015. By
the end of 2012 they represented 68%.
Good health is the key to happiness.
Hygiene is the foundation of
healthy living.
Home is the centre of family life.
Food French’s remains an
important Powerbrand and
continues to be run as a
broadly stand-alone business.
Better
Finish has had a very strong year in the US with a gain of
+190 bps of market share in 2012. This was driven by the
hard-hitting ‘Finish Revolution’ campaign celebrating the
consumer momentum as millions switched to Finish after
experiencing the superior results it provided.
4
2012
Powermarkets focus
AREAS
Another key pillar of our strategy is
A FOCUS ON POWERMARKETS
Our brands are marketed and sold in
nearly 200 markets across the world,
but we know that the vast majority of
our global growth will come from a
few key areas.
We have identified 16 Powermarkets,
in both developed and emerging
countries.
Here we have a strong presence and an
ability to win.
A FOCUS ON EMERGING MARKETS
We see seven major consumer clusters,
each of which have Powermarkets
within them. Consumers within these
clusters have significant similarities
in how they use, choose and buy
consumer goods and so it makes sense
to group them together.
We take a consumer-centric view of
the world and we organise ourselves
around our seven consumer clusters.
LAPAC
North Asia
South East Asia
Australia & New Zealand
Latin America
RUMEA
Russia & CIS
Middle East, North Africa & Turkey
Sub-Saharan Africa
ENA
North America
Central Europe
Northern Europe
Southern Europe
Western Europe
The first three of these consumer
clusters are the consumers of Latin
America, North Asia and South Asia
– which we group together into one
organisational structure named LAPAC.
The next three clusters are Russia and
CIS, Middle East and North Africa,
and sub-Saharan Africa – and we
group these three together into one
organisational structure RUMEA. The
seventh consumer cluster comprises
Europe and North America. Across these
two markets there are many similarities
in behaviours, in brand development
and in how the retail trade is organised.
Hence ENA forms the third geographic
organisational structure.
Our new medium-term goal is to grow
the emerging market areas of LAPAC
and RUMEA faster so that by 2015 they
together represent 50% of our core
revenues, equal in size to ENA. At the
end of 2012 they represented 44%.
Closer
An innovative crowd-sourcing global campaign
by Durex attracted 1.4 million users in six weeks
and resulted in a global pack design. The Naked
Box campaign has won Gold at an award festival
in China.
5
Chief Executive’s Statement continued
Stronger business
INVESTMENT IN INNOVATION &
BRAND EQUITY
Delivering innovative products that meet
consumer needs is a cornerstone of
our success. We invest significantly in
bringing new ideas to consumers.
We have one of the highest
innovation rates within the industry.
As important as providing great
innovations that give more benefits and
convenience to consumers is investing
in education and communication on
how to get the most from our products.
It forms part of what we call brand
equity investment (BEI).
This also comprises advertising in both
traditional and digital media, and also
investment in extensive consumer and
professional education and information
campaigns, such as new mother
programmes, in-school hand washing
and hygiene programmes, pharmacist
education programmes and health
professionals development programmes.
Combined, these activities build the
equity of, and trust in, our brands.
This enables us to enjoy enduring
relationships with our consumers.
GENERATING SHAREHOLDER VALUE
We invest significantly behind our
brands and innovation. Through our
new focus on health and hygiene, and
by maintaining relentless control over
costs, we have created opportunities
to expand our gross margins – already
high within the industry. This drives
the virtuous cycle of making increased
funds available for reinvestment and
growth, ultimately flowing through to
improved profits.
We run a lean and fast-moving
organisation that can convert
profit into cash efficiently through
both cash and net working
capital management.
In 2012, we also returned cash to
Shareholders through the buy back of
14,991,643 of our shares.
M&A
Our strategy is firmly organic growth.
We consider acquisitions where
they offer a strategic opportunity to
further accelerate growth and create
Shareholder value. These might be high-
potential brands in adjacent categories
or companies which strengthen our
existing platform in a certain market.
In 2012 we acquired Schiff. This
gave us a powerful entry into the
large and growing global vitamins,
minerals and supplements market.
This is one of the largest consumer
health care categories in the world and
we now have a strong platform in the
US – the world’s largest market in this
category – from which to grow in this
new area.
We also used M&A to strategically
strengthen our health platforms and
capabilities in the emerging markets
of China and Brazil.
We acquired China’s Oriental Medicine
Company Limited, a manufacturer of
traditional Chinese sore throat products
and entered into a collaboration
agreement with Bristol-Myers Squibb in
Latin America.
Fitter
With the acquisition of Schiff
in the US we have entered the
large and growing global vitamins,
minerals and supplements market.
This is one of the largest consumer
health care categories in the world.
6
2012
CATEGORY KPI
72%
of core1 Company net revenues from
health and hygiene by end of 2015
GEOGRAPHIC KPI
50%
of core1 Company net revenues
from LAPAC and RUMEA (equal
to ENA) by end of 2015
NET REVENUE GROWTH KPI
200bps
a year, on average, ahead of
the global market growth across
RB’s categories and geographies
1 Core is health, hygiene, home and
portfolio brands.
RB PHARMACEUTICALS
RB Pharmaceuticals, as a pioneer of
innovative prescription treatments
for chronic diseases of addiction,
introduced Suboxone sublingual film in
2010. The popularity of the sublingual
film meant that by the end of 2012
it had a 64% market share. The
sublingual film has patent protection
until at least 2020. Based on the
enhanced benefits of the sublingual
film and the significant reduction in
unintended paediatric exposure due to
its unit-dose child resistant packaging,
RB Pharmaceuticals are voluntarily
withdrawing their Suboxone tablets
from the US market on 18 March 2013.
TALENTED, GLOBAL EMPLOYEES
Our strategy is supported by hugely
talented and driven people from around
the world. Their diverse backgrounds
and mix of nationalities foster creativity
and a culture of innovative thinking in
every market. We have a highly geared,
performance-driven remuneration
structure for our leadership team.
Our people take a fresh view of
what is possible in a market, what
value they can create for consumers
and how they can deliver healthier
lives and happier homes.
Then they take often radically different
approaches to deliver it. We grant them
the freedom to operate, to decide and
to create; entrepreneurship is in their
blood. This is combined with a high
drive for achievement, a strong sense
of ownership and a willingness to
partner with anyone who can help
deliver for consumers.
My thanks go to all our employees and
contractors all over the world who have
contributed to our success in 2012.
Smarter
Dettol South Africa changed the game of hand
washing which was dominated by soap bars by
successfully introducing the automatic liquid hand
washing system No-Touch. The launch strengthened
the No.1 position of Dettol in the category.
2012
7
Chief Executive’s Statement continued
Our wider responsibilities
Our focus on performance applies as
much to our wider societal responsibility
as it does to our financial parameters.
In 2012, in line with our vision and
purpose, we announced our new
sustainability strategy, having achieved
our ambitious carbon reduction target
significantly earlier than originally
planned. In 2011 alone, our carbon
reductions took the equivalent of
2.4m cars off the road. We planted an
additional 371,000 trees in 2012 keeping
our manufacturing effectively carbon
neutral, and were recognised as a leader
in the Carbon Disclosure Project.
For 2020 we have set ourselves
another stretch target of reducing
our water impact by a third,
reducing our carbon emissions
per dose of product by a further
third and ensuring that a third of
our net revenue comes from more
sustainable products.
We are also focused on reducing child
mortality. Our global partnership with
Save the Children sees us delivering
funds, products and education
programmes to reduce the number of
children who die under the age of five.
In 2012, we gave £3.5m supporting
Save the Children health and hygiene
programmes in over 40 countries,
up from £2.2m in 2011. Since our
partnership began in 2003 we have
reached nearly 900,000 children
and families.
In 2013, we are expanding our sights.
We are now partnering with Save
the Children to deliver a vision of
stopping preventable deaths from
diarrhoea – one of the world’s
biggest killers of children under five.
Confidence in the future
Despite continued tough trading conditions in many
parts of the world, RB is confident about 2013 and has set
a target of achieving 5-6% net revenue growth at constant
exchange rate, excluding RB Pharmaceuticals. I am confident
that our vision, purpose and strategy will continue
to take us on the right path for continued
outperformance in the years ahead.
Rakesh Kapoor Chief Executive
Stronger
Our Save the Children partnership helped
fund health and hygiene programmes in
40 countries, and reached nearly 325,000
children and families in 2012.
8
2012
Annual Report and
Financial Statements 2012
9
Report of the Directors2012 Business Review 2012
This review for the financial year ended
31 December 2012 conforms to the
Business Review required under the
Companies Act 2006 (2006 Act). It should
be read in conjunction with the rest of
this Annual Report, the Group’s latest
Sustainability Report and the Group’s
website (www.rb.com).
This review details the performance of the
business under the new geographical
segments and category structure in place
during 2012. Prior periods have been
restated to enable comparability.
NATURE, OBJECTIVES AND STRATEGIES OF
THE BUSINESS
RB is one of the world’s leading manufacturers
and marketers of branded products in health,
hygiene and home, selling a comprehensive
range through over 60 operating companies
into nearly 200 countries. In 2012, nearly
three-quarters of net revenue was generated by
brands that are either market leader or ranked
second in their markets.
RB’s vision is a world where people are healthier
and live better. RB’s purpose is to make a
difference by giving people innovative solutions
for healthier lives and happier homes.
In summary the strategy of the business
pursued in 2012 was:
• Target health and hygiene Powerbrands:
Continue the successful Powerbrands
strategy but increase focus and investment
on higher growth, higher margin health and
hygiene brands, in addition to home.
• Target fast growing markets: Prioritise 16
Powermarkets for disproportionate
investment and growth. A significant number
of these markets are emerging markets.
• New organisation structure: Redeploy
resources to increase focus on, and
investment in, emerging markets.
• Target medium-term operating margin
expansion: Continue the strategy of steady
margin expansion whilst increasing investment
behind brand equity building activities.
RB set three medium-term (five-year) key
performance indicators (KPIs) in relation to the
new strategy in 2012, with two of these now
accelerated as discussed on page 2 of the Chief
Executive’s Statement.
1) 200 bps of net revenue growth above
market growth on average each year.
2) Emerging market areas to be 50% of ‘core’
net revenue by 2016.
3) Health and hygiene net revenue to be 72%
of ‘core’ net revenue by 2016.
The Group also sought to complement these
objectives with the exit of certain non core
businesses and targeted strategic and
financially compelling acquisitions.
In February 2012 the Group announced its
intention to undertake a strategic review of its
private label business. This resulted in the
withdrawal from the business during 2012.
10
In March 2012 the Group announced the sale
of its non core Paras personal care business.
on a reported basis; on an adjusted diluted
basis, the growth was +7% to 264.4p.
The Group announced the acquisition of
Schiff in Q4 2012. This transaction provides
a powerful entry into the large and growing
global vitamins, minerals and supplements
(VMS) market. This market is the largest
consumer health care sector in which the
Group operates. It is an ideal addition to
RB’s new strategic focus in global health and
hygiene, and provides immediate scale in VMS
in the US.
PERFORMANCE OF THE BUSINESS IN 2012
The results include the business of Schiff from
14 December 2012, the date of acquisition.
Where appropriate, the term ‘like-for-like’
describes the performance of the business on a
comparable basis, excluding the impact of
major acquisitions, disposals, discontinued
operations and foreign exchange.
Where appropriate, the term ‘base business’
includes ENA, LAPAC, RUMEA and Food. Base
business excludes RB Pharmaceuticals.
Where appropriate, the term ‘core’ includes
health, hygiene, home and portfolio brands.
Where appropriate, the term ‘adjusted’
excludes the impact of exceptional items.
2012 net revenue increased at +4% at constant
exchange rate (constant), to £9,567m, with
like-for-like growth of +5% for the Group and
+5% like-for-like for the base business.
Total gross margin increased by +50 bps to
57.9%, benefiting from cost optimisation
programmes, pricing and positive mix.
Investment behind brand equity building
activities (BEI) was 12.7% of net revenue
(excluding RB Pharmaceuticals), 70 bps higher
than the previous year. Within this, pure media
spend rose +9% (constant) to a level of 11.7%
of net revenue (excluding RB Pharmaceuticals).
On an adjusted basis, operating profit was
ahead +3% (+6% constant) to £2,570m, with
the adjusted operating margin +70 bps to
26.9% due in part to the early achievement of
planned cost savings. Operating profit as
reported was £2,435m, +2% higher than last
year (+5% constant). The Group took an
exceptional pre-tax charge of £135m in respect
of material one-off acquisitions and
restructuring. For the base business, adjusted
operating profit rose +3% (+7% constant) to
£2,034m, equating to a +70 bps improvement
in the operating margin.
Net finance expense was £15m (2011: £19m).
Strong free cash flow generation during the
year was offset by the payment for the
acquisition of Schiff in December, and share
repurchases of £535m. The effective tax rate
was 24% (2011: 26%), the decrease was due
to a 2% reduction in the UK corporate tax rate,
associated deferred tax benefits, and the
favourable settlement of certain tax cases.
Net income attributable to Shareholders was
£1,829m, an increase of +5% (+8% constant)
versus 2011; on an adjusted basis, net income
was up +7% (+10% constant). Diluted
earnings per share of 249.5p was +5% higher
STRUCTURE OF GROUP OPERATIONS
The Group structures its business through a
matrix of a centralised category development,
global sales, supply and support functions
(finance, human resources and information
services), combined with three area
organisations: ENA, LAPAC and RUMEA,
plus Food and RB Pharmaceuticals. The
central category development function is
responsible for Powerbrand strategies, brand
equity programmes and best practices, and
new product development (including research
and development (R&D) and consumer and
market research), for implementation by the
area organisations.
The supply function is responsible for all
procurement (raw and packaging materials and
services), production and logistics globally, and
is directly responsible for the operation of the
Group’s 45 production facilities worldwide.
Facilities are located in Europe (16 facilities) and
North America (six). The remaining facilities
spread across Asia (16), Latin America (four),
and Africa Middle East (three) include a small
number of facilities in higher risk labour and
social environments.
Information services is responsible for the
Group’s global systems infrastructure and
global systems, including the Group’s enterprise
resource planning (ERP) systems.
SEGMENTAL PERFORMANCE AT CONSTANT
EXCHANGE RATES
The three geographical areas are
responsible for local execution of marketing
and sales programmes:
ENA. This area covers the regions of North
America, Northern Europe (UK, Ireland and
Scandinavia), Central Europe (Germany, Austria,
Switzerland, Poland, Hungary, Czech Republic,
Slovakia, Adriatics), Southern Europe (Italy,
Greece, Romania) and Western Europe (France,
Spain, Portugal, Netherlands, Belgium). 2012
total net revenue was £4,678m, with like-for-
like growth of +1%. We continue to witness
difficult market conditions in many parts of
Europe. Despite this the new organisation
delivered a consistently improving performance
through the year, supported with higher levels
of BEI. Additionally, the second half witnessed
a higher incidence of flu than in the
comparable period.
Growth in our health platform was driven by
Durex, Gaviscon, Mucinex and Strepsils.
Hygiene brands of Dettol, Lysol and Finish
performed strongly, particularly in Europe
behind Dettol No-Touch, and in the US behind
Finish Quantum and All-in-1 gel packs and
tablets. In the home category, Air Wick
achieved good growth in the second half driven
by a strong performance from the newly
launched Filter & Fresh and Black Edition candles.
Adjusted operating profit was £1,156m, an
increase of +3% (constant). The adjusted
operating margin increased +80 bps, with
increased BEI more than offset by gross margin
and fixed cost improvements. A large part of
the improvements arose from the early
2012 achievement of planned cost savings. This
has brought forward some of the planned cost
savings originally targeted for 2013.
the opioid-dependent population. In the US,
Suboxone lost the exclusivity afforded by its
orphan drug status on 8 October 2009.
LAPAC. This area covers the markets of Latin
America (including Brazil, Mexico, Chile,
Argentina, the Andean Pact and Central
America), North Asia (China, Korea, Japan,
Taiwan, Hong Kong), South East Asia (India,
Malaysia, Thailand, Singapore, Philippines,
Indonesia, Sri Lanka) and Australia and
New Zealand.
2012 total net revenue increased to £2,327m,
with like-for-like growth of +11%. Growth
came from Latin America, North Asia and South
East Asia, driven by distribution expansion,
innovation and increasing penetration. In
health, all Powerbrands grew, with
exceptionally strong performances from Durex
in China, Scholl in Japan, Paras brands in India
and Gaviscon roll outs in a number of markets.
In hygiene, Dettol, Lysol, Harpic and Veet
delivered strong growth from initiatives such as
Dettol Daily Care and Re-energize, and Power
Plus in Harpic. Vanish and Air Wick performed
well in the home category.
Adjusted operating profit increased +17% to
£464m. Adjusted operating margin was +100
bps higher at 19.9%. Increased investment
behind BEI was more than offset by good
gross margin, volume leverage and fixed
cost containment.
RUMEA. This area covers the regions of Russia
and CIS, Middle East, North Africa, Turkey and
Sub-Saharan Africa.
2012 net revenue of £1,404m was ahead
+8% on like-for-like basis (+7% total), driven
by strong growth in Russia and CIS. In health,
growth was driven by Durex, Gaviscon, and
Strepsils. Hygiene Powerbrands Dettol, Finish,
Harpic and Veet performed particularly well
supported by initiatives such as Dettol Daily
Care and Re-Energize. Air Wick performed well
in the home category with growth driven by
Freshmatic and Aqua Mist.
The second half saw the upscheduling of
certain Nurofen products in Russia, an increased
promotional environment and some operational
and socio-political challenges in certain
markets. These headwinds will continue
through 2013 but we remain confident about
the underlying strength of the business.
Adjusted operating profit increased by +3% to
£290m. This resulted in a -80 bps decline in the
adjusted operating margin to 20.7%. This was
due to adverse FX impacting gross margin and
increased investment in both BEI and the new
area structure, to support the business and to
drive future growth.
The Group also has two non core businesses:
RB Pharmaceuticals and Food.
Pharmaceuticals. RB Pharmaceuticals is
responsible for the development of the Group’s
Subutex and Suboxone prescription drug
business. Both products are based on
Buprenorphine for treatment of opiate
dependence. Suboxone is a more advanced
product compared to Subutex, as it has
substantially better protection against abuse by
On 31 August 2010, the Group announced
that it had received approval from the US Food
and Drug Administration for its New Drug
Application to manufacture and market
Suboxone sublingual film. Suboxone sublingual
film has been developed through an exclusive
agreement with MonoSol Rx, utilising its
proprietary PharmFilm® technology, to deliver
Suboxone in a fast-dissolving sublingual film.
As with all prescription drugs, the protection of
the business has a finite term unless replaced
with new treatments or forms.
RB Pharmaceuticals recently announced its
voluntary discontinuation of Suboxone tablets
in the US due to increasing concerns with
paediatric exposure. The Group has recently
been made aware that two manufacturers have
received approval to produce generic Suboxone
tablets in the US. The approval of generic
tablets has been anticipated since the loss of
orphan status in October 2009. Whilst the
Group remains confident in the success of its
patient-preferred Suboxone film, we do expect
that increased price pressure will lead to a
material reduction in sales revenue in the US.
2012 net revenue increased +10% to £837m.
Growth came from continued strong volume
growth in the US. This was offset by dilution
from the increased film penetration, which is
a lower priced product, and government
price reductions in a number of European
markets. Conversion from tablets to film in
the US continued to increase with market
volume share at the end of 2012 of 64%, up
from 48% at the end of 2011, creating a
significantly more sustainable business.
Operating profit increased +3% (constant) to
£536m. The operating margin was down -400
bps to 64.0%, due to lower margins of the film
variant, downward pricing pressure in Europe,
and second half increase in BEI for advertising
and marketing programmes to increase patient
awareness about the film and treatment. We
also increased investment in the clinical
pipeline. We expect this gradual increase in
investment to continue into 2013 and
beyond as we build a strong, sustainable
growth business.
Food. The Group owns a largely North
American food business, the principal brands of
which are the Powerbrand French’s Mustard
(the No.1 mustard), and Frank’s Red Hot Sauce
(the No.1 hot sauce and wing sauce in
North America).
2012 net revenue increased +2% to £321m
underpinned by continued growth in French’s
Mustard and Frank’s Red Hot Sauce. The
second half was flat due to weaker US market
conditions and increased private label activity,
particularly around French’s Fried Onions. Our
core French’s Mustard and Frank’s Red Hot
franchises remain strong.
Operating margins fell by -80 bps to 28.7%
due to adverse mix and input costs.
THE GROUP’S BRAND PORTFOLIO, MARKET
POSITION AND PERFORMANCE
The Group benefits from many very strong
market positions for its brand portfolio and has
leading positions in selected health, hygiene
and home categories. These positions derive
from the strength of the Group’s leading
brands, described as Powerbrands, which are
the flagship brands in the Group’s three major
categories and on which the Group focuses the
majority of its efforts and investment. The
Group also has other portfolio brands which
play a role as builders of scale in local markets.
These leading positions include:
Health
The health category consists of products that
relieve or solve common health problems.
• No.1 worldwide in medicated sore throat
products with the Powerbrand Strepsils.
• No.1 worldwide in condoms for both safe
and more pleasurable sex, with the
Powerbrand Durex.
• No.2 worldwide in cold and flu (including
decongestants) with the Powerbrand Mucinex.
• Leading positions in analgesics and upper
gastro-intestinal products in Europe and
Australia with the Powerbrands Nurofen
and Gaviscon.
• Leading positions in footcare and comfort
footwear in many markets outside North
America and Latin America, with the
Powerbrand Scholl.
• The Group also has local leading positions
in denture care, dry skin care and cold and
flu products.
2012 Results excluding RB Pharmaceuticals
In light of the announcement of generic competition to Suboxone in the US, the Group provides
the following information relating to the performance of the business in 2012 excluding
RB Pharmaceuticals.
RB ex RB
Pharmaceuticals
%
£m
RB
Pharmaceuticals
%
£m
Net revenue
Adjusted operating profit
Adjusted operating margin
8,730
2,034
+5%*
+7%**
+23.3%
837
536
+10%*
+3%**
64.0%
* like-for-like at constant exchange rates ** at constant exchange rates
£m
9,567
2,570
Total RB
%
+5%*
+6%**
+26.9%
11
2012
Business Review 2012 continued
Net revenue increased to £2,068m, with
like-for-like growth of +6%. Higher incidences
of cold and flu in Q4 drove improved
performances of our seasonal brands Mucinex
and Strepsils. The non-seasonal Powerbrands
performed well particularly Durex, Paras brands
and Gaviscon. Growth in Nurofen was
impacted by upscheduling of certain products
in Russia. New initiatives such as Performax
Intense condoms, plus increased distribution in
China, drove Durex growth, and the roll out of
Double Action in a number of emerging markets
strengthened performance from Gaviscon.
Hygiene
• No.1 worldwide in antiseptic liquids with the
Powerbrand Dettol.
• No.1 worldwide in depilatory products with
the Powerbrand Veet.
• No.1 worldwide in automatic dishwashing
(products used in automatic dishwashers)
with the Powerbrand Finish.
• No.2 worldwide in pest control with the
Powerbrand Mortein, the Group’s
international brand, supported by local
brand franchises.
• No.3 worldwide in acne treatment with the
• No.1 worldwide in fabric treatment (products
to remove stains from clothes, carpets and
upholstery) with the Powerbrand Vanish
around the globe, and Resolve/Spray ‘n Wash
in North America.
• No.1 worldwide in water softeners
(products to prevent limescale build-up on
washing machines and laundry) with the
Powerbrand Calgon.
• No.2 worldwide in garment care (laundry
cleaning products for delicate garments) with
the Powerbrand Woolite.
Net revenue increased to £1,966m with
like-for-like growth of +2%. Growth came from
Vanish where there has been excellent growth
in a number of emerging market countries,
combined with more stable market shares in
ENA where we have lapped competitive entries.
Growth was also driven by Air Wick which
produced a good performance behind
Freshmatic, candles and ‘Flip & Fresh’.
Portfolio
• The Group has a number of local market
positions in laundry detergents and fabric
softeners (for example, in Spain, Italy, certain
East European markets and Korea).
Powerbrand Clearasil.
• The Group also had a small private label
• No.1 worldwide in the overall surface care
category due to leading positions across
disinfectant cleaners, non-disinfectant
multipurpose cleaners, lavatory care,
speciality cleaners and polishes & waxes.
• No.1 worldwide in disinfectant cleaners
(products which both clean and disinfect
surfaces, killing 99.9% of germs) with the
Powerbrand Lysol in North America and the
surface care products in the Dettol range
outside North America.
• No.2 worldwide in lavatory care with Lysol in
North America and the Powerbrand Harpic
across Europe and emerging markets.
• The Group has a number of local leading
brands in non-disinfectant multipurpose
cleaners, speciality cleaners and
polishes & waxes.
Net revenue increased +6% (like-for-like) to
£3,682m, driven by strong growth in the
Dettol/Lysol franchise across all three of our
areas. New initiatives such as Dettol Daily care
and Re-Energize in emerging markets and the
recently launched Lysol No-Touch Kitchen
System in ENA underpinned this strong
performance. Finish continues to perform well
in a number of markets globally, and
particularly in the US where Quantum and
All-In-1 tablets and gel packs have gained
market share. Veet delivered good growth
behind initiatives such as the Veet Easy Wax
Electrical Roll-On. Harpic enjoyed very strong
growth in LAPAC and RUMEA by driving
category penetration via consumer education
and increased distribution, backed by the
continued success of Harpic Power Plus and
Harpic Hygienic blocks in all geographies.
Home
• No.2 worldwide in air care with the
Powerbrand Air Wick.
12
business, which principally provided laundry
detergents to major multinational retailers in
Europe. This business was discontinued
during the year.
• No.2 worldwide in shoe care with such
brands as Cherry Blossom and Nugget.
Net revenue was £693m, with like-for-like
growth of +1%. This growth was reduced by
the withdrawal from the private label business
where all contracts have now been terminated.
THE INDUSTRY, MARKET AND COMPETITIVE
ENVIRONMENT
The health, hygiene and home care industry
is generally characterised by steady growth
in demand, with some variation due to
macro-economic factors, particularly in
developed markets. Some emerging markets
exhibit more volatile demand in reaction to
macro-economic factors. The principal drivers
of market growth in all markets are the rate
of household formation, growth in the level
of disposable income and demand for new
products that offer improved performance
or greater convenience.
The industry is intensely competitive, with a
comparatively small number of major
multinational competitors accounting for a
large proportion of total global supply. The
Group competes with numerous, well-
established, local, regional, national and
international companies, some of which are
very large and have significant resources with
which to establish and defend their products,
market shares and brands. Principal competitors
include FMCG companies like Clorox, Colgate-
Palmolive, Henkel, Procter & Gamble, SC
Johnson and Unilever, and such pharmaceutical
companies as Bayer, GlaxoSmithKline, Johnson
& Johnson and Novartis plus a number of
strong local industry companies.
RB competes in strongly branded segments by
focusing on its leading positions in higher
growth categories. It is typically the market
leader or a close follower, a position obtained
through its ability to introduce new products
(whether improved or newly developed),
supported by a rising and substantial level of
marketing and media investment. A lot of
competition in the industry focuses on
competing claims for product performance,
rather than price or terms. For this reason,
failure to introduce new products and gain
acceptance may significantly impact the
Group’s operating results. The Group must also
defend itself against challenges to its leadership
positions in markets: this requires significant
marketing expenditure and promotional activity.
The Group’s products also compete with private
label products sold by major retail companies.
The Group does this by focusing on delivering
innovative new products with real consumer
benefits, which private label typically does
not do. Consistent marketing investment
communicates the benefits of the Group’s
brands directly to consumers.
Technological change and product
improvement can be a key determinant of the
Group’s success. RB’s success in introducing
new and improved products stems from its
heavy focus on developing a pipeline of
product innovation. The Group maintains a
large category development organisation
(including market and consumer research, R&D
and marketing/sales best practice) to fuel the
innovation pipeline and share category success
factors and learnings. The Group invested
£171m in R&D in 2012 (2011: £153m). While
the Group believes R&D to be a key contributor
to innovative new products, it does not believe
it to be the dominant performance indicator for
innovation success.
INTERNATIONAL OPERATIONS AND
REGULATORY POSITION
The health, hygiene and home care industry is
heavily regulated by, inter alia, the European
Union (EU) and individual country governments
around the world. Ingredients, manufacturing
standards, labour standards, product safety,
marketing and advertising claims are all subject
to detailed and developing regulation.
The Group has a comprehensive set of policies
and procedures designed to govern its business
methods and practices and protect its
reputation. These cover, inter alia, a
comprehensive Code of Conduct, an
Environment Policy, a Global Manufacturing
Standard, a Product Safety Policy including
compliance with regulatory and product quality
requirements. Internal controls on
environmental, social, and governance (ESG)
matters and reputational risk are further
outlined in pages 14 to 16 of this Report.
RESOURCES
The major resources required by the business
are an adequate supply of the raw and
packaging materials consumed by the Group’s
products and the necessary funds for
developing new products and reinvestment in
advertising and promoting those brands. The
2012 other principal resource is management. The
Group considers that its primary raw materials,
such as bulk chemicals (including a number of
petrochemicals, plastics, pulp, metal cans etc),
are generally in adequate global supply. The
cost of these items fluctuates from time to time
but not at levels that seriously impinge on the
ability of the Group to supply its products or
generate profit. The Group is profitable and
cash generative. The Group believes that its
ability to reinvest in supporting and building its
brands is a significant competitive advantage.
Supply constraints do exist in the Group’s
supply chain from time to time. These normally
arise due to unexpected demand for new
products or the time delay involved in stepping
up production of new items to the levels
required internationally. The Group’s supply
chain is deliberately relatively well spread in
terms of geography and technology, such that
the reliance on any one facility is reduced.
However, there are a number of facilities that
remain critical to the Group’s supply chain,
where major interruption to normal working
could involve disruption to supply. The Group’s
suppliers are similarly deliberately well spread in
terms of geography and supplied items, but
there are nonetheless some risks to continuity
of supply arising from some specialised
suppliers both of raw materials and of third
party manufactured items.
The supply of strong management for the
Group remains more than adequate. This is
attributable to the Group’s culture and its
highly performance oriented remuneration
policy, based on paying for excellent
performance. The Group believes that its ability
to attract and retain the excellent management
it needs to continue its success depends
critically on this system. The Group trains and
develops its management pipeline through
formal training programmes focusing on three
areas – leadership skills, functional skills and
general skills – and through a deliberate policy
of training on the job. The Group has 23 formal
training modules for middle management and
Top400 international managers (Top400).
During 2012, the Group ran over 64 courses on
these modules, training over 933 people.
Management is international and is trained
through rotation in international postings both
in countries and in the Group’s central
functions. Succession planning is a critical
management discipline and is reviewed
annually (at least) by the full Board and the
Executive Committee.
The Group closely monitors and tracks its
Top400. This is the core management team of
the business and is a diverse group, consisting
of over 40 nationalities. Over 60% of the
Top400 is working in a country that is not their
original domicile, consistent with the Group’s
policy to develop a multinational management
team. Turnover within this Top400 group in
2012 was 8%, which the Group considers
satisfactory given the need to retain high-
quality management offset by the benefits of
refreshing the team with new talent. 2012 saw
57 promotions, 78 moves, and 27 external
recruits. The Group ended the year with a low
level of vacancies within the Top400 of 14, or
around 3% of the measured group.
materially adversely affect the Group’s ability to
deliver its strategic objectives is low.
There is a comprehensive set of policies
governing employment and employees to
ensure that the Group remains an attractive
employer. The Group is committed to the
principle of equal opportunity in employment;
no applicant or employee receives less
favourable treatment on the grounds of
nationality, age, gender, religion or disability. It
is essential to the continued improvement in
efficiency and productivity that each employee
understands the Group’s strategies, policies and
procedures. Open and regular communication
with employees at all levels is an essential part
of the management process. The Board
encourages employees to become Shareholders
and participate in the employee share
ownership schemes.
The Group relies on its brand names and
intellectual property. All of the Group’s major
brand names are protected by nationally or
internationally registered trademarks. The
Group also maintains patents or other protection
for its significant product formulations, designs
and processing methods. The Group
aggressively monitors these protections and
pursues any apparent infringements.
RELATIONSHIPS AND PRINCIPAL RISKS
The Group’s key external relationships are
broadly based with no single customer
accounting for more than 10% of net revenue
and the top ten customers accounting for less
than one quarter of net revenue. Although
these customers continue to become more
concentrated in their chosen markets, the
Group’s wide geographical spread and diversity
of product lines provides a natural balance.
Equally, the Group sources its raw and
packaging materials and finished goods from a
wide variety of predominantly international
chemical and packaging companies and
co-packers. No single supplier accounts for
more than 5% of cost of sales and the Group’s
global purchasing function balances the need
for competitive pricing with continuity of supply.
The Group’s brand portfolio is also broadly
based with the most significant Powerbrand
accounting for approximately 9% of net
revenue. Each brand in turn is founded on a
variety of appropriate technology platforms
which drive a steady stream of product
development. The individual brands are
self-supporting and independent of the RB
corporate brand, and each other. This reduces
the potential for any brand reputation damage
to impact across a broader front.
The financial stability of the Group is
supported by a low level of leverage, as
borrowings to finance acquisitions are paid
down through strong cash flows, and a stable
Shareholder base.
Given the combination of the financial strength
and geographic spread of the Group, its range
of brands and products, and its low level of
reliance on individual key customers and
suppliers, the Directors consider that its
exposure to specific events which would
The principal and specific risks that, in the
opinion of the Directors, pose the most
significant threat to the delivery of the Group’s
strategic objectives are as follows:
Market Risks
Competition, economic conditions and customer
consolidation may translate into increasing
pressure on pricing and promotion levels and
market growth rates, especially in Europe.
The Group seeks to mitigate this risk through
active category, brand and customer
relationship management programmes
supported by ongoing investment into new
product development.
The expiry of the Group’s exclusive licence
for Suboxone in the United States in 2009 and
the rest of the world in 2016 is likely to expose
the business to further competition from
generic variants.
The Group has developed a new and patented
sublingual film delivery method for this product
which partially mitigates the risk exposure to the
expected generic variant entry against tablets.
Operational Risks
Business continuity plans may prove insufficient
to protect the business in the face of a
significant and unforeseen supply disruption.
Suppliers of key raw and packaging materials,
co-packers of finished product and the Group’s
manufacturing facilities and key technologies
are risk assessed for their potential impact on
supply disruption for branded products.
Business continuity plans are in place
throughout the Group and major sites are
routinely and independently assessed towards
achievement of a highly protected site status.
Key senior management may leave the Group,
or management turnover increase significantly.
The Group structures its reward programme to
attract and retain the best people. The formal
succession planning process continues to evolve
with plans being reviewed and updated
regularly for key positions and individuals.
The combination of the Group’s recently
initiated strategic business reorganisation and
ERP programmes could result in sub-optimal
implementations and reduced focus due to
conflicting demands for management attention.
A governance structure has been put in place
to ensure that milestones are clearly set and key
objectives are tracked and followed up
appropriately. Senior business leadership and
professional programme management
resources have been appointed to help deliver
the programmes and ensure alignment and
coordination between the various workstreams.
Information technology systems may be
disrupted or may fail, interfering with the
Group’s ability to conduct its business.
The Group has disaster recovery plans in place
which are tested periodically. It also invests in
security measures and anti-virus software to
safeguard against this threat. Maintenance of
13
2012 Business Review 2012 continued
current systems throughout the execution of
the ERP programme implementation is an
ongoing priority.
Product quality failures or ingredient concerns
could potentially result in the undermining of
consumer confidence in the Group’s products
and brands.
The Group has a comprehensive set of policies,
processes and systems to manage and monitor
quality assurance, including an appropriately
resourced global quality audit team.
Regulatory decisions and changes in the legal
and regulatory environment could limit
business activities.
The Group has an ongoing Regulatory
Excellence programme, which continues to
make good progress. RB employs senior
regulatory and legal specialists at a Group,
regional and local level who are responsible for
setting policies and ensuring that all employees
are aware of, and comply with, both Group
policies and the laws and regulations relevant
to their roles.
Non-compliance with the 2011 UK Bribery Act.
A comprehensive prevention programme was
put in place in 2011, including the refreshing of
the Group’s Code of Conduct, the issuing of a
new anti-bribery policy to all employees and an
extension of the annual online training
undertaken by employees to include a
mandatory test on the new policy. This
programme has been built on and reinforced
through 2012.
If intensity or scale of acquisitions and disposals
activity distracts management focus or
undermines the control environment.
The 2010 SSL acquisition has been fully and
successfully integrated. Recent acquisitions and
disposals have been relatively smaller, largely
focused on single categories/countries and at
a pace to allow rapid integration. Group and
area management oversee and provide
additional resources to ensure continued local
management focus and the maintenance of
robust controls.
Financial Risks
Tax authorities are becoming more aggressive
in disputing historically accepted financing and
other structures and pursuing compensation for
retroactive changes to tax laws.
The Group is proactive in responding to tax
authorities, either through robust defence or
through negotiated settlement. The Board
considers that tax exposures are adequately
provided for, whilst recognising that an element
of risk will always remain.
Government authorities have become more
aggressive in levelling punitive fines for historic
breaches of law.
The Group is proactive in addressing legal risks
and responds to government authorities in a
forthright and cooperative manner. When
appropriate, the Group will present a robust
defence to allegations it has breached
applicable regulations or laws. The Board seeks
to provide adequately for such legal exposures,
whilst recognising that there is now a higher
14
level of residual risk than has previously been
the case.
COMPLIANCE AND ROUTINE RISKS
In order to manage the more numerous and
routine risks, the Group maintains a complete
and robust governance framework. This consists
of a full set of policies, processes and systems
covering all aspects of compliance, with
international and local laws as well as with the
Group’s stated minimum control standards.
Management provides primary assurance by
driving risk compliance through their respective
area, regional or functional responsibility. This is
done through regular and detailed business
reviews. Secondary assurance is provided
independently through a combination of
internal and external audit covering all aspects
of the Group’s operations.
Financial Risk Management
The Group’s multinational operations expose it
to a variety of financial risks that include the
effects of changes in foreign currency exchange
rates (foreign exchange risk), market prices,
interest rates, credit risks and liquidity.
The Group has in place a risk management
programme that uses foreign currency financial
instruments, including debt, and other
instruments, to limit the impact of these risks
on the financial performance of the Group.
The Group’s financing and financial risk
management activities are centralised into
Group Treasury (GT) to achieve benefits of scale
and control. GT manages financial exposures of
the Group centrally in a manner consistent with
underlying business risks. GT manages only
those risks and flows generated by the
underlying commercial operations and
speculative transactions are not undertaken.
The Board reviews and agrees policies,
guidelines and authority levels for all areas of
Treasury activity and individually approves
significant activities. GT operates under the
close control of the CFO and is subject to
periodic independent reviews and audits, both
internal and external.
Foreign Exchange Risk
The Group prepares its financial statements in
Sterling but conducts business in many foreign
currencies. As a result, it is subject to foreign
exchange risk due to the effects that exchange
rate movements have on the translation of the
results and the underlying net assets of its
foreign subsidiaries.
contracts with GT to manage these exposures,
where practical and allowed by local
regulations. GT manages the Group exposures,
and hedges the net position where possible,
using spot and forward foreign currency
exchange contracts.
Market Price Risk
Due to the nature of its business the Group is
exposed to commodity price risk related to the
production or packaging of finished goods such
as oil-related, and a diverse range of other, raw
materials. This risk is, however, managed
primarily through medium-term contracts with
certain key suppliers and is not viewed as being
a material risk. The Group is not exposed to
equity securities price risk.
Interest Rate Risk
The Group has both interest-bearing and non
interest-bearing assets and liabilities. The Group
monitors its interest expense rate exposure on a
regular basis. The Group manages its interest
rate exposure on its gross financial assets by
using fixed rate term deposits.
Credit Risk
The Group has no significant concentrations of
credit risk. Financial institution counterparties
are subject to approval under the Group’s
counterparty risk policy and such approval is
limited to financial institutions with a BBB
rating or above. The Group uses BBB+ and
higher rated counterparties to manage risk and
uses BBB rated counterparties by exception.
The amount of exposure to any individual
counterparty is subject to a limit defined within
the counterparty risk policy, which is reassessed
annually by the Board.
Liquidity Risk
The Group has bilateral credit facilities with
high-quality international banks. All of these
facilities have similar or equivalent terms and
conditions, and have a financial covenant,
which is not expected to restrict the Group’s
future operations. The committed borrowing
facilities, together with available uncommitted
facilities and central cash and investments, are
considered sufficient to meet the Group’s
projected cash requirements.
Funds over and above those required for
short-term working capital purposes by the
overseas businesses are generally remitted to
GT. The Group uses the remittances to settle
obligations, repay borrowings or, in the event
of a surplus, invest in short-term instruments
issued by institutions with a BBB rating or above.
The Group’s policy is to align interest costs and
operating profit of its major currencies in order
to provide some protection against the
translation exposure on foreign currency profits
after tax. The Group may undertake borrowings
and other hedging methods in the currencies of
the countries where most of its assets are located.
Capital Management
The Group’s objectives for managing capital are
to safeguard the Group’s ability to continue as
a going concern, in order to provide returns for
Shareholders and benefits for other
stakeholders, and to maintain an efficient
capital structure to optimise the cost of capital.
For transactions, it is the Group’s policy to
monitor and, only where appropriate, hedge its
foreign currency transaction exposures. These
transaction exposures arise mainly from foreign
currency receipts and payments for goods and
services, and from the remittance of foreign
currency dividends and loans. The local business
units enter into forward foreign exchange
In maintaining an appropriate capital
structure and providing returns for
Shareholders, in 2012 the Company has
provided returns to Shareholders in the form
of dividends, the current details of which are
included in the Financial Review for the year on
page 17, and the establishment of a share buy
back programme.
2012 The Group monitors net debt (total borrowings
less cash and cash equivalents; short-term
available for sale financial assets and financing
derivative financial instruments) and at the
year end the Group had net debt of £2,426m
(2011: £1,795m). The Group seeks to pay
down net debt using cash generated by the
business to maintain an appropriate level of
financial flexibility.
Details of numerical disclosures relating to the
Group’s financial risk management are included
in note 14 to the financial statements on pages
59 to 63.
Sustainability: Environmental, Social and
Governance (ESG) Matters and
Reputational Risks
In line with the requirements of the 2006 Act, a
rationale has been developed and a review
undertaken to determine what information to
include in this Report as necessary for an
understanding of the development,
performance and position of the business of
the Group relating to environmental matters
(including the impact of the Group’s business
on the environment), its employees, and social
and community issues – referred to in this
report as sustainability matters.
The Board regularly considers and takes
account of the significance of sustainability
matters, their potential risks to the business of
the Group and the opportunities to enhance
value that may arise from an appropriate
response including risks relating to
environmental impacts, employees, society and
communities, as well as reputational risks. The
Board undertakes a formal review of
sustainability matters at least annually. This
includes providing oversight to ensure that the
Group has in place effective policies, systems
and procedures for managing sustainability
matters and mitigating significant sustainability
risks. The Board believes that it receives
adequate information and training on
sustainability matters and their potential risks
and opportunities to the business of the Group.
Additionally, the Audit Committee regularly
reviews the arrangements for, and effectiveness
of, risk management and internal audit
including the full range of risks facing the
Group such as risks relating to sustainability
matters, reputational risks and risks relating
to employees.
The CEO has specific responsibility for
sustainability. As part of established
management processes, which include
appropriate remuneration incentives, senior
management reports directly to the CEO on
sustainability matters on a regular basis.
Our Director of Global Sustainability,
Environment, Health & Safety manages the
sustainability programme on a day-to-day basis.
Our Senior Vice President (SVP) of Corporate
Communication and Affairs is secretary to the
Group’s Executive Committee. She is
responsible for the Group’s community
involvement. The R&D function includes the
Global Regulatory Affairs (GRA) group, which is
responsible for ensuring that our products meet
regulatory requirements and are safe for their
intended use. Our SVP Human Resources (HR)
and the global HR function manage the Group’s
human resources, employee remuneration and
benefits, employment practices, organisational
development, training and elements of health
and safety (eg stress management).
Key areas of sustainability performance,
including sustainability disclosures, are
independently reviewed and verified by both
internal and external organisations, including
Internal Audit, and their findings regularly
reported to senior management, the CEO, the
Audit Committee and the Board. The Board has
identified and assessed the range of
sustainability and associated reputational risks
and concluded that there are limited material
risks to the Group’s long- and short-term value
arising from sustainability matters, other than
potential risks common to similarly sized
businesses operating in its industry sectors and
with similarly well-known brands.
The Group has a full set of policies,
programmes and control arrangements,
building on its central Code of Conduct, that
address the full range of sustainability matters
and reputational risks. The Code itself is the
subject of an annual training and awareness
programme, and is covered by an annual review
and certification process carried out by Internal
Audit and the Legal Department. The Code and
other Group policies relating to sustainability
can be found at www.rb.com.
Sustainability Focus Areas
The Group has identified the material
sustainability issues for the business, following
Accountability’s 5-Part Materiality Test and the
GRI Technical Protocol on Applying the Report
content Principles. This process includes an
assessment of the Group’s potential
sustainability risks, the issues of greatest
concern for the Group’s stakeholders, the issues
that society has identified as important through
regulation and international standards and
those issues covered by our existing policies
and commitments.
Strategic Sustainability Priorities
The aspects the Group has identified are
common to many FMCG companies with
well-known brands and are essentially
determined by the Group’s industrial sectors
(health, hygiene and home) and the products
the Group manufactures and sells. The Group’s
strategic priorities therefore remain to:
1. Achieve continual improvement in our overall
environmental performance, focusing on
those issues where we can make a significant
difference; and
2. Manage our business in a socially and
ethically responsible manner.
In September 2012, the Group announced a
new approach to sustainability, in support of
the Group’s new vision, purpose and business
strategy. This approach includes three key
targets. By 2020, the Group aims to achieve:
• 1/3 reduction in water impact per dose of
product; and
• 1/3 further reduction in carbon footprint per
dose of product; and
• 1/3 of net revenue from more sustainable
products.
These three high-level goals are supported by a
number of functional goals. The Group focuses
on a number of specific topics to deliver against
the strategic priorities. These include, but are
not limited to:
Supply Chain Responsibility
Most product, component and raw material
supply chains present a number of potential
reputational risks relating to: labour standards;
health, safety and environmental standards;
raw material sourcing; and the social, ethical
and environmental performance of third party
manufacturers and other suppliers. The
Group’s Global Manufacturing Standard (GMS)
mandates minimum requirements regarding
employment arrangements, labour standards
and health, safety and environmental
management, in line with international
guidelines, for the Group’s own manufacturing
sites and, from the end of 2012, third party
manufacturers and suppliers. Management
processes and controls in place include
Group, area and regional monitoring and
assessment of compliance with the GMS
(and other) requirements.
Key Issues with Potential to have
Material Impacts on the Business
Environment
• Resource availability and use
• Water quantity and quality
• Greenhouse gas (GHG) emissions reduction
• Waste management
• Natural raw materials sourcing
• Operational environment, regulatory
compliance
Social
• Occupational health & safety
• Human rights and labour practices
• Responsible and ethical supply chain
• Impacts of demographic change
• Transparency on products and ingredients
• Consumer behaviour change
• Talent attraction
• Employee engagement
• Charitable donations/philanthropy
• Product (and packaging) use and disposal
• Pollution (including contaminated land)
• Energy use efficiency
• Carbon offsetting
• Product regulation
• Sustainable product innovations
Governance
• Sustainability
• Corporate governance
• Bribery and corruption
• Code of conduct
• Product quality and compliance
15
2012 Business Review 2012 continued
Climate Change
The effects of climate change could disrupt the
Group’s supply chain by affecting the Group’s
ability to source raw materials, manufacture
products and distribute products. Due to the
Group’s industry sectors and product categories
the GHG emissions originating from energy use
at its direct operations are of medium-to-low
impact in comparison to those of other similarly
sized companies, as assessed for example in
recent reports of the independent Carbon
Disclosure Project (CDP, www.cdproject. net);
specifically, the GHG emissions from the
Group’s global manufacturing operations are
circa 270,000 tonnes CO2-equivalents per annum.
The Group has taken a leadership position with
regard to its products’ total carbon footprint, by
seeking to understand, measure and reduce the
GHG emissions generated by all stages of the
product lifecycle for its global product portfolio,
and including amongst other things: the raw
and packaging materials provided by its
suppliers; the Group’s own direct manufacturing
and other operations; transportation of both raw
materials and finished products; the retail sale of
its products; consumers’ use of its products; and
the disposal/recycling of those products and their
packaging. The Group publicly launched this
initiative in November 2007, comprising its
Carbon20 programme and the target to reduce
its global products’ total carbon footprint across
their complete lifecycle by 20% per dose by
2020 versus a 2007 baseline.
Health & Safety Management
Accidents caused through a failure of the
Group’s safety management systems could
potentially lead to loss of life for one or more of
the Group’s employees. The Group maintains an
external certification to OHSAS 18001 for the
Group’s management of health and safety issues.
Progress
The Group’s most recent Sustainability Report,
published on 31 May 2012, describes the
progress made in key sustainability topics.
This includes:
• At the end of 2011, the fourth year of the
Group’s Carbon20 programme, the total
carbon footprint of the Group (measured per
dose of product) reduced by 21% (26%
including the former SSL business). This
reduction in carbon emissions per dose
means the Group met and exceeded its
Carbon20 target for 2020 eight years ahead
of schedule;
• Planting 5.4m native trees in Canada by the
end of 2011 (including 865,000 in 2011)
which equates to an offset that effectively
makes the Group’s manufacturing carbon
neutral (2006-2011);
• A 43% reduction in manufacturing energy
per unit of production (2000-2011);
• A 48% reduction in GHG emissions from
manufacturing sites (2000-2011);
• A 16% reduction per unit of production in
water use (2000-2011);
• A 7% reduction per unit of production of
waste (2000-2011);
16
• A 92% reduction in accident rates since
2001, including a 3% reduction in lost
working day accident frequency between
2010 and 2011;
• Regrettably, in 2012, one RB employee lost
his life while working for RB. The lessons
learned have been communicated across the
Group. There were no RB employee fatalities
in 2010 and 2011;
• Continued support of the international
charity Save the Children, reaching 175,000
children in 2011 (total 775,000 since 2003)
and reaching over 40,000 women and
230,000 other community members in 2011.
The sustainability and corporate responsibility
section on the Group’s website (www.rb.com/
Ourresponsibility) and its annual Sustainability
Reports (available at www.rb.com) provide
further information on its policies, systems and
procedures for managing sustainability matters
and the risks and opportunities that may arise
from them, including: the extent to which it
complies with those policies, systems and
procedures; KPIs; and its sustainability
programmes, targets and progress. The Group
reports in line with the Global Reporting
Initiative’s Sustainability Reporting Guidelines –
Version 3.0 (GRI G3 – www.globalreporting.
org) and a Content Index and Application Level
Table are provided in the Sustainability Report.
Selected data in the annual Sustainability
Report is assured by external auditors. For more
information refer to the latest Report, released
31 May 2012, at www.rb.com/sustainability-
report2011.
FINANCIAL REVIEW
Basis of Preparation: The financial
information is prepared in accordance with
IFRSs as endorsed by the EU and IFRSs as issued
by the International Accounting Standards
Board, with applicable parts of the 2006 Act
and with the accounting policies set out in note
1 on pages 43 to 46.
Constant Exchange: Movements in exchange
rates relative to Sterling affect actual results as
reported. The constant exchange rate basis
adjusts the comparative to exclude such
movements, to show the underlying growth of
the Group.
Net Revenue: Net revenue was £9,567m
(2011: £9,485m), an increase of +1%.
Net Finance Expense: Net finance expense
was £15m (2011: £19m), reflecting the
acquisition of SSL and Paras. The 2011 net
finance expense includes a £4m exceptional
charge in respect of financing costs associated
with the acquisition of SSL.
Tax: The effective tax rate was 24% (2011:
26%). The decrease was due to a 2% reduction
in the UK corporate tax, associated deferred tax
benefits, and the favourable settlement of
certain tax cases.
Net Working Capital: A new definition of net
working capital, a key component of the
Group’s focus on cash generation, has been
used in 2012. This excludes corporate tax and
other provisions. It is therefore a much closer
proxy to RB’s true commercial net working
capital performance. Comparatives have
been restated on a consistent basis. Net
working capital (inventories, trade and other
receivables and trade and other payables) was
minus £700m in line with the 31 December
2011 level.
Cash Flow: Cash generated from operating
activities was £2,423m (2011: £2,430m) and
net cash flow from operations was £1,735m
(2011: £1,581m). Net interest paid was £7m
(2011: £13m) and tax payments were £528m
(2011: £677m). Capital expenditure was
lower than the prior year at £177m (2011:
£205m). Acquisition of businesses of £877m
related to the acquisition of Schiff, and other
minor acquisitions.
Net Debt: At the end of the year net debt was
£2,426m (2011: £1,795m), an increase of
£631m. This reflected net cash flow from
operations of £1,735m, offset by the
acquisition of Schiff and other minor
acquisitions for £877m (net of cash acquired),
and the payment of two dividends totalling
£916m. The Group regularly reviews its banking
arrangements and currently has adequate
facilities available to meet liquidity needs.
Exceptional Items: A total pre-tax exceptional
charge of £135m has been incurred during the
year in respect of the following:
• Remaining restructuring costs in respect of
the acquisition of SSL; and
• Costs associated with the new strategy and
private label business closure costs; and
• Acquisition costs associated with the
acquisition of Schiff and other acquisitions.
In 2011 an exceptional pre-tax charge of £96m
was incurred, of which £92m is reflected in
reported operating profit and £4m is included
in net interest. In 2012 the £135m pre-tax
charge is reflected in reported operating profit.
Balance Sheet: At the end of 2012, the Group
had total equity of £5,922m (2011: £5,781m),
an increase of +2%. Net debt was £2,426m
(2011: £1,795m) and total capital employed in
the business was £8,348m (2011: £7,576m).
This finances non-current assets of £12,023m
(2011: £11,188m), of which £737m (2011:
£732m) is property, plant and equipment, the
remainder being goodwill, other intangible
assets, deferred tax, available for sale financial
assets, retirement benefit surplus and other
receivables. The Group has net working capital
of minus £700m (2011: minus £701m), current
provisions of £128m (2011: £60m) and
long-term liabilities other than borrowings of
£2,668m (2011: £2,642m).
The Group’s financial ratios remain strong.
Return on Shareholders’ funds (net income
divided by total Shareholders’ funds) was
31.0% on a reported basis and 32.8% on an
adjusted basis (2011: 30.3% on a reported
basis and 31.6% on an adjusted basis).
2012 Dividends: The Board recommends a final
dividend of 78p per share (2011: 70p), an
increase of +11%, to give a full year dividend
of 134p per share (2011: 125p), an overall
increase of +7%. The dividend, if approved by
Shareholders at the AGM on 2 May 2013, will
be paid on 30 May to Shareholders on the
register at the record date of 22 February. The
ex-dividend date is 20 February and the last
date for election for the share alternative to the
dividend is 8 May. The final dividend will be
accrued once approved by Shareholders.
Contingent Liabilities: The Group is involved
in a number of investigations by government
authorities and has made provisions for such
investigations, where appropriate. Where it is
too early to determine the likely outcome of
these matters, the Directors have made no
provision for such potential liabilities.
The Group has received a civil claim for
damages from the Department of Health and
others in the UK, regarding alleged anti-
competitive activity involving the Gaviscon
brand. The claim is under review and at this
time the Directors do not believe that any
potential impact would be material to the
Group financial statements.
The Group from time to time 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.
PROSPECTS
We continue to target net revenue growth on
average +200 bps per annum above our market
growth, and moderate operating margin
expansion (excluding RB Pharmaceuticals) in the
medium-term. In 2012 we discontinued our
private label business, and sold a number of
small non core brands. 2013 will benefit from a
number of acquisitions. Together they will have
a net impact of c. +100 bps on net revenue.
Taking these into account, we are targeting
in 2013:
• Net revenue growth of +5-6%*; and
• Further increased investment in our brands
(BEI); and
• Maintain operating margins**.
These targets exclude RB Pharmaceuticals.
* At constant rates including acquisitions and
disposals/withdrawal from private label and
other minor items, excluding RB
Pharmaceuticals.
** Adjusted to exclude the impact of
exceptional items.
Post Balance Sheet Event
On 8 January 2013 the Group obtained
control of Oriental Medicine Company Limited,
a manufacturer of traditional Chinese sore
throat products, by acquiring 100% of the
share capital.
On 10 February 2013, the Group entered into
a three-year collaboration agreement with
Bristol-Myers Squibb, for a number of
market-leading over-the-counter consumer
health care brands in Brazil, Mexico and certain
other parts of Latin America. The Group will
make an upfront cash payment of $482m
(c.£300m) to enter into the arrangement which
also includes personnel, supply contracts and
an option to acquire legal title to the related
intellectual property at the end of the
collaboration period for a multiple of earnings.
The transaction will be accounted for as a
business combination and the Directors are in
the process of revaluing the assets and liabilities
acquired to fair value, including the value of
any acquired intangible assets.
Cautionary Note Concerning Forward
Looking Statements
This document contains forward looking statements,
including statements with respect to the financial
condition, results of operations and business of RB
and certain of the plans and objectives of the
Company with respect to these items. These forward
looking statements are made pursuant to the ‘Safe
Harbor’ provisions of the United States Private
Securities Litigation Reform Act of 1995. In particular,
all statements that express forecasts, expectations and
projections with respect to future matters, including
trends in results of operations, margins, growth rates,
overall market trends, the impact of interest or
exchange rates, the availability of financing to the
Company, anticipated cost savings or synergies and
the completion of strategic transactions are forward
looking statements. These forward looking statements
are not guarantees of future performance: by their
nature, forward looking statements involve known
and unknown risk and uncertainty and other factors
because they relate to events and depend on
circumstances that will occur in the future. There are a
number of factors, discussed in this Report, that could
cause actual results and developments to differ
materially from those expressed or implied by these
forward looking statements, including many factors
outside RB’s control. Past performance cannot be
relied upon as a guide to future performance. Each
forward looking statement speaks as of the date of
the particular statement.
ANNUAL KEY PERFORMANCE INDICATORS
The Board and the Executive Committee have identified a number of KPIs that are most relevant to the Group and are used to measure performance.
KPI
Comments
2011
2012
Net revenue growth
% like-for-like growth of net revenue
at constant exchange rates
+5%
+4%
Measures the increase in sales of the Group
Powerbrands
% of total net revenue from 19 Powerbrands
70%
70%
Measures the growth and importance of the
Group’s flagship brands
Gross margin %
Gross profit as % of total net revenue
Brand Equity Investment (BEI)
BEI as % of total net revenue
Operating margin %**
Operating profit** as % of total net revenue
Earnings per share (fully diluted)**
% change in earnings per share (fully diluted)**
Net cash flow from operations
See page 42
Net working capital
(defined as inventories, trade and other receivables and
trade and other payables) as % of total net revenue
Management turnover
% of total net revenue (excl. RB Pharmaceuticals) in No.1
or No.2 brand positions
** Adjusted to exclude the impact of exceptional items.
57.9%
57.4%
Measures the resources available for reinvestment
or profit growth
12.7%
12.0%
Measures the rate of reinvestment in the
Group’s brands
26.9%
26.2%
Measures the profitability of the Group
264.4p
+7%
£1,735m
+10%
-£700m
-7.3%
247.1p
+9%
£1,581m
+14%
-£701m
-7.4%
8%
71%
13%
71%
Measures the increase in profit per share of the Group
Measures how the Group converts its profits into cash
Measures the ability of the Group to finance
its expansion and release cash from working capital
% of Top400 management that have left the Group
Measures the health of the Group’s
brand market positions
17
2012
Board of Directors and Executive Committee
THE BOARD OF DIRECTORS
Adrian Bellamy (British) ‡ #
Was appointed a Non-Executive Director of the
Company in 1999 and became Non-Executive
Chairman in May 2003. He is a Director of
The Gap Inc and a Director and Chairman of
Williams-Sonoma Inc. He was Chairman of
The Body Shop International plc until March
2008 and was formerly a director of various
companies including Gucci Group NV and The
Robert Mondavi Corporation.
Richard Cousins (British) ‡
Was appointed a Non-Executive Director of
the Company in October 2009. He is CEO of
Compass Group plc, the world’s largest catering
company. He was until 2006 CEO of BPB plc,
having held a number of positions with that
company since 1990. He is a former Non-
Executive Director of P&O and HBOS.
Dr Peter Harf (German) #
Joined the Board as a Non-Executive Director
in 1999 and is the Deputy Chairman. He
served as Chairman of the Remuneration
Committee until June 2004. Peter has been
the CEO of Parentes Holding SE (formerly
Joh. A. Benckiser), a privately held investment
company, since 1988 and a Director of Coty
Inc since 1996. He has been the Chairman of
Labelux since 2008 and Chairman of the non-
profit DKMS foundation since 1991.
Adrian Hennah (British)
Joined the Company in January 2013 as CFO
Designate, and was appointed as Director and
CFO on 12 February 2013. He joined following
six years at Smith & Nephew plc as CFO.
Previously he was CFO at Invensys for four years
and spent 18 years at GlaxoSmithKline plc,
where he held a number of senior management
and financial roles. Adrian has also previously
worked at PwC (then Price Waterhouse) in
audit and consultancy. He is a Non-Executive
Director of Reed Elsevier PLC, and a member of
the Supervisory Board of Reed Elsevier NV.
Kenneth Hydon (British) * #
Was appointed a Non-Executive Director in
December 2003 and Chairman of the Audit
Committee in November 2006. He is a Fellow
of the Chartered Institute of Management
Accountants, the Association of Chartered
Certified Accountants and the Association
of Corporate Treasurers. He was the Senior
Independent Non-Executive Director between
February 2005 and November 2006. He retired
as CFO of Vodafone Group plc in July 2005
and is a Non-Executive Director of Pearson plc.
Kenneth retired from the Board of the Royal
Berkshire NHS Foundation Trust in April 2012
and from the Board of Tesco PLC in
February 2013.
Rakesh Kapoor (Indian) #
Joined the Board in September 2011 following
his appointment as Chief Executive Officer
(CEO) of the Company. He joined the Group
in 1987 serving in various regional and central
marketing roles. In 2001, he became SVP,
Regional Director Northern Europe and was
appointed EVP Category Development in
2006 with responsibility for global category
management, R&D, media, market research
and strategic alliances.
18
André Lacroix (French) *
Was appointed a Non-Executive Director in
October 2008. He is Group Chief Executive
of Inchcape plc and Chairman of Good
Restaurants AG. He was previously Chairman
and CEO of Euro Disney, and has also held
positions at Burger King (Diageo), Colgate,
PepsiCo and Ernst & Young LLP.
Graham Mackay (British/South African) ‡ #
Was appointed a Non-Executive Director in
February 2005 and the Senior Independent
Director in November 2006. He is the Executive
Chairman of SABMiller plc, one of the world’s
largest brewers. He will become Non-Executive
Chairman of SABMiller in July 2013. He joined
the then South African Breweries Limited in
1978 and has held a number of senior positions
within that group. He joined the Board of Philip
Morris International Inc in October 2008.
Judith Sprieser (American) ‡ #
Was appointed a Non-Executive Director
in August 2003 and has been Chair of the
Remuneration Committee since June 2004.
She was previously CEO of Transora, Inc., an
e-commerce software and service company and
Executive Vice President (formerly CFO) of Sara
Lee Corporation. She is a Director of Allstate
Insurance Company, InterContinental Exchange,
Inc., Royal Ahold NV and Experian plc.
Warren Tucker (British) *
Was appointed a Non-Executive Director in
February 2010. He has been CFO of Cobham
plc since 2003. He is a chartered accountant
and previously held senior finance positions at
Cable & Wireless plc and British Airways plc.
* Member of the Audit Committee
‡ Member of the Remuneration Committee
# Member of the Nomination Committee
EXECUTIVE COMMITTEE
Heather Allen (Canadian)
EVP, Category Development. Joined in
1996 from Procter & Gamble. She undertook
a number of senior marketing roles in Eastern
Europe, before becoming Marketing Director
US in 1999. She was appointed General
Manager Canada in 2003 and joined the
global head office in the UK in 2006 as Global
Category Officer germ protection, surface
and personal care. She was appointed to her
current role in May 2011.
Salvatore Caizzone (Italian)
EVP, RUMEA. Joined in 1996, serving in several
roles in Italy, Russia & Baltics. He was SVP Africa
& Middle East region for eight years before
being appointed EVP, Europe. Salvatore is
responsible for Russia & CIS, Middle East, North
Africa, Turkey and Sub-Saharan Africa and is
headquartered in Dubai.
Freddy Caspers (German)
EVP, LAPAC (until 30 June 2013). Joined in
1997 as EVP for Eastern Europe. Previously
at PepsiCo and Johnson & Johnson. He held
various roles in Europe, US, Eastern Europe,
Turkey and the global head office. Freddy is
responsible for Latin America, North Asia,
South East Asia, and Australia and New
Zealand, and is headquartered in Singapore.
Amedeo Fasano (Italian)
EVP, Supply. Joined in 1997 as Supply Director
Italy. After the Reckitt & Colman and Benckiser
merger, he was appointed Manufacturing
Director for Central, South Western and
Southern Europe Regions. In 2002 he became
Regional Supply Director North America and in
2003 SVP Supply North America, Australia and
New Zealand. In 2007 he took over the role of
SVP Supply Developing Markets and in March
2009 Amedeo was appointed as EVP Supply.
He previously worked for Pirelli Tyres in multiple
Supply roles in Italy, Turkey, Argentina and UK.
Roberto Funari (Brazilian)
EVP, LAPAC (from 1 July 2013). Rejoined in
February 2013 following two years at Imperial
Tobacco where he was Group Marketing
Director and Executive Committee member.
In his prior 12-year career with the Group,
Roberto held increasingly senior marketing and
general management roles in both emerging
and developed markets, including Brazil,
Netherlands, South Africa and Central Europe.
His last role was as Global Category Officer for
fabric and home care.
Rob de Groot (Dutch)
EVP, ENA. Joined in 1988. After international
roles in marketing and sales he became General
Manager The Netherlands, then SVP, Regional
Director Eastern Europe and was appointed
Global Category Officer, surface and dish
before being appointed EVP North America
& Australia. Rob is responsible for North
America, Northern Europe, Central Europe,
Southern Europe and Western Europe and is
headquartered in Amsterdam.
Adrian Hennah (British)
Chief Financial Officer (CFO).
Gareth Hill (South African)
SVP, Information Services. Joined in 2006.
Previously Information Systems Director at
Arcadia Group Ltd. Prior to Arcadia, Gareth
was at IBM UK Ltd, Rex Trueform Clothing Ltd
in South Africa and Arthur Andersen. He is a
qualified chartered accountant.
Rakesh Kapoor (Indian)
Chief Executive Officer (CEO).
Simon Nash (British)
SVP, Human Resources. Joined in 2009 from
Novartis Consumer Health, where he was
Global Head of HR for the Consumer Health
division, based in Switzerland. Simon started his
international career with Procter & Gamble in
detergent manufacturing, before moving into
HR with Mars Confectionery. He moved to New
York in 1993 with Kraft Foods International and
then on to Chicago as HR Head of the office
products subsidiary of Fortune Brands Inc.
2012 Report of the Directors
The Directors submit their Annual Report
and financial statements for the year
ended 31 December 2012 to the members
of the Company.
Principal Activities and Future
Developments
Information on the principal activities and
future developments of the Group is set out
in the Business Review on pages 10 to 17 and
in the Chief Executive’s Statement on pages
2 to 8 respectively.
Audited results for the period are set out on
pages 39 to 74.
In the view of the Directors, the Group’s likely
future developments will centre on its main
product categories of health, hygiene and home.
The Review of the Group’s Business
The performance of the business is described in
the Chairman’s Statement on page 1 and the
Business Review. Within the Business Review,
principal risk factors are given under
‘Relationships and Principal Risks’ on pages 13 to
15, KPIs are given on page 17 and information
on the likely future developments of the Group
is under ‘Prospects’ on page 17 and in the Chief
Executive’s statement on pages 2 to 8.
Information regarding environmental matters,
the Company’s employees and social and
community issues is given on pages 15 to 16.
Information about persons with whom the
Company has contractual or other arrangements
which are essential to the business of the
Company is given on page 13 to 14.
The Group’s financial risk management
objectives and policies are set out on pages 14
to 15 of the Business Review and in note 14 on
pages 59 to 63.
The information referred to above is
incorporated by reference into, and shall be
deemed to form part of, this Report and,
together with the other information referred to
in this Report, fulfils the requirements of the
business review provisions of s.417 of the
Companies Act 2006 (2006 Act). This Report of
the Directors has been drawn up and presented
in accordance with, and in reliance upon,
applicable UK company law and the liabilities of
the Directors in connection with this Report
shall be subject to the limitations and
restrictions provided by such law.
Dividend
In July 2012, the Directors resolved to pay an
interim dividend of 56p per ordinary share
(2011: 55p). The dividend was paid on 27
September 2012. The Directors are recommending
a final dividend for the year of 78p per share
(2011: 70p) which, together with the interim
dividend, makes a total for the year of 134p per
share (2011: 125p). The final dividend, if
approved by the Shareholders, will be paid on
30 May 2013 to Shareholders on the register at
the close of business on 22 February 2013.
Research and Development
The Group continues to carry out R&D in the
search for new and improved products in all its
categories and for increased manufacturing
efficiencies. Direct expenditure on R&D in 2012
amounted to £171m (2011: £153m).
Acquisitions and Disposals
Information on the Company’s acquisition and
disposal activities during the year and up to the
date of this Report is set out in the Business
Review on page 10 under ‘Nature, Objectives
and Strategies of the Business’.
Liz Doherty, who served on the Board as CFO
resigned as a Director of the Company on
12 February 2013. Adrian Hennah joined the
Company as CFO designate on 2 January 2013
and formally joined the Board as CFO and
Executive Director on 12 February 2013.
Employees
During 2012, the Group employed an average
of 35,900 (2011: 37,800) people worldwide, of
whom 3,700 (2011: 3,500) were employed in
the UK. The Group is committed to the
principle of equal opportunity in employment:
no applicant or employee receives less
favourable treatment on the grounds of
nationality, age, gender, religion or disability.
The Group recognises its responsibilities to
disabled persons and endeavours to assist them
to make their full contribution at work. Where
employees become disabled, every practical
effort is made to allow them to continue in
their jobs or to provide retraining in suitable
alternative work.
It is essential to the continued improvement in
efficiency and productivity throughout the
Group that each employee understands the
Group’s strategies, policies and procedures.
Open and regular communication with
employees at all levels is an essential part of the
management process. A continuing programme
of training and development reinforces the
Group’s commitment to employee development.
Regular departmental meetings are held where
opinions of employees are sought on a variety of
issues. The Group operates multi-dimensional
internal communications programmes which
include the provision of a Group intranet and the
publication of regular Group newsletters.
Group incentive schemes reinforce financial and
economic factors affecting the performance of
the business. All employees typically have three
to five performance objectives which are
directly linked to their job and their specific
contribution to the overall performance of the
Group. In addition, presentations and videos
are given to employees around the Group on
publication of the Group’s financial results.
The Board encourages employees to become
Shareholders and to participate in the Group’s
employee share ownership schemes, should
they so wish. Sharesave schemes covering most
of the world give employees the opportunity to
acquire shares in the Company by means of
regular savings.
Directors
The following people served as Directors of the
Company during the year:
Adrian Bellamy
Richard Cousins
Liz Doherty
Peter Harf
Kenneth Hydon
Rakesh Kapoor
André Lacroix
Graham Mackay
Judith Sprieser
Warren Tucker
Full biographical details of the current Directors
are set out on page 18.
Directors’ Interests
A statement of Directors’ interests in the share
capital of the Company is shown in Table 1 at
the end of this report.
Details of Directors’ options to subscribe for
shares in the Company are included in Table 4
on page 37 in the audited part of the Directors’
Remuneration Report.
No Director had a material interest at any time
during the year in any derivative or financial
instrument relating to the Company’s shares.
The details of the Directors’ remuneration and
service agreements are set out in the Directors’
Remuneration Report on pages 31 to 37.
Environmental, Social and Governance
(ESG) Matters
Information on ESG and related matters is set
out in the Business Review on pages 15 to 16.
Sustainability and Corporate Responsibility
Information on the Group’s management of
sustainability and corporate responsibility issues
is provided in the Business Review on pages 15
to 16 and in the Group’s annual Sustainability
Reports, which provide information on its
policies, programmes, targets and progress in
this area.
Policy on the Payment of Creditors
The Company has signed up to the CBI Prompt
Payment Code (PP Code). The PP Code
promotes best practice between the Company
and its suppliers within clearly defined terms
and encourages a clear process for dealing with
issues. This certainty on payment and processes
inspires confidence across the supply chain
which benefits the Company and its suppliers.
Copies of the Prompt Payment Code are
available from CBI, Centre Point, 103 New
Oxford Street, London WC1A 1DU.
Charitable Donations
The Group has continued its strategy of
focusing on the Group’s nominated global
charity, Save the Children. During the year,
donations in the UK amounted to £1,897,192
(2011: £1,576,799) of which £1,841,573
(2011: £977,849) was donated to Save the
Children. The total donated to Save the
Children was £3.5m (2011: £2m) including
funds raised by RB companies and employees
around the world.
Takeover Directive
The Company is required to disclose certain
additional information required by s.992 of the
2006 Act, which implemented the EU Takeovers
Directive. The following sets out disclosures not
covered elsewhere in this Annual Report.
The Articles give the Board power to appoint
Directors, but also require Directors to submit
themselves for election at the first AGM
following their appointment. Under the
Articles, all Directors are required to offer
themselves for re-election every three years.
19
2012 Report of the Directors continued
The Board is responsible for the management
of the business of the Company and may
exercise all the powers of the Company subject
to the provisions of the Company’s Articles.
Treasury. Details of changes to the ordinary
shares issued and of options and awards
granted during the year are set out in note
23 to the financial statements.
The Articles contain specific provisions and
restrictions regarding the Company’s power to
borrow money. Powers relating to the alteration
of share capital are also included in the Articles
and Shareholders are asked to renew such
authorities each year at the AGM. A copy of
the Articles is available from the corporate
website www.rb.com or on written request
from the Company Secretary or from the UK
Registrar of Companies.
Unless expressly specified to the contrary in the
Articles, the Company’s Articles may be
amended by a special resolution of the
Company’s Shareholders.
There are a number of agreements that take
effect, alter or terminate upon a change of
control of the Company following a takeover,
such as commercial contracts, bank agreements,
property lease arrangements and employee
share plans. None of these are deemed to be
significant in terms of their potential impact on
the business of the Group as a whole.
There are no significant agreements between
the Company and its Directors or employees
providing for compensation for loss of office or
employment that occurs because of a takeover
bid, except that provisions of the Company’s
share plans may cause options and awards
granted under such plans to vest on a takeover.
There is no information that the Company
would be required to disclose about persons
with whom it has contractual or other
arrangements which are essential to the
business of the Company.
Corporate Governance Statement
In compliance with the Disclosure and
Transparency Rules (DTR) 7.2.1, the disclosures
required by DTR 7.2.2 to 7.2.7 are set out in
this Report of the Directors and in the
Corporate Governance Report on pages 24 to
29 which together with the Statement of
Directors’ Responsibilities are incorporated by
reference into this Report of the Directors.
Independent Auditors
The auditors, PricewaterhouseCoopers LLP,
have indicated their willingness to continue in
office and a resolution that they be
re-appointed will be proposed at the AGM.
Share Capital
As at 31 December 2012, the Company’s issued
share capital consisted of 719,219,114 ordinary
shares of 10p each with voting rights and
14,991,643 ordinary shares of 10p each held in
The rights and obligations attaching to the
Company’s ordinary shares are set out in
the Articles.
There are no restrictions on the voting rights
attaching to the Company’s ordinary shares or
the transfer of securities in the Company
except, in the case of transfers of securities:
• That certain restrictions may from time to
time be imposed by laws and regulations
(for example, insider trading laws); and
• Pursuant to the Listing Rules of the United
Kingdom Listing Authority whereby certain
employees of the Company require the
approval of the Company to deal in the
Company’s ordinary shares.
No person holds securities in the Company
which carry special voting rights with regard to
control of the Company. The Company is not
aware of any agreements between holders of
securities that may result in restrictions on the
transfer of securities or on voting rights.
Allotment of Shares
The Directors were granted authority at the last
AGM held in 2012 to allot shares up to a
nominal amount of £21,559,809. That
authority will apply until the conclusion of this
year’s AGM. At this year’s AGM on 2 May
2013, Shareholders will be asked to grant an
authority to make such allotments up to a
nominal amount representing approximately
one-third of the Company’s issued share capital
as at the latest practicable date prior to the
publication of the Notice of AGM. In line with
guidance issued by the Association of British
Insurers, Shareholders will also be asked to
grant an authority to allot shares in connection
with a rights issue in favour of Shareholders up
to an aggregate nominal amount representing
approximately two-thirds of the issued ordinary
share capital of the Company as at the latest
practicable date prior to publication of the
Notice of AGM. The authorities sought would,
if granted, expire at the earlier of 30 June 2014
or at the conclusion of the AGM of the
Company held in 2014. The Board has
confirmed that, in accordance with the UK
Corporate Governance Code (Code), all the
Directors will submit themselves for re-election/
election at this year’s AGM and at future AGMs.
A special resolution will also be proposed to
renew the Directors’ power to make non-pre-
emptive issues for cash up to a nominal amount
representing less than 5% of the Company’s
issued share capital as at the latest practicable
date prior to the publication of the Notice
of AGM.
Authority to Purchase Own Shares
Shareholders approved a resolution for the
Company to make purchases of its own shares
at the AGM in 2012. The Directors announced
their intention to commence a share repurchase
programme during 2012 for the repurchase of
up to 15m shares for the purpose of offsetting
the dilutive impact of employee share schemes.
In accordance with that announcement and the
authority granted at the AGM in 2012, market
purchases of 14,991,643 of the Company’s
ordinary shares were made during 2012 at a
total cost of £535m including stamp duty. The
Directors have also announced an intention to
make further market purchases of up to 6m
shares during 2013. The authority granted at
the AGM in 2012 remains valid until the
conclusion of this year’s AGM on 2 May 2013
and the Directors will seek to renew the
authority to make market purchases through a
resolution to be put to Shareholders at this
year’s AGM so that the announced purchase of
up to 6m shares can be completed. This
authority will be limited to a maximum of
73,400,000 ordinary shares and sets the
minimum and maximum prices which may be
paid. The Company’s present intention is to
hold shares acquired under such authority in
Treasury to satisfy outstanding awards under
employee share incentive plans.
Annual General Meeting
The Notice convening the sixth AGM of the
Company, to be held on Thursday, 2 May 2013
at 11.15 am at the London Heathrow Marriott
Hotel, Bath Road, Hayes, Middlesex UB3 5AN,
is contained in a separate document
for Shareholders.
In accordance with the Shareholder Rights’
Directive (Directive) which came into force in
August 2009, the Company obtained
Shareholder approval at the AGM in 2012 to
call meetings, other than Annual General
Meetings, on 14 clear days’ notice. Prior to the
implementation of the Directive, the Company
was able to call meetings other than an AGM
on 14 clear days’ notice without obtaining
Shareholder approval and, to preserve this
ability, Shareholders will be asked to renew
their approval by passing Resolution 20 at
the AGM.
Although Article 78 governs the retirement of
Directors by rotation, the Board has agreed that
all the Directors will submit themselves for
re-election/election at this year’s AGM and at
future AGMs in compliance with the Code.
Substantial Shareholdings
As at 1 March 2013, the Company had received the following notices of substantial interests
(3% or more) in the total voting rights of the Company:
JAB Holdings B.V.
Massachusetts Financial Services Company and/or its subsidiaries
Invesco Limited
10.67 76,659,342
5.09 36,601,704
5.00 35,901,027
% of total
voting rights
No of
ordinary
shares
Nature of
holding
Indirect
Indirect
Indirect
By Order of the Board
Elizabeth Richardson
Company Secretary
Reckitt Benckiser Group plc
103-105 Bath Road
Slough, Berkshire SL1 3UH
Company registration number: 6270876
8 March 2013
20
2012
Table 1 – Interests in the Share Capital of the Company
The Directors in office at the end of the year and those in office at 1 March 2013 had the following beneficial interests (unless stated otherwise) in the
ordinary shares of the Company:
Adrian Bellamy
Richard Cousins
Liz Doherty (resigned 12 February 2013)
Peter Harf
Adrian Hennah (appointed 12 February 2013)
Kenneth Hydon
Rakesh Kapoor (3)
André Lacroix
Graham Mackay
Judith Sprieser
Warren Tucker
1 March 2013
31 December 2012
31 December 2011
21,966
2,262
n/a
3,806
–
5,337
21,966
2,262
14,000
3,806
n/a
5,337
20,955
587
7,000
3,491
n/a
5,154
281,869
281,869
244,875
2,086
2,187
3,631
1,527
2,086
2,187
3,631
1,527
1,911
2,012
3,431
1,344
Notes
1. No person who was a Director (or a Director’s connected person) on 31 December 2012 and at 1 March 2013 had any notifiable share interests
in any subsidiary.
2. The Company’s Register of Directors’ Interests (which is open to inspection) contains full details of Directors’ shareholdings and options to subscribe.
3. As previously disclosed, includes 239,731 shares pledged as security.
21
2012
Chairman’s Statement on Corporate Governance
The UK Corporate Governance Code (Code)
issued by the Financial Reporting Council
(FRC) in May 2010 was applicable to the
Company throughout the financial year
ended 31 December 2012. A new version of
the Code, which applies to financial years
beginning on or after 1 October 2012, was
published by the FRC in September 2012 and,
although not immediately applicable,
the Board will report on early compliance
where appropriate.
20 years on from Cadbury’s report, effective
corporate governance in UK corporations
remains high on the agenda for both company
boards and their Shareholders. There is
increasing scrutiny and visibility of successes
and failures. The Board is sensitive to recent
Shareholder activism which has placed the
quality of boards and the level of their rewards
in the spotlight. The Board takes seriously its
responsibility for balancing effective corporate
governance and delivery of long-term
Shareholder and stakeholder reward and Board
decisions are taken in light of these
considerations. I am pleased to report to you
directly on RB’s governance activities.
RB and Governance
The Board believes that implementing and
maintaining high governance standards
underpin our business objectives and our drive
to create and maximise Shareholder value. In
addition to compliance with the best practice
advice from regulatory and governance bodies,
the Board ensures that high ethical standards
are reflected in business behaviour and culture
through RB’s global Code of Conduct which
enables management to add ethical and
behavioural standards to the legal and
regulatory obligations existing in the areas and
communities in which we operate. All
employees and contractors are required to
complete an annual conduct training course
which includes the review of the global Code of
Conduct policy. Statistics on employee
compliance are subject to review by the Audit
Committee. The Company also operates an
active whistleblowing hotline, the reports from
which are reviewed by the Audit Committee.
Annual Re-elections
All the Directors submitted themselves for
re-election at the 2012 AGM and will submit
themselves for re-election at the 2013 AGM
and at future AGMs in compliance with
the Code.
Diversity
The Company operates within a corporate
diversity and inclusion policy framework which
is reviewed by the Executive Committee. The
Davies recommendation for boards to have a
minimum of 25% female representation by
2015 and the draft EU directive which sets an
objective for EU-listed companies to achieve
40% representation of ‘the under-represented
sex’ among Non-Executive Directors (by 2018
for listed companies) are aspirations which the
Company considers carefully as part of its
recruitment exercises.
Liz Doherty stepped down from the Board and
her executive role as CFO in February 2013. The
resulting Board composition is now 10%
22
female down from 20% in 2012. The Board
reiterates its view that ensuring, facilitating and
driving diversity in its broadest sense has helped
propel the Company’s success to date and it
remains its practice to ensure that the
Company’s Top40 executive roles, in particular,
are open to fresh thinking and must include
personnel from different global backgrounds
who bring new ideas to the table. The
Company values its freedom to retain a group
of people who, collectively, have the skills,
experience and insight to achieve the
Company’s global vision and objectives and to
achieve long-term value growth without being
hindered by a gender quota which does not
take cognisance of the specific situation and
culture of the Company. As at 12 February 2013:
• 10% of the Board is female and 50% is
non-UK nationals;
• 11% of the Executive Committee is female
and 78% is non-UK nationals; and
• 15% of the Top40 managers is female and
70% is non-UK nationals.
Additionally, 17.5% of the Top40 managers can
be classed as black or minority ethnic. When
added to the number of female Top40
managers, 32.5% of the Top40 managers come
from the groups usually under-represented in
similar organisations.
All RB employees understand their personal
responsibility for ensuring that diversity policies
and programmes are actively pursued,
implemented and maintained. The Company
does not set specific targets in absolute
percentage terms to deter artificiality in the
process; it measures progress year on year to
ensure an improving picture on gender balance
which contributes to the Company’s growth
and success. As at 1 January 2013:
• 41% of the Group’s professional population
of 7,640 is female; and
• 16% of the Group’s Top400 population
is female.
Gender balance has improved consistently
across the professional population. Within the
Top400, gender balance has improved with
recruitment over the past 12 months.
16, 44 and 94 nationalities are represented in
the Top40, Top400 and professional
populations respectively.
Board Evaluation
The Code recommends that FTSE 350
companies should undertake an external
evaluation at least once every three years. The
2009 to 2011 Board evaluations and the recent
evaluation for the year ended 2012 were all
undertaken internally. The Board reported in
last year’s Annual Report its intention to
undertake an external evaluation in 2012. A
detailed review process was undertaken by the
Company Secretary and I reviewed a shortlist of
external evaluation service providers. Due to
Company specific circumstances including the
recent change of CFO which followed the
appointment of new Executive Directors in
2011, I decided, in consultation with my Board
colleagues, that an internal performance
evaluation would be more appropriate for the
Company for 2012. The Board recognises the
benefits an external evaluation can bring to
Board processes and will consider the
recommendations of the Code in this regard for
its 2013 performance evaluations.
This situation will be reviewed in the context of
a new CFO in Adrian Hennah and the potential
appointment of additional Non-Executive
Directors to the Board. The benefit of giving
any new directors time to settle in their roles
and to develop a good understanding of the
Company will be weighted against the benefit
to be had from an externally facilitated
evaluation. A decision will be taken as to
whether an externally facilitated evaluation will
be of better benefit during 2013 or 2014.
A detailed internal evaluation was undertaken
for the year ended 2012. A memo inviting open
comments was circulated by the Company
Secretary to the Directors approximately six
weeks before the meeting and I developed a
framework for the evaluation meeting from the
responses. These were distilled into the key
topics of corporate strategy, investor relations,
risk management, offsite Board meeting, time
management, advance papers to the Board and
people and succession planning. These issues
were subsequently discussed at the following
review meeting together with a progress
update on the issues highlighted at the
2011 evaluation.
Further information is set out in the
performance evaluation section on page 26
of this Report.
Succession Planning
Succession planning to the Board and senior
management roles was one of the actions
arising from the 2010 Board evaluation and the
Board has given this due attention in successive
years. One key aspect is the Directors’ desire to
ensure that members of RB’s senior
management are given more Board and external
exposure. Progress continues to be made in this
area and part of that progress is to ensure
diversity in succession planning. Progress to date
is reflected in the increased number of females
that have joined the Top40 and other senior
management roles across the Group. Additional
information on RB’s succession planning activities
at senior management levels is at ‘Resources’ on
pages 12 to 13 of the Business Review.
Composition of the Board
The current Board includes Peter Harf who, as a
Shareholder-nominated Director, was not
independent on appointment. Both Peter and I
have served on the Board for more than nine
years. In addition, Judith Sprieser and Kenneth
Hydon have now been on the Board for a
period just exceeding nine years. Judith and
Kenneth are also Chairs of the Remuneration
and Audit Committees respectively. The Board
is keen to ensure compliance with the
recommendations of the Code but also
recognises that both Kenneth and Judith have
been diligent servants of the Company and
continue to add value to the activities of the
Company as a whole. The Company is actively
looking to recruit additional Non-Executive
Directors who will bring a range of diverse skills
2012 and perspective to the Board’s activities but this
will take time. To ensure continuity and a
successful transition, the Board has decided to
recommend that Judith and Kenneth be
re-appointed to the Board at the 2013 AGM.
The composition of the Board is one of the key
actions to which I continue to give my full
attention and appropriate recommendations
will be made in due course.
As part of the review of the Board’s
effectiveness, the documents setting out the
matters reserved for the Board and the
delegations to the CEO, together with the
terms of reference for the Board Committees,
were reviewed and updated, where necessary,
to ensure that they continue to reflect the spirit
and emphasis of the Code, remain fit for
purpose and relevant to how RB operates.
Explanation on Areas of Non-compliance
(strict interpretation)
The Board recognises that the objective of the
Code is to facilitate management’s delivery of
business success in a transparent and
responsible manner. The Code does not impose
a rigid set of rules and recognises that certain
actions and behaviours do not automatically
imply poor organisational governance.
The Board has authorised an explanation for
the following areas where a strict interpretation
might lead to a perception of non-compliance
with certain areas of the Code:
• I, as the Chairman, and Peter Harf, the
Deputy Chairman and Shareholder-
nominated Director, have both served on the
Board for more than nine years and will be
offering ourselves for re-election at the 2013
AGM; and
• Kenneth Hydon and Judith Sprieser have
now been on the Board for nine years each
and are currently the Chairs of the Audit and
Remuneration Committees respectively. The
Company continues to benefit from the skills
and experience they bring to their roles and
they will offer themselves for re-election at
the 2013 AGM. Whilst recognising that it is
important that the Board retains relevant
knowledge and experience to continue its
delivery of Shareholder value and to provide
continuity and consistency in the
development and application of the
Company’s strategic objectives, the Board
will review Kenneth and Judith’s
chairmanship of the respective Committees
and will continue its efforts to refresh the
membership of the Board in the short-term.
The Board has instructed me to confirm that,
notwithstanding the foregoing disclosures and
following the detailed performance evaluation
undertaken during 2012, each Director’s
independence of thought and actions was
assured and all decisions were taken to
promote the success of RB as a whole.
Statement of Compliance with the Code
The Corporate Governance Report on pages 24
to 29 contains a summary of the Company’s
governance arrangements as required under
the Code. Except as explained above, the
Company has complied with the Code
throughout the year ended 31 December 2012.
Adrian Bellamy
Chairman
8 March 2013
23
2012 Corporate Governance Report
The Company enjoys a premium listing on
the London Stock Exchange and is
therefore required to produce a Corporate
Governance Statement containing the
information set out in this Report. This
Report is prepared with reference to the
Financial Reporting Council’s UK Corporate
Governance Code (Code) in effect for the
financial periods beginning on or after 29 June
2010. This Report sets out how the Company
has applied the Main Principles of the Code
throughout the year ended 31 December 2012.
A: Leadership
A.1: THE ROLE OF THE BOARD
The Board leads and controls RB’s business
with a Board structure similar to that of its
key international competitor companies
which are mainly based in the US. The Board
approves strategy, carries out an advisory
and supervisory role and accepts ultimate
responsibility for the conduct of RB’s business.
The schedule of matters reserved for the
Board’s decision includes:
• Takeover offers and the response to any
takeover approach;
• Significant acquisitions, disposals and capital
expenditure projects;
• Final approval of annual budgets and
corporate plans;
• Approval of financial statements and
Shareholder communications;
• Treasury policies and risk management
policies;
• Significant changes to borrowing facilities or
foreign currency transactions; and
• Review and approval of recommendations
from the Committees of the Board.
The annual review of this schedule was
undertaken in November 2012 as part of the
performance evaluations conducted for the
2012 financial year.
The principal activities undertaken by the Board
are set out in the Business Review on pages 10
to 17.
Meetings
Board meetings are structured to allow open
discussion. The Board meets a minimum of five
times a year and constitutes additional
meetings (including by telephone or written
resolutions) to consider specific matters which it
has reserved to itself for decision.
In 2012, there were five regular Board meetings
(plus one additional meeting). There were four
Audit Committee meetings, four Remuneration
Committee meetings (plus one additional
meeting) and one Nomination Committee
meeting. The table below sets out the
attendance by individual Directors at scheduled
Board and Committee meetings.
Directors’ Insurance and Indemnities
The Directors benefit from the indemnity
provision in the Company’s Articles of
Association. Each individual, who is an Officer
of the Company and/or of any company within
RB at any time on or after 28 July 2009,
benefits from a deed poll of indemnity in
respect of the costs of defending claims against
him or her and third party liabilities. Directors’
and Officers’ liability insurance cover was
maintained throughout the year at the
Company’s expense.
A.2: DIVISION OF RESPONSIBILITIES
There is a clear division of responsibilities
between the Chairman and the CEO. The
Chairman is responsible for the overall
operation, leadership and governance of
the Board.
The CEO is responsible for the executive
management of RB’s business, consistent with
the strategy and commercial objectives agreed
by the Board. The CEO chairs the Executive
Committee and, together with the CFO, certain
Group functional heads and Area EVPs he
appoints to the Committee, provides the
day-to-day management of the Company.
Biographical details of the members of the
Executive Committee are set out on page 18.
The matters delegated to the CEO by the
Board include:
• Power to delegate the day-to-day
management of the business of the
Company to each of the Officers of the
Executive Committee, acting individually or
as a group or sub-committee. During the
year, this power was used to establish an
internal Disclosure Committee to assist the
CEO and CFO with regulatory disclosure
controls and procedures;
• Power to acquire and dispose of businesses
and to approve unbudgeted capital
expenditure projects subject, in each case, to
a £50m limit; and
• Power to instruct advisers and to instigate
legal proceedings on behalf of the Company
in respect of matters for which no further
Board authority is required.
A.3: THE CHAIRMAN
The Chairman, who was independent on
appointment, is responsible for leading the
Board and enabling the Directors to operate
effectively as one unit to determine the
strategy, risk appetite and governance structure
necessary to deliver Shareholder value in a
transparent and responsible manner. His
responsibilities include:
• Chairing and ensuring that Board meetings
provide a forum that encourages open
debate and effective contributions from
individual Directors with sufficient time
allocated to key issues;
• Developing an effective working relationship
with the CEO whilst recognising the need to
maintain the balance between critical
friendship and executive responsibility;
• Finalising the Board meeting agenda
developed by the CEO and the
Company Secretary;
• Sponsoring and promoting governance and
ethical practices;
• Encouraging dialogue between the Company
and its Shareholders and other stakeholders
and facilitating the Board’s understanding of
Shareholders’ concerns;
• Overseeing the induction, information and
support provisions for Directors; and
• Leading the annual performance evaluation
of the Board and its Committees.
Number of Scheduled Meetings Attended during 2012
Note
Board
Audit
Remuneration
Nomination
Adrian Bellamy
Richard Cousins
Liz Doherty
Peter Harf
Kenneth Hydon
Rakesh Kapoor
André Lacroix
Graham Mackay
Judith Sprieser
Warren Tucker
Notes
(a) Peter Harf was unavoidably absent from one meeting.
24
(a)
5
5
5
4
5
5
5
5
5
5
4
4
4
4
4
4
4
1
1
1
1
1
1
2012
A.4: NON-EXECUTIVE DIRECTORS
The Non-Executive Directors are independent of
management and therefore able to provide
critical input into Board decisions through their
contributions to Board discussions and their
roles on, and Chairmanship of, Board
Committees. They:
• Contribute international and operational
experience and a knowledge and
understanding of global financial issues, the
sectors in which RB operates and the health
and safety, environmental and community
challenges it faces;
• Monitor management performance against
strategy and provide reasoned input and
constructive challenge to ensure objectives
are met; and
• Assess and monitor the integrity of financial
information and the systems of risk
management and internal control.
The Chairman holds a session with other
Non-Executive Directors at the conclusion of
each formal Board meeting without the
Executive Directors present.
The Senior Independent Director (SID) provides a
sounding board for the Chairman and is
available to the other Directors and
Shareholders who have concerns that cannot be
addressed through the Chairman, CEO or CFO.
B: Effectiveness
B.1: BOARD COMPOSITION
The Board comprises eight Non-Executive
Directors including Adrian Bellamy, the
Chairman, and two Executive Directors, Rakesh
Kapoor, CEO and Liz Doherty, CFO until 12
February 2013 and Adrian Hennah, CFO from
12 February 2013. Information regarding the
Directors serving at the date of this Report is set
out on page 18. Additional biographical details
are available from the Company’s website.
The Board has identified Graham Mackay as the
SID. The majority of Non-Executive Directors
(excluding the Chairman) are independent as
recommended by the Code. The Board has
deemed Judith Sprieser and Kenneth Hydon as
independent notwithstanding that they have
served nine years as Directors. The Chairman,
Adrian Bellamy, was independent on
appointment. Peter Harf, the Deputy Chairman,
is not independent by virtue of being a
Shareholder-nominated Director. The
Shareholder Agreement between the Company
and JAB Holdings B.V. (JAB) at the time of the
merger in 1999 entitled JAB to nominate Board
Directors. A holding in excess of 20% or 10%
of the Company’s ordinary shares entitles JAB to
nominate two Directors or one Director
respectively. JAB’s current holding is
approximately 10%.
B.2: NOMINATION COMMITTEE AND
BOARD APPOINTMENTS
Nomination Committee
The Nomination Committee comprises the
Chairman, who also chairs the Committee, the
CEO, the Deputy Chairman, the SID and the
Chairs of both the Audit and Remuneration
Committees. The Board has delegated authority
to the Committee through its terms of
reference, a copy of which is available on the
Company’s website. The primary focus of the
Committee is to make recommendations on:
• The composition and performance of the
Board and its Committees;
• Appointments and re-elections to the Board
and its Committees; and
• Succession plans for the Chairman and
other Directors.
The principal activities of the Nomination
Committee during the year were the:
• Consideration of the current and future
composition of the Board; and
• Together with the rest of the Board, the
appointment of Adrian Hennah as the
new CFO.
Board Appointments
In respect of the appointment of Adrian
Hennah as CFO and Executive Director and the
sensitivities surrounding the change in CFO
within a relatively short period of time, the
Company initially retained a search consultant
with which it had worked previously. A list of
current FTSE 100 financial directors was
reviewed and a shortlist of potential candidates
produced. Taking a comprehensive approach,
the Company decided to invite a boutique
search agency, which specialised in the City of
London and private equity appointments to
support the recruitment process and a desk
exercise was undertaken to identify a shortlist
of interested candidates. There was significant
input from the existing Non-Executive Directors
in the candidate identification and meetings
process with only the remuneration aspects
delegated to the Remuneration Committee.
Furthermore, the issues leading up to the
decision to change CFO were ones discussed by
the full Board (excluding Liz Doherty).
Diversity and Business Success
The Board is confident that diversity contributes
to the success of any business. It enables the
business to better understand its opportunities
and risks and to develop robust solutions to
them. The Board believes and acts on the
basis that:
• Diversity is much broader than gender and
should also not be a Board only issue. It
incorporates diversity of race, thought,
experience, skills, understanding, perspective
and age and also requires implementation at
all management levels;
• Successful companies sell their goods and
services to customers regardless of gender,
race, ethnic group or religion and a diverse
workforce should reflect its customers. A
diverse management is more in touch with
its customers’ demands, investors’
expectations and employees’ concerns and
provides a forum for these different
perspectives to come together in devising
successful business strategies; and
• Diversity is a matter of organisational culture
largely set by example from the top. A Board
that actively considers diversity is better able
to support diversity efforts in the rest of the
organisation and is equipped to identify the
organisation’s requirements.
Directors’ Conflicts of Interest
The Nomination Committee is responsible for
the Company’s procedures for dealing with
Directors’ conflicts of interest and these
procedures have operated effectively during the
year. A register of Directors’ conflicts is
maintained by the Company Secretary and
reviewed by the Board at least annually. The
Board is aware of the other commitments of its
Directors and any changes to these
commitments are reported to the Board.
B.3: COMMITMENT
All new Non-Executive Directors confirm in
writing that they are able to allocate sufficient
time to meet the expectations of the role. The
Board has adopted a letter of appointment that
contains the terms on which Non-Executive
Directors will be appointed including:
• Confirmation that the appointment is a
contract for services and details of any
Committee appointments;
• Confirmation of the initial appointment term
of three years terminable on one month’s
written notice and the expectation that the
appointment will usually last for more than
one term; and
• The requirement to seek the agreement of
the Chairman before accepting additional
commitments including other directorships
and the requirement to disclose any actual or
potential conflicts of interest.
The terms of reference of the Nomination
Committee give the Committee responsibility
for ensuring that Executive Directors do not
take on more than one non-executive
directorship in a FTSE 100 company nor
the chairmanship of such company.
The performance review of the Board
undertaken in 2012 concluded that the
Chairman and other Non-Executive
Directors devote sufficient time to the
Company’s business.
B.4: DEVELOPMENT
Induction and Training
All new Directors are provided with a flexible
induction programme tailored to accommodate
individual areas of interest. The induction covers
the provision of core Company related internal
and external documents, meetings with key
Directors and senior executives and visits to
various offices and factories as appropriate.
The Board holds at least one meeting each year
at one of the Company’s operating units. The
2011 meeting was held in India and the 2012
meeting was held in Brazil. The Board plans to
visit its operating unit in China during 2013.
The Board receives updates on legal, regulatory
and governance matters from its internal and
external advisers. As part of its investor relations
programme, the Board received a presentation
from an analyst who gave an overview of the
market and general perceptions about
the Company.
25
2012 Corporate Governance Report continued
The Chairman has overall responsibility for
ensuring that the Directors receive the
information and training required for their roles
and Directors are encouraged to take individual
responsibility for identifying their needs and are
expected to take the necessary steps to ensure
that they are adequately informed about RB
and their responsibilities as Directors. The Board
is confident that all its members have the
knowledge, ability and experience to perform
the functions required of a director of a
listed company.
During the year, the Company became subject
to an FSA enquiry which has not concluded as
at the date of this Annual Report. There had
been an inadvertent breach of the Listing Rules
(LR) when the granting of security during 2010
over shares held by the CEO (when he was an
Executive Committee member and a person
discharging managerial responsibilities (PDMR)
as defined by the Disclosure and Transparency
Rules (DTR)) was not undertaken in accordance
with the requirements of the LR and the DTR.
The relevant shares were registered for the
Company’s dividend reinvestment plan (DRIP)
and received DRIP shares for the September
2011 and May 2012 dividends automatically
into the pledged shares account. In addition, a
PDMR disposed of Company shares without the
appropriate disclosures being made. The
Company has since taken steps to tighten its
disclosure controls and procedures to ensure
that all relevant PDMRs remain aware of their
obligations under the LR and the DTR. The
Company has also established an internal
Disclosure Committee to assist them in ensuring
compliance with relevant regulations.
B.5: INFORMATION AND SUPPORT
All members of the Board receive timely reports
on items arising at meetings of the Board
enabling due consideration of the items in
advance of meetings. Directors unable to
attend a particular meeting during the year had
the opportunity to review and raise any issues
on the relevant briefing papers. Board members
also have access to a dedicated online team
room containing relevant Company information
including all Board and Committee papers.
Each Director has access to the advice and
services of the Company Secretary and a
procedure exists for Directors to take
independent professional advice at the
Company’s expense in furtherance of
their duties.
Company Secretary
The Company Secretary ensures that the
Company complies with all applicable rules,
regulations and obligations governing the
Company’s operations and is responsible for
ensuring that the correct Board procedures are
followed. She advises the Board on corporate
governance matters. All Directors have access
to the Company Secretary. Her appointment
and removal are matters reserved to the Board.
B.6: EVALUATION
Performance Evaluation
The Board maintains an ongoing review of its
procedures and its effectiveness and those of its
26
Committees throughout the year. It carries out
a formal and rigorous internal evaluation of its
performance, its Committees and of individual
Directors with a view to improving the
effectiveness of the Board and its Committees
and RB’s overall performance.
As disclosed in the 2011 Annual Report, it was
the Board’s intention to undertake its 2012
performance evaluation with support from an
external facilitator. In the end it was decided
that this was not appropriate for the Company
for the 2012 evaluation due to the recent
change in CFO and various other activities
undertaken by the Company.
2012 Evaluation: Although an externally
facilitated evaluation was not undertaken, the
Board is assured that the internal performance
evaluation of the Board and its Committees
undertaken during 2012 was detailed, rigorous
and effective. The process commenced with an
email from the Company Secretary to all
Directors inviting their comments on the
effectiveness of the Board. The responses
received were reviewed by the Chairman and
used to develop a framework for the debate at
the evaluation meeting. The range of topics was
distilled into the following key topics:
• Corporate strategy: the focus was on more
pre-planning for the strategy meetings
including understanding management’s key
strategic focus which could be shared with
the Board well in advance of the formal
annual strategy session;
• Investor relations: additional clarity on the
Company’s investor relations strategy;
• Risk management: it was recognised
that there was better risk control and
reporting generally;
• Advance papers to the Board: more
comprehensive papers in certain areas
and ensuring that significant issues are
not presented to the Board without
prior notification;
• Offsite Board meeting: taking steps to make
the most of these meetings and using them
as opportunities for the Board to meet
Top400 executives in less formal settings.
Possibility of increased Non-Executive Director
availability during the week of the offsite
Board meeting;
• Time management: it was acknowledged that
the Board has a limited number of meetings
annually and there was discussion on
whether there were opportunities to ensure
that Non-Executive Directors’ time was being
used in the best possible way; and
• People and succession: ensuring continued
Non-Executive Director exposure to Top400
executives, providing more details to all
non-Nomination Committee members
on succession planning and medium- to
long-term succession planning for
Executive Directors.
Progress Update on Items from the 2011
Evaluation: Key actions from the 2011 Board
performance evaluation and progress made
since then include:
• Developing Markets (now LAPAC and
RUMEA): arising from the 2011 evaluation
was a need to better understand the
Company’s China strategy for the next
decade. Presentations on LAPAC took place
during the year with specific attention on
China. The 2013 offsite Board and strategy
meetings will take place in China, allowing
for a more in-depth focus.
• Investor Relations: a presentation on
investor-related issues was delivered by a
member of the investor community at a
Board dinner which gave Board members
additional insight into Company issues that
were of interest to the investor community
and also provided Directors with an
opportunity to ask questions and gain a
better understanding of issues that may
impact the Company.
• Exposure of RB management below the
Executive Committee to the Board: all
members of the Executive Committee had an
opportunity to present to the Board during
the year. Additionally seven members of the
Top40 and another seven colleagues from
the Top400 delivered presentations to either
the Audit Committee or the Board during
the year.
• Product category management: the EVP,
Category Development, Heather Allen,
presented to the Board during the year and
one of the Non-Executive Directors, Richard
Cousins, spent a day with the Category
Development organisation learning more
about RB brands and markets.
These outcomes and actions will also feed
into any externally facilitated evaluation carried
out in 2013 or 2014 and will aid benchmarking
and the measurement of progress against
prior years.
The evaluations of the Board Committees were
undertaken with the use of detailed internally
generated questionnaires which included a
section for additional comments. The scores and
additional comments were collated for
subsequent discussions.
The evaluation of the Chairman’s performance is
undertaken by the SID with input from his
fellow Non-Executive Directors and the CEO and
CFO. The Chairman evaluates each Director’s
performance through one-to-one discussions
with other Directors. The Remuneration
Committee also reviews the performance of the
Executive Directors and other members of the
Executive Committee.
B.7: DIRECTORS’ RE-ELECTION
In accordance with the Code recommendations
all the Directors will submit themselves for
re-election/election at the 2013 AGM. Each
Director has provided assurance that he or she
remains committed to his or her role and can
dedicate the necessary amount of time to
attend to the Company’s business. In addition,
the performance evaluation undertaken was
rigorous and transparent to ensure that each
Director remains able to undertake his or her
duties. Consequently, the Board recommends
that all Shareholders vote ‘for’ on each of the
resolutions to re-elect/elect the Directors at the
2012 2013 AGM. The date each Director was
originally appointed to the Board is included in
the biographical details on page 18.
C: Accountability
C.1: FINANCIAL AND BUSINESS REPORTING
The Board is responsible for the integrity of RB’s
consolidated and the Company’s financial
statements and recognises its responsibility to
present a balanced and understandable
assessment of RB’s position and prospects. The
Board is satisfied that the financial statements,
report to regulators and price-sensitive reports
present a balanced and understandable
assessment of RB’s position and prospects.
To assist with financial reporting and the
preparation of consolidated financial
statements, the finance function has in place a
series of accounting and Treasury policies,
practices and controls which are designed to
ensure the identification and communication of
changes in accounting standards, and
reconciliation of core financial systems. The
function consists of consolidation and financial
accounting teams and technical support which
comprises senior finance managers who review
external technical developments and accounting
policy issues. In addition, the finance function
maintains an up-to-date Group Finance Policy
Manual and sets formal requirements with
business unit finance functions which specify
the standard reports and approvals required
by RB.
Throughout the year RB has had in place an
ongoing process for evaluating the financial
reporting process and the preparation of
consolidated accounts. The basis for the
preparation of consolidated accounts is as set
out on page 43 under Accounting Policies.
The Board agrees an engagement letter with
the Auditors in respect of the full and half-year
results and the Auditors’ statement on their
work and reporting responsibilities is set out on
page 38.
Information on RB’s business model and strategy
for generating and preserving longer term
growth and delivering on the Company’s stated
objectives is set out in pages 2 to 8 of the Chief
Executive’s Statement.
The Statement of Directors’ Responsibilities on
page 30 details the Directors’ responsibility for
the financial statements and for disclosing
relevant audit information to the Auditors.
The going concern statement required by the
Listing Rules and the Code is set out in the
Statement of Directors’ Responsibilities on
page 30.
C.2: RISK MANAGEMENT AND INTERNAL
CONTROL
The Board has established a risk and control
structure designed to manage the achievement
of business objectives. It has overall
responsibility for RB’s system of internal control
and for the effectiveness of such system. The
system complies with the Turnbull guidance on
Internal Control and Risk Management and
provides reasonable, but not absolute,
assurance against material misstatement or loss.
The Board maintains an ongoing process for
evaluating the system of internal control and
identifying and managing risk. Management is
required to apply judgement in evaluating the
material risks RB faces in achieving its objectives,
in determining the risks that are considered
acceptable to bear, in assessing the likelihood of
the risks concerned materialising, in identifying
RB’s ability to reduce the incidence and impact
on the business of risks that do materialise and
in ensuring that the costs of operating particular
controls are proportionate to the benefit.
RB’s control environment is supported by a
Code of Conduct, on which employees receive
training annually, and a range of policies on
corporate responsibility. Other key elements
within the internal control structure are
summarised as follows:
• The Board and Management – the Board
approves strategy and performs an advisory
and supervisory role, with the day-to-day
management of the Company being
undertaken by the CEO supported by the
Executive Committee. The CEO and other
Executive Committee members have clearly
communicated RB’s vision, strategy, operating
model, values and business objectives across
the Group;
• Organisational Structure – during the year
ended 31 December 2012, RB operated three
area organisations covering ENA, LAPAC
RUMEA together with RB Pharmaceuticals
and Food, and centralised functions covering
category development, supply, sales, finance
and legal, information services and human
resources, as well as an independent internal
audit function. Throughout the organisation,
the achievement of business objectives and
the establishment of appropriate risk
management and internal control systems
and processes are embedded in the
responsibilities of line managers;
• Budgeting – there is an annual planning
process whereby operating budgets for the
following financial year are prepared and are
reviewed by the Board. Long-term business
plans are also prepared and are reviewed by
the Board on an annual basis;
• Management Reporting – there is a
comprehensive system of management
reporting. The financial performance of
operating units and RB as a whole are
monitored against budget on a monthly basis
and are updated by periodic forecasts. Area
and functional executives also perform
regular business reviews with their
management teams, which incorporate an
assessment of key risks and opportunities;
• Risk Management – as part of the ongoing
risk and control process, operating units
review and evaluate risks to the achievement
of business objectives and the Board reviews
those significant risks which might impact on
the achievement of corporate objectives.
Mitigating controls, together with any
necessary actions, are identified and
implemented. A summary of the most
significant risks faced by RB is included in the
Business Review on pages 13 to 15;
• Operating Unit Controls – each operating
unit maintains a system of internal control
and risk management which is appropriate to
its own business environment. Such controls
must be in accordance with Group policies
and include management authorisation
processes, to ensure that all commitments on
behalf of RB are entered into only after
appropriate approval. In particular, there is a
structured process for the appraisal and
authorisation of all material capital projects;
and
• Monitoring – the effectiveness of the system
of internal control and risk management is
monitored regularly through a combination
of management review, self-assessment,
independent review through quality
assurance, environment, health & safety and
regulatory audits, as well as independent
internal and external audit. The results of
internal and external audit reviews are
reported to and considered by the Audit
Committee, and actions are taken to address
any significant control matters identified. The
Audit Committee also approves annual
internal audit plans and is responsible for
performing the ongoing review of the system
of internal control and risk management on
behalf of the Board.
The Board confirms that reviews of the
appropriateness and effectiveness of the system
of internal control and risk management
throughout the financial year and up to the
date of approval of the Annual Report and
Accounts have been satisfactorily completed in
compliance with provision C.2.1 of the Code.
The Company is compliant with DTR 7.2.6 and
the information is included in the section on
Takeover Directive on pages 19 to 20.
C.3: AUDIT COMMITTEE AND AUDITORS
Audit Committee
The Audit Committee comprises three
Independent Non-Executive Directors: Kenneth
Hydon, Chairman since 16 November 2006,
(whom the Board has deemed independent
notwithstanding he has served nine years on
the Board), André Lacroix and Warren Tucker.
Kenneth Hydon, FCMA, FCCA, FCT, was CFO
of Vodafone Group plc until July 2005 and
Warren Tucker is CFO of Cobham plc.
Therefore, they both have relevant and recent
financial experience. RB’s Auditors, Head of
Internal Audit and CFO attend meetings and
have regular private meetings with and direct
access to the Committee. The Chairman and
CEO attended some of the meetings and other
senior management attend Audit Committee
meetings by invitation.
The Audit Committee:
• Monitors the adequacy and effectiveness of
the system of internal control;
• Reviews compliance procedures and RB’s
overall risk framework (including the Group’s
whistleblowing arrangements);
• Considers reports on Internal Audit’s
activities, significant legal claims and
regulatory issues;
27
Report of the Directors2012 Corporate Governance Report continued
• Reviews the interim and full year financial
statements before submission to the
full Board;
• Makes recommendations to the Board
regarding the Auditors and their terms
of appointment;
• Reviews and monitors the Auditors’
independence and services supplied and the
objectivity and the effectiveness of the audit
process; and
• Considers operational risk and control
presentations from management covering
assurance providers, geographical and
functional areas.
During 2012 the Audit Committee:
• Met four times;
• Considered detailed risk and control reviews
for specific selected Group major risks;
• Reviewed local country and regional risk and
control status during the overseas Board visit;
• Agreed an approach to deliver independent
programme assurance for the SAP and
business transformation programme and
monitored delivery of that assurance;
• Approved updates to the Finance Policy
Manual and the Treasury policies;
• Monitored the progress against the
relaunched whistleblowing policy;
• Reviewed and updated the policy for
non-audit fees to the Auditors and monitored
its application;
• Reviewed and carefully considered the
justification for exceeding the Company’s
policy on non-audit fees in 2012;
• Reviewed the Audit Committee terms of
reference and the annual ‘Standing Agenda’;
• Reviewed the effectiveness of, and approved
recommendations for changes to, the Internal
Audit function;
• Approved the terms of engagement and
reviewed the strategy, scope and effectiveness
of the Auditors;
• Reviewed and discussed with the Auditors
the findings of their work during the year;
• Received regular technical updates to keep
abreast of changes in financial reporting and
governance matters; and
• Reviewed the performance of the Audit
Committee itself and agreed actions for
improvement.
Auditors and Auditor Independence
PricewaterhouseCoopers LLP (PwC) and its
predecessor firms have been the sole auditors
of RB since 2000, the year after the merger of
Reckitt & Colman plc and Benckiser N.V. in
1999, and the Company’s Auditors since its
formation in 2007. At the time of the merger,
PwC were the auditors of Reckitt & Colman plc
and Deloitte LLP were the auditors of Benckiser
N.V. Post merger, the Audit Committee
undertook a review and subsequently selected
PwC as auditor for the Group for the December
2000 year end. In the opinion of the Audit
Committee, the relationship with the Auditors
28
works well and the Committee remains
satisfied with their independence and
effectiveness. It has, accordingly, not considered
it necessary to require the firm to tender for the
audit work, although this is kept under review
annually. It is a requirement that the audit
partner responsible for audit is rotated every
five years and the current lead audit partner,
who has been in place since 2008, will
accordingly rotate off in 2013. There are no
contractual obligations restricting the
Company’s choice of Auditors.
RB has a formal policy in place to safeguard
Auditor independence. The Audit Committee
and the CFO keep the independence and
objectivity of the Auditors under review. The
Committee reviews the nature and level of
non-audit services undertaken by the Auditors
during the year to satisfy itself that there is no
impact on their independence. The Board
recognises that in certain circumstances the
nature of the advice required may make it
more timely and cost effective to appoint the
Auditors who already have a good
understanding of RB.
During the year, the Company exceeded its
published policy that, on an annual basis,
non-audit fees are not in excess of 50% of the
Group’s external audit fees on an aggregate
basis. The Board would like to emphasise that
this is not a change in policy. The breach was a
consequence of seeking PwC’s tax advice as part
of the Group’s organisational and operational
restructuring necessary to implement RB’s new
strategy announced earlier in the year to refocus
the business into three key areas – health,
hygiene and home.
Prior to awarding the contract to PwC, a
detailed tender process was undertaken with
the ‘big four’ accountancy firms followed by a
series of meetings and information exchanges.
PwC was selected for this one off project
because its detailed knowledge of the Group
made its proposal ultimately the most cost
effective and time efficient for the Company.
The project is closely related to work PwC has
already undertaken for the Company in other
key areas. The PwC tax advisory team is
independent and separate from its tax audit
team which undertakes the annual audit for
the Company.
The work on the project is continuing and the
Company does not, at this time, anticipate
exceeding its stated policy on non-audit fees
for 2013.
Following a recommendation by the Audit
Committee and in accordance with section 489
of the 2006 Act, a resolution proposing the
re-appointment of PwC as the Company’s
Auditors will be put to the Shareholders at the
AGM. RB does not indemnify its Auditors.
The Auditors report to the Audit Committee on
the actions they take to comply with
professional and regulatory requirements and
with best practice designed to ensure their
independence from RB, including periodic
rotation of the audit engagement partners.
Details of non-audit services are set out in
note 4 on page 50.
D: Remuneration
D.1: THE LEVEL AND COMPONENT OF
REMUNERATION
The Company’s compensation plan is
performance-driven and designed to foster RB’s
innovative and entrepreneurial culture.
Following the 1999 merger of Reckitt &
Colman plc and Benckiser N.V. the Board set
out to create a truly multinational Company
and, as a result of this approach, people of
many nationalities work with local citizens in
each location in which RB operates.
The level and composition of remuneration
across RB is designed to facilitate global mobility
and diversity. A similar employment contract is
used and compensation rules apply equally for
RB’s Top400 managers in all markets. Salary
ranges are based on global benchmarking and
RB’s annual cash bonus structure, long-term
incentives and other benefits are offered across
operating companies.
Details on the Company’s remuneration strategy
and the Directors’ compensation arrangements
are set out in the Directors’ Remuneration
Report on pages 31 to 37.
D.2: REMUNERATION COMMITTEE AND
PROCEDURE
The Remuneration Committee chaired by Judith
Sprieser comprises four members. As at August
2012, Judith Sprieser had served nine years
on the Board. Nonetheless, pursuant to Code
provision B.1.1, the Board has determined
that, in its opinion, Judith Sprieser remains
independent. Graham Mackay and Richard
Cousins are considered independent under the
Code. The fourth member of the Committee
is the Chairman, Adrian Bellamy, who was
independent on appointment but has served
on the Board for more than nine years.
The Committee’s purpose is to assist the
Board in fulfilling its oversight responsibility
by ensuring that remuneration policy and
practices reward fairly and responsibly; are
linked to corporate and individual performance;
and take account of the generally accepted
principles of good governance. On behalf of
the Board and subject to Board approval, the
Committee primarily:
• Sets and regularly reviews the Company’s
overall remuneration strategy;
• Determines the general remuneration policy
for senior executives; and
• In respect of the Chairman, the Executive
Directors and members of the Executive
Committee sets, reviews and approves:
• Remuneration policies, including annual
bonuses and long-term incentives;
• Individual remuneration and compensation
arrangements;
• Individual benefits including pension and
superannuation arrangements;
• Terms and conditions of employment
including the Executive Directors’
service agreement;
2012 E.2: THE ANNUAL GENERAL MEETING
The AGM provides all Shareholders with an
opportunity to vote on the resolutions put to
them. The AGM is used as the main
opportunity for the Directors to meet directly
with private investors. It is attended by the
Directors and all Shareholders present are given
the opportunity to ask questions of the
Chairman, the Chairs of Board Committees and
the Board as a unit.
All resolutions are voted on by way of poll so
that each share has one vote. The results of the
poll are released to the Stock Exchange and
published on the website shortly after the AGM.
• Participation in any of the Company’s
bonus and long-term incentive plans; and
• The targets for any of the Company’s
performance-related bonus and long-term
incentive plans.
The Chairman of the Board together with the
CEO and CFO are responsible for evaluating and
making recommendations to the Board on the
remuneration of the Non-Executive Directors.
Members of the Remuneration Committee and
any person attending its meetings do not
participate in any discussion or decision on their
own remuneration.
Detailed information on the Committee and
its activities is set out in the Directors’
Remuneration Report on pages 31 to 37.
E: Relations with Shareholders
E.1: RELATIONS WITH SHAREHOLDERS
The Board is committed to effective
communication between the Company and its
Shareholders. The Executive Directors and the
Director of Investor Relations meet regularly
with institutional Shareholders and financial
analysts in Europe and North America to discuss
matters relating to the Company’s business
strategy and current performance. The Board
receives regular monthly reports from the CEO
which include updates on share price
developments, major buyers and sellers of
shares, investors’ views and analysts’ reports on
the industry and on the Company specifically.
Feedback on presentations and roadshow
meetings with institutional investors is
presented to the Directors following twice-
yearly roadshows in Europe and North America.
The investor relations programme includes:
• Formal presentations of full year and
interim results and quarterly interim
management statements;
• Regular meetings between institutional
investors and senior management to ensure
that the investor community receives a
balanced and complete view of RB’s
performance, the issues faced by RB and any
issue of concern to the investors;
• Responding to enquiries from institutional
Shareholders through the Company’s investor
relations team and from retail Shareholders
through the Company Secretary; and
• A section dedicated to Shareholders on the
Company’s website.
The Chairman is available to discuss governance
and strategy with major Shareholders should
such a dialogue be requested. During the year
the Chairman liaised with Shareholders and
reported on these meetings to the Directors.
The Company believes that it is important to
make key executives available, along with the
SID, if required, to discuss matters of concern
with its Shareholders.
29
2012 Disclosure of Information to Auditors
The Directors, having made appropriate
enquiries, state that:
a) So far as each Director is aware, there is no
relevant audit information of which the
Company’s auditors are unaware; and
b) Each Director has taken all the steps that
he/she ought to have taken as a Director
to make him/herself aware of any relevant
audit information and to establish that
the Company’s auditors are aware of
that information.
By Order of the Board
Elizabeth Richardson
Company Secretary
Reckitt Benckiser Group plc
103-105 Bath Road
Slough, Berkshire SL1 3UH
Company registration number: 6270876
8 March 2013
Statement of Directors’ Responsibilities
The Directors are responsible for preparing
the Annual Report, the Directors’
Remuneration Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year.
Under that law the Directors have prepared the
Group financial statements in accordance with
IFRSs as adopted by the EU, and the Parent
Company financial statements in accordance
with United Kingdom (UK) Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards and applicable law). In
preparing the Group financial statements, the
Directors have also elected to comply with IFRSs
issued by the International Accounting
Standards Board (IASB). Under company law
the Directors must not approve the financial
statements unless they are satisfied that they
give a true and fair view of the state of affairs
of the Group and the Company and of the
profit or loss of the Group for that period.
In preparing these financial statements, the
Directors are required to:
• Select suitable accounting policies and then
apply them consistently.
• Make judgements and accounting estimates
that are reasonable and prudent.
• State whether IFRSs as adopted by the EU
and IFRSs issued by IASB and applicable UK
Accounting Standards have been followed,
subject to any material departures disclosed
and explained in the Group and Parent
Company financial statements respectively.
• Prepare the financial statements on the
going concern basis unless it is inappropriate
to presume that the Company will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Company and the Group and enable
them to ensure that the financial statements
and the Directors’ Remuneration Report
comply with the 2006 Act and, as regards
the Group financial statements, Article 4 of
the IAS Regulation.
They are also responsible for safeguarding the
assets of the Company and the Group and
hence for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the Company’s
website. Legislation in the UK governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Each of the Directors, whose names and
functions are listed on page 18 confirms that,
to the best of their knowledge:
• The Group financial statements, which have
been prepared in accordance with IFRSs as
adopted by the EU and IFRSs as issued by the
IASB, give a true and fair view of the assets,
liabilities, financial position and profit of the
Group; and
• The Report of the Directors includes a fair
review of the development and performance
of the business and the position of the
Group, together with a description of the
principal risks and uncertainties that it faces.
Going Concern
The Group’s business activities, together with
the factors likely to affect its future
development, performance and position are set
out in the Business Review on pages 10 to 17.
The financial position of the Group and
Company, its cash flows, liquidity position and
borrowing facilities, as well as the Group’s
objectives, policies and processes for managing
its capital; its financial risk management
objectives; details of its financial instruments
and hedging activities; and its exposure to
credit risk and liquidity risk are described in the
Business Review on page 14 and in note 14 to
the Group financial statements.
The Group has considerable financial resources
together with a diverse customer and supplier
base across different geographical areas and
categories. As a consequence, the Directors
believe that the Group and Company are well
placed to manage their business risks
successfully despite the current uncertain
economic outlook.
The Directors have a reasonable expectation
that the Group and Company have adequate
resources to continue in operational existence
for the foreseeable future. Thus they continue
to adopt the going concern basis of accounting
in preparing the annual financial statements in
accordance with the FRC’s ‘Going Concern and
Liquidity Risk: Guidance For Directors of UK
Companies 2009’. This statement is also made
to fulfil the requirements of Listing Rules
9.8.6R(3) and 9.8.10R(1) and C.1.2 of
the Code.
30
2012 Directors’ Remuneration Report
Remuneration Committee Chairman’s
Statement
In 2012, the subject of executive remuneration
has continued to be an area of focus for
shareholders and the wider public. Of particular
note is the ongoing consultation by the
Department for Business Innovation & Skills
(BIS) on this subject and its new regulations
relating to the disclosure and shareholder
approval of executive remuneration.
Whilst these regulations do not come into force
until RB’s 2013 financial year, we have
nevertheless incorporated a number of changes
this year in response to the draft regulations to
help make our Remuneration Report clearer
and easier to understand. As set out in our
Notice of AGM, there will continue to be a
single advisory vote on our 2012 Directors’
Remuneration Report at the 2013 AGM.
The Committee continues to believe that its
approach to remuneration, although different
in some respects to typical FTSE practice, is an
important factor in RB’s success, supporting a
strong performance culture and delivering
significant benefits to all Shareholders.
Central to our pay philosophy are the principles
of simplicity, Shareholder alignment and pay for
performance. We have positioned Executive
Director fixed pay (base salary, pension and
benefits) at or below median market levels, but
have provided Executives with incentive
opportunities that enable above-market pay for
above-market performance in terms of growth,
profitability and Shareholder returns. Our
approach to remuneration reflects the global
nature of our business. Our management team
is multinational, is globally mobile and we
compete for talent against a peer group of
global FMCG companies.
The remuneration of our Senior Executives is
heavily weighted towards long-term variable
equity components (performance-vesting shares
and options). This, together with our
demanding executive share ownership
requirements (equivalent to up to 29x salary),
gives Executives a significant dependency on
the long-term sustainability of our business,
and helps ensure Executives think like, and act
in the interests of, Shareholders.
During the year, I have taken the opportunity to
speak with a number of the Company’s largest
Shareholders on the subject of executive
remuneration. The Committee, and the Board
as a whole, take very seriously the views and
feedback of our Shareholders, and, although
the majority of Shareholders are strongly
supportive of our philosophy and policy on
remuneration, we did receive some comments
and concerns over the last year around
Executive Director service contracts, the size of
our LTIP grants, and the sole use of earnings
per share in our LTIP. Our service contracts are
now consistent with best practice and the
Committee continues to review the structure
and level of LTIP awards to ensure they
continue to align with Shareholders’ interests.
This is covered more fully later in this Report.
Judith Sprieser
Chairman of the Remuneration Committee
Directors’ Remuneration Report
The Directors’ Remuneration Report has been
prepared in accordance with the Large- and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 and
meets the relevant requirements of the
Financial Services Authority’s Listing Rules.
Policy on Remuneration
This section of our report describes the key
components of the remuneration arrangements
for Executive Directors that were in place for
2012 and which remain unchanged for 2013.
The Company operates a global remuneration
policy for its Senior Executives which is
reviewed every three years. The core principles
on which that policy is based are as follows:
1. The remuneration structure will be simple to
understand; and
2. The interests of Executive Directors and
Senior Executives will be strongly aligned
with those of Shareholders, with a heavy
emphasis on the link between pay and
performance, together with demanding
executive share ownership requirements.
The targeted positioning of total remuneration
will be based on international competitive
practice as the Company competes for
management skills and talent in broadly the
CEO and CFO remuneration package in 2013
Component
Base salary
Pension
Other benefits
Annual cash bonus (% of salary)
Performance shares (% vesting)
Share options (% vesting)
‘Below threshold’
‘Target’
‘Maximum’
Annual base salary CEO £832k, CFO £550k
CEO 30%, CFO 25% of pensionable pay
Taxable value of annual benefits provided
0%
0%
0%
120% CEO
90% CFO
40%
40%
428% CEO
321% CFO
100%
100%
same marketplace as its main competitors, the
majority of which are based in the US.
Variable pay is, and will continue to be, the
major element of the Company’s current
Executive Directors’ and Senior Executives’ total
compensation package. Accordingly, the
Executive Directors’ compensation package
comprises, in addition to base salary, an annual
cash bonus and share-based long-term
incentives. If the Group achieves its target levels
of performance, the variable elements will
amount to 66%-81% of Executive Directors’
total remuneration. If performance is
unsatisfactory, then no cash bonuses will be
paid and long-term incentives will not vest.
Highly-leveraged annual bonus opportunities,
linked to the achievement of key business
measures within the year, are designed to
stimulate the achievement of outstanding
annual results. Long-term incentives linked to
share price and earnings per share growth are
designed to reinforce Shareholder alignment.
In recent meetings with some of our largest
Shareholders, we discussed the possible addition
of a capital measure to balance earnings per
share in our long-term incentives. Having
considered the comments received from
Shareholders, the Remuneration Committee
(Committee) believes that the current levels of
executive share ownership obviate the need for
a balancing capital measure in the LTIP since the
proportion of personal net worth that the Senior
Executives have at risk in Company shares
motivates them to act in a manner consistent
with the best interests of our Shareholders.
The Company believes that the current
remuneration practices (summarised in the table
on page 32) meet the policy’s core principles:
31
2012
Directors’ Remuneration Report continued
Summary of Executive Director Remuneration Policy
Component
Objective
Operation
Opportunity in 2012
Performance measures
Changes for
2013
Variable Remuneration (incentives)
Annual bonus
Drive performance with
significant reward for
over-achievement
Share options
Performance shares
To incentivise and
reward longer-term
performance, and align
the interests of
Executives with those of
Shareholders
Share ownership
guidelines
Align with Shareholder
interests and reinforce
long-term
decision-making
Base Salary and Benefits
Base salary
To enable the total
package to support
recruitment and
retention
Pension
Benefits
To provide appropriate
levels of retirement
benefit (calibrated to be
at or around the market
average for equivalent
positions elsewhere)
To provide benefits
comparable to those
that would be provided
for an equivalent
position elsewhere
Net revenue and net income
growth targets are set by the
Committee at the start of the
year. At the end of the year,
the Committee determines
the extent to which these
have been achieved. Pay-outs
are in cash.
Similar incentive arrangements
are used for other Executives
worldwide
Conditional grants of share
options vest after three years
subject to the achievement of
stretching performance
targets
Conditional awards of shares
vest after three years subject
to the achievement of
stretching performance
targets
Executive directors are
expected to acquire a number
of shares over a period of
eight years and retain these
until retirement from the
Board
Base salaries are reviewed
annually with effect from
1 January.
Salary levels/increases take
account of:
• Competitive practice in the
Company’s remuneration
peer group, comprising 19
international companies1
• Individual performance
• Salary increases awarded
across the Group as a whole
Executive Directors receive
£50,000 p.a. into the RB
Executive Pension Scheme, a
defined contribution scheme,
and a cash allowance in lieu
for the balance of the
promised contribution (see
right). Base salary is the only
element of remuneration that
is pensionable
Includes company car/
allowance and health care.
Relocation allowances and
international transfer related
benefits may also be paid, if
required.
Growth in net revenue
and net income
None
Maximum opportunity
CEO: 428% of salary
CFO: 321% of salary
Target opportunity
CEO: 120% of salary
CFO: 90% of salary
Grants based on a
fixed number:
CEO: 400,000
CFO: 90,000
Awards based on a
fixed number:
CEO: 200,000
CFO: 45,000
Awards vest on RB’s 3-year
average earnings per share
growth:
40% vests at 6% p.a.
60% vests at 7% p.a.
80% vests at 8% p.a.
100% vests at 9% p.a.
Required ownership:
CEO: 600,000 shares
CFO: 200,000 shares
n/a
None
None
None
n/a
Salaries for Executive
Directors should
typically be at or below
the median for
competitors
n/a
CEO: 30% of
pensionable pay
CFO: 17.5% of
pensionable pay
CEO:
£832,000
(4%
increase)
CFO:
£550,000
(from date
of
appoint-
ment)
Pension for
new CFO
set at 25%
of
pensionable
pay
CEO: £31k in 2012
CFO: £24k in 2012
n/a
None
1 Avon, Bayer, Campbell, Church & Dwight, Clorox, Coca-Cola, Colgate-Palmolive, Danone, GSK, Henkel, Johnson & Johnson, Kimberley Clark,
Kellogg, Novartis, Pepsico, Pfizer, Procter & Gamble, Sanofi and Unilever.
32
2012 Service Contracts
During 2012, the Committee considered the
service contract for the new CFO and agreed
that it should be consistent with that of the
CEO. Consequently, the service contracts for
both the CEO and CFO (since Adrian Hennah
joined the Board in early 2013) are now rolling
and terminable on twelve months’ notice. In
such an event, the compensation commitments
in respect of their contracts could amount to
one year’s remuneration based on base salary
and benefits in kind and pension rights during
the notice period. Termination payments may
take the form of payments in lieu of notice.
External Appointments
Rakesh Kapoor does not hold any external
appointments. Adrian Hennah is a Non-
Executive Director of Reed Elsevier PLC and is
permitted to retain the fees he receives for
this appointment.
Exit Payments Policy
In the event of an Executive leaving the
Company payments may be made under the
annual bonus plan, as follows:
• If employment terminates by reason of
voluntary resignation or for ‘cause’, no bonus
will be made for the financial year in which
employment terminates.
• In all other circumstances, any bonus due will
be paid as soon as possible after the end of
the relevant financial year. Any such bonus
will be paid on a pro-rata basis taking
account of the period actually worked.
The LTIP rules (approved by Shareholders in
2007) provide for vesting in certain
circumstances in the event of an Executive
leaving the Company. These provisions are in
line with best practice, and more details are
available in the LTIP rules.
In the event of a change of control of the
Company, to the extent that any performance
conditions have been satisfied (unless the
Committee determines that the performance
conditions should not apply) unvested LTIP
awards will vest immediately. Awards will also
be reduced pro-rata to take into account
the proportion of the performance period
not completed, unless the Committee
decides otherwise.
CFO Transition
In February 2013, Adrian Hennah succeeded
Liz Doherty as CFO.
In line with her contractual entitlements, a
lump-sum termination payment will be paid to
Liz Doherty in April 2013 totalling £705,000,
which was provided for at the year end.
Unvested share and option awards held by
Liz Doherty will vest in accordance with the plan
rules, ie they will vest to the extent that any
performance conditions are satisfied based on
performance to 31 December 2013 and will
be reduced pro rata to take into account the
proportion of the performance period
not completed.
The remuneration package of Adrian Hennah is
based on the Company’s remuneration
philosophy, current market benchmarks and his
relative experience. Adrian Hennah’s package
(summarised below) reflects his experience both
as a CFO in a large-cap listed company and of
the consumer health care industry.
The package for Adrian Hennah in 2013 will be
as follows:
Element
Base salary
Pension
Annual bonus
Target
Maximum
Details
£550,000
25% of pensionable pay
90% of base salary
321% of base salary
Adrian Hennah was also granted 90,000 options
and 45,000 shares under the LTIP in February
2013, with vesting subject to the Company’s
earnings per share growth over the three-year
period starting with the 2013 financial year. The
size of Adrian Hennah’s LTIP grant in future years
will be determined by the Committee in
accordance with its regular schedule.
The Committee assessed the value of the
remuneration components forfeited by Adrian
Hennah as a result of his appointment to RB
and agreed to grant a sign-on award of
£200,000, payable on appointment, which
partially replaced the value of deferred bonus
awards at his prior employer. The sign-on
award was contractually committed and
therefore was provided for at the year end.
To reflect forfeited long-term incentive awards
in relation to his previous employment, in each
of December 2013 and December 2014
(subject to continued employment at each
relevant award date), Adrian Hennah will
receive a cash lump sum equal in value to
25,000 RB shares (based on the prevailing share
price on the relevant date). The net amount of
each cash sum will be required to be used to
purchase shares and retained as part of his
share ownership obligation (200,000 shares
within eight years of appointment).
Non-Executive Directors
Non-Executive Directors do not have service
agreements, but are engaged on the basis of a
letter of appointment. In line with the UK
Corporate Governance Code guidelines, all
Directors are now subject to re-election
annually at the AGM.
The Board, in the light of recommendations
from the Chairman, CEO and CFO, determines
the remuneration of the Non-Executive
Directors. Fee levels are reviewed every two
years, with external advice taken on best
practice and competitive levels, taking into
account fee levels at FTSE30 and other FTSE100
companies, and the responsibilities and time
commitment of each Non-Executive Director.
Non-Executive Directors’ remuneration consists
of fees for their services in connection with
Board and Board Committee meetings. In
addition to the basic fee, the Deputy Chairman,
Senior Independent Director, and Chairs of the
Audit and Remuneration Committees also
receive an additional fee in recognition of their
added responsibilities.
It is the policy of the Board that Non-Executive
Directors are not eligible to participate in any of
the Company’s bonus, share option, long-term
incentive or pension schemes. We do, however,
pay an element of the basic fee in RB shares.
The fee structures for the Chairman and
Non-Executive Directors for 2012 are shown in
Table 1 on page 36.
The fee structure for Non Executive Directors in
2013 is disclosed in Table 2 on page 36, and
was agreed following a biennial review of
Non-Executive Director fees in 2012.
Remuneration in 2012
THE PROCESS OF THE COMMITTEE
Main activities of the Remuneration
Committee in 2012
In 2012 there were five meetings, including
one held by written resolution. Our
activities included:
• Reviewing Executive Director and other
Senior Executive base salaries and benefits.
• Reviewing the global remuneration policy.
• Determining the annual cash bonus outcome
for the 2011 performance year.
• Determining the vesting outcome for
long-term incentives granted in December
2008 (which vested in May 2012).
• Agreeing short-term and long-term incentive
arrangements for 2012, including
performance targets.
• Reviewing its external, independent adviser.
The Remuneration Committee in 2012
The Remuneration Committee is responsible for
determining and reviewing the terms of
employment and remuneration of the Executive
Directors and Senior Executives. The
remuneration principles established for this
senior group of employees provide the
framework for the remuneration packages of
all other Executives. The Committee also has
responsibility for determining the remuneration
of the Chairman.
The Committee comprised four members
in 2012:
Judith Sprieser (Chairman)
Graham Mackay
Adrian Bellamy
Richard Cousins.
The Chairman is permitted (in accordance with
the UK Corporate Governance Code 2010
(Code)) to sit on the Remuneration Committee
if he was independent upon appointment as
Chairman. This is the case with Adrian Bellamy.
The Committee’s terms of reference are
available on the Company’s website.
Internal Advisers to the Committee in 2012
Internal advisers to the Committee include
Rakesh Kapoor, CEO, and Simon Nash, SVP
Human Resources. No individual is present
when his own remuneration is being discussed.
The Committee has the discretion to consider
corporate performance on ESG issues when
setting remuneration of Executive Directors and
seeks to ensure that the incentive structure for
senior management does not raise ESG risks by
33
2012
Directors’ Remuneration Report continued
Annual Cash Bonus
The annual cash bonus is closely linked to the
achievement of demanding pre-determined
targets geared to above-industry performance.
The performance measures attached to the
2012 annual cash bonus plan were net revenue
and net income growth. The Committee sets
performance targets each year, with reference
to prevailing growth rates in the Company’s
peer group, and across the health care and
FMCG industries more broadly. Based on this
data targets were set at a level where target
bonus (120% and 90% of salary for the CEO
and CFO, respectively) will be earned only
where the Company’s performance is above the
industry median. Still more stretching
percentage growth rates have been set above
target, and the achievement of these delivers
higher bonus payments for superior
performance, worth up to 428% of salary for
the CEO and 321% of salary for the CFO. Our
bonus is highly leveraged, truly variable and
reinforces significant outperformance of the
market; targets are aggressive and bonus
payouts are tied to actual performance against
industry peers. In the last three years, the CEO’s
bonus payouts have been 357% (CFO: 268%),
271% (CFO: 203%) and 134% (CFO: 101%)
of salary in 2009, 2010 and 2011 respectively.
Based on the Company’s performance in 2012,
against the net revenue and net income targets
set at the start of year, the Committee has
decided to make an annual bonus award of
227% of base salary to the CEO and 170% of
base salary to the CFO.
The annual cash bonus plan will remain
unchanged for 2013.
Under the terms and conditions of the annual
cash bonus plan, the Company has the right to
seek redress and damages from an individual
who has been found to have breached the
Company’s Code of Conduct, irrespective of
the position and location the individual might
hold, in or out of the Company, at the time the
breach of the Code of Conduct comes to light.
This includes the Company’s right to require an
individual to repay any costs incurred through a
breach of the Code of Conduct from any bonus
payment made in the year the breach/costs
were incurred. Annual bonuses are not
pensionable. The Committee also reserves the
right, in exceptional circumstances, to make
individual cash awards.
Long-Term Incentives
The Committee believes that a significant
element of share-based remuneration ensures
the financial interests of the Executive Directors
and other key Executives are aligned with those
of Shareholders. This is underpinned by a
significant share ownership requirement placed
on Senior Executives, with penalties for
non-compliance (as described in the ‘Executive
Share Ownership Policy’ section below).
Long-term incentives comprise a mix of share
options and performance shares. Both the
levels and combination of share options and
performance shares are reviewed annually, with
reference to market data and the associated
cost to the Company.
The Committee determines the appropriate
value of the long-term incentives by
benchmarking the ‘fair’ value of total
remuneration for Executives against its peer
group and deducting base salary and annual
cash bonus. The Company’s long-term
incentives (and those of the peer group) are
valued using an expected value methodology
(Black-Scholes). This is a widely accepted
valuation approach which enables like-for-like
comparisons. Although the Committee
calibrates LTIP award sizes as a fixed number
(which the Committee believes more
appropriately aligns Executive interests with
those of Shareholders compared to the more
commonly used method based on a fixed
percentage of salary), the Committee’s policy is
actively to adjust the fixed number of shares to
ensure that the fair value of total remuneration
is appropriately positioned relative to our pay
peer group. For example, in the last six years
the Committee has twice revised downwards
the CEO’s LTIP awards to reflect the strong
growth in the Company’s share price and to
ensure that the fair value of long-term
incentives remained around or below the upper
quartile of our peer group, as follows:
CEO LTIP Award Sizes, by Year
Year
2006
2007
2008
2009
2010
2011
2012
Shares
Options
400,000
300,000
300,000
300,000
300,000
200,000
200,000
800,000
600,000
600,000
600,000
600,000
400,000
400,000
inadvertently motivating irresponsible
behaviour. Throughout 2012, the Company
complied with the relevant sections of
the Code.
Independent Advisers to the Committee
in 2012
Until November 2012, Deloitte LLP was the
Committee’s external and independent
adviser and, until that date, provided advice
to the Board on executive compensation
levels, structure and design. Deloitte also
provided the Group with international transfer
tax compliance and global mobility services
and ad-hoc advice on employment/share
schemes matters during 2012. These services
are provided under separate engagement
terms and the Committee is satisfied that
the provision of these services did not
impair Deloitte’s ability to advise the
Committee independently.
In mid-2012, the Committee conducted a
review of its adviser. Having invited seven
companies to submit proposals to provide
independent advice to the Committee, the
Committee appointed Kepler Associates as its
external independent adviser from November
2012. Kepler provides no other services to
the Group.
Both Deloitte and Kepler are signatories to the
Code of Conduct for Remuneration Consultants.
Base Salaries
Base salaries are reviewed annually with
effect from 1 January. Increases are
determined by reference to competitive practice
in the Company’s remuneration peer group
(comprising 19 international FMCG and
health care companies), individual performance
and in the context of pay considerations
across the Group as a whole. The policy is
that salaries for Executive Directors and other
Executive Committee members should typically
be at, or below, the median of competitor
market practice.
The approach to reviewing the base salaries of
Executive Directors is the same as that for other
employees. Base pay increases for Executive
Directors from 1 January 2012 were 2% for the
CFO (in line with typical base pay increases for
other Executives in RB) and 0% for the CEO.
The base pay increase for Executive Directors
from 1 January 2013 will be 4% for the CEO
and 0% for the outgoing CFO, the increase to
the CEO’s salary being agreed in the context of
his performance and base pay increases for the
broader Senior Executive population and the
wider workforce in general.
Executive
2013
salary
(annualised)
2012
salary
(annualised)
%
increase
Rakesh Kapoor
Liz Doherty
Adrian Hennah £550,000
£832,000 £800,000
£428,400 £428,400
n/a
4%
0%
n/a
34
2012
Single Figure of Remuneration
Table A on page 36 reports a single figure for
total remuneration for each Executive Director
for 2012, calculated in accordance with the
methodology set out in the draft regulations
issued by BIS in 2012.
Non-Executive
Director
Adrian Bellamy
Richard Cousins
Peter Harf
Kenneth Hydon
André Lacroix
Graham Mackay
Judith Sprieser
Warren Tucker
Total fees
earned 2012
£000
Total fees
earned 2011
£000
345
85
90
95
85
92
95
85
345
85
90
95
85
92
95
85
No. of shares
‘000
600,000
Salary
Pension & benefits
Annual bonus
LTIP
560
50
a
DEC 07
In December 2012, the following awards were
granted to the CEO:
Summary of 2012 Long-Term Incentive
Awards
Executive
Performance
shares
Share
options
Option
exercise
price
Rakesh Kapoor
200,000 400,000 £39.14
Pension
In line with the Committee’s emphasis on the
importance of only rewarding the Executive
Directors for creating Shareholder value, the
Group operates a defined contribution pension
plan: the RB Executive Pension Plan. Rakesh
Kapoor and Liz Doherty are members of this
plan, and Adrian Hennah has become a
member of this plan from his appointment in
early 2013.
The vesting of the December 2012 awards is
subject to earnings per share performance over
three consecutive financial years starting with
2013. The use of performance conditions
attached to the vesting of share options is still a
minority practice among RB’s peer group.
However, in line with best practice guidelines,
the Committee believes that the vesting of the
Company’s options and performance share
awards should be subject to the satisfaction of
appropriate performance conditions.
Rakesh Kapoor, CEO
£000
,
1
6
0
0
0
Long-term incentives vest subject to the
achievement of earnings per share growth
targets that exceed industry performance levels.
Earnings per share has been selected as the
performance condition for three reasons:
0
0
0
1
2
,
8
0
0
0
4
0
0
0
1. It focuses Executives on real profit growth
Annual bonus
Pension & benefits
LTIP
which is strongly aligned with value creation
at RB;
0
Below
threshold
0%
2. It provides a well recognised and accepted
Maximum
measure of the Company’s underlying
financial performance; and
92%
81%
Variable proportion
3. It is a measure that the plan participants can
Target
Adrian Hennah, CFO
directly impact.
£000
Earnings per share is measured on an adjusted
diluted basis, as shown in the Group’s financial
statements, as this provides an independently
verifiable measure of performance.
8
0
0
0
LTIP
2
0
0
0
4
0
0
0
Annual bonus
Pension & benefits
The vesting schedule for the options and
performance shares rewards superior
performance. For 2012 LTIP awards, the
Committee has set the same targets and levels
of awards as in the previous year, due to: the
industry context in which the Company
operates; expectations of what will constitute
Target
performance at the top of the peer group; and
66%
factors specific to the Company.
Variable proportion
Below
threshold
Maximum
85%
0%
0
,
2
0
0
0
0
1
0
,
0
0
0
6
0
0
0
Salary
Pension &
Summary of Earnings per Share Vesting
benefits
Schedule, 2012 Long-Term Incentive
Awards
Annual
bonus
LTIP
% vesting
1
0
0
8
0
6
0
4
0
2
0
0
6%
7%
8%
9%
Average three year earnings per share growth (p.a)
There will be no change to the structure of
long-term incentives for the Executive Directors
in 2013.
Rakesh Kapoor’s Company pension contribution
as CEO was 30% of pensionable pay during
2012. Liz Doherty’s Company pension
contribution was 17.5% of pensionable pay in
2012. Contributions to the Plan are limited
currently to £50,000 per annum, with the
balance of the promised pension contribution
Salary
Annual bonus
being paid as a cash allowance in lieu.
Pension & benefits
LTIP
20000
16000
Executive Share Ownership Policy
Executive Directors and other Senior Executives
are subject to a compulsory share ownership
policy. This is to emphasise the alignment of
Senior Executives to the Company’s
Shareholders and its business targets. The chart
below summarises the share ownership policy
for Rakesh Kapoor and Liz Doherty, as well as
the number of shares which count towards that
ownership policy as at 31 December 2012:
12000
8000
4000
No. of shares
‘000
0
7
0
0
5
6
0
4
2
0
2
8
0
1
4
0
0
10000
8000
6000
281,869
200,000
Rakesh Kapoor
4000
14,000
Liz Doherty
Share ownership requirement
Actual holding
0
1.68
2000
Net revenue element
These shareholding requirements (equating to
c.29x base salary for Rakesh Kapoor and c.18x
base salary for Liz Doherty based on 2012 base
salaries and the share price at 31 December
2012) are significantly higher than market
practice. Executives, including those newly
recruited or promoted into Senior Executive
positions, are allowed eight years to attain
these shareholdings and targets are pro-rated
until these targets are met. Rakesh Kapoor has
exceeded his pro-rated target levels based on
his tenure to date. Other Senior Executives
must own between 30-50,000 shares,
representing c.7x base salary.
80
Threshold
Maximum
100
60
1
.
8
9
1
.
5
0
1
.
0
0
0
.
5
0
0
N
e
t
r
e
v
e
n
u
e
m
u
l
t
i
p
l
i
e
r
20
If the Executive does not meet these
40
requirements within the required time period,
Net income element
the Committee will not make any further
awards of performance shares or options to the
Executive until the targets have been met.
Further, if, in the Committee’s opinion, an
Executive is not making sufficient progress
towards satisfying the requirement, then the
levels of grants and awards will be reduced,
until improvement is demonstrated.
1.13
0
Threshold
Maximum
Reckitt Benckiser outcome 2012
1
.
8
9
N
e
t
i
.
1
5
0
n
c
o
m
e
m
u
l
t
i
p
l
i
e
r
.
1
0
0
0
.
5
0
0
£
0
200
175
125
150
100
l
i
e
r
N
e
t
5
6
0
7
0
0
1
.
8
9
280
1.68
Net revenue element
420
FTSE 100
RB
FTSE 100 comparison
£
200
175
150
125
100
b
75
700
Historical TSR Performance
Growth in the value of a hypothetical £100
holding in RB and the FTSE100 over five
years, based on spot values.
600,000
1
.
5
0
US Peer group comparison
140
Notes
The graph above shows the performance of
RB in terms of TSR performance against the
r
e
UK FTSE 100 index over a five-year period and
v
e
n
u
conforms to Schedule 8 of the Large- and
e
'RK
LD
m
Medium-sized Companies and Groups
u
l
t
Regulations 2008. The index was selected on
i
p
the basis of companies of a comparable size in
the absence of an appropriate industry peer
group in the UK.
Net revenue element
0
.
5
0
1
.
0
0
4
2
0
2
8
0
1
4
0
0
281,869
200,000
14,000
Adjusted net income £m
Rakesh Kapoor
Liz Doherty
Share ownership requirement
Actual holding
DEC 08
DEC 09
DEC 10
DEC 11
DEC 12
Adjusted net income £m
1,818*
1,661*
1,418*
1,143*
905*
07
08
09
10
*Adjusted to exclude the impact of exceptional items and
tax effects thereon. Refer note 8 of the financial statements
for further detail.
Diluted earnings per share pence
247.1*
226.5*
194.7*
157.8*
123.4*
07
08
09
10
11
*Adjusted to exclude the impact of exceptional items and
tax effects thereon. Refer note 8 of the financial statements
for further detail.
Declared dividend per share pence
125.0
115.0
100.0
80.0
55.0
2
0
0
0
1
6
0
0
1
2
0
0
8
0
0
4
0
0
0
2
5
0
2
0
0
1
5
0
1
0
0
5
0
0
1
2
5
1
0
0
7
5
5
0
2
5
0
2000
1600
1200
800
400
0
250
200
150
100
50
0
125
100
75
50
25
0
b
a
700
560
420
280
140
0
2.00
905*
1.75
1.50
1.25
1.00
07
0.75
0.25
0.00
123.4*
2.00
1.75
1.50
1.25
1.00
07
0.75
0.25
0.00
55.0
2
0
0
0
1
6
0
0
1
2
0
0
8
0
0
4
0
0
0
2
5
0
2
0
0
1
5
0
1
0
0
5
0
0
1
2
5
1
0
0
7
5
5
0
2
5
0
'RK
LD
1,818*
1,661*
Net revenue element
1,418*
1,143*
08
09
10
*Adjusted to exclude the impact of exceptional items and
tax effects thereon. Refer note 8 of the financial statements
for further detail.
0.50
Diluted earnings per share pence
Threshold
Stretch
247.1*
226.5*
194.7*
Net income element
157.8*
08
09
10
11
*Adjusted to exclude the impact of exceptional items and
tax effects thereon. Refer note 8 of the financial statements
for further detail.
0.50
Declared dividend per share pence
100.0
80.0
2000
1600
1200
800
400
0
250
200
150
100
50
0
125
100
75
50
25
0
1.00
Judith Sprieser
Chairman of the Remuneration Committee
0.75
1
.
8
9
0.50
0.25
0.00
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
0.00
N
e
t
i
1
.
5
0
1
Threshold
.
0
0
n
c
o
m
e
m
u
l
t
i
p
l
i
e
r
0
.
5
0
Net income element
0
Stretch
1.13
Threshold
Maximum
Reckitt Benckiser outcome 2012
Threshold
Stretch
125.0
115.0
07
08
09
10
11
Threshold
Stretch
35
07
08
09
10
11
DEC 08
DEC 09
Approved by the Board on 8 March 2013
and signed on its behalf by:
1.25
DEC 10
DEC 11
Net income element
Threshold
Maximum
1.75
DEC 07
1.50
2.00
DEC 12
75
50
0
Rakesh Kapoor, CEO
£000
Below
threshold
0%
Target
Maximum
81%
92%
Variable proportion
Adrian Hennah, CFO
£000
Below
threshold
0%
Target
Maximum
66%
85%
Variable proportion
Salary
Pension &
benefits
Annual
bonus
LTIP
% vesting
2
0
,
0
0
0
1
6
,
0
0
0
1
2
,
0
0
0
8
0
0
0
4
0
0
0
0
1
0
,
0
0
0
8
0
0
0
6
0
0
0
4
0
0
0
2
0
0
0
0
1
0
0
8
0
6
0
4
0
2
0
0
6%
7%
8%
9%
Average three year earnings per share growth (p.a)
Salary
Salary
20000
16000
12000
8000
4000
0
10000
8000
6000
4000
2000
0
100
80
60
40
20
0
2012
Directors’ Remuneration Report continued
Table A – Single Figure of Remuneration
Base salary
Benefits
Rakesh Kapoor
£800,000
£31,000
Pension – defined contribution
£50,000
Liz Doherty
£428,000
£24,000
£50,000
Pension – cash allowance
£188,000
£23,000
Valuation basis
As earned for 2012
Based on cash equivalent for 2012
Contribution to the RB Executive Pension Plan in 2012
(capped at £50,000 p.a. in 2012)
Cash allowance in lieu of the balance of the promised contribution
in 2012
Annual bonus
£1,814,000
£729,000
Earned based on 2012 performance, paid in March 2013
Performance shares
£ 2,279,000
Share options
£1,141,000
n/a
n/a
LTIP shares granted in December 2009, which will vest on
2 May 2013 as to 100%, valued using average share price
over Q4 2012 (£37.99)
LTIP options granted in December 2009, with exercise price of
£31.65, which will vest on 2 May 2013 as to 100%, valued using
average share price over Q4 2012 (£37.99)
Total remuneration
£6,303,000
£1,254,000
The following information in Tables 1-4 on pages 36 to 37 comprises the auditable disclosures of the Directors’ Remuneration Report.
Table 1 – Chairman and Non-Executive Director fee structure for 2012
Basic fee payable in cash
Basic fee payable in shares
Committee membership fee
Committee chairmanship fee
Senior Independent Director fee
Total
Chairman
£
283,000
62,000
–
–
–
345,000
Deputy Chairman
£
Chairmen of
Remuneration Committee
and Audit Committee
£
Senior
Independent Director
£
Other Non-Executive
Directors
£
65,500
14,500
10,000
–
–
90,000
61,500
13,500
–
20,000
–
95,000
61,500
13,500
10,000
–
7,000
92,000
61,500
13,500
10,000
–
–
85,000
Table 2 – Chairman and Non-Executive Director Fee Structure for 2013
Chairman
£
308,000
67,000
–
–
–
375,000
Deputy Chairman
£
Chairmen of
Remuneration Committee
and Audit Committee
£
Senior
Independent Director
£
Other Non-Executive
Directors
£
82,000
18,000
15,000
–
–
70,000
15,000
–
30,000
–
70,000
15,000
15,000
–
12,000
70,000
15,000
15,000
–
–
115,000
115,000
112,000
100,000
Base salary
and fees
£000
Notes
Bonus
£000
Benefits
Other
in kind payments
£000
£000
345
Pension
contri-
butions
£000
2012
Total
£000
2011
Total
£000
345
345
1
2
2
3
3
3
3
3
3
3
800
428
1,814
729
5
3
214
44
50
50
2,883
1,254
736
910
85
90
95
85
92
95
85
85
90
95
85
92
95
85
85
90
95
85
92
95
85
2,200
2,543
8
258
100
5,109
2,618
Basic fee payable in cash
Basic fee payable in shares
Committee membership fee
Committee chairmanship fee
Senior Independent Director fee
Total
Table 3 – Remuneration Disclosures
Chairman
Adrian Bellamy
Executive Directors
Rakesh Kapoor (appointed 1 September 2011)
Liz Doherty
Non-Executive Directors
Richard Cousins
Peter Harf
Kenneth Hydon
André Lacroix
Graham Mackay
Judith Sprieser
Warren Tucker
Total
36
2012
Notes
1. Adrian Bellamy’s fees as Chairman for 2012 were £345,000. These fees include £62,000 (gross), the net amount of which was applied to buy
ordinary shares in the Company. These shares must be retained by Adrian Bellamy while in office.
2. The remuneration reported under ‘Other payments’ in respect of Rakesh Kapoor comprises: car allowance, international transfer-related benefits and
the balance of the promised pension contribution paid as cash. For Liz Doherty it comprises: car allowance, relocation benefits, and the balance of
the promised pension contribution paid as cash.
3. Non-Executive Director fees for 2012 include £13,500 (gross), and £14,500 (gross) in the case of Peter Harf, the net amount of which was applied to
buy ordinary shares in the Company. These shares must be retained by the Director while in office.
4. The total emoluments of the Directors of Reckitt Benckiser Group plc as defined by section 412 the Companies Act were £5,009,000 (2011:
£6,455,000).
5. The aggregate gross gains made by the Directors on the vesting of restricted shares during the year were £2,168,400 (2011: £10,211,160). The gains
are calculated based on the market price at the date of vesting of restricted shares, although the shares may have been retained and no gain realised.
6. The total emoluments of Rakesh Kapoor (excluding pension contributions) were £2,833,000. Total emoluments of Liz Doherty (excluding pension
contributions) were £1,204,000.
Table 4 – Directors’ Options and Performance-Based Restricted Share Awards
Table 4 sets out each Director’s options over or rights to ordinary shares of the Company under the Company’s various long-term incentive plans.
The closing price of the ordinary shares at the year end was £38.79 and the range during the year was £32.00 to £39.99.
Long-term incentives
Notes
Grant date
At
1.1.12
Granted
during
the year
Exercised/
vested
during
the year
At
31.12.12
Option
price (£)
Market
price at
date of
award
(£)
Market
price at
date of
exercise/
vesting (£)
Exercise/
vesting period
5.12.11
90,000
90,000
32.09
May 15–Dec 21
Liz Doherty
Options
Performance-based
restricted shares
Rakesh Kapoor
Options
Performance-based
restricted shares
1
1
1
1
1,2
1
1
1
1
1,2
1
1
1
1
9.2.11
5.12.11
10,000
45,000
11.12.07 120,000
8.12.08 180,000
7.12.09 180,000
1.12.10 180,000
5.12.11 400,000
3.12.12
400,000
32.70
32.19
10,000
45,000
120,000
180,000
180,000
180,000
400,000
400,000
29.44
27.29
31.65
34.64
32.09
39.14
60,000
8.12.08
60,000
7.12.09
1.12.10
60,000
5.12.11 200,000
3.12.12
200,000
60,000
60,000
60,000
200,000
200,000
36.14
27.80
31.80
34.08
32.19
39.66
May 2014
May 2015
May 11–Dec 17
May 12–Dec 18
May 13–Dec 19
May 14–Dec 20
May 15 –Dec 21
May 16 –Dec 22
May 2012
May 2013
May 2014
May 2015
May 2016
Exercise
period
Sharesave Scheme
Liz Doherty
Grant date
26.8.11
At
1.1.12
327
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
At
31.12.12
Option
price
(£)
Market
price at
exercise (£)
327
27.57
Feb 15–July 15
Rakesh Kapoor
8.9.08
796
796
21.92
Feb 16–July 16
Notes
1. Vesting of long-term incentives is subject to the achievement of the following compound average annual growth (CAAG) in earnings per share over a
three year period.
CAAG for long-term incentives granted in December 08-12
Proportion of grant vesting
(%)
40
6
60
7
80
8
100
9
2. The grant made in December 2008 vested in full in May 2012. The Company exceeded its target compound average actual growth (CAAG) in
earnings per share over a three year period (2009-2011) of 9%.
3. There have been no variations in the terms and conditions of options and performance-based restricted shares during the year.
37
2012
Independent Auditors’ Report to the members of Reckitt Benckiser Group plc
Other matter
We have reported separately on the Parent
Company financial statements of Reckitt
Benckiser Group plc for the year ended
31 December 2012 and on the information in
the Directors’ Remuneration Report that is
described as having been audited.
Ian Chambers (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
8 March 2013
We have audited the Group financial statements
of Reckitt Benckiser Group plc for the year
ended 31 December 2012 which comprise the
Group Income Statement, the Group Statement
of Comprehensive Income, the Group Balance
Sheet, the Group Statement of Changes in
Equity, the Group Cash Flow Statement and the
related notes. The financial reporting framework
that has been applied in their preparation is
applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the
European Union.
Respective Responsibilities of Directors
and Auditors
As explained more fully in the Statement of
Directors’ Responsibilities set out on page 30,
the Directors are responsible for the preparation
of the Group financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an
opinion on the Group financial statements in
accordance with applicable law and
International Standards on Auditing (UK and
Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been
prepared for and only for the Company’s
members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for
no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any
other purpose or to any other person to whom
this report is shown or into whose hands it may
come save where expressly agreed by our prior
consent in writing.
Scope of the Audit of the Financial
Statements
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are free
from material misstatement, whether caused by
fraud or error. This includes an assessment of:
whether the accounting policies are appropriate
to the Group’s circumstances and have been
consistently applied and adequately disclosed;
the reasonableness of significant accounting
estimates made by the Directors; and the
overall presentation of the financial statements.
In addition, we read all the financial and
non-financial information in the annual report
to identify material inconsistencies with the
audited financial statements. If we become
aware of any apparent material misstatements
or inconsistencies we consider the implications
for our Report.
Opinion on Financial Statements
In our opinion the Group financial statements:
• Give a true and fair view of the state of the
Group’s affairs as at 31 December 2012 and
of its profit and cash flows for the year then
ended;
• Have been properly prepared in accordance
with IFRSs as adopted by the European Union;
and
• Have been prepared in accordance with the
requirements of the Companies Act 2006 and
Article 4 of the lAS Regulation.
Separate Opinion in Relation to IFRSs as
issued by the IASB
As explained in note 1 to the Group financial
statements, the Group in addition to complying
with its legal obligation to apply IFRSs as
adopted by the European Union, has also
applied IFRSs as issued by the International
Accounting Standards Board (IASB).
In our opinion the Group financial statements
comply with IFRSs as issued by the IASB.
Opinion on Other Matter Prescribed by the
Companies Act 2006
In our opinion the information given in the
Report of the Directors for the financial year
for which the Group financial statements
are prepared is consistent with the Group
financial statements.
Matters on which We are Required to
Report by Exception
We have nothing to report in respect of
the following:
Under the Companies Act 2006 we are required
to report to you if, in our opinion:
• Certain disclosures of Directors’ remuneration
specified by law are not made; or
• We have not received all the information and
explanations we require for our audit.
Under the Listing Rules we are required
to review:
• The Directors’ statement, set out on page 30,
in relation to going concern;
• The part of the Corporate Governance
Statement relating to the Company’s
compliance with the nine provisions of the UK
Corporate Governance Code specified for our
review; and
• Certain elements of the report to Shareholders
by the Board on Directors’ remuneration.
38
Notes to the financial statements continued2012 Group income statement
For the year ended 31 December
Notes
Net revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Operating profit before exceptional items
Exceptional items
Operating profit
Finance income
Finance expense2
Net finance expense
Profit on ordinary activities before taxation
Tax on profit on ordinary activities
Net income
Attributable to non-controlling interests
Attributable to owners of the parent
Net income
Earnings per ordinary share
Basic earnings per share
Diluted earnings per share
1 Refer to note 1 for further details.
2
3
3
2
3
6
6
7
8
8
2012
£m
9,567
(4,030)
5,537
(3,102)
2,435
2,570
(135)
2,435
26
(41)
(15)
2,420
(587)
1,833
4
1,829
1,833
2011
(restated)1
£m
9,485
(4,036)
5,449
(3,054)
2,395
2,487
(92)
2,395
23
(42)
(19)
2,376
(622)
1,754
9
1,745
1,754
252.5p
249.5p
239.8p
237.1p
2 2011 includes a £4m exceptional charge relating to finance expenses associated with the acquisition of SSL.
Group statement of comprehensive income
For the year ended 31 December
Net income
Other comprehensive income
Actuarial losses, net of tax
Gains on cash flow hedges, net of tax
Net exchange losses on foreign currency translation, net of tax
Reclassification of foreign currency translation reserve on disposal of subsidiary,
net of tax
Notes
7
7
7
7
Other comprehensive income, net of tax
Total comprehensive income
Attributable to non-controlling interests
Attributable to owners of the parent
2012
£m
1,833
(49)
3
(255)
9
(292)
1,541
(1)
1,542
1,541
2011
£m
1,754
(49)
3
(226)
–
(272)
1,482
4
1,478
1,482
39
Report of the Directors2012
Group balance sheet
Notes to the financial statements continued
As at 31 December
ASSETS
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Deferred tax assets
Available for sale financial assets
Retirement benefit surplus
Other receivables
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax receivables
Available for sale financial assets
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Borrowings
Provisions for liabilities and charges
Trade and other payables
Derivative financial instruments
Current tax liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Retirement benefit obligations
Provisions for liabilities and charges
Non-current tax liabilities
Other non-current liabilities
Total liabilities
Net assets
EQUITY
Capital and reserves
Share capital
Share premium
Merger reserve
Hedging reserve
Foreign currency translation reserve
Retained earnings
Non-controlling interests
Total equity
Notes
9
10
11
14
21
12
13
14
14
15
16
17
20
14
16
11
21
17
22
24
24
24
2012
£m
11,175
737
49
2
27
33
12,023
735
1,407
4
20
4
887
3,057
2011
£m
10,258
732
150
10
32
6
11,188
758
1,442
67
21
11
639
2,938
15,080
14,126
(3,271)
(128)
(2,842)
(43)
(203)
(6,487)
(3)
(1,814)
(426)
(100)
(311)
(17)
(2,671)
(9,158)
5,922
73
184
(14,229)
2
(131)
20,022
5,921
1
5,922
(2,505)
(60)
(2,901)
(7)
(227)
(5,700)
(3)
(1,772)
(502)
(118)
(211)
(39)
(2,645)
(8,345)
5,781
73
86
(14,229)
(1)
110
19,672
5,711
70
5,781
The financial statements on pages 39 to 74 were approved by the Board and signed on its behalf on 8 March 2013 by:
Adrian Bellamy
Director
Rakesh Kapoor
Director
40
2012
Group statement of changes in equity
For the year ended 31 December
Notes
Balance at 1 January 2011
Comprehensive income
Net income
Other comprehensive income
Actuarial losses, net of tax
Gains on cash flow hedges,
net of tax
Net exchange losses on foreign
currency translation, net of tax
Total other comprehensive income
Total comprehensive income
Transactions with owners
Proceeds from share issue
Share-based payments
Deferred tax on share awards
Current tax on share awards
Dividends
Non-controlling interest arising
on business combination
Put option issued to
non-controlling interest
Total transactions with owners
Balance at 31 December 2011
Comprehensive income
Net income
Other comprehensive income
Actuarial losses, net of tax
Gains on cash flow hedges,
net of tax
Net exchange losses on foreign
currency translation, net of tax
Reclassification of foreign currency
translation reserves on disposal
of subsidiary, net of tax
Total other comprehensive income
Total comprehensive income
Transactions with owners
Proceeds from share issue
Share-based payments
Current tax on share awards
Shares repurchased and held in
Treasury
Dividends
Acquisition of non-controlling
interest
Reclassification of non-controlling
interest on disposal
7
7
7
23
27
7
7
7
7
23
22
27
25
Share
premium
£m
Merger
reserve
£m
Hedging
reserve
£m
Foreign
currency
translation
reserve
£m
Total
attributable
Retained to owners of
the parent
earnings
£m
£m
Non-
controlling
interests
£m
Total
equity
£m
59
(14,229)
(4)
331
18,828
5,058
72
5,130
Share
capital
£m
73
1,745
1,745
9
1,754
–
–
–
–
27
–
–
(49)
(49)
3
3
3
(221)
(221)
(49)
3
(221)
(267)
(221)
1,696
1,478
61
(13)
2
(873)
27
61
(13)
2
(873)
(29)
(29)
–
73
27
86
–
(14,229)
–
(1)
–
(852)
(825)
110
19,672
5,711
(49)
3
(226)
(272)
1,482
27
61
(13)
2
(880)
1
(29)
(831)
5,781
(5)
(5)
4
(7)
1
(6)
70
–
–
–
–
98
–
–
3
3
3
1,829
1,829
4
1,833
(49)
(49)
3
(49)
3
(250)
(250)
(5)
(255)
9
9
(241)
(49)
(287)
(241)
1,780
1,542
(5)
(1)
49
23
98
49
23
(535)
(916)
(535)
(916)
(4)
9
(292)
1,541
98
49
23
(535)
(920)
(51)
(51)
(55)
(106)
(9)
(9)
Total transactions with owners
Balance at 31 December 2012
–
73
98
–
184
(14,229)
–
2
–
(1,430)
(1,332)
(68)
(1,400)
(131)
20,022
5,921
1
5,922
41
2012
Notes
26
26
26
1
22
22
27
25
15
16
2012
£m
2,435
148
(7)
(13)
(32)
19
(16)
(160)
49
2,423
(34)
27
(528)
1,888
(166)
(11)
13
9
(877)
81
7
14
(6)
(936)
98
(535)
887
(112)
(916)
(4)
(106)
(688)
264
634
(16)
882
887
(5)
882
1,888
(153)
1,735
2011
£m
2,395
157
1
(9)
–
(131)
(113)
69
61
2,430
(35)
22
(677)
1,740
(164)
(41)
5
12
(460)
-
(2)
2
–
(648)
27
–
249
(400)
(873)
(7)
–
(1,004)
88
568
(22)
634
639
(5)
634
1,740
(159)
1,581
Group cash flow statement
For the year ended 31 December
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations
Operating profit
Depreciation, amortisation and impairment
Fair value (gains)/losses
Gain on sale of property, plant and equipment and intangible assets
Gain on sale of businesses
Decrease/(increase) in inventories
Increase in trade and other receivables
(Decrease)/increase in payables and provisions
Share-based payments
Cash generated from operations
Interest paid
Interest received
Tax paid
Net cash generated from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment
Purchase of intangible assets
Disposal of property, plant and equipment
Disposal of intangible assets
Acquisition of businesses, net of cash acquired
Disposal of businesses, net of cash disposed
Maturity/(purchase) of short-term investments
Maturity of long-term investments
Net cash outflow on deconsolidation of a subsidiary
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of ordinary shares
Shares purchased and held in Treasury
Proceeds from borrowings
Repayments of borrowings
Dividends paid to owners of the parent
Dividends paid to non-controlling interest
Acquisition of non-controlling interest
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange losses
Cash and cash equivalents at end of the year
Cash and cash equivalents comprise:
Cash and cash equivalents
Overdrafts
RECONCILIATION OF NET CASH FLOW FROM OPERATIONS
Net cash generated from operating activities
Net purchases of property, plant and equipment
Net cash flow from operations
Management uses net cash flow from operations as a performance measure.
42
2012
Notes to the financial statements
1 ACCOUNTING POLICIES
The principal accounting policies adopted in the
preparation of these financial statements are
set out below. Unless otherwise stated, these
policies have been consistently applied to all the
years presented.
Basis of Preparation
These financial statements have been prepared
in accordance with EU endorsed International
Financial Reporting Standards (IFRSs) and with
those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
The financial statements are also in compliance
with IFRS as issued by the International
Accounting Standards Board. These financial
statements have been prepared under the
historical cost convention, as modified by the
revaluation of certain financial assets and
liabilities at fair value through profit or loss.
A summary of the Group’s more important
accounting policies is set out below.
The Directors continue to adopt the going
concern basis for accounting in preparing these
financial statements. The Directors have a
reasonable expectation that the Group has
adequate resources to continue in operational
existence for the foreseeable future.
The preparation of financial statements that
conform to IFRS requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities at the
balance sheet date and revenue and expenses
during the reporting period. Although these
estimates are based on management’s best
knowledge at the time, actual amounts may
ultimately differ from those estimates.
Following a deterioration in the relationship
between the Group and the local management
of TTK-LIG Limited (TTK), the Group considered
it no longer had the power to govern the
financial and operating policies of TTK.
Effective from 1 January 2012 the results,
non-controlling interest and net assets of TTK
were deconsolidated from the Group results.
The Group subsequently disposed of its
investment in TTK on 9 November 2012.
There were no new standards, amendments
and interpretations that were adopted by the
Group and effective for the first time for the
financial year beginning 1 January 2012 that
were material to the Group.
A number of new standards, amendments and
interpretations are effective for annual periods
beginning after 1 January 2013 and have not
yet been applied in preparing these financial
statements. None of these are expected to have
a significant effect on the financial statements
of the Group, with the exception of the
amendments to IAS 19, Employee Benefits.
This standard will replace the interest cost on
pension scheme liabilities and expected return
on pension scheme assets with a net interest
amount that is calculated by applying the
discount rate to the net defined benefit liability/
asset. Had this standard been applied in
preparing the financial statements for the year
ended 31 December 2012, the net impact
would have been an additional charge of £12m
to the income statement.
Basis of Consolidation
The consolidated financial statements include
the results of Reckitt Benckiser Group plc, a
company registered in the UK, and all its
subsidiary undertakings made up to the same
accounting date. Subsidiary undertakings are
those entities controlled by Reckitt Benckiser
Group plc. Control exists where the Group has
the power to govern the financial and
operating policies of an entity so as to obtain
benefits from its activities.
In the case of acquisitions and disposals of
businesses, the results of trading are consolidated
from or to the date upon which control passes.
Inter-company transactions, balances and
unrealised gains on transactions between
Group companies have been eliminated on
consolidation. Unrealised losses have also been
eliminated to the extent that they do not
represent an impairment of a transferred asset.
Subsidiaries’ accounting policies have been
changed where necessary to ensure consistency
with the policies adopted by the Group.
Change in Accounting Policy
The income statement for the year ended
31 December 2011 has been restated to reflect
a change in the Group’s accounting policy for
certain consumer promotional costs. The Group
now treats certain consumer promotional costs
as cost of sales where previously these were
classified as marketing in net operating
expenses. The Directors believe that this change
provides more relevant information about the
performance of the Group and aligns the
Group’s accounting policies with common
industry practice. This restatement had no
impact on the balance sheet and the following
impact on the income statement.
Year ended
31 December 2011
£m
Increase in cost of sales
Decrease in gross profit
Decrease in net operating expenses
Net impact on operating profit
213
(213)
(213)
–
Operating Segments
Operating segments are reported in a manner
consistent with the internal reporting provided
to the chief operating decision-maker. The chief
operating decision-maker (CODM), who is
responsible for allocating resources and assessing
performance of the operating segments, has
been identified as the Executive Committee.
Items of income and expense which are not
part of the results and financial position of the
operating segments and therefore reported to
the CODM outside of the individual segment
financial information, are shown in the
Corporate segment.
Foreign Currency Translation
Items included in the financial statements
of each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates (the
functional currency). The consolidated financial
statements are presented in Sterling, which is
the Group’s presentation currency.
Foreign currency transactions are translated
into the functional currency using exchange
rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting
from the settlement of foreign currency
transactions and from the translation at period
end exchange rates of monetary assets and
liabilities denominated in foreign currencies
are recognised in the income statement, except
where hedge accounting is applied.
The financial statements of overseas subsidiary
undertakings are translated into Sterling on the
following basis:
• Assets and liabilities at the rate of exchange
ruling at the year end date.
• Profit and loss account items at the average
rate of exchange for the period.
Exchange differences arising from the
translation of the net investment in foreign
entities, and of borrowings and other
currency instruments designated as hedges
of such investments, are taken to equity
on consolidation.
Property, Plant and Equipment
Property, plant and equipment are stated
at cost less accumulated depreciation and
impairment, with the exception of freehold
land, which is shown at cost less impairment.
Cost includes expenditure that is directly
attributable to the acquisition of the asset.
Except for freehold land and assets under
construction, the cost of property, plant and
equipment is written off on a straight-line basis
over the period of the expected useful life of
the asset. For this purpose, expected lives are
determined within the following limits:
• Freehold buildings: not more than 50 years;
• Leasehold land and buildings: the lesser of
50 years or the life of the lease; and
• Owned plant and equipment: not more than
15 years (except for environmental assets
which are not more than 20 years).
In general, production plant and equipment
and office equipment are written off over
10 years or less; motor vehicles and computer
equipment over five years or less.
Assets’ residual values and useful lives are
reviewed, and adjusted if necessary, at each
balance sheet date. Property, plant and
equipment are reviewed for impairment if
events or changes in circumstances indicate
that the carrying amount may not be appropriate.
Freehold land is reviewed for impairment on
an annual basis.
Gains and losses on the disposal of property,
plant and equipment are determined by
comparing the asset’s carrying value with
any sale proceeds, and are included in the
income statement.
Business Combinations
The acquisition method is used to account for
the acquisition of subsidiaries. Identifiable net
assets acquired (including intangibles) in a
business combination are measured initially
at their fair values at the acquisition date.
43
2012
Value in use is calculated with reference to the
future cash flows expected to be generated
by an asset (or group of assets where cash
flows are not identifiable to specific assets).
The pre-tax discount rate used in brand
impairment reviews is based on a weighted
average cost of capital for comparable
companies operating in similar markets and
geographies as the Group including, where
appropriate, an adjustment for the specific
risks associated with the relevant cash
generating unit.
Inventories
Inventories are stated at the lower of cost or
net realisable value. Cost comprises materials,
direct labour and an appropriate portion of
overhead expenses (based on normal operating
capacity) and is determined on a first in,
first out (FIFO) basis. Net realisable value
is the estimated selling price less applicable
selling expenses.
Trade Receivables
Trade receivables are initially recognised at
fair value and subsequently held at amortised
cost, less provision for impairment. If there is
objective evidence that the Group will not be
able to collect the full amount of the receivable,
an impairment is recognised through the
income statement. Significant financial
difficulties of the debtor, probability that
a debtor will enter bankruptcy or financial
reorganisation, and default or delinquency
in payments are considered indicators that the
trade receivable is impaired. The impairment
is calculated as the difference between the
carrying value of the receivable and the present
value of the related estimated future cash
flows, discounted at the original interest rate.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash
balances and other deposits with a maturity
of less than three months when deposited.
For the purpose of the cash flow statement,
bank overdrafts that form an integral part
of the Group’s cash management, and are
repayable on demand, are included as
a component of cash and cash equivalents.
Bank overdrafts are included within borrowings
in the balance sheet.
Borrowings
Interest-bearing borrowings are recognised
initially at fair value less attributable transaction
costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at
amortised cost with any difference between
cost and redemption value being recognised
in the income statement over the period of the
borrowings on an effective interest basis.
1 ACCOUNTING POLICIES (CONTINUED)
Business Combinations (continued)
Where the measurement of the fair value of
identifiable net assets acquired is incomplete
at the end of the reporting period in which
the combination occurs, the Group will report
provisional fair values. Final fair values are
determined within a year of the acquisition
date and retrospectively applied.
The excess of the consideration transferred and
the amount of any non-controlling interest over
the fair value of the identifiable assets, liabilities
and contingent liabilities acquired (including
intangibles) is recorded as goodwill.
The consideration transferred is measured
as the fair value of the assets given, equity
instruments issued (if any), and liabilities
assumed or incurred at the date of acquisition.
Acquisition related costs are expensed as incurred.
The results of the subsidiaries acquired are
included in the Group financial statements from
the acquisition date.
For acquisitions before 1 January 2010 goodwill
represents the excess of the cost of acquisition
over the fair value of the identifiable assets,
liabilities and contingent liabilities with
acquisition related costs capitalised as part
of the cost of acquisition.
The base products establish the long-term
positioning of the brand while a succession
of innovations attracts ongoing consumer
interest and attention. Indefinite life brands
are allocated to the cash generating units to
which they relate and are tested annually
for impairment.
The Directors also review the useful economic
life of brands annually, to ensure that these
lives are still appropriate. If a brand is
considered to have a finite life, its carrying
value is amortised over that period.
Payments made in respect of product registration,
acquired and re-acquired distribution rights are
capitalised where the rights comply with the
above requirements for recognition of acquired
brands. If the registration or distribution rights
are for a defined time period, the intangible
asset is amortised over that period. If no time
period is defined, the intangible asset is treated
in the same way as acquired brands.
Acquired computer software licences are
capitalised at cost. These costs are amortised
over a period of seven years for Enterprise
Resource Planning systems and five years
or less for all other software licences.
Research and Development
Research expenditure is written off in the year
in which it is incurred.
Non-Controlling Interests
On an acquisition by acquisition basis the
non-controlling interest is measured at either
fair value or a proportionate share of the
acquiree’s net assets.
Development expenditure is written off in the
year in which it is incurred, unless it meets the
requirements of IAS 38 to be capitalised and
then amortised over the useful life of the
developed product.
Purchases from non-controlling interests are
accounted for as transactions with the owners
and therefore no goodwill is recognised as a
result of such transactions.
Goodwill and Intangible Fixed Assets
Goodwill on acquisitions of subsidiaries since
4 January 1998 is included in intangible assets.
Goodwill written off to reserves prior to this
date has not been reinstated. Goodwill is
allocated to the cash generating unit, or
group of cash generating units, to which it
relates and is tested annually for impairment.
Goodwill is carried at cost less accumulated
impairment losses.
Separately acquired brands are shown at cost
less accumulated amortisation and impairment.
Brands acquired as part of a business combination
are recognised at fair value at the acquisition
date, where they are separately identifiable.
Brands are amortised over their useful
economic life, except when their life is
determined as being indefinite.
Applying indefinite lives to certain acquired
brands is appropriate due to the stable
long-term nature of the business and the
enduring nature of the brands. A core element
of the Group’s strategy is to invest in building
its brands through an ongoing programme of
product innovation and sustained and rising
marketing investment. Within RB, a brand
typically comprises an assortment of base
products and more innovative products. Both
contribute to the enduring nature of the brand.
Exceptional Items
Where material, non-recurring expenses or
income are incurred during a period, these
items are disclosed as exceptional items in the
income statement. Examples of such items are:
• Restructuring and other expenses relating to
the integration of an acquired business and
related expenses for reconfiguration of the
Group’s activities.
• Impairments of current and non-current assets.
• Gains/losses on disposal of businesses.
• Acquisition related costs.
The Group also presents an alternative adjusted
earnings per share calculation to exclude the
impact of the 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.
Impairment of Assets
Assets that have indefinite lives are tested
annually for impairment. All assets are tested
for impairment if there is an event or
circumstance that indicates that their carrying
value may not be recoverable. If an asset’s
carrying value exceeds its recoverable amount
an impairment loss is recognised in the income
statement. The recoverable amount is the
higher of the asset’s fair value less costs to sell
and its value in use.
44
Notes to the financial statements continued2012 1 ACCOUNTING POLICIES (CONTINUED)
Income Tax
Income tax on the profit for the year comprises
current and deferred tax. Income tax is
recognised in the income statement except
to the extent that it relates to items recognised
in other comprehensive income or directly in
equity. In this case the tax is also recognised
in other comprehensive income or directly
in equity, respectively.
Current tax is the expected tax payable on the
taxable income for the year, using tax rates
enacted, or substantively enacted, at the
balance sheet date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided in full, using the
liability method, on temporary differences
arising between the tax bases of assets and
liabilities and their carrying amounts in the
consolidated financial statements. The deferred
tax is not accounted for if it arises from the
initial recognition of an asset or liability in a
transaction (other than a business combination)
that affects neither accounting nor taxable
profit or loss at that time. Deferred tax is
determined using tax rates (and laws) that have
been enacted or substantively enacted by the
balance sheet date and are expected to apply
when the deferred tax asset or liability is
settled. Deferred tax assets are recognised to
the extent that it is probable that future taxable
profit will be available against which the
temporary differences can be utilised.
Deferred tax is provided on temporary
differences arising on investments in
subsidiaries except where it is probable that
the temporary difference will not reverse in the
foreseeable future.
Deferred tax assets and liabilities within the
same tax jurisdiction are offset where there is
a legally enforceable right to offset current tax
assets against current tax liabilities and where
there is an intention to settle these balances
on a net basis.
Pension Commitments
Group companies operate defined contribution
and (funded and unfunded) defined benefit
pension schemes.
The cost of providing pensions to employees
who are members of defined contribution
schemes is charged to the income statement
as contributions are made. The Group has
no further payment obligations once the
contributions have been paid.
The liability or surplus recognised in the balance
sheet in respect of defined benefit pension
plans is the present value of the defined benefit
obligation at the balance sheet date, less the
fair value of the plan assets. The defined
benefit obligation is calculated annually by
independent actuaries using the projected unit
credit method. The present value of the defined
benefit obligation is determined by discounting
the estimated future cash flows by the yield on
high-quality corporate bonds denominated in
the currency in which the benefits will be paid,
and that have a maturity approximating to the
terms of the pension obligations. The costs of
providing these defined benefit schemes are
accrued over the period of employment.
Actuarial gains and losses are recognised
immediately in other comprehensive income.
Past-service costs are recognised immediately in
income, unless the changes to the pension plan
are conditional on the employees remaining
in service for a specified period of time (the
vesting period). In this case, the past-service
costs are amortised on a straight-line basis over
the vesting period.
Post-Retirement Benefits Other than
Pensions
Some Group companies provide post-
retirement medical care to their retirees. The
costs of providing these benefits are accrued
over the period of employment and the liability
recognised in the balance sheet is calculated
using the projected unit credit method and is
discounted to its present value and the fair
value of any related asset is deducted.
Employee Share Schemes
Incentives in the form of shares are provided to
employees under share option and restricted
share schemes. Any shortfall between the cost
to the employee and the fair market value of
the awards at date of grant is charged to the
income statement over the period to which the
performance criteria relate, with the credit
taken directly to retained earnings. Additional
employer costs in respect of options and
awards are charged to the income statement
over the same period with the credit included in
payables. Where awards are contingent upon
non-market performance conditions, an
assessment of the likelihood of these conditions
being achieved is made at the end of each
reporting period and reflected in the accounting
entries made.
The proceeds received net of any directly
attributable transaction costs are credited to
share capital and share premium when the
options are exercised.
Provisions
Provisions are recognised when the Group has
a present legal or constructive obligation as a
result of past events; it is more likely than not
that there will be an outflow of resources to
settle that obligation; and the amount can be
reliably estimated. Provisions are valued at the
present value of the Directors’ best estimate of
the expenditure required to settle the obligation
at the balance sheet date.
Financial Instruments Held For Trading
Financial instruments held for trading are
classified as current assets and current liabilities,
and are stated at fair value, with any gain
or loss resulting from changes in fair value
recognised in the income statement.
The fair value of financial assets classified
as held for trading is their quoted bid price
at the balance sheet date.
Financial instruments classified as held for
trading are recognised/de-recognised by the
Group on the date it commits to purchase/sell
the instrument.
Derivative Financial Instruments and
Hedging Activity
The Group may use derivatives to manage its
exposures to fluctuating interest and foreign
exchange rates. These instruments are initially
recognised at fair value on the date the
contract is entered into and are subsequently
remeasured at their fair value. The method of
recognising the resulting gain or loss depends
on whether the derivative is designated as a
hedging instrument and if so, the nature of the
item being hedged. Derivatives that qualify for
hedge accounting are treated as a hedge of
a highly probable forecast transaction (cash
flow hedge).
At inception the relationship between the
hedging instrument and the hedged item
is documented, as is an assessment of the
effectiveness of the derivative instrument used
in the hedging transaction in offsetting changes
in the cash flow of the hedged item. This
effectiveness assessment is repeated on an
ongoing basis during the life of the hedging
instrument to ensure that the instrument
remains an effective hedge of the transaction.
1 Derivatives classified as cash flow hedges:
the effective portion of changes in the fair
value is recognised in other comprehensive
income. Any gain or loss relating to the
ineffective portion is recognised immediately
in the income statement.
Amounts recognised in other comprehensive
income are recycled to the income statement
in the period when the hedged item will
affect profit or loss. If the hedging instrument
expires or is sold, or no longer meets the
criteria for hedge accounting, any cumulative
gain or loss existing in other comprehensive
income at that time remains in other
comprehensive income, and is recognised
when the forecast transaction is ultimately
recognised in the income statement. If the
forecast transaction is no longer expected
to occur, the cumulative gain or loss in other
comprehensive income is immediately
transferred to the income statement.
2 Derivatives that do not qualify for hedge
accounting: these are classified at fair value
through profit or loss. All changes in fair
value of derivative instruments that do not
qualify for hedge accounting are recognised
immediately in the income statement.
Net Revenue
Net revenue is defined as the amount invoiced
to external customers during the year that is
gross sales net of trade discounts, customer
allowances for credit notes and returns and
consumer coupons, and exclusive of VAT and
other sales-related taxes. Net revenue is
recognised at the time that the risks and
rewards of ownership of the products are
transferred to the customer.
45
Report of the Directors2012
Notes to the financial statements continued
1 ACCOUNTING POLICIES (CONTINUED)
• Measurement of intangible assets both
in business combinations and other asset
acquisitions requires the Group to identify
such assets. Assumptions and estimates are
made about future cash flows and
appropriate discount rates to value identified
intangible assets (note 26).
• Long-term rates of return, inflation rates and
discount rates have been assumed in
calculating the pension and other employee
post-retirement benefits. If the real rates are
significantly different over time to those
assumed, the amounts recognised in the
income statement and in the balance sheet
will be impacted (note 21).
• Assumptions are made as to the
recoverability of tax assets especially as
to whether there will be sufficient future
taxable profits in the same jurisdictions to
fully utilise losses in future years (note 11).
• Assumptions are made in relation to share
awards, both in the Black-Scholes model
used to calculate the charge and in terms of
the recoverability of the deferred tax asset
related to share-based payments charges to
reserves (note 23).
• The actual tax paid on profits is determined
based on tax laws and regulations that differ
across the numerous jurisdictions in which
the Group operates. Assumptions are made
in applying these laws to the taxable profits
in any given period in order to calculate the
tax charge for that period. Where the
eventual tax paid or reclaimed is different
to the amounts originally estimated, the
difference will be charged or credited to the
income statement in the period in which it
is determined (note 7).
Leases
Leases of property, plant and equipment where
the Group has substantially all the risks and
rewards of ownership are classified as finance
leases. Assets held under finance leases are
capitalised at lease inception at the lower of the
asset’s fair value and the present value of the
minimum lease payments. Obligations related
to finance leases, net of finance charges in
respect of future periods, are included as
appropriate within borrowings. The interest
element of the finance cost is charged to the
income statement over the life of the lease so
as to produce a constant periodic rate of
interest on the remaining balance of the liability
for each period. The plant, property and
equipment are depreciated on the same basis
as owned plant and equipment or over the life
of the lease, if shorter.
Leases where the lessor retains substantially
all the risks and rewards of ownership are
classified as operating leases. Operating lease
rentals (net of any related lease incentives) are
charged against profit on a straight line basis
over the period of the lease.
Share Capital Transactions
When the Group purchases equity share capital,
the amount of the consideration paid, including
directly attributable costs, is recognised as a
change in equity. Purchased shares are either
held in Treasury, in order to satisfy employee
options, or cancelled and, in order to maintain
capital, an equivalent amount to the nominal
value of the shares cancelled would be
transferred from retained earnings to the
capital redemption reserve.
Dividend Distribution
Dividends to owners of the parent are
recognised as a liability in the period in which
the dividends are approved by the Company’s
Shareholders. Interim dividends are recorded in
the period in which they are approved and paid.
Accounting Estimates and Judgements
The Directors make a number of estimates and
assumptions regarding the future, and make
some significant judgements in applying the
Group’s accounting policies. These include:
• Estimates of future business performance
and cash generation, discount rates and
long-term growth rates supporting the net
book amount of indefinite life intangible
assets at the balance sheet date (note 9). If
the actual results should differ, or changes in
expectations arise, impairment charges may
be required which would adversely impact
operating results.
• The determination of the carrying value of
property, plant and equipment and related
depreciation, and the estimation of useful
economic life of these assets (note 10).
• The continuing enduring nature of the
Group’s brands supporting the assumed
useful lives of these assets (note 9).
46
2012 2 OPERATING SEGMENTS
The Executive Committee is the Group’s Chief Operating Decision Maker (CODM). Management has determined the operating segments based on the
reports reviewed by the Executive Committee for the purposes of making strategic decisions and assessing performance. The Executive Committee
considers the business principally from a geographical perspective, but with the RB Pharmaceuticals (in table referred to as RBP) and Food businesses
being managed separately given the significantly different nature of these businesses and the risks and rewards associated with them.
As a result of the Group’s strategy for continued outperformance, announced in February 2012, the geographical segments have changed from those
reported in the Annual Report and financial statements for the year ended 31 December 2011 to reflect the Group’s increased focus on high growth
emerging market clusters. The new geographical segments comprise Europe and North America (ENA); Latin America, North Asia, South East Asia and
Australia and New Zealand (LAPAC); and Russia and CIS, Middle East, North Africa, Turkey and Sub-Saharan Africa (RUMEA). Comparative information
has been restated on a consistent basis.
The geographical segments derive their revenue primarily from the manufacture and sale of branded products in the health, hygiene and home
categories. RB Pharmaceuticals derives its revenue exclusively from the sales of buprenorphine-based prescription drugs used to treat opiate dependence
and Food derives its revenue from food products sold in ENA.
The results of Schiff Nutrition International, Inc. (Schiff) subsequent to its acquisition on 14 December 2012 are included in ENA.
The Executive Committee assesses the performance of the operating segments based on net revenue and operating profit before exceptional items.
Finance income and expense are not allocated to segments, as they are managed on a central Group basis.
The Executive Committee do not review inter-segment revenue information, nor is it included in the measure of segment profit or loss reviewed by the
Executive Committee. As such this is no longer included in the Group’s operating segments’ disclosures.
Items of income and expense which are not part of the results and financial position of the operating segments, and therefore reported to the Executive
Committee outside of the individual segment financial information, are shown in the Corporate segment. For the year ended 31 December 2012 this
includes profit on disposals of intangible assets and the Paras personal care business, expenses for legal matters, and other corporate provisions with a
net effect of £32m. For the year ended 31 December 2011 this comprised a profit on disposal of intangibles, miscellaneous items and regulatory costs
with a net effect of £10m.
Reportable Segments
The segment information provided to the Executive Committee for the reportable segments for the year ended 31 December 2012 is as follows:
2012
Net revenue
Depreciation, amortisation and impairment
Operating profit before exceptional items
Exceptional items
Operating profit
Net finance expense
Profit on ordinary activities before taxation
2011 (Restated)
Net revenue
Depreciation, amortisation and impairment
Operating profit before exceptional items
Exceptional items
Operating profit
Net finance expense
Profit on ordinary activities before taxation
ENA
£m
4,678
95
1,156
LAPAC
£m
2,327
32
464
RUMEA
£m
1,404
8
290
Food Corporate
£m
£m
321
5
92
–
–
32
ENA
£m
4,837
99
1,157
LAPAC
£m
2,210
30
417
RUMEA
£m
1,364
8
293
Food
£m
312
5
92
Corporate
£m
–
–
10
Total
Ex-RBP
£m
8,730
140
2,034
Total
Ex-RBP
£m
8,723
142
1,969
RBP
£m
837
8
536
RBP
£m
762
15
518
Total
£m
9,567
148
2,570
(135)
2,435
(15)
2,420
Total
£m
9,485
157
2,487
(92)
2,395
(19)
2,376
47
Report of the Directors2012
Notes to the financial statements continued
2 OPERATING SEGMENTS (CONTINUED)
The Executive Committee reviews net working capital by segment and other assets and liabilities on a Group basis. The split of assets and liabilities by
segment provided to the Executive Committee is as follows. Assets and liabilities of the Corporate segment are not presented to the Executive
Committee and are shown below as a reconciling item.
2012
Inventories
Trade and other receivables
Total segment assets
Trade and other payables
2011 (Restated)
Inventories
Trade and other receivables
Total segment assets
Trade and other payables
ENA
£m
385
601
986
LAPAC
£m
RUMEA
£m
Food
£m
250
363
613
118
217
335
4
–
4
RBP
£m
108
178
286
Total
£m
865
1,359
2,224
(1,428)
(661)
(283)
(13)
(241)
(2,626)
ENA
£m
412
693
1,105
LAPAC
£m
RUMEA
£m
Food
£m
227
341
568
112
178
290
5
2
7
RBP
£m
135
178
313
Total
£m
891
1,392
2,283
(1,550)
(698)
(293)
(14)
(186)
(2,741)
The assets and liabilities are allocated based upon the operations of the segment and the physical location of the asset or liability. There are a number
of unallocated assets and liabilities that comprise corporate items that are not specifically attributable to one segment. Reconciliation of these assets
and liabilities to total assets or liabilities in the balance sheet is shown below:
Inventories for reportable segments
Unallocated:
Elimination of profit on inter-company inventory
Total inventories per the balance sheet
Trade and other receivables for reportable segments
Unallocated:
Corporate items
Total trade and other receivables per the balance sheet
Total inventories and trade and other receivables per the balance sheet
Other unallocated assets
Total assets per the balance sheet
Trade and other payables for reportable segments
Unallocated:
Corporate items
Total trade and other payables per the balance sheet
Other unallocated liabilities
Total liabilities per the balance sheet
2012
£m
865
(130)
735
1,359
48
1,407
2,142
12,938
15,080
(2,626)
(216)
(2,842)
(6,316)
(9,158)
2011
£m
891
(133)
758
1,392
50
1,442
2,200
11,926
14,126
(2,741)
(160)
(2,901)
(5,444)
(8,345)
Unallocated assets include goodwill and intangible assets, property, plant and equipment and cash equivalents, while unallocated liabilities include
borrowings, deferred tax liabilities and retirement benefit obligations.
48
2012
2 OPERATING SEGMENTS (CONTINUED)
Analysis of Categories
Following the revised category focus announced in February 2012, the Group analyses its revenue by the following categories: health, hygiene, home
and portfolio brands together with RB Pharmaceuticals and Food. Comparative information has been restated on a consistent basis.
The results of Schiff subsequent to its acquisition on 14 December 2012 are included in health.
Health
Hygiene
Home
Portfolio brands
Food
RB Pharmaceuticals
Total
2012
£m
2,068
3,682
1,966
693
321
8,730
837
9,567
Net revenues
2011
(restated)
£m
2,000
3,643
2,009
759
312
8,723
762
9,485
Health, hygiene, home and portfolio brands categories are all split across the three geographical segments of ENA, LAPAC and RUMEA. Food (which is
sold exclusively in ENA) and RB Pharmaceuticals are recognised within their own reportable segments.
The Company is domiciled in the UK. The split of revenue from external customers and non-current assets (other than financial instruments, deferred
tax assets and retirement benefit surplus assets) between the UK, the US (being the single biggest country outside the country of domicile) and that
from all other countries is:
2012
Net revenue
Goodwill and other intangible assets
Property, plant and equipment
Other receivables
2011
Net revenue
Goodwill and other intangible assets
Property, plant and equipment
Other receivables
UK
£m
643
1,536
137
4
UK
£m
All other
countries
£m
US
£m
Total
£m
2,480
6,444
9,567
4,287
125
4
5,352
475
25
11,175
737
33
US
£m
All other
countries
£m
Total
£m
685
2,304
6,496
9,485
1,536
133
–
3,252
131
–
5,470
468
6
10,258
732
6
The net revenue from external customers reported on a geographical basis above is measured in a manner consistent with that in the reportable segments.
Major customers are typically large grocery chains, mass market and multiple retailers. The Group’s customer base is diverse with no single external
customer accounting for more than 10% of net revenue, and the top ten customers accounting for less than a quarter of total net revenue.
49
2012
3 ANALYSIS OF COST OF SALES AND NET OPERATING EXPENSES
Cost of sales
Distribution costs
Administrative expenses:
Pharmaceuticals research and development
Other research and development
Other
Total administrative expenses
Other net operating income
Exceptional items
Net operating expenses
* Refer to note 1 for further details.
2012
£m
(4,030)
(2,318)
(25)
(146)
(491)
(662)
13
(135)
2011
(restated)*
£m
(4,036)
(2,299)
(20)
(133)
(578)
(731)
68
(92)
(3,102)
(3,054)
Included within cost of sales is a fair value loss of £nil (2011: loss of £7m) transferred from the hedging reserve. Total foreign exchange losses of £nil
(2011: losses of £7m) have been recognised through the income statement. These amounts exclude financial instruments fair valued through the
income statement and amounts recognised directly in the foreign currency translation reserve.
Exceptional items
Restructuring
Acquisition related costs
Total exceptional items
2012
£m
123
12
135
2011
£m
89
3
92
The Group incurred restructuring charges of £123m relating to the implementation of the Group’s new area and category organisations, integration of
SSL, withdrawal of private label and further reconfiguration of the Group. This consists primarily of redundancy and business integration costs which
have been included within net operating expenses. Acquisition related costs include legal and other professional fees in relation to business combinations.
4 AUDITORS’ REMUNERATION
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor and its associates.
Fees payable to the Company’s auditor and its associates for the audit of the Parent Company
and consolidated financial statements
Fees payable to the Company’s auditor and its associates for other services:
Audit of the Company’s subsidiaries
Audit related assurance services
Taxation compliance services
Taxation advisory services
Other assurance services
All other non-audit services
2012
£m
1.9
3.8
0.4
0.2
4.3
0.2
0.1
10.9
2011
(restated)*
£m
1.8
3.8
0.3
0.1
1.4
0.2
0.1
7.7
* Restated for change in categories disclosed.
Included in the above is £0.1m (2011: £0.2m) in relation to the audit of the financial statements of associated pension schemes of the Group.
50
Notes to the financial statements continued2012
5 EMPLOYEES
(a) Staff costs
The total employment costs, including Directors, were:
Wages and salaries
Social security costs
Net pension costs
Share-based payments
Notes
21
23
2012
£m
923
174
50
49
2011
£m
950
184
51
61
1,196
1,246
Details of Directors’ emoluments are included in the Directors’ Remuneration Report on pages 31 to 37, which forms part of the financial statements.
Compensation awarded to key management (the Executive Committee):
Short-term employee benefits
Post-employment benefits
Share-based payments
Termination benefits
2012
£m
11
1
15
4
31
2011
£m
11
1
22
–
34
Termination benefits and share-based payments include contractual commitments made to key management in 2012, comprising cash payments and
shares to vest in 2013.
(b) Staff numbers
The monthly average number of people employed by the Group, including Directors, during the year was:
ENA
RUMEA
LAPAC
RB Pharmaceuticals
Other
1 Restated for the change in reportable geographic segments disclosed in note 2.
6 NET FINANCE EXPENSE
Finance income
Interest income on cash and cash equivalents
Total finance income
Finance expense
Interest payable on borrowings
Amortisation of issue costs of bank loans
Other finance expense
Total finance expense
Net finance expense
Included within amortisation of issue costs of bank loans is an exceptional finance cost of £nil (2011: £4m).
2012
‘000
13.9
7.1
13.7
0.6
0.6
35.9
2012
£m
26
26
(30)
(6)
(5)
(41)
(15)
2011
(restated)1
‘000
13.8
7.2
15.7
0.6
0.5
37.8
2011
£m
23
23
(30)
(7)
(5)
(42)
(19)
51
2012
7 INCOME TAX EXPENSE
Current tax
Prior year adjustments
Total current tax
Origination and reversal of temporary differences
Impact of changes in tax rates
Total deferred tax (note 11)
Tax on profit on ordinary activities
2012
£m
662
(21)
641
26
(80)
(54)
587
2011
£m
625
(8)
617
70
(65)
5
622
The standard rate of corporation tax in the UK changed from 26% to 24% with effect from 1 April 2012. Accordingly, the Company’s profits for the
year ended 31 December 2012 are taxed at an effective rate of 24.5% (2011: 26.5%).
UK income tax of £138m (2011: £161m) is included within current tax and is calculated at 24.5% (2011: 26.5%) of the estimated assessable profit for
the year. Taxation for other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
The total tax charge for the year can be reconciled to the accounting profit as follows:
Profit on ordinary activities before taxation
Tax at the notional UK corporation tax rate of 24.5% (2011: 26.5%)
Effects of:
Tax at rates other than the UK corporation tax rate
Adjustments to amounts carried in respect of unresolved tax matters
Incurrence/(utilisation) of tax losses
Withholdings and local taxes
Adjustment in respect of prior periods
Impact of changes in tax rates
Exceptional items
Other permanent differences
Tax on profit on ordinary activities
2012
£m
2,420
593
11
77
7
16
(58)
(80)
8
13
587
2011
£m
2,376
630
(9)
47
(2)
25
(11)
(65)
2
5
622
The tax charge is expected to be impacted by items in the nature of those listed above for the foreseeable future.
Following the enactment of legislation in the UK to reduce the corporation tax rate to 23% from 1 April 2013, the total tax charge in 2012 includes the
impact on the income statement of calculating the UK deferred tax balances at the lower UK corporation tax rate. The impact of this rate change is a
£62m reduction in the tax charge in the income statement. The proposed future reduction in the UK tax rate to 21% will be reflected when the relevant
legislation is substantively enacted.
The tax (charge)/credit relating to components of other comprehensive income is as follows:
Net exchange adjustments on foreign currency translation
Actuarial losses (note 21)
Gains/(losses) on cash flow hedges
Reclassification of foreign currency translation reserve on disposal of subsidiary
Other comprehensive income
Current tax
Deferred tax (note 11)
Before
tax
£m
(256)
(64)
4
9
(307)
Tax
credit/
(charge)
£m
1
15
(1)
–
15
(2)
17
15
2012
After
tax
£m
(255)
(49)
3
9
(292)
Before
tax
£m
(227)
(84)
4
–
(307)
2011
After
tax
£m
(226)
(49)
3
–
(272)
Tax
credit/
(charge)
£m
1
35
(1)
–
35
–
35
35
52
Notes to the financial statements continued2012
8 EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
2012
pence
252.5
249.5
267.6
264.4
2011
pence
239.8
237.1
249.9
247.1
Basic
Basic earnings per share is calculated by dividing the net income attributable to owners of the Parent (2012: £1,829m (2011: £1,745m)) by the
weighted average number of ordinary shares in issue during the year (2012: 724,238,235 (2011: 727,628,580)).
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 two categories of dilutive potential ordinary shares: Executive Share Options and Employee Sharesave schemes.
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 2012, there were 4m (2011: 4m) of Executive Share Options not included within the dilution because
the exercise price for the options was greater than the average share price for the year.
The Directors believe that diluted earnings per ordinary share, adjusted for the impact of exceptional items after the appropriate tax amount, provides
additional useful information on underlying trends to Shareholders in respect of earnings per ordinary share.
Details of the adjusted net income attributable to owners of the parent are as follows:
Net income attributable to owners of the parent
Exceptional items
Exceptional charge included in finance expense
Tax effect of exceptional items
Adjusted net income attributable to owners of the parent
On a basic basis
Dilution for Executive Options outstanding
and Executive Restricted Share Plan
Dilution for Employee Sharesave Scheme Options outstanding
On a diluted basis
2012
£m
1,829
135
–
(26)
1,938
2011
£m
1,745
92
4
(23)
1,818
2012
Average
number of
shares
2011
Average
number of
shares
724,238,235
727,628,580
8,098,123
659,327
7,423,757
780,818
732,995,685
735,833,155
53
2012
9 GOODWILL AND OTHER INTANGIBLE ASSETS
Cost
At 1 January 2012
Additions
Arising on business combinations
Disposals
Exchange adjustments
At 31 December 2012
Accumulated amortisation
and impairment
At 1 January 2012
Amortisation and impairment charge
Disposals
Exchange adjustments
At 31 December 2012
Brands
£m
7,106
2
880
(37)
(198)
7,753
80
3
–
(1)
82
Net book amount at 31 December 2012
7,671
Cost
At 1 January 2011
Additions
Arising on business combinations
Reclassifications
Exchange adjustments
At 31 December 2011
Accumulated amortisation
and impairment
At 1 January 2011
Amortisation and impairment charge
Exchange adjustments
At 31 December 2011
Net book amount at 31 December 2011
Net book amount at 1 January 2011
Brands
£m
6,934
–
305
–
(133)
7,106
75
8
(3)
80
7,026
6,859
Goodwill
£m
Software
£m
3,080
–
374
(17)
(85)
3,352
30
–
(1)
(1)
28
3,324
Goodwill
£m
2,890
–
260
–
(70)
3,080
30
–
–
30
3,050
2,860
48
9
–
–
–
57
21
1
–
–
22
35
Software
£m
24
19
–
6
(1)
48
21
1
(1)
21
27
3
Other
£m
236
–
–
–
(1)
235
81
9
–
–
90
145
Other
£m
209
22
6
–
(1)
236
66
16
(1)
81
155
143
Total
£m
10,470
11
1,254
(54)
(284)
11,397
212
13
(1)
(2)
222
11,175
Total
£m
10,057
41
571
6
(205)
10,470
192
25
(5)
212
10,258
9,865
The amount stated for brands represents the fair value of brands acquired since 1985 at the day of acquisition. Other includes product registration,
distribution rights and capitalised product development costs.
The reclassification of £6m in 2011 relates to the transfer of completed assets from plant and equipment. Software includes intangible assets under
construction of £31m (2011: £22m).
The majority of brands, all of goodwill and certain other intangibles are considered to have indefinite lives for the reasons noted in the Accounting
Policies and therefore are subject to an annual impairment review. A number of small non core brands are deemed to have a finite life and are
amortised accordingly.
The net book amounts of indefinite and finite life intangible assets are as follows:
Net book amount
Indefinite life assets:
Brands
Goodwill
Other
Total indefinite life assets
Finite life assets:
Brands
Software
Other
Total finite life assets
2012
£m
7,646
3,324
36
11,006
25
35
109
169
2011
£m
7,000
3,050
36
10,086
26
27
119
172
Total net book amount of intangible assets
11,175
10,258
Goodwill and other intangible assets with indefinite lives are allocated to a cash generating unit (CGU) for the purposes of impairment testing.
Goodwill is allocated to the CGU, or group of CGUs, that is expected to benefit from the related acquisition.
54
Notes to the financial statements continued2012
9 GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
Cash Generating Units
RB’s ‘Strategy for Continued Outperformance’ has fundamentally changed the way the Group operates. The Group has taken this as an opportunity to
reassess the appropriateness of the Group’s CGUs under IAS 36 Impairment of Assets. After considering all the evidence available, including how brand and
production assets generate cash inflows and how management monitors the business, the Directors have concluded that the Group’s CGUs with goodwill
and indefinite life intangible assets should now be defined as health (sexual wellbeing), health (other), hygiene, home, Food and portfolio brands.
Previously the CGUs were defined as the Group’s product groups (health & personal care, fabric care, surface care, home care, dishwashing, Food,
and other).
The acquired Schiff business is treated as its own CGU in 2012 called health (VMS). This will be reassessed following integration into the Group’s
operations in 2013.
An analysis of the net book amount of indefinite life assets and goodwill by CGU is shown below:
CGU
Health (sexual wellbeing)
Health (other)
Health (VMS)
Hygiene
Home
Portfolio Brands
Food
Key brands
Durex
Gaviscon, Mucinex, Nurofen,
Scholl, Strepsils
Airborne, MegaRed, Move Free
Bang, Clearasil, Dettol, Finish,
Harpic, Lysol, Mortein, Veet
Air Wick , Calgon, Vanish, Woolite
French’s
Indefinite
life assets
£m
Goodwill
£m
2012
Total
£m
2011 (restated)*
Indefinite
life assets
£m
Goodwill
£m
Total
£m
1,952
976
2,928
1,909
988
2,897
2,926
811
1,176
786
–
31
1,783
374
149
42
–
–
4,709
1,185
1,325
828
–
31
3,017
–
1,232
807
39
32
1,843
–
4,860
–
157
45
17
–
1,389
852
56
32
7,682
3,324
11,006
7,036
3,050
10,086
* Restated for changes in CGUs described above.
Indefinite life assets allocated to the Food CGU are not considered significant relative to the Group’s total indefinite life assets. As such the disclosures
below do not include discussion on the assumptions specific to Food.
On acquisition the indefinite life intangible assets and goodwill of health (VMS) were provisionally valued at fair value. Subsequent to acquisition there
has been no evidence that this fair value is impaired. The key assumptions applied in determining these fair values are summarised in the table below.
Value in use and key assumptions
The annual impairment review for goodwill and other intangible assets with indefinite lives is based on an assessment of each CGU’s value in use.
Value in use is calculated from cash flow projections, based on historical operating results and short-term budgets and medium-term business plans
approved by management covering a four-year period. These projections exclude any estimated future cash inflows or outflows expected to arise from
restructuring not yet implemented.
Cash flows beyond the four-year period are extrapolated using the estimated long-term growth rates stated below. Individual long-term growth rates
are applied to each product type within a CGU, and as such ranges are provided in some cases below. The long-term growth rates applied do not
exceed the long-term average growth rate for the market and countries in which the CGU operates.
Management has assessed the appropriate discount rate for each individual CGU, using a Weighted Average Cost of Capital (WACC) for comparable
companies operating in similar markets and geographies as the Group as the base discount rate, adjusted for risks specific to each CGU. Due to the
similar geographic and product diversification of their respective markets and risks associated with each CGU, a pre-tax discount rate of 11% was
determined for each of the health (sexual wellbeing), health (other), hygiene and home CGUs (2011: 11%). Health (VMS) is predominantly
concentrated in one market, being the US, and a blended pre-tax discount rate of 14% was applied in the provisional fair value exercise, reflecting the
increased risk associated with this CGU from its market concentration and the fact that this is a new business to the Group.
Key assumptions (which are kept under constant review by management) in the impairment review include future sales volumes, revenue growth rates
and prices, and future levels of marketing support required to sustain, grow and further innovate brands. The cash flow projections also take account of
the expected impact from new product initiatives, efficiency initiatives and the maturity of the markets in which each CGU operates. These key
assumptions are based on past performance and our experience of volumes, growth rates and prices in our key markets.
CGU
Health (sexual wellbeing)
Health (other)
Health (VMS)
Hygiene
Home
Growth %
4
0-4
2
0-4
0-2
Discount
rate %
11
11
14
11
11
Impairment Review
In October 2012 an impairment review was performed by comparing the recoverable amount of each CGU with its carrying amount, including
goodwill. This review was updated during December, taking into account significant events that occurred between October and December.
No impairment was considered necessary.
Any reasonably possible change in the key assumptions on which the recoverable amounts of the health (other), hygiene and home CGUs is based
would not cause their carrying values to exceed their recoverable amounts.
With a recoverable amount exceeding its carrying value by £388m, the heath (sexual wellbeing) CGU is the most sensitive to reasonably possible changes
to key assumptions. This is expected of a recent acquisition where the acquired intangible assets were valued at fair value. Increasing the pre-tax discount
rate from 11% to 12%, or halving the short-term revenue growth expectations in the management approved short- and medium-term budgets, or
reducing the long-term (terminal growth) rate from 4% to 3% would be required to reduce the recoverable amount to equal the carrying value.
55
2012
10 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2012
Additions
Arising on business combination
Disposals
Deconsolidation of subsidiary
Reclassifications
Exchange adjustments
At 31 December 2012
Accumulated depreciation and impairment
At 1 January 2012
Charge for the year
Disposals
Deconsolidation of subsidiary
Exchange adjustments
At 31 December 2012
Net book amount at 31 December 2012
Cost
At 1 January 2011
Additions
Arising on business combination
Disposals
Reclassifications
Exchange adjustments
At 31 December 2011
Accumulated depreciation and impairment
At 1 January 2011
Charge for the year
Disposals
Exchange adjustments
At 31 December 2011
Net book amount at 31 December 2011
Net book amount at 1 January 2011
Land and
Plant and
buildings equipment
£m
£m
512
13
1
(8)
(2)
21
(12)
1,272
153
8
(65)
(9)
(21)
(52)
Total
£m
1,784
166
9
(73)
(11)
-
(64)
525
1,286
1,811
189
24
(3)
(1)
(4)
205
320
863
111
(57)
(6)
(42)
869
417
Land and
buildings
£m
Plant and
equipment
£m
514
9
4
(6)
8
(17)
1,215
155
2
(44)
(14)
(42)
1,052
135
(60)
(7)
(46)
1,074
737
Total
£m
1,729
164
6
(50)
(6)
(59)
512
1,272
1,784
177
21
(3)
(6)
189
323
337
817
111
(39)
(26)
863
409
398
994
132
(42)
(32)
1,052
732
735
The net book amount of assets under construction is £62m (2011: £64m). Assets under construction are included within plant and equipment.
The reclassification from plant and equipment to land and buildings of £21m (2011: £8m) shows the transfer of completed assets. A further £6m was
reclassified to intangible assets on completion in 2011.
Capital expenditure which was contracted but not capitalised at 31 December 2012 was £20m (2011: £52m).
56
Notes to the financial statements continued2012
11 DEFERRED TAX
Deferred tax liabilities
At 1 January 2011
Charged/(credited) to the income statement
Credited to other comprehensive income
Charged directly to equity
Arising on business combination
Exchange differences
At 31 December 2011
Charged/(credited) to the income statement
Credited to other comprehensive income
Arising on business combination
Disposal of business
Exchange differences
At 31 December 2012
Deferred tax assets
At 1 January 2011
(Charged)/credited to the income statement
Credited to other comprehensive income
Charged directly to equity
Exchange differences
At 31 December 2011
(Charged)/credited to the income statement
Credited to other comprehensive income
Exchange differences
At 31 December 2012
Accelerated
capital
allowances
£m
Intangible
assets
£m
Short-term
temporary
differences
£m
Retirement
benefit
obligations
£m
Tax losses
£m
1,918
(6)
–
–
101
(34)
1,979
(92)
–
299
(15)
(46)
(202)
12
–
2
–
4
(184)
(29)
–
(23)
–
4
(8)
2
–
–
–
–
(6)
–
–
(9)
–
–
(13)
(2)
(19)
–
–
(2)
(36)
(47)
(14)
–
–
2
19
–
–
–
–
–
19
12
–
1
–
(1)
31
Total
£m
1,714
6
(19)
2
101
(32)
1,772
(156)
(14)
268
(15)
(41)
2,125
(232)
(15)
(95)
1,814
Accelerated
capital
allowances
£m
Intangible
assets
£m
Short-term
temporary
differences
£m
Retirement
benefit
obligations
£m
Tax losses
£m
(4)
(1)
–
–
–
(5)
14
–
–
9
(20)
5
–
–
(1)
(16)
8
–
1
(7)
107
(15)
–
(11)
1
82
(44)
2
(2)
38
10
24
–
–
(2)
32
(32)
–
–
–
53
(12)
16
–
–
57
(48)
1
(1)
9
Total
£m
146
1
16
(11)
(2)
150
(102)
3
(2)
49
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority.
Certain deferred tax assets in respect of overseas corporation tax losses and other temporary differences totalling £152m (2011: £115m) have not been
recognised at 31 December 2012 as the likelihood of future economic benefit is not sufficiently assured. These assets will be recognised if utilisation of
the losses and other temporary differences becomes reasonably certain.
No deferred tax liability has been recognised on the unremitted earnings of overseas subsidiaries as no tax is expected to be payable on them in the
foreseeable future based on the current repatriation policy of the Group.
57
2012
12 INVENTORIES
Raw materials and consumables
Work in progress
Finished goods and goods held for resale
Total inventories
2012
£m
157
27
551
735
The cost of inventories recognised as an expense and included as cost of sales amounted to £3,821m (2011 (restated*): £3,828m). This includes
inventory write offs and losses of £23m (2011: £19m).
The Group inventory provision at 31 December 2012 was £81m (2011: £97m).
* Refer to note 1 for further details.
13 TRADE AND OTHER RECEIVABLES
Amounts falling due within one year
Trade receivables
Less: Provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
2012
£m
1,269
(47)
1,222
131
54
1,407
2011
£m
167
31
560
758
2011
£m
1,294
(47)
1,247
135
60
1,442
Trade receivables consist of a broad cross-section of our international customer base for whom there is no significant history of default. The credit risk of
customers is assessed at a subsidiary and Group level, taking into account their financial positions, past experiences and other relevant factors. Individual
customer credit limits are imposed based on these factors.
As at 31 December 2012, trade receivables of £92m (2011: £89m) were past due but not impaired. The ageing analysis of trade receivables past due
but not impaired is as follows:
Up to 3 months
2012
£m
92
2011
£m
89
As at 31 December 2012, trade receivables of £77m (2011: £80m) were considered to be impaired. The amount of provision at 31 December 2012 was
£47m (2011: £47m). It was assessed that a portion of the receivables is expected to be recovered due to the nature and historical collection of trade
receivables. The ageing analysis of these receivables is as follows:
Up to 3 months
Over 3 months
2012
£m
37
40
77
2011
£m
40
40
80
The movement in the provision for impaired receivables consists of increases for additional provisions offset by receivables written off and unused
provision released back to the income statement. The gross movements in the provision are considered to be insignificant.
The other receivables do not contain impaired assets. They consist of items including reclaimable turnover tax and are from a broad range of countries
within the Group.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Sterling
Euro
US dollar
Other currencies
2012
£m
99
305
388
615
1,407
2011
£m
115
361
369
597
1,442
The maximum exposure to credit risk at the year end is the carrying value of each class of receivable mentioned above. The Group does not hold any
collateral as security.
58
Notes to the financial statements continued2012
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Financial Instruments by Category
At 31 December 2012
Assets as per the balance sheet
Auction rate securities1
Short-term deposits2
Trade and other receivables3
Derivative financial instruments – FX forward exchange contracts
Cash and cash equivalents
Liabilities as per the balance sheet
Borrowings (excluding finance lease obligations)4
Finance lease obligations4
Derivative financial instruments – FX forward exchange contracts
Trade and other payables5
Other non-current liabilities6
At 31 December 2011
Assets as per the balance sheet
Auction rate securities
Short-term deposits
Trade and other receivables3
Derivative financial instruments – FX forward exchange contracts
Cash and cash equivalents
Liabilities as per the balance sheet
Borrowings (excluding finance lease obligations)4
Finance lease obligations4
Derivative financial instruments – FX forward exchange contracts
Trade and other payables5
Other non-current liabilities6
Loans and
receivables
£m
Derivatives
used for
hedging
£m
Fair value
through
the P&L
£m
Available
for sale
£m
Carrying
value
total
£m
–
–
1,366
–
887
–
–
–
4
–
–
–
–
–
–
2
4
–
–
–
2
4
1,366
4
887
Derivatives
used for
hedging
£m
Other
financial
Fair value liabilities at
through amortised
cost
the P&L
£m
£m
–
–
43
–
–
–
–
–
–
–
3,269
5
–
2,698
17
Carrying
value
total
£m
3,269
5
43
2,698
17
Loans and
receivables
£m
Derivatives
used for
hedging
£m
Fair value
through
the P&L
£m
Available
for sale
£m
Carrying
value
total
£m
–
–
1,368
–
639
–
–
–
67
–
–
–
-
–
–
10
11
–
–
–
10
11
1,368
67
639
Derivatives
used for
hedging
£m
Fair value
through
the P&L
£m
Other
financial
liabilities at
amortised
cost
£m
–
–
7
–
–
–
–
–
–
–
2,504
4
–
2,756
39
Carrying
value
total
£m
2,504
4
7
2,756
39
Fair
value
total
£m
2
4
1,366
4
887
Fair
value
total
£m
3,269
5
43
2,698
17
Fair
value
total
£m
10
11
1,368
67
639
Fair
value
total
£m
2,504
4
7
2,756
39
1 These investments are auction rate securities issued by US state authorities, denominated in US dollars with redemption dates falling beyond 2013.
They are typically traded on a secondary market, however due to the current inactivity of this market there is uncertainty over whether they are likely
to be redeemed within one year and therefore have been classified as non-current.
2 These short-term deposits do not meet the requirements to be classified as cash equivalents as they have maturities greater than three months. They
are however highly liquid assets.
3 Prepayments and accrued income and employee benefit assets are excluded from the trade and other receivables balance as the analysis above is
required only for financial instruments.
4 The categories in this disclosure are determined by IAS 39. Finance leases are outside the scope of IAS 39, but they remain within the scope of IFRS 7.
Therefore finance leases have been shown separately.
5 Social security liabilities and other employee benefit liabilities are excluded from trade and other payables as the analysis above is required only for
financial instruments.
6 Included in other non-current liabilities is £12m (2011: £34m) to purchase the remaining shares of Shanghai Manon Trading Ltd.
The carrying value less impairment provision of investments, current borrowings, cash at bank, trade receivables and trade payables are assumed to
approximate their fair values due to their short-term nature.
59
2012
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The fair value measurement hierarchy levels have been defined as follows:
1) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
2) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (level 2). If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
3) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the Group’s assets and liabilities that are measured at fair value:
Assets as per the balance sheet
Auction rate securities
Short term deposits
Derivative financial instruments – FX forward exchange contracts
Total assets
Liabilities as per the balance sheet
Derivative financial instruments – FX forward exchange contracts
Total liabilities
Specific valuation techniques used to value financial instruments include:
2012
Level 2
£m
2012
Level 3
£m
2012
Total
£m
2011
Level 2
£m
2011
Level 3
£m
2011
Total
£m
–
4
4
8
43
43
2
–
–
2
–
–
2
4
4
10
43
43
–
11
67
78
7
7
10
–
–
10
–
–
10
11
67
88
7
7
1) The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value
discounted back to present value.
2) Discounted cash flow analysis is used to determine the fair value for the remaining financial instruments.
As the value of the level 3 instruments at 31 December 2012 is not material, no further level 3 disclosures have been made.
Financial Risk Management
The Group’s multinational operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchange rates
(foreign exchange risk), market prices, interest rates, credit risks and liquidity. The Group has in place a risk management programme that uses foreign
currency financial instruments, including debt, and other instruments, to limit the impact of these risks on the financial performance of the Group.
The Group’s financing and financial risk management activities are centralised into Group Treasury (GT) to achieve benefits of scale and control.
GT manages financial exposures of the Group centrally in a manner consistent with underlying business risks. GT manages only those risks and flows
generated by the underlying commercial operations and speculative transactions are not undertaken.
The Board of Directors reviews and agrees policies, guidelines and authority levels for all areas of Treasury activity and individually approves significant
activities. GT operates under the close control of the CFO and is subject to periodic independent reviews and audits, both internal and external.
1. Market Risk
(a) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from
future commercial transactions, recognised assets and liabilities and net investments in foreign operations.
The Group’s policy is to align interest costs and operating profit of its major currencies in order to provide some protection against the translation
exposure on foreign currency profits after tax. The Group may undertake borrowings and other hedging methods in the currencies of the countries
where most of its assets are located.
It is the Group’s policy to monitor and only where appropriate hedge its foreign currency transaction exposure. These transaction exposures arise mainly
from foreign currency receipts and payments for goods and services and from the remittances of foreign currency dividends and loans.
The local business units enter into forward foreign exchange contracts with GT to manage these exposures where practical and allowed by local regulations.
GT matches the Group exposures, and hedges the net position where possible, using spot and forward foreign currency exchange contracts.
The notional principal amount of the outstanding forward foreign exchange contracts at 31 December 2012 was £4,303m payable
(2011: £3,175m payable).
60
Notes to the financial statements continued2012
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
Cash Flow Hedge Profile
As at 31 December 2012, the Group had no material individual financial instruments classified as cash flow hedges. The same was true as at
31 December 2011.
The Group held forward foreign exchange contracts denominated as cash flow hedges primarily in Australian dollars, Euro, Canadian dollars, Singapore
dollars and Hungarian forint. Notional value of the payable leg resulting from these financial instruments was as follows:
Australian dollar
Euro
Canadian dollar
Singapore dollar
Hungarian forint
New Zealand dollar
Swedish krona
US dollars
Polish zloty
Other
2012
£m
90
90
60
43
38
12
4
1
–
1
2011
£m
47
12
40
-
-
11
13
14
53
4
339
194
These forward foreign exchange contracts are expected to mature over the period January 2013 to January 2014 (2011: January 2012 to
December 2012).
There is no ineffective portion recognised in the income statement arising from cash flow hedges (2011: £nil).
Gains and losses recognised in the hedging reserve in other comprehensive income on forward exchange contracts in 2012 of £3m gain (2011: £3m
gain) are recognised in the income statement in the period or periods during which the hedged forecast transaction affects the income statement,
which is generally within 12 months from the balance sheet date.
The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet.
In the case of cash flow hedges, these are denominated in a diverse range of currencies, where a fluctuation in one individual currency relationship,
with all others held constant, does not have a significant effect on the income statement or Shareholders’ equity. A fluctuation analysis has been
performed for all currencies. The largest potential fluctuation would be in respect of forward contracts between the Australian dollar and the Singapore
dollar. If the Singapore dollar had strengthened/weakened by 5% against the Australian dollar, with all other variables held constant, the impact on
Shareholders’ equity would have been less than £1m (2011: £nil). As at 31 December 2012 if all other currencies had strengthened/weakened by 5%
against Sterling with all other variables held constant, this would have had an insignificant effect on the income statement or Shareholders’ equity
(2011: insignificant).
The remaining major monetary financial instruments (liquid assets, receivables, interest and non-interest bearing liabilities) are directly denominated in
the functional currency or are transferred to the functional currency through the use of derivatives.
The gains and losses from fair value movements on financing derivatives recognised in finance income and expense were £nil (2011: £nil).
(b) Price risk
The Group is not exposed to equity securities price risk. Due to the nature of its business the Group is exposed to commodity price risk related to the
production or packaging of finished goods, such as oil related, and a diverse range of other, raw materials. This risk is, however, managed primarily
through medium-term contracts with certain key suppliers and is not therefore viewed as being a material risk.
(c) Cash flow and fair value interest rate risk
The Group has both interest-bearing and non interest-bearing assets and liabilities. The Group monitors its interest expense rate exposure on a regular
basis. The Group manages its interest income rate exposure on its gross financial assets by using a combination of fixed rate term deposits.
The Group analyses its interest rate exposure on a regular basis. Various scenarios are simulated taking into consideration refinancing, renewal of
existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on the income statement of a defined
interest rate shift. For each simulation, the same interest rate shift is used for all currencies, calculated on a full year and pre-tax basis.
The scenarios are only run for liabilities that represent the major interest-bearing positions. Based on the simulations performed, the impact on the
income statement of a 50 basis-point shift in interest rates would be a maximum increase of £9m (2011: £10m) or decrease of £9m (2011: £10m),
respectively for the liabilities covered. The simulation is done on a periodic basis to verify that the maximum loss potential is within the limit given
by management.
2. Credit Risk
The Group has no significant concentrations of credit risk. Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits
with banks and financial institutions, as well as credit exposures to customers. The credit quality of trade and other receivables is detailed in note 13.
Financial institution counterparties are subject to approval under the Group’s counterparty risk policy and such approval is limited to financial institutions
with a BBB rating or above. The Group uses BBB+ and higher rated counterparties to manage risk and uses BBB rated counterparties by exception. The
amount of exposure to any individual counterparty is subject to a limit defined within the counterparty risk policy, which is reassessed annually by the
Board. Derivative financial instruments are only traded with counterparties approved in accordance with the Board approved policy. Derivative risk is
measured using a risk weighting method.
61
2012
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The table below summarises the Group’s major financial institution counterparties by credit rating (lower of S&P and Moody’s) and balances (cash
equivalents, derivative financial instruments, deposits) at the balance sheet date.
Counterparty Risk
Counterparty
Bank A
Bank B
Bank C
Bank D
Bank E
Bank F
Bank G
Bank H
Bank I
Bank J
Credit
rating
AA
A
AAA
A
A
A
A
A
A
A
2012
Limit
£m
Exposure
£m
175
125
225
125
100
100
100
100
100
75
157
125
124
105
97
89
84
64
48
36
Credit
rating
AA
A
AAA
A
A
AA
A
A
A
A
2011
Exposure
£m
96
93
100
3
60
38
86
76
96
10
Limit
£m
175
125
300
125
100
175
125
100
125
100
3. Liquidity Risk
Cash flow forecasting is performed by the local business units and aggregated by GT. GT monitors rolling forecasts of the Group’s liquidity requirements
to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities. Funds
over and above those required for short-term working capital purposes by the overseas businesses are generally remitted to GT. The Group uses the
remittances to settle obligations, repay borrowings, or, in the event of a surplus, invest in short-term instruments issued by institutions with a BBB
rating or better.
Borrowing Facilities
The Group has various borrowing facilities available to it. The Group has bilateral credit facilities with high-quality international banks. All of these
facilities have similar or equivalent terms and conditions, and have a financial covenant, which is not expected to restrict the Group’s future operations.
At the end of 2012, the Group had, in addition to its long-term debt of £3m (2011: £3m), committed borrowing facilities totalling £4,000m
(2011: £3,600m), of which £3,600m exceeded 12 months’ maturity. Of the total facilities at the year end, £nil (2011: £nil) was utilised. The committed
borrowing facilities, together with available uncommitted facilities and central cash and investments, are considered sufficient to meet the Group’s
projected cash requirements.
The undrawn committed facilities available, in respect of which all conditions precedent have been met at the balance sheet date, were as follows:
Undrawn committed borrowing facilities:
Expiring within one year
Expiring between one and two years
Expiring after more than two years
2012
£m
400
850
2,750
4,000
2011
£m
–
850
2,750
3,600
All borrowing facilities are at floating rates of interest.
The facilities have been arranged to cover general corporate purposes including support for commercial paper issuance. All facilities incur commitment
fees at market rates.
Headroom between net debt and available facilities at 31 December 2012 was £1,574m (2011: £1,805m).
The Group’s borrowing limit at 31 December 2012 calculated in accordance with the Articles of Association was £60,468m (2011: £59,823m).
The table below analyses the Group’s financial liabilities and the derivatives which will be settled on a net basis into relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual
undiscounted cash flows which have been calculated using spot rates at the relevant balance sheet date, including interest to be paid.
At 31 December 2012
Commercial paper
Other borrowings
Trade payables
Other payables
At 31 December 2011
Commercial paper
Other borrowings
Trade payables
Other payables
62
Total
£m
(3,250)
(24)
(948)
(1,767)
Total
£m
(2,469)
(39)
(1,002)
(1,793)
Less than Between 1 Between 2
1 year and 2 years and 5 years
£m
£m
£m
(3,250)
(21)
(948)
(1,750)
–
–
–
–
–
(3)
–
(17)
Less than
Between 1
Between 2
1 year and 2 years and 5 years
£m
£m
£m
(2,469)
(36)
(1,002)
(1,754)
–
–
–
(22)
–
(3)
–
(17)
Over
5 years
£m
–
–
–
–
Over
5 years
£m
–
–
–
–
Notes to the financial statements continued2012
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The table below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on
the remaining period between the balance sheet and the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted
cash flows which have been calculated using spot rates at the relevant balance sheet date.
At 31 December 2012
Forward exchange contracts
Outflow
Inflow
At 31 December 2011
Forward exchange contracts
Outflow
Inflow
Less than Between 1 Between 2
1 year and 2 years and 5 years
£m
£m
£m
(4,233)
4,190
(70)
70
–
–
Less than
Between 1
Between 2
1 year and 2 years and 5 years
£m
£m
£m
Over
5 years
£m
–
–
Over
5 years
£m
(3,175)
3,242
–
–
–
–
–
–
4. Capital Management
The Group considers capital to be net debt plus total equity. Net debt is calculated as total borrowings less cash and cash equivalents, short-term
available for sale financial assets and financing derivative financial instruments (refer to note 16). Total equity includes share capital, reserves and
retained earnings as shown in the consolidated balance sheet.
Net debt (note 16)
Total equity
2012
£m
2,426
5,922
8,348
2011
£m
1,795
5,781
7,576
The objectives for managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for Shareholders and
benefits for other stakeholders and to maintain an efficient capital structure to optimise the cost of capital.
In maintaining an appropriate capital structure and providing returns for Shareholders, the Company provided returns to Shareholders in 2012 in the
form of dividends and the buy back of shares. Refer to notes 27 and 22 respectively.
The Group monitors net debt and at year end the Group had net debt of £2,426m (2011: £1,795m). The Group seeks to pay down net debt using cash
generated by the business to maintain an appropriate level of financial flexibility.
15 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term bank deposits
Cash and cash equivalents
2012
£m
371
516
887
2011
£m
312
327
639
The Group operates in a number of territories, where there are either foreign currency exchange restrictions or where it is difficult for the Group to
extract cash readily and easily in the short-term. As a result £115m (2011: £67m) of cash included in cash and cash equivalents is restricted for use by
the Group.
63
2012
2011
£m
35
2,469
1
2,505
2011
£m
3
3
2011
£m
35
2,469
1
3
2,473
2,508
2011
£m
639
(5)
(2,503)
74
(1,795)
2011
£m
(2,011)
88
400
(249)
–
(23)
(1,795)
16 FINANCIAL LIABILITIES – BORROWINGS
Current
Bank loans and overdrafts1
Commercial paper2
Finance lease obligations
Non-current
Finance lease obligations
2012
£m
19
3,250
2
3,271
2012
£m
3
3
1 Bank loans are denominated in a number of currencies, all are unsecured and bear interest based on relevant LIBOR equivalent.
2 Commercial paper was issued in US dollars, is unsecured and bears interest based on relevant LIBOR equivalent.
2012
£m
19
3,250
2
3
3,255
3,274
2012
£m
887
(5)
(3,269)
(39)
(2,426)
2012
£m
(1,795)
264
112
(887)
(99)
(21)
(2,426)
Maturity of debt
Bank loans and overdrafts repayable:
Within one year or on demand
Other borrowings repayable:
Within one year:
Commercial paper
Finance leases
Between two and five years:
Finance leases (payable by instalments)
Gross borrowings (unsecured)
Analysis of net debt
Cash and cash equivalents
Overdrafts
Borrowings (excluding overdrafts)
Other
Reconciliation of net debt
Net debt at beginning of year
Net increase in cash and cash equivalents
Repayment of borrowings
Proceeds from borrowings
Borrowings acquired in business combination
Exchange and other movements
Net debt at end of year
64
Notes to the financial statements continued2012
17 PROVISIONS FOR LIABILITIES AND CHARGES
At 1 January 2011
Charged to the income statement
Utilised during the year
Exchange adjustments
At 31 December 2011
Charged to the income statement
Arising on business combination
Utilised during the year
Released to the income statement
Exchange adjustments
At 31 December 2012
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Restructuring
provision
£m
Other
provisions
£m
Total
provisions
£m
93
92
(156)
1
30
123
–
(87)
–
–
66
2012
£m
128
100
228
216
23
(89)
(2)
148
42
45
(49)
(23)
(1)
162
309
115
(245)
(1)
178
165
45
(136)
(23)
(1)
228
2011
£m
60
118
178
Other provisions include onerous lease provisions expiring between 2014 and 2016 of £7m (2011: £12m). The remainder of the balance relates to
various legal, regulatory, environmental and other obligations throughout the Group, the majority of which are expected to be utilised within five years.
The restructuring provision principally relates to redundancies, the majority of which are expected to be utilised within one year.
18 OPERATING LEASE COMMITMENTS
Total future minimum lease payments under non-cancellable operating leases due:
Within one year
Later than one and less than five years
After five years
2012
£m
37
72
32
141
2011
£m
41
92
28
161
Operating lease rentals charged to the income statement in 2012 were £54m (2011: £62m).
As at 31 December 2012, total amounts expected to be received under non-cancellable sub-lease arrangements were £5m (2011: £6m).
Amounts credited to the income statement in respect of sub-lease arrangements were £2m (2011: £2m).
19 CONTINGENT LIABILITIES
Contingent liabilities comprising guarantees relating to subsidiary undertakings, at 31 December 2012 amounted to £3m (2011: £4m).
The Group is involved in a number of investigations by government authorities and has made provisions for such investigations, where appropriate.
Where it is too early to determine the likely outcome of these matters, the Directors have made no provision for such potential liabilities.
The Group has received a civil claim for damages from the Department of Health and others in the UK regarding alleged anti-competitive activity
involving the Gaviscon brand. The claim is under review and although it is at an early stage, the Directors do not believe that any potential impact
would be material to the Group financial statements.
The Group from time to time is involved in disputes 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.
20 TRADE AND OTHER PAYABLES
Trade payables
Other payables
Other tax and social security payable
Accruals
2012
£m
948
119
98
1,677
2,842
2011
£m
1,002
71
106
1,722
2,901
65
2012
21 PENSION AND OTHER POST-RETIREMENT COMMITMENTS
The Group operates a number of defined benefit and defined contribution pension schemes around the world covering many of its employees, which
are principally funded. The Group’s most significant defined benefit pension scheme (UK) is funded by the payment of contributions to separately
administered trust funds. The Group also operates a number of other post-retirement schemes in certain countries. The major scheme is in the US (US
Retiree Health Care Scheme), where salaried participants become eligible for retiree health care benefits after they reach a combined ‘age and years of
service rendered’ figure of 70, although the age must be a minimum of 55. As at 31 December 2012 there were 2,691 (2011: 2,584) eligible retirees
and 1,193 (2011: 1,312) current employees potentially eligible. This scheme is unfunded.
Pension costs for the year are as follows:
Defined contribution schemes
Defined benefit schemes (net charge)
Total pension costs recognised in the income statement (note 5)
2012
£m
25
25
50
2011
£m
26
25
51
For the largest UK scheme, a full independent actuarial valuation was carried out at 5 April 2010 and updated at 31 December 2012. For the US
scheme, a full independent actuarial valuation was carried out at 1 January 2012 and updated at 31 December 2012. The projected unit valuation
method was used for the UK and US scheme valuations. The major assumptions used by the actuaries for the two major schemes as at
31 December 2012 were:
Rate of increase in pensionable salaries
Rate of increase in deferred pensions during deferment
Rate of increase in pension payments – pensioners
Rate of increase in pension payments – non-pensioners
Discount rate
Inflation assumption
Annual medical cost inflation
Long-term expected rate of return on:
Equities
Bonds
Other
UK
%
4.5
2.9
2.7
2.7
4.3
3.0
–
7.0
4.3
5.7
2012
US
(medical)
%
–
–
–
–
4.1
–
5.0–9.0
–
–
–
UK
%
4.6
3.1
3.1
3.1
4.8
3.1
–
8.1
4.8
6.6
2011
US
(medical)
%
–
–
–
–
4.7
–
5.0–9.0
–
–
–
The expected rate of return on plan assets is based on market expectations at the beginning of the period for returns over the entire life of the benefit
obligation. Assumptions regarding future mortality experience are set in accordance with published statistics and experience in each territory. For the UK
scheme the mortality assumptions were based on the following tables; the average life expectancy in years of a pensioner retiring at aged 60 on the
balance sheet date is as follows:
Male
Female
2012
years
28.2
30.1
2011
years
28.0
29.8
For the UK scheme the mortality assumptions were based on the standard SAPS mortality table 1NMA for males and 1NFA for females. The average life
expectancy in years of a pensioner retiring at aged 60, 15 years after the balance sheet date, is as follows:
Male
Female
2012
years
30.0
31.9
2011
years
29.8
31.7
For the US scheme the mortality assumptions were determined using the RP2000 combined table. The average life expectancy in years of a pensioner
retiring at age 60 on the balance sheet date is 24.1 years (2011: 24.0 years) for males and 25.8 years (2011: 25.8 years) for females.
Impact of medical cost trend rates
A one percentage point change in the assumed health care cost trend rates would have the following effects:
Effect on service cost and interest cost
Effect on post-retirement benefit obligation
+1%
£m
2
20
2012
-1%
£m
(1)
(16)
+1%
£m
2
20
2011
-1%
£m
(1)
(16)
66
Notes to the financial statements continued2012
21 PENSION AND OTHER POST-RETIREMENT COMMITMENTS (CONTINUED)
The amounts recognised in the balance sheet are determined as follows:
Total equities
Total bonds
Total other assets
Fair value of plan assets
Present value of scheme liabilities
Net liability recognised in the balance sheet
UK
£m
407
521
76
1,004
(1,181)
(177)
US
(medical)
£m
-
-
-
-
(128)
(128)
2012
Total
£m
550
623
108
Other
£m
143
102
32
UK
£m
397
436
63
277
(371)
1,281
(1,680)
896
(1,092)
(94)
(399)
(196)
US
(medical)
£m
–
–
–
–
(133)
(133)
2011
Total
£m
511
509
92
1,112
(1,582)
(470)
Other
£m
114
73
29
216
(357)
(141)
Other represents the total of post-retirement benefits and Group defined benefit schemes not material for individual disclosure.
The net pension liability is recognised in the balance sheet as follows:
Non-current asset:
Funded scheme surplus
Non-current liability:
Funded scheme deficit
Unfunded scheme liability
Retirement benefit obligation
Net pension liability
None of the pension schemes’ assets includes an investment in shares or other instruments of the Company.
The amounts recognised in the income statement are as follows:
Current service cost
Curtailment gain
Expected return on pension scheme assets
Interest on pension scheme liabilities
Total charge to the income statement
UK
£m
(8)
–
48
(51)
(11)
US
(medical)
£m
(3)
4
–
(6)
(5)
Other
£m
(11)
–
16
(14)
(9)
2012
Total
£m
(22)
4
64
(71)
(25)
UK
£m
(8)
–
56
(55)
(7)
Cumulative actuarial gains and losses recognised in other comprehensive income:
At 1 January
Net actuarial loss recognised in the year (note 7)
At 31 December
The movements in the amounts recognised in the balance sheet are as follows:
2012
£m
27
(184)
(242)
(426)
(399)
US
(medical)
£m
(3)
–
–
(6)
(9)
2012
£m
(298)
(64)
(362)
Other
£m
(9)
–
16
(16)
(9)
Movement of net liability during the year
Deficit at 1 January
Current service cost
Curtailment gain
Contributions
Other finance income/(costs)
Actuarial loss
Exchange adjustments
Deficit at 31 December
UK
£m
(196)
(8)
–
70
(3)
(40)
–
(177)
US
(medical)
£m
(133)
(3)
4
6
(6)
(2)
6
(128)
2012
Total
£m
(470)
(22)
4
151
(7)
(64)
9
Other
£m
(141)
(11)
–
75
2
(22)
3
(94)
(399)
UK
£m
(193)
(8)
–
45
1
(41)
–
(196)
US
(medical)
£m
(121)
(3)
–
6
(6)
(7)
(2)
(133)
Other
£m
(139)
(9)
–
36
–
(36)
7
(141)
The actual return on plan assets was a gain of £83m (2011: £34m gain) for the UK scheme. Included within contributions above are employee
contributions of £1m (2011: £1m).
2011
£m
32
(265)
(237)
(502)
(470)
2011
Total
£m
(20)
–
72
(77)
(25)
2011
£m
(214)
(84)
(298)
2011
Total
£m
(453)
(20)
–
87
(5)
(84)
5
(470)
67
2012
21 PENSION AND OTHER POST-RETIREMENT COMMITMENTS (CONTINUED)
Changes in the present value of scheme liabilities are as follows:
Present value of liabilities at 1 January
Current service cost
Curtailment gain
Interest cost
Employee contributions
Benefits paid
Actuarial losses
Exchange adjustments
Present value of liabilities at 31 December
Changes in the fair value of plan assets are as follows:
Fair value of plan assets at 1 January
Expected rate of return
Contributions
Benefits paid
Actuarial gains/(losses)
Exchange adjustments
UK
£m
US
(medical)
£m
1,092
8
–
51
1
(46)
75
–
1,181
133
3
(4)
6
–
(6)
2
(6)
128
2012
Total
£m
1,582
22
(4)
71
1
(72)
99
(19)
Other
£m
357
11
–
14
–
(20)
22
(13)
UK
£m
1,051
8
–
55
1
(42)
19
–
371
1,680
1,092
UK
£m
896
48
71
(46)
35
–
Other
£m
216
16
81
(26)
–
(10)
2012
Total
£m
1,112
64
152
(72)
35
(10)
Fair value of plan assets at 31 December
1,004
277
1,281
US
(medical)
£m
121
3
–
6
–
(6)
7
2
133
UK
£m
858
56
46
(42)
(22)
–
896
2011
Total
£m
1,507
20
–
77
1
(68)
52
(7)
Other
£m
335
9
–
16
–
(20)
26
(9)
357
1,582
2011
Total
£m
1,054
72
88
(68)
(32)
(2)
Other
£m
196
16
42
(26)
(10)
(2)
216
1,112
History of experience gains and losses:
Experience adjustments arising on scheme assets:
Amount
Percentage of scheme assets
Experience adjustments arising on scheme liabilities:
Amount
Percentage of scheme liabilities
Present value of scheme liabilities
Fair value of scheme assets
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
35
2.7%
(32)
(2.9%)
31
2.9%
70
8.7%
(191)
(26.9%)
(99)
(5.9%)
(52)
3.3%
(36)
2.4%
(172)
14.7%
106
(10.5%)
(1,680)
1,281
(1,582)
1,112
(1,507)
1,054
(1,172)
801
(1,011)
710
Net pension liability
(399)
(470)
(453)
(371)
(301)
Expected employer contributions to be paid to funded defined benefit schemes in 2013 are £97m for the UK and £3m for other schemes.
68
Notes to the financial statements continued2012
22 SHARE CAPITAL
Issued and fully paid
At 1 January 2012
Allotments
At 31 December 2012
Issued and fully paid
At 1 January 2011
Allotments
At 31 December 2011
Equity
ordinary
shares
Nominal
value
£m
Subscriber
ordinary
shares
Nominal
value
£m
728,621,602
5,589,155
734,210,757
73
–
73
2
–
2
–
–
–
Equity
ordinary
shares
Nominal
value
£m
Subscriber
ordinary
shares
Nominal
value
£m
725,853,970
2,767,632
728,621,602
73
–
73
2
–
2
–
–
–
The holders of ordinary shares (par value 10p) are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the Parent Company.
The holders of subscriber ordinary shares (par value £1) have no entitlement to dividends. Holders have no right to attend or vote at any general
meeting of the Company unless a resolution is proposed to wind up the Company or vary the rights attached to the subscriber shares.
Allotment of ordinary shares
During the year 5,589,155 ordinary shares (2011: 2,767,632 ordinary shares) were allotted to satisfy vestings/exercises under the Group’s various share
schemes as follows:
Ordinary shares of 10p
Executive Share Options – exercises
Restricted Shares Awards – vesting
Total under Executive Share Option and Restricted Share Schemes
Senior Executives Share Ownership Policy Plan – vesting
Savings-Related Share Option Schemes – exercises
Total
Number
of shares
3,024,735
1,405,345
4,430,080
20,000
1,139,075
5,589,155
2012
Consideration
£m
74
–
74
–
24
98
Number
of shares
931,462
1,493,061
2,424,523
70,000
273,109
2,767,632
2011
Consideration
£m
22
–
22
–
5
27
Market purchases of shares
During 2012, the Company established a share buy back programme and purchased 14,991,643 equity ordinary shares (2011: nil) all of which are held
as Treasury shares. The total amount paid to acquire the shares was £535m (including stamp duty) which has been deducted from Shareholders’ equity.
No Treasury shares were released in 2012, leaving a balance held at 31 December 2012 of 14,991,643 (2011: nil).
69
2012
23 SHARE-BASED PAYMENTS
The Group operates a number of incentive schemes, including a share option scheme, a restricted share scheme, and other share award schemes.
All schemes are equity settled. The charge for share-based payments for the year was £49m (2011: £61m).
Executive Share Awards
Share options and restricted shares (Executive Share Awards) are awarded to the Top400 Management Group. Executive share awards have a
contractual life of 10 years but vest according to the following compound average annual growth (CAAG) rates in earnings per share over a
three-year period:
CAAG
per year (%)
9
8
7
6
Earnings per share
growth over
three years (%)
% of options and
shares vesting
29.5
26.0
22.5
19.1
100
80
60
40
The cost is spread over the three years of the performance period. For Executive Committee and Top40 members vesting conditions are not retested.
For remaining Top400 members the targets can be retested over four or five years. If any target has not been met any remaining shares or options
which have not vested will lapse.
Other Share Awards
Other share awards represent SAYE Schemes (offered to all staff within the relevant geographic area) and a number of Senior Executive Share Ownership
Policy Plan (SOPP) awards. Other share awards have contractual lives of three to seven years and are generally not subject to any vesting criteria other than
the employee’s continued employment.
Individual tranches of these other share awards are not material for detailed disclosure and therefore have been aggregated in the tables below.
All outstanding Executive and Other share awards as at 31 December 2012 and 31 December 2011 are included in the tables below which analyse
the charge for 2012 and 2011. The Group has used the Black-Scholes model to calculate the fair value of one award on the date of the grant of
the award.
Exercise
price Performance
period
£
Share price on
grant date
£
Black-Scholes model assumptions
Volatility
%
Dividend
yield
%
Risk-free Fair value of
one award
£
interest rate
%
Life
years
9.50 2002-04
11.19 2003-05
12.76 2004-06
15.47 2005-07
18.10 2006-08
22.57 2007-09
29.44 2008-10
27.29 2009-11
31.65 2010-12
34.64 2011-13
32.09 2012-14
39.14 2013-15
– 2006-08
– 2007-09
– 2008-10
– 2009-11
– 2010-12
– 2011-13
– 2012-14
– 2013-15
9.70
10.96
12.80
15.44
18.16
23.00
29.72
27.80
31.80
34.08
32.19
39.66
18.16
23.00
29.72
27.80
31.80
34.08
32.19
39.66
25
25
24
23
22
20
20
25
26
26
25
20
22
20
20
25
26
26
25
20
2.7
2.7
2.6
2.3
2.4
2.2
1.8
3.1
3.5
4.3
5.4
4.3
2.4
2.2
1.8
3.1
3.5
4.3
5.4
4.3
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4.50
4.50
4.50
4.88
4.69
4.65
5.53
2.78
1.69
2.16
1.00
0.61
4.69
4.65
5.53
2.78
1.69
2.16
1.00
0.61
1.95
2.05
2.46
2.99
3.33
4.23
5.99
4.69
4.70
4.49
3.18
3.29
16.38
21.01
27.55
24.31
27.23
28.22
25.30
32.76
Grant date
17 December 2001
22 November 2002
08 December 2003
06 December 2004
05 December 2005
08 December 2006
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
05 December 2005
08 December 2006
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
Table 1: Fair value
Award
Share options
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Restricted shares
2006
2007
2008
2009
2010
2011
2012
2013
70
Notes to the financial statements continued2012
23 SHARE-BASED PAYMENTS (CONTINUED)
Table 2: Share awards movements 2012
Award
Share options
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Restricted shares
2009
2010
2011
2012
2013
Other share awards
UK SAYE
US SAYE
Overseas SAYE
SOPP
Options
outstanding
at 1 Jan
Fair value of
one award
£
Granted/
2012 adjustments
number
number
Grant date
Movement in number of options
Options
outstanding
at 31 Dec
2012
number
Exercised
number
Lapsed
number
22 November 2002
08 December 2003
06 December 2004
05 December 2005
08 December 2006
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
2.05
67,319
2.46 263,000
2.99 398,511
3.33 581,971
4.23 1,516,358
5.99 2,790,669
4.69 2,991,334
4.70 3,229,322
4.49 3,559,047
3.18 4,020,400
3.29
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(67,319)
(196,000)
67,000
(233,000) 165,511
(318,671) 263,300
(1,000) (355,000) 1,160,358
(3,000) (943,590) 1,844,079
(5,353) (813,696) 2,172,285
(91,202) 2,955,162
(6,257) 3,055,949
– 3,186,439
– 4,022,000
(182,958)
(496,841)
(686,800) (147,161)
–
– 4,022,000
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
24.31 1,338,916
27.23 1,493,830
28.22 1,620,015
25.30 2,010,200
32.76
–
–
25,000
(461,550)
– 1,986,000
(86,447)
(243,371)
(71,079)
–
–
(63,197) 1,344,186
(5,232) 1,396,412
– 1,477,571
– 1,986,000
(2,000) (1,336,916)
Various
Various
Various
Various
Various 754,823 152,282
Various 722,362 203,972
Various 1,975,152
7,956
Various 100,000 110,000
(77,753) (166,366) 662,986
(109,551) (173,047) 643,736
(99,103) (799,662) 1,084,343
(20,000) 180,000
(10,000)
Weighted average exercise price (share options)
£29.53
£38.11
£33.46
£24.37
£32.13
Table 3: Share awards movements 2011
Award
Share options
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Restricted shares
2008
2009
2010
2011
2012
Other share awards
UK SAYE
US SAYE
Overseas SAYE
SOPP
Options
outstanding
at 1 Jan
Fair value of
one award
£
Granted/
2011 adjustments
number
number
Grant date
17 December 2001
22 November 2002
08 December 2003
06 December 2004
05 December 2005
08 December 2006
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
1.95
22,843
2.05 149,811
2.46 284,000
2.99 443,450
3.33 664,971
4.23 1,743,730
5.99 3,213,685
4.69 3,129,345
4.70 3,424,162
4.49 4,030,100
3.18
–
–
–
–
–
–
1,283
924
–
(373,250)
– 4,020,400
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
27.56 1,449,177
24.31 1,427,350
27.23 1,589,734
28.22 2,000,050
25.30
–
–
–
(334,150)
– 2,010,200
Movement in number of options
Options
outstanding
at 31 Dec
2011
number
Exercised
number
Lapsed
number
–
–
–
–
–
–
(22,843)
(82,492)
67,319
(21,000) 263,000
(44,939) 398,511
(83,000) 581,971
(2,000) (225,372) 1,516,358
(11,899) (412,400) 2,790,669
(34,462) 2,991,334
(4,954) 3,229,322
– 3,559,047
– 4,020,400
(104,473)
(189,886)
(97,803)
–
(5,000) (1,444,177)
(45,334)
(90,120)
(45,885)
–
–
(43,100) 1,338,916
(5,784) 1,493,830
– 1,620,015
– 2,010,200
Various
Various
Various
Various
Various 651,679 321,297
Various 653,105 243,704
Various 1,058,240 1,157,569
40,000
Various 130,000
(88,724) (129,429) 754,823
(89,031) 722,362
(85,416)
(54,649) 1,975,152
(186,008)
(70,000) 100,000
–
Weighted average exercise price (share options)
£28.75
£31.83
£31.14
£23.54
£29.53
For options outstanding at the year end the weighted average remaining contractual life is 5.69 years (2011: 5.59 years). Options outstanding at
31 December 2012 that could have been exercised at that date were 5,672,533 (2011: 5,617,828) with a weighted average exercise price of £26.08
(2011: £24.42).
71
2012
23 SHARE-BASED PAYMENTS (CONTINUED)
The assumptions made within the valuation calculation with respect to the achievement of performance criteria are based on the Directors’ expectations
in light of the Group’s business model and relevant published targets.
Under the terms of the plans, early exercise may only be granted in exceptional circumstances and therefore the effect of early exercise is not
incorporated into the calculation.
The calculation also assumes that there will be no leavers in the following year. No material modifications have been made to the plans in 2012 or 2011
for the purposes of the valuation.
Volatility: An estimate of future volatility is made with reference to historical volatility over a similar time period to the performance period or the
contractual life as appropriate.
Historical volatility is calculated based on the annualised standard deviation of the Group’s daily share price movement, being an approximation to the
continuously compounded rate of return on the share.
National Insurance contributions are payable in respect of certain share-based payment transactions and are treated as cash-settled transactions.
The contribution in 2012 was £27m (2011: £19m).
The weighted average share price for the year was £35.79 (2011: £33.07).
Options and restricted shares granted during the year
Options and restricted shares which may vest or become exercisable at various dates between 2014 and 2020 are as follows:
Reckitt Benckiser Senior Executives Share Ownership Policy Plan
Long-Term Incentive Plan 2007 – share options (July)
Long-Term Incentive Plan 2007 – restricted shares (July)
Long-Term Incentive Plan 2007 – share options (December)
Long-Term Incentive Plan 2007 – restricted shares (December)
Total
Savings-Related Share Option Schemes
UK Scheme
US Scheme
Total
Price to be paid £
–
34.78
–
39.14
–
28.36
28.36
Number
of shares
under option
110,000
1,600
800
4,020,400
1,985,200
6,118,000
152,282
203,972
356,254
Options and restricted shares unvested/unexercised at 31 December 2012
Options and restricted shares which have vested or may vest at various dates between 2013 and 2020 are as follows:
Price to be paid £
Number of shares under option
Executive share option and restricted share schemes
Reckitt Benckiser 1999 Share Option Plan – Annual Grant
Reckitt Benckiser Long-term Incentive Plan 2006 – Annual Grant – options
Reckitt Benckiser Long-term Incentive Plan 2007 – Annual Grant – options
Reckitt Benckiser Long-term Incentive Plan 2007 – Annual Grant – restricted shares
Reckitt Benckiser Senior Executives Share Ownership Policy Plan
From
12.76
27.29
To
18.10
22.57
39.14
–
–
2012
495,811
1,160,358
17,235,914
6,204,169
180,000
25,276,252
2011
1,310,801
1,516,358
16,590,772
6,462,961
100,000
25,980,892
Savings-related share option schemes
UK Scheme
Overseas Scheme
US Scheme
Total
Price to be paid £
Number of shares under option
From
13.71
21.95
22.88
To
28.36
27.99
28.36
2012
662,986
1,084,343
643,736
2,391,065
2011
754,823
1,975,152
722,362
3,452,337
Executive Share Options are awarded at an exercise price determined on grant and payable on exercise following satisfaction of performance criteria.
Restricted share awards entitle the recipient to receive shares at no cost following satisfaction of performance criteria.
72
Notes to the financial statements continued2012
24 RETAINED EARNINGS AND OTHER RESERVES
Within all subsidiaries of the Group there were statutory, contractual or exchange control restrictions limiting the Parent Company’s access to
distributable profits of £3,616m (2011: £4,137m). The reserves of subsidiary undertakings have generally been retained to finance their businesses.
Reserves
The merger reserve relates to the 1999 combination of Reckitt & Colman plc and Benckiser N.V. and a Group reconstruction in 2007 treated as a merger
under Part 27 of the Companies Act 2006.
The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging instruments related to hedge
transactions that are extant at year end.
The foreign currency translation reserve contains the accumulated foreign exchange differences from the translation of the financial statements of the
Group’s foreign operations arising when the Group’s entities are consolidated. The reserve also contains the translation of liabilities that hedge the
Group’s net exposure in a foreign currency.
25 RELATED PARTY TRANSACTIONS
On 31 May 2012 the Group acquired the remaining non-controlling interest in Beleggingsmaatschappij Lemore BV (BLBV), the holding company of OOO
Medcom MP (Medcom) from Abraca B.V., for £104m including transaction costs. Medcom is the Group’s Russian distributor of condoms, footcare products
and medical gloves and devices. Prior to acquisition the Group paid rental charges of less than £1m to a director of the non-controlling interest.
On 9 November 2012 the Group sold its investment in TTK-LIG for £18m to the non-controlling interest (T.T. Krishnamachari & Co) and simultaneously
purchased inventories of £9m from, and paid less than £1m to terminate an R&D agreement with the non-controlling interest. There was no gain or loss
on disposal. On the same date the Group purchased the non-controlling interest in SSL-TTK Limited from T.T. Krishnamachari & Co for £2m.
In 2011 the Group transacted with the non-controlling interests of SSL-TTK Limited, TTK-LIG Limited and OOO Medcom MP. This included sales of £1m,
the payment of packing and other charges of £1m, and rental charges of less than £1m. At 31 December 2011 the Group had receivables and payables
balances of less than £1m with the non-controlling interests.
Key management compensation is disclosed in note 5a.
The principal subsidiary undertakings included in the consolidated financial statements at 31 December 2012 are disclosed in note 2 to the Parent
Company financial statements.
26 BUSINESS ACQUISITIONS AND DISPOSALS
a. Acquisition of Schiff
On 14 December 2012 the Group acquired control of Schiff by acquiring 100% of the issued share capital for a consideration of $1.3bn (£813m).
Schiff is a leading provider of branded vitamins, nutrition supplements and nutrition bars predominantly in the US. Schiff’s vitamins, minerals and
supplements (VMS) product portfolio includes a number of market leading brands in the specialist product category in the US.
The Schiff acquisition provides a powerful entry into the large and growing global VMS market and is an ideal addition to the Group’s strategic focus in
global health and hygiene, providing immediate scale in VMS in the US.
This transaction has been accounted for by the acquisition method.
From the date of acquisition to 31 December 2012 the acquisition contributed £14m to net revenue and £1m to operating profit. Had the acquisition
taken place at 1 January 2012, the enlarged Group would show consolidated net revenues of £9,767m, operating profit of £2,422m and operating
profit before exceptional items of £2,594m.
All assets and liabilities were recognised at the following provisional fair values. The amount of consideration transferred over the net assets acquired is
recognised as goodwill in the Group financial statements.
Provisional
fair value
£m
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Borrowings
Provisions for liabilities and charges (current)
Trade and other payables
Deferred tax liabilities
Provisions for liabilities and charges (non-current)
Other non-current liabilities
Net assets acquired
Goodwill
Total consideration transferred
Total cash consideration
Total consideration transferred
Acquisition related costs of £9m are included in net operating expenses and disclosed as exceptional items in the income statement.
The intangible assets acquired include the brand assets associated with Airborne, Digestive Advantage, MegaRed, Move Free and Schiff Vitamins.
811
9
27
27
9
6
(99)
(42)
(37)
(268)
(3)
(1)
439
374
813
813
813
73
2012
26 BUSINESS ACQUISITIONS AND DISPOSALS (CONTINUED)
The fair value of trade and other receivables is £27m. The gross contractual amount for trade and other receivables due is £29m of which £2m is
expected to be uncollectable.
Included within provisions are contingent liabilities of £26m, which has been recognised in respect of a number of legal claims arising in the normal
course of business, the majority of which is expected to be utilised in less than 12 months.
Goodwill represents the strategic premium to enter and establish critical mass in the VMS market in the US, the value of expected synergy savings, and
assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
The fair value of identifiable net assets are stated at provisional amounts which will be finalised within the 12-month hindsight period following
acquisition. These balances remain provisional due to the proximity of the acquisition to the year end date. Provisional fair value adjustments cover the
recognition of acquired intangibles and their associated deferred tax, accounting policy alignment and other fair value adjustments on net working
capital, property, plant and equipment, provisions and borrowings.
All assets and liabilities are included within the ENA reportable segment and the health category.
b. Acquisition of SICO
On 17 September 2012 the Group acquired a 100% interest in SICO by acquiring the trade and business assets of the leading Mexican condom
manufacturer for cash consideration of £70m. Net cash acquired was £nil.
c. Disposal of Paras personal care
On 29 May 2012 the Group sold the Paras personal care business for £81m, net of cash disposed. A gain of £32m is recognised in the income
statement, of which £15m arises from deferred tax.
Refer to note 25 for acquisition and disposals with related parties.
27 DIVIDENDS
Dividends on equity ordinary shares:
2011 Final paid: 70p (2010: Final 65p) per share
2012 Interim paid: 56p (2011: Interim 55p) per share
Total dividends for the year
2012
£m
511
405
916
2011
£m
472
401
873
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2012 of 78p per share which will absorb an
estimated £561m of Shareholders’ funds. If approved by Shareholders it will be paid on 30 May 2013 to Shareholders who are on the register on
22 February 2013, with an ex-dividend date of 20 February 2013.
28 POST BALANCE SHEET EVENTS
On 8 January 2013 the Group obtained control of Oriental Medicine Company Limited, a manufacturer of traditional Chinese sore throat products, by
acquiring 100% of the share capital for cash consideration of £102m. A further £18m of cash consideration is deferred over the next three years.
On 10 February 2013, the Group entered into a three-year collaboration agreement with Bristol-Myers Squibb, for a number of market-leading
over-the-counter consumer health care brands in Brazil, Mexico and certain other parts of Latin America. The Group will make an upfront cash
payment of $482m (c.£300m) to enter into the arrangement which also includes personnel, supply contracts and an option to acquire legal title to the
related intellectual property at the end of the collaboration period for a multiple of earnings. The transaction will be accounted for as a business
combination and the Directors are in the process of revaluing the assets and liabilities acquired to fair value, including the value of any acquired
intangible assets.
74
Notes to the financial statements continued2012
Five-year summary
Income statement
Net revenue
Operating profit
Operating profit before exceptional items
Exceptional Items
Operating profit
Net finance (expense)/income
Profit on ordinary activities before tax
Tax on profit on ordinary activities
Attributable to non-controlling interests
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
9,567
9,485
8,453
7,753
6,563
2,435
2,395
2,130
1,891
1,505
2,570
(135)
2,487
(92)
2,231
(101)
2,435
2,395
2,130
(15)
2,420
(587)
(4)
(19)
2,376
(622)
(9)
6
2,136
(566)
(2)
1,891
–
1,891
1
1,892
(474)
–
1,535
(30)
1,505
(31)
1,474
(354)
–
Net income attributable to owners of the parent
1,829
1,745
1,568
1,418
1,120
Balance sheet
Net assets
Net working capital
Statistics
Reported basis
Operating margin
Total interest to operating profit (times covered)
Tax rate
Diluted earnings per share
Dividend cover†
Declared dividends per ordinary share
Adjusted basis*
Operating margin
Total interest to operating profit (times covered)
Diluted earnings per share
Dividend cover†
5,922
(700)
5,781
(701)
5,130
(639)
4,014
(867)
3,294
(724)
25.5
162.3x
24.3%
249.5p
1.9x
134p
26.9%
171.3x
264.4p
2.0x
25.3%
126.1x
26.2%
237.1p
1.9x
125p
26.2%
130.9x
247.1p
2.0x
25.2%
n/a
26.5%
213.8p
1.9x
115p
26.4%
n/a
226.5p
2.0x
24.4%
n/a
25.0%
194.7p
2.0x
100p
24.4%
n/a
194.7p
2.0x
22.9%
48.5x
24.0%
154.7p
2.0x
80p
23.4%
49.5x
157.8p
2.0x
† Dividend cover is calculated by dividing earnings/adjusted earnings by ordinary dividends relating to the period.
* Adjusted basis is calculated by adding/deducting the exceptional items from net income for the year.
75
2012
Parent Company – Independent Auditors’ Report to the members of Reckitt Benckiser Group plc
Other Matter
We have reported separately on the group
financial statements of Reckitt Benckiser Group
plc for the year ended 31 December 2012.
Ian Chambers (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
8 March 2013
Opinion on Financial Statements
In our opinion the Parent Company
financial statements:
• Give a true and fair view of the state of the
Company’s affairs as at 31 December 2012;
• Have been properly prepared in accordance
with UK Generally Accepted Accounting
Practice; and
• Have been prepared in accordance with the
requirements of the Companies Act 2006.
Opinion on Other Matters Prescribed by
the Companies Act 2006
In our opinion:
• The part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the Companies
Act 2006; and
• The information given in the Report of the
Directors for the financial year for which the
Parent Company financial statements are
prepared is consistent with the Parent
Company financial statements.
Matters on which We are Required to
Report by Exception
We have nothing to report in respect of
the following matters where the Companies
Act 2006 requires us to report to you if, in
our opinion:
• Adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been received
from branches not visited by us; or
• The Parent Company financial statements and
the part of the Directors’ Remuneration
Report to be audited are not in agreement
with the accounting records and returns; or
• Certain disclosures of Directors’ remuneration
specified by law are not made; or
• We have not received all the information and
explanations we require for our audit.
We have audited the Parent Company financial
statements of Reckitt Benckiser Group plc for the
year ended 31 December 2012 which comprise
the Parent Company balance sheet and the
related notes. The financial reporting framework
that has been applied in their preparation is
applicable law and UK Accounting Standards
(UK Generally Accepted Accounting Practice).
Respective Responsibilities of Directors
and Auditors
As explained more fully in the Statement of
Directors’ Responsibilities set out on page 30,
the Directors are responsible for the preparation
of the Parent Company financial statements
and for being satisfied that they give a true and
fair view. Our responsibility is to audit the
Parent Company financial statements in
accordance with applicable law and
International Standards on Auditing (UK and
Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical
Standards for Auditors.
This Report, including the opinions, has been
prepared for and only for the Company’s
members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for
no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any
other purpose or to any other person to whom
this Report is shown or into whose hands it may
come save where expressly agreed by our prior
consent in writing.
Scope of the Audit of the Financial
Statements
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting policies
are appropriate to the Parent Company’s
circumstances and have been consistently
applied and adequately disclosed; the
reasonableness of significant accounting
estimates made by the Directors; and the
overall presentation of the financial statements.
In addition, we read all the financial and
non-financial information in the annual report
to identify material inconsistencies with the
audited financial statements. If we become
aware of any apparent material misstatements
or inconsistencies we consider the implications
for our Report.
76
2012 Parent Company balance sheet
As at 31 December
Fixed assets
Investments
Current assets
Debtors due within one year
Debtors due after more than one year
Current liabilities
Creditors falling due within one year
Net current liabilities
Total assets less current liabilities
Net assets
EQUITY
Capital and reserves
Called up share capital
Share premium account
Profit and loss reserve
Total Shareholders’ funds
Notes
2012
£m
2011
£m
2
3
4
5
6
7
7
14,680
14,637
59
8
67
(4,498)
(4,431)
10,249
10,249
73
184
9,992
10,249
46
7
53
(3,084)
(3,031)
11,606
11,606
73
86
11,447
11,606
The financial statements on pages 77 to 82 were approved by the Board of Directors on 8 March 2013 and signed on its behalf by:
Adrian Bellamy
Director
Rakesh Kapoor
Director
77
2012
Notes to the Parent Company financial statements
1 PARENT COMPANY ACCOUNTING POLICIES
Accounting Convention
The financial statements are prepared on a going concern basis under the historical cost convention in accordance with the Companies Act 2006 and
applicable UK accounting standards. Accounting policies have been consistently applied to all the years presented unless otherwise stated.
As permitted by s408 of the Companies Act 2006, no profit and loss account is presented for Reckitt Benckiser Group plc.
Foreign Currency Translation
Transactions denominated in foreign currencies are translated using exchange rates prevailing at the dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of foreign currency transactions and from the translation at period end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income statement, except where hedge accounting is applied.
Taxation
The tax charge/credit is based on the result for the period and takes into account taxation deferred due to timing differences between the treatment of
certain items for taxation and accounting purposes. Deferred tax liabilities are provided for in full and deferred tax assets are recognised to the extent
that they are considered recoverable.
A net deferred tax asset is considered recoverable if it can be regarded as more likely than not that there will be suitable taxable profits against which to
recover carried forward tax losses and from which the future reversal of underlying timing differences can be deducted.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or
events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based
on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on an undiscounted basis.
Fixed Assets
Fixed asset investments are stated at the lower of cost and their recoverable amount, which is determined as the higher of net realisable value and value
in use. A review for the potential impairment of an investment is carried out by the Directors if events or changes in circumstances indicate that the
carrying value of the investment may not be recoverable. Such impairment reviews are performed in accordance with FRS 11, ‘Impairment of Fixed
Assets and Goodwill’.
Employee Share Schemes
Incentives in the form of shares are provided to employees under share option and restricted share schemes. Any shortfall between the cost to the
employee and the fair market value of the awards at date of grant is charged to the income statement over the period to which the performance
criteria relate, with the credit taken directly to the profit and loss account. Additional employer costs in respect of options and awards are charged to
the income statement account over the same period with the credit included in equity. Where awards are contingent upon future events an assessment
of the likelihood of these conditions being achieved is made at the end of each reporting period and reflected in the accounting entries made.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital
contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as
an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the Company accounts.
Debtors
Debtors are initially recognised at fair value and subsequently at amortised cost using the effective interest method less provision for impairment.
Share Capital Transactions
When the Company purchases equity share capital, the amount of the consideration paid, including directly attributable costs, is recognised as a charge
to equity. Purchased shares are either held in Treasury in order to satisfy employee options, or cancelled and, in order to maintain capital, an equivalent
amount to the nominal value of the shares cancelled is transferred from the profit and loss account to the capital redemption reserve.
Cash Flow Statement
Reckitt Benckiser Group plc has presented a Group cash flow statement in its Annual Report and financial statements 2012, therefore as permitted by
FRS 1 (revised 1996), ‘Cash Flow Statements’, the Directors have not prepared a cash flow statement for the Company.
78
2012 2 INVESTMENTS
Cost:
At 1 January 2012
Additions during the year
At 31 December 2012
Provision for impairment:
At 1 January 2012
Provided for during the year
At 31 December 2012
Net book amounts:
At 1 January 2012
At 31 December 2012
Shares in subsidiary
undertakings
£m
14,637
43
14,680
–
–
–
14,637
14,680
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
Principal Subsidiary Undertakings
The principal subsidiary undertakings as at 31 December 2012, all of which are included in the consolidated financial statements, are shown below.
Reckitt Benckiser (Australia) Pty Limited
Reckitt Benckiser (Brasil) Limitada
Reckitt Benckiser (Canada) Inc.
Reckitt Benckiser Deutschland GmbH
Reckitt Benckiser España SL
Reckitt Benckiser France SAS
Reckitt Benckiser Healthcare (UK) Limited
Reckitt Benckiser LLC
Reckitt Benckiser Pharmaceuticals Inc.
Reckitt Benckiser (India) Limited
Reckitt Benckiser Italia SpA
Reckitt Benckiser Arabia FZE
Schiff Nutrition International, Inc.
.
Product category
health, hygiene, home
health, hygiene, home
health, hygiene, home and Food
health, hygiene, home
health, hygiene, home
health, hygiene, home
health, hygiene, home
health, hygiene, home and Food
Pharmaceuticals
health, hygiene, home
health, hygiene, home
health, hygiene, home
health
Country of
incorporation
or registration
and operation
Australia
Brazil
Canada
Germany
Spain
France
UK
US
US
India
Italy
UAE (Dubai)
US
Effective % of
share capital
held by the Group
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
Ordinary 100
None of the above subsidiaries are held directly by Reckitt Benckiser Group plc.
As permitted by s.410 of the Companies Act 2006, particulars of other subsidiary undertakings are not shown above. A full list of the Company’s
subsidiary undertakings will be annexed to the Company’s annual return to Companies House.
3 DEBTORS DUE WITHIN ONE YEAR
Amounts owed by Group undertakings
Amounts owed by Group undertakings are unsecured, interest free and are repayable on demand.
4 DEBTORS DUE AFTER MORE THAN ONE YEAR
Deferred tax assets
Deferred tax assets consist of short-term timing differences.
5 CREDITORS FALLING DUE WITHIN ONE YEAR
Amounts owed to Group undertakings
Taxation and social security
2012
£m
59
2012
£m
8
2012
£m
4,491
7
4,498
2011
£m
46
2011
£m
7
2011
£m
3,080
4
3,084
Included in the amounts owed to Group undertakings is an amount of £4,473m (2011: £3,064m) which is unsecured, carries interest at LIBOR and is
repayable on demand. All other amounts owed to Group undertakings are unsecured, interest free and are repayable on demand.
79
2012
Notes to the Parent Company financial statements continued
6 CALLED UP SHARE CAPITAL
Issued and fully paid
At 1 January 2012
Allotments
At 31 December 2012
Issued and fully paid
At 1 January 2011
Allotments
At 31 December 2011
Equity
ordinary
shares
Nominal
value
£m
Subscriber
ordinary
shares
728,621,602
5,589,155
734,210,757
73
–
73
2
–
2
Equity
ordinary
shares
Nominal
value
£m
Subscriber
ordinary
shares
725,853,970
2,767,632
728,621,602
73
–
73
2
–
2
Nominal
value
£m
–
–
–
Nominal
value
£m
–
–
–
For details of the allotment of ordinary shares during 2012 refer to note 22 of the Group financial statements on page 69.
The holders of ordinary shares (par value 10p) are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at meetings of the Parent Company.
The holders of subscriber ordinary shares (par value £1) have no entitlement to dividends. Holders have no right to attend or vote at any general
meeting of the Company unless a resolution is proposed to wind up the Company or vary the rights attached to the subscriber shares.
7 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
Movements during the year:
At 1 January 2012
Loss for the year
Dividends
Shares allotted under share schemes
Capital contribution in respect of share-based payments
Share-based payments
Shares purchased and held in Treasury
At 31 December 2012
Movements during the year:
At 1 January 2011
Loss for the year
Dividends
Shares allotted under share schemes
Capital contribution in respect of share-based payments
Share-based payments
At 31 December 2011
Share
capital
£m
73
–
73
Share
capital
£m
73
73
Share
premium
£m
Profit and
loss reserve
£m
86
98
184
Share
premium
£m
59
27
86
11,447
(54)
(916)
43
7
(535)
9,992
Profit and
loss reserve
£m
12,315
(56)
(873)
50
11
11,447
Total
£m
11,606
(54)
(916)
98
43
7
(535)
10,249
Total
£m
12,447
(56)
(873)
27
50
11
11,606
Reckitt Benckiser Group plc has £9,725m (2011: £11,219m) of its profit and loss reserve available for distribution.
During 2012, the Company established a share buy back programme and purchased 14,991,643 equity ordinary shares (2011: nil) all of which are held
as Treasury shares. The total amount paid to acquire the shares was £535m (including stamp duty) which has been deducted from Shareholders’ equity.
No Treasury shares were released in 2012 leaving a balance held at 31 December 2012 of 14,991,643 (2011: nil).
Other post balance sheet events are described in note 28 on page 74 of the Group financial statements.
80
2012
8 SHARE-BASED PAYMENTS
Reckitt Benckiser Group plc has two employees, the Group’s CEO and CFO. The tables below include details of their share awards and those for any
individuals previously holding these roles. Details of their share awards that are not fully vested are set out in the Directors’ Remuneration Report. The
charge for share-based payments for the year was £7m (2011: £11m) and national insurance contributions were £7m (2011: £5m). The Company has
used the Black-Scholes pricing model to calculate the fair value of one award on the date of the grant of the awards.
The fair value of awards with options outstanding at 31 December 2012 is shown in note 23 of the Group financial statements on pages 70 to 72.
Table 1: Share awards movements 2012
Award
Share options
2007
2008
2009
2010
2011
2012
2013
Restricted shares
2009
2010
2011
2012
2013
Other share awards
UK SAYE
Total
Options
outstanding
Fair value of at 1 January
Grant date
one award
£
Granted/
2012 adjustments
number
number
Movement in number of options
Options
outstanding at
31 December
2012
number
Exercised
number
Lapsed
number
08 December 2006
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
4.23 800,000
5.99 600,000
4.69 693,077
4.70 653,077
4.49 600,000
3.18 490,000
3.29
–
–
–
–
–
–
– 400,000
–
–
–
(65,385)
(265,385)
–
–
– 800,000
– 600,000
(93,077) 600,000
(53,077) 534,615
– 334,615
– 490,000
– 400,000
24.31 346,538
27.23 326,538
28.22 310,000
25.30 245,000
32.76
–
–
–
–
– 200,000
–
(32,692)
(132,692)
–
–
(346,538)
–
(26,538) 267,308
– 177,308
– 245,000
– 200,000
04 September 2006
6.61
1,011
–
–
–
1,011
Weighted average exercise price
£29.15
£39.14
£34.05
£28.87
£29.79
Table 2: Share awards movements 2011
Award
Share options
2007
2008
2009
2010
2011
2012
Restricted shares
2008
2009
2010
2011
2012
Other share awards
UK SAYE
Total
Options
outstanding
Fair value of at 1 January
Grant date
one award
£
Granted/
2011 adjustments
number
number
Movement in number of options
Options
outstanding at
31 December
2011
number
Exercised
number
Lapsed
number
08 December 2006
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
4.23 800,000
5.99 720,000
4.69 720,000
4.70 720,000
4.49 600,000
3.18
–
–
–
–
–
- 490,000
–
–
(26,923)
(66,923)
–
–
– 800,000
(120,000) 600,000
– 693,077
– 653,077
– 600,000
– 490,000
27.56 360,000
24.31 360,000
27.23 360,000
28.22 300,000
25.30
–
–
–
10,000
- 245,000
–
(13,462)
(33,462)
–
–
(360,000)
–
– 346,538
– 326,538
– 310,000
– 245,000
04 September 2006
6.61
1,011
–
–
–
1,011
Weighted average exercise price
£28.78
£32.09
£30.40
£29.44
£29.15
Further details of the share awards relating to the relevant Directors are set out in the Directors’ Remuneration Report on pages 31 to 37.
For details of the contractual life, performance criteria, valuation assumptions and volatility of the share awards, please refer to note 23 of the Group
financial statements.
The weighted average remaining contractual life of the outstanding options is 5.69 years (2011: 5.59 years).
The weighted average share price for the year was £35.79 (2011: £33.07).
81
2012
Notes to the Parent Company financial statements continued
9 AUDITORS’ REMUNERATION
The fee charged for the statutory audit of the Company was £0.05m (2011: £0.05m).
10 RELATED PARTY TRANSACTIONS
The Company has taken advantage of the exemption within Financial Reporting Standard No. 8 ‘Related Party Disclosures’ not to disclose related party
transactions with wholly owned subsidiaries of the Reckitt Benckiser Group. There were no other related party transactions (2011: nil).
11 CONTINGENT LIABILITIES
The Company has issued a guarantee to the Trustees of the Reckitt Benckiser Pension Fund covering the obligations of certain UK subsidiaries of the
Group who are the sponsoring employers of the UK defined benefit pension fund. The guarantee covers any amounts due to the pension fund from
these subsidiaries if they fail to meet their pension obligations.
Other contingent liabilities are disclosed in note 19 of the Group financial statements.
12 DIVIDENDS
Dividends on equity ordinary shares:
2011 Final paid: 70p (2010: Final 65p) per share
2012 Interim paid: 56p (2011: Interim 55p) per share
Total dividends for the year
2012
£m
511
405
916
2011
£m
472
401
873
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2012 of 78p per share which will absorb an
estimated £561m of Shareholders’ funds. If approved by Shareholders it will be paid on 30 May 2013 to Shareholders who are on the register on
22 February 2013, with an ex-dividend date of 20 February 2013.
82
2012
Notes
83
2012 Shareholder information
Electronic Communications
The Shareholders passed a resolution at the 2008 AGM enabling the
Company’s website to be used as the primary means of communication
with them. Shareholders who have positively elected, or are deemed to
have consented, to receiving electronic communications in accordance
with the Companies Act 2006 will receive written notification whenever
Shareholder documents are available to view on the Company’s website.
Shareholders who have received a notice of availability of a document
on the Company’s website are entitled to request a hard copy of any such
document at any time free of charge from the Company’s Registrar.
Shareholders can also revoke their consent to receive electronic
communications at any time by contacting the Registrar.
The Company’s 2012 Annual Report and Notice of the 2013 AGM are
available to view at www.rb.com/online-annual-report-2012.
The Investor Relations section of the website contains up-to-date
information for Shareholders including:
• Detailed share price information;
• Financial results;
• Dividend payment dates and amounts;
• Access to Shareholder documents including the Annual Report; and
• Share capital information.
Annual General Meeting
To be held on Thursday, 2 May 2013 at 11.15 am at The London
Heathrow Marriott Hotel, Bath Road, Hayes, Middlesex, UB3 5AN.
Every Shareholder is entitled to attend and vote at the meeting.
The Notice convening the meeting is contained in a separate document
for Shareholders. Shareholders who have registered for electronic
communication can:
• Receive an email alert when Shareholder documents are available;
• View the Annual Report and Notice of AGM on the day they
are published;
• Cast their AGM vote electronically; and
• Manage their shareholding quickly and securely online.
Final Dividend for the Year ended 31 December 2012
The Directors have recommended a final dividend of 78p per share, for
the year ended 31 December 2012. Subject to approval at the 2013
AGM, payment will be on 30 May 2013 to all Shareholders on the
register as at 22 February 2013.
Company Secretary
Elizabeth Richardson
Registered Office
103-105 Bath Road
Slough, Berkshire SL1 3UH
Telephone: +44 (0)1753 217800
Facsimile: +44 (0)1753 217899
Registered and Domiciled in England
No. 6270876
Company Status
Public Limited Company
Auditors
PricewaterhouseCoopers LLP
Solicitors
Slaughter and May
Registrar and Transfer Office
The Company’s Registrar, Computershare, is responsible for maintaining
and updating the Shareholder register and making dividend payments.
If you have any queries relating to your shareholding please write to, or
telephone, the Company’s Registrar at the following address:
84
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZY
Reckitt Benckiser Shareholder helpline: 0870 703 0118
Website: www.computershare.com/uk
American Depositary Receipts
Reckitt Benckiser Group plc American Depositary Receipts (ADRs) are
traded on the over-the-counter market (OTC) under the symbol RBGLY.
Five ADRs represent one ordinary share. J.P. Morgan Chase Bank N.A. is
the Depositary.
If you should have any queries, please contact:
J.P. Morgan Chase Bank N.A.
PO Box 64504, St Paul, MN 55164-0504, US
E-mail: jpmorgan.adr@wellsfargo.com
Telephone number for general queries: (800) 990 1135
Telephone number from outside the US: +1 651 453 2128
Key Dates
Announcement of quarter 1 interim
management statement
Annual General Meeting
Payment of final ordinary dividend
Announcement of interim results
Payment of interim ordinary dividend
Announcement of quarter 3 interim
management statement
Preliminary announcement of 2013 results
Publication of 2013 Annual Report and Accounts
Annual General Meeting
Analysis of Shareholders as at 31 December 2012
22 April 2013
2 May 2013
30 May 2013
29 July 2013
September 2013
22 October 2013
14 February 2014
April 2014
May 2014
Distribution of shares by type of Shareholder
Nominees and Institutional Investors
Individuals
Total
Size of shareholding
1 – 500
501 – 1,000
1,000 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
100,001 – 1,000,000
1,000,000 and above
Total
No. of
holdings
9,316
14,974
24,290
No. of
holdings
14,399
4,267
3,979
451
559
165
376
94
24,290
Shares
716,868,132
17,342,625
734,210,757
Shares
3,062,966
3,138,604
8,168,333
3,206,995
13,011,989
11,421,562
125,823,685
566,376,623
734,210,757
‘Boiler Room’ Scams
Shareholders who are offered unsolicited investment advice, discounted
shares, a premium price for shares, or free company or research reports,
should take these steps before handing over any money:
1. Get the name of the person and organisation.
2. Check the FSA Register at www.fsa.gov.uk/fsaregister to ensure they
are authorised.
3. Use the details on the FSA Register to contact the firm.
4. Call the FSA Consumer Helpline on 0845 606 1234 if there are no
contact details on the Register or if they are out of date.
5. Search the FSA’s list of unauthorised firms and individuals to avoid
doing business with.
Using an unauthorised firm to buy or sell shares or other investments will
prohibit access to the Financial Ombudsman Service or Financial Services
Compensation Scheme (FSCS) if things go wrong.
2012
This report is part of an integrated approach to reporting our total
performance. Our family of reports also includes the Annual Report
Highlights, the Sustainability Report on our social and environmental
responsibilities, and regularly updated corporate responsibility information
at www.rb.com
Left: Annual Report Highlights 2012
Right: Sustainability Report 2011 (2012 report to be published at www.rb.com)
The following are trade marks of the Reckitt Benckiser group of companies:
Airborne, Air Wick, Aqua Mist, Bang, Calgon, Cherry Blossom, Clearasil, d-Con,
Dermicool, Dettol, Digestive Advantage, Durex, Easywax, Filter & Fresh, Finish,
Flip & Fresh, Frank’s Red Hot, French’s, Freshmatic, Gaviscon, Harpic, Harpic
Hygienic, Lysol, MegaRed, Move Free, Mortein, Mucinex, No-Touch, Nugget,
Nurofen, Our Home Our Planet, Performax Intense, Power Plus, Quantum,
Quantumatic, Resolve, Schiff, Schiff Vitamins, Scholl, Spray ‘n Wash, Strepsils,
Suboxone, Subutex, Tiger’s Milk, Vanish, Veet, Veja, Woolite as well as
Reckitt Benckiser and the RB kite logos.
Designed and produced by The Workroom www.workroom.co.uk
Printed by The Colourhouse
The paper used for this report is produced using a Elemental Chlorine Free (ECF)
bleaching process with FSC (Forest Stewardship Council) Mix Credit certified pulp
from sustainable forests with a verifiable chain of custody. The envelope used for
postal distribution of this report is made from FSC certified sustainable forest stocks.
Reckitt Benckiser Group plc
103-105 Bath Road
Slough, Berkshire SL1 3UH
United Kingdom
www.rb.com