Enabling
healthier lives
The global leader in consumer
health and hygiene
Reckitt Benckiser Group plc (‘RB’)
Annual Report and Financial Statements 2013
Contents
Strategic Report
Chairman’s Statement
Results Highlights
Chief Executive’s Statement
Operational Detail
Governance & Remuneration
Board of Directors and Executive Committee
Report of the Directors
Chairman’s Statement on Corporate
Governance
Corporate Governance Report
Statement of Directors’ Responsibilities
Directors’ Remuneration Report
Financial Statements
Independent Auditors’ Report to the
Members of Reckitt Benckiser Group plc
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Changes in Equity
Group Cash Flow Statement
Notes to the Financial Statements
Five-year Summary
Parent Company Independent Auditors’
Report to the Members of Reckitt Benckiser
Group plc
Parent Company Balance Sheet
Notes to the Parent Company Financial
Statements
Our Relationships and
Principal Risks
Shareholder Information
1
2
3
9
20
21
24
26
33
34
47
50
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51
52
53
54
85
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88
93
104
RB refers to entities in the Reckitt Benckiser Group plc group of companies.
‘RB – The global leader in consumer health and hygiene’. Global claim based on RB’s definition of combined Consumer Health
and Hygiene Sales. Data sources: Consumer Health: OTC (Nicholas Hall); Condoms/Devices (ACNielsen); Footcare (ACNielsen –
select markets only); Hygiene: RB select categories (Euromonitor).
Strategic Report Chairman’s Statement
New Purpose-inspired Strategy
Delivers Strong Performance
will update Shareholders on the review’s
progress during 2014.
Cash and Dividend
The strong growth produced strong
cash flow, allowing the Company to pay
down more of its debt. The Company is
in strong financial health and your Board
is proposing a final dividend of 77p per
share. This brings the dividend for the
year to 137p per share, an increase of
2% over 2012.
Corporate Social Responsibility
In addition to being a financial
contributor to society, the Company
is also a contributor to environmental
and humanitarian needs of society.
The Company was proud to announce
a major new global initiative with Save
the Children, a longstanding partner, to
address the scourge of child deaths from
diarrhoea, which is highly preventable
through better health and hygiene.
Corporate Governance
The detailed Corporate Governance
Statement and Report on pages 24
to 32 reflects the Board’s recognition
of the importance of our governance
responsibilities.
The Board conducted regular reviews
of the performance of the business,
its strategy, brands, human resources,
corporate responsibility and reputation
and business risks. It was decided
to change the trading name of the
Company to ‘RB’, moving away from
the harder to say, spell and search
‘Reckitt Benckiser’. There are no
changes to legal entity names.
Board of Directors
It was with great regret that I accepted
in June the resignation due to ill health
of Graham Mackay, our then Senior
Independent Director. Graham sadly
passed away in December. He delivered
great service to your Company over
his eight years on the Board and will
be missed. André Lacroix has been
appointed Senior Independent Director.
In December, we appointed
Nicandro Durante as an independent
Non-Executive Director. Nicandro, an
Italian/Brazilian and CEO of BAT, brings
significant consumer goods industry and
emerging markets experience. Also in
December Richard Cousins advised me
that he would not be available to stand
for re-election to the Board. I thank
Richard for his contributions to our
Company. Judith Sprieser and Kenneth
Hydon will step down as Chairs of the
Remuneration and Audit Committees
respectively in 2014. They have both
been extraordinarily effective Chairs of
the Committees.
Your Nominations Committee is
actively involved in a project to appoint
additional Non-Executive Directors.
Annual General Meeting Resolutions
The resolutions to be voted on at our
AGM on 7 May 2014, are explained in
the Notice of Meeting, including the
new requirement to offer Shareholders
a binding vote on our Remuneration
Policy, the details of which are set out in
the Directors’ Remuneration Report on
pages 34 to 46. We believe this policy
has served the Company well and hope
Shareholders will endorse it.
Thanks
On behalf of the Board, I thank our
CEO, Rakesh Kapoor, his executive
management team and our employees
globally for their commitment to
delivering strong performance. The Board
is often reminded that an enduring
differentiator of the Company is its
people and their positive performance-
minded culture. My thanks go also to
my Board colleagues for their continued
support and guidance.
The Board thanks you, our Shareholders,
for your on-going confidence in the
Company.
Adrian Bellamy Chairman
1
On behalf of the Board I have
pleasure in reporting that your
Company delivered strong
results ahead of targets for
2013. Net revenue excluding
RB Pharmaceuticals grew 7%,
operating profit (adjusted)1 excluding
RB Pharmaceuticals grew 7%, and
adjusted1 net income grew at 2%,
all at constant exchange rates.
The Company’s twin strategy is to
focus on growing the health and
hygiene brands of its core portfolio and
to achieve a stronger emerging market
penetration to better balance its historic
developed market strength.
At the end of 2013, health and hygiene
brands represented 72% of the core
portfolio and the emerging market
areas represented 43%. This progress
is pleasing but equally so were the
results in Europe and North America
which achieved growth in every
quarter of the year. Our acquisitions,
more fully reported elsewhere in
this report, contributed materially to
these achievements.
RB Pharmaceuticals
After the entry of generic US
competition to RB Pharmaceuticals’
Suboxone and the stable performance
of the Film alternative, your Board
announced a strategic review of this
part of the Company. The review will
recommend the optimal future for
RB Pharmaceuticals and the Company
1 Adjusted to exclude the impact of exceptional items
RB Annual Report 2013 Strategic Report Results Highlights
RB Delivers Another
Strong Year in 2013
Strong growth in
emerging market areas
RUMEA2 & LAPAC2
Suboxone Film maintained
68%
volume share of the
US market
Total net revenue
£10bn
Total
growth1 +7%
Health & hygiene
Powerbrands
Durex, Mucinex, Strepsils,
Dettol, Lysol, Harpic & Finish
led the growth
Adjusted net income up +2%
(+2% constant):
adjusted
diluted
earnings
per share
269.8p
Strong cash flow took
net debt to
£2,096m
after dividends, acquisitions
& restructuring
ENA2
Greater speed
and scale
+4%
total
growth
(at constant
exchange rates)
Operating
margins3 up
+20
bps
exceeding target
These results give us
confidence that we have
the right business strategy,
the right organisation, the
right platforms and the right
culture to deliver sustained
growth and outperformance.
2014 Targets
• Net revenue growth of +4-5% at
Medium-term KPIs (Key
Performance Indicators)
• Achieve moderate operating margin3
expansion.
constant exchange rates, excluding
RB Pharmaceuticals, including the
immaterial residual impact of the
Bristol-Myers Squibb (BMS) collaboration.
• Flat to moderate operating margin3
expansion, excluding RB Pharmaceuticals.
2
• Health and hygiene revenues to increase
as a percentage of core4 net revenue by
1% per annum going forward.
• LAPAC2 and RUMEA2 combined to be
equal in net revenue size to ENA2 by end
of 2015.
• Achieve 200 bps per annum of net
revenue growth on average above
our market growth (excluding
RB Pharmaceuticals).
1 Excluding RB Pharmaceuticals at constant
exchange rates.
2 Latin America, North Asia, South East Asia, and
Australia and New Zealand (LAPAC), Russia and CIS,
Middle East, North Africa, Turkey and sub-Saharan
Africa (RUMEA), North America, Central Europe,
Northern Europe, Southern Europe and Western
Europe (ENA).
3 Adjusted to exclude the impact of exceptional
items; and excluding RB Pharmaceuticals.
4 Core includes health, hygiene, home and
portfolio brands.
RB Annual Report 2013 Strategic Report Chief Executive’s Statement
Rakesh Kapoor Chief Executive
Creating a New Global
Force in Consumer Health
At the end of the second year of our new strategy, it is
appropriate to reflect on the progress we have made.
The achievements have been many. Building on the successful
traditions of the Company, we are creating something unique
and powerful. We are creating a new force in consumer health
across the globe. RB is building capabilities to provide innovative
solutions for healthier lives.
Global health trends are changing
profoundly. People are living longer
and are increasingly aware of the
need to look after themselves as they
seek to prolong and enjoy their lives.
Families are better educated about
health issues and are increasingly keen
to take control of their own wellbeing.
The emergent middle class has become
far more health conscious as the links
between health and prosperity become
clearer. Governments also want citizens
to take on responsibility for their
every-day ailments as they strive to
reduce the economic burden of rising
health care costs and to focus limited
resources on more complex diseases.
Our vision and our purpose are to
support consumers as they make their
choices for their own households and
their own families; to put them in
control and give them the power to
do what is right for them.
Our vision is a world where people
are healthier and live better
Our purpose is to make a difference by
giving people innovative solutions for
healthier lives and happier homes
Our Strategy
POweRBRANDS
Focus on health, hygiene and home
POweRMARKeTS
Powermarkets prioritised on
growth potential and where we
have capabilities to win
ORGANISATION
Informed by consumer clusters,
LAPAC, RUMEA and ENA
MARGINS
Drive margins to fund investment and
profit growth, and convert to cash
HEALTH
HYGIENE
HOME
3
RB Annual Report 2013 Strategic Report Chief Executive’s Statement
Trusted Powerbrands for
Self Health Care
Consumers are at the Centre of
our Vision
RB owns brands that consumers love
and trust. They know our products
can make a difference and help
them live healthier lives, but our
strategy is different from traditional
pharmaceutical consumer health
companies. Our deep expertise as a
consumer-centric company means we
can continuously provide highly relevant
products and benefits based on what
consumers want, informed with robust
science and medical support.
We continue to invest in this strategy.
We have increased our spending on key
partnerships across the world so we can
understand better where the emerging
opportunities and needs lie; in whatever
demographic or geography they exist.
Our business model continues to
develop to support this strategy. We
remain focused on Powermarkets and
Powerbrands where we believe the
opportunities are greatest. Our new
geographic structure has paid dividends
as we have significantly expanded our
presence in emerging markets. And our
renewed focus on health and hygiene
has seen us boost our presence in key
consumer health segments that we
believe will deliver benefits to all our
stakeholders in the future.
We have done this through focused
investment in our people and financial
resources, and through a series
of strategic acquisitions that have
demonstrated our intent to develop
further in areas where we see the
most potential.
OuR 19 POweRBRANDS
Good health is the key to happiness.
Hygiene is the foundation of
healthy living.
Home is the centre of family life.
Food is run as a stand-alone
business.
Building Trust with Health Care Professionals
Helping UK pharmacists
help their patients
As the global leader in consumer health and
hygiene, RB’s reputation for being ‘the health
care brand for health care professionals’ (HCPs)
is growing. Amongst many online schemes, we’re
piloting an online consumer health care portal
‘RBforHealth’ in the UK and Italy, giving HCPs
access to interactive training modules, and a
collection of essential resources.
4
RB Annual Report 2013 Strategic Report Chief Executive’s Statement
STRATeGIC ACquISITIONS
AND PARTNeRSHIPS
Bristol-Myers Squibb
Boosting our strength in Latin America
in over-the-counter brands.
Guilong Medicine
Strategic acquisition of the traditional
Chinese medicine brand Manyanshuning –
the No.1 sore throat remedy in China.
Acquisitions Reinforce
our Position
As more and more people become
aware of the potential benefits of
supplements as part of a holistic
approach to health and wellbeing,
this category goes from strength to
strength. As an example, many people
want to eat a balanced diet with the
right nutrients but are unable to do so.
Supplementing diet is one way VMS
fulfils an important role.
In each of these cases we have used
our operational expertise to integrate
the acquisitions rapidly, and we are
confident that each will deliver lasting
value for Shareholders. Collectively
these transactions will contribute to
our strategy of creating a unique global
health and hygiene focused company
with broad category coverage across a
host of fast growing segments, including
analgesics, cold and flu, gastrointestinal
maladies and VMS. They have also
expanded our geographic capabilities,
ensuring we are better positioned than
ever to meet our targets.
Strengthening our Health Platform
In May 2013 we significantly
strengthened our health platform in
Latin America, where historically we
have had less on-the-ground ability
to execute than in other regions.
Our collaboration with Bristol-Myers
Squibb brought into our portfolio a
number of important over-the-counter
brands that have leading positions
in key segments such as cold and flu
and pain relief in the rapidly growing
markets of Brazil and Mexico. In China,
we acquired the leading traditional sore
throat brand Manyanshuning, which
has already shown strong growth in the
first year of our ownership. Beyond this,
it is helping to build a consumer health
platform in one of the world’s largest
consumer markets.
Vitamins, Minerals and
Supplements (VMS)
We have also broadened our category
portfolio with the purchase of Schiff
at the end of 2012. This provided us
with a meaningful position in the fast-
growing area of vitamins, minerals and
supplements. The category is worth
£29bn globally and is growing at an
annual rate of 4-5%.
Diving into the Vast Vitamins, Minerals
and Supplements Category
Acquiring Schiff has given RB a leading
position in the large and rapidly growing
vitamins, minerals and supplements category;
effectively doubling the value of the global
health markets we are now in to £60bn.
A key brand in this category is MegaRed –
made from krill oil instead of fish oil, this
gives our consumers the same
benefits for their heart and
health, but with a much more
palatable fish-free taste.
MegaRed launches into over
20 new European and Asian
markets in 2014.
Heart health is key to the
enjoyment of life
5
RB Annual Report 2013 Strategic Report Chief Executive’s Statement
Expanding Powermarkets
Focus on the Right Categories and
the Right Geographies
These acquisitions add to our
considerable progress on the first
pillar of our strategy, to focus on the
faster growing, higher margin and
better consumer loyalty of health and
hygiene brands. Our KPI, which we
had already accelerated to 2015, to
achieve 72% of our core net revenue
from these two categories has been
achieved two years early.
The second pillar of our strategy is a
particular focus on 16 Powermarkets
where the opportunity to grow and
outperform is greatest, such as in Brazil,
Russia, India and China. This is why we
created two emerging market areas,
our third pillar, LAPAC and RUMEA,
to enhance our focus, capabilities and
brand penetration programme. Our KPI
is to make these emerging market areas
50% of our core net revenue by 2015.
AReAS
We also made the unconventional
but breakthrough step of combining
Europe and North America as one
organisation. This has enabled ENA to
become a leaner, faster organisation
with the ability to enhance the scale of
our innovations across both sides of the
Atlantic and deliver very good growth.
Our final pillar of margin
improvement remains key and is
a focus for every business, in every
market, every day. It is what generates
the fuel to invest in our brands and
ultimately to generate excellent returns
for our Shareholders.
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
Boosting Strepsils Sales in
South Korea
An innovative collaboration saw Strepsils sponsoring
the popular national talent TV show The Voice of
Korea. The Strepsils brand was embedded into all
aspects of the show; contestants even used Strepsils
during the shows to keep their throats feeling great.
This helped Strepsils’ distribution into 16 cities, 14,000
pharmacies and 30,000 points of sale. Sales doubled!
Gil, Baek Jiyoung,
Shin Seunghoon & Kang Ta
Judges on The Voice of Korea
6
RB Annual Report 2013 Strategic Report Chief Executive’s Statement
Innovating to Outperform
CATeGORY KPI
72%
achieved
Core1 Company
net revenues from
health and hygiene
to increase by
1% per annum
GeOGRAPHIC KPI
43%
achieved
Core1 Company
net revenues from
LAPAC and RuMeA
to be equal to eNA
by end of 2015
1 Core includes health, hygiene, home and
portfolio brands
Strategic Review of RB
Pharmaceuticals
As part of our constant commitment
to drive shareholder value, during
the year we announced a strategic
review of RB Pharmaceuticals. We have
consistently said that, once generic
competition to RB Pharmaceuticals’
Suboxone had been on the market in
the US for a number of months, we
would examine all the options for what
is a very valuable asset. That review
is ongoing and we will update our
Shareholders during 2014.
Our Responsibility
Our purpose to provide innovative
solutions for healthier lives and happier
homes inspires our business strategy
but it is a determination that is also at
the heart of our social purpose. We
take the same innovative approach
to our responsibility and sustainability
initiatives as we do to our business
and brands.
environmental Performance
We take our environmental
performance equally seriously and
are targeting a one-third reduction
in carbon emissions across the entire
lifecycle of our products by 2020. In the
past five years we have already reduced
carbon emissions per dose of product
by 25%, leading to our recognition
as a leader in this area by the Carbon
Disclosure Project.
We have adopted a similar approach
to our use of water, which is becoming
an increasingly scarce resource in many
parts of the world, yet is critical to our
business and to consumers.
Nick & Dani, Australia,
‘Fundawear’ testers on
viral YouTube video
Fun with Durexperiments
Durex is about great and safe sex. As the
global No.1 sexual wellbeing brand it is
reaching new consumers in very innovative
ways. A series of ‘Durexperiments’
included creating ‘Fundawear’ – vibrating
underwear, activated by your partner via a
smart phone app.
This innovative idea was launched in
Australia. The YouTube video went viral,
gaining a million views in just two weeks
and becoming Australia’s No.1 video ever.
Facebook ‘Likes’ increased 4,000%;
there was a 35:1 return on advertising
revenue and a Silver Lion advertising award
at Cannes.
7
RB Annual Report 2013 Strategic Report Chief Executive’s Statement
Healthier Business,
Healthier World
We have set a one-third target for water
reduction and are designing innovative
new products that reduce both the
volumes of water required for their
manufacture, as well as in their use. For
instance our new Dettol Touch of Foam
requires far less water than conventional
hand wash products as it does not
require water to create a lather. In
addition, we have a target to achieve
one-third of our net revenue from more
sustainable products by 2020.
Healthier Lives
We have launched a groundbreaking
initiative with Save the Children to
tackle the causes of diarrhoea, which
kills 800,000 children under five every
year – that’s more than a child a minute.
Working with governmental, NGO
and business partners, we aim to
remove it as the No.2 cause of death
in young children.
Our People
The success of these initiatives, and
of the business as a whole, lies with
our employees. RB people are different.
They have unmatched passion and
commitment, and live for results. Once
again I would like to thank them for all
their efforts.
There is little doubt that 2014 will be another challenging
year. Our actions in 2013 mean that we believe we can
still look forward to another period of outperformance.
Rakesh Kapoor Chief Executive
E
A V
S
E
V
E
A CH
I
L
D
E
T
N U
RY M I
Help stop deaths
from diarrhoea
In partnership with
Taking a Stand Against Preventable Disease
– Save a Child Every Minute!
It will shock many people to learn that
diarrhoea is the second biggest killer
worldwide of children under five, claiming
around 800,000 lives per year. That’s 90
young lives every hour. RB is on a mission
with Save the Children to change this!
This illness is preventable
through better hygiene
and health and our
goal together is to
radically reduce the
global death rate
by 2020.
8
Making a difference in
Ethiopia, Bangladesh and
many more countries
Photo credits Above: Save the Children
Below: Lucia Zoro / Save the Children
RB Annual Report 2013 Strategic Report Operational Detail
A Detailed Look at our Strategy
Our Strategy for Growth and
Outperformance
Our vision is a world where people are healthier
and live better. Our purpose is to make a
difference by giving people innovative solutions
for healthier lives and happier homes.
Our strategy for growth and outperformance
to deliver our vision centres around four
key pillars:
1. Powerbrands – a disproportionate focus on
our 19 Powerbrands in the health, hygiene
and home categories.
2. Powermarkets – a disproportionate
focus on our 16 Powermarkets, a
significant number of which are in emerging
markets and which have higher absolute
growth potential.
3. Organisation – we have organised our
business around seven major consumer
clusters, each of which has Powermarkets
within it.
4. Margins – we undertake continuous
initiatives aimed at freeing resource to invest
in the business and driving moderate margin
expansion over the medium-term.
POweRBRANDS – STRATeGIC PILLAR 1
Our Powerbrands are carefully selected for their
high growth and margin potential, and we
invest disproportionately behind these brands
to drive superior performance. We have 19
Powerbrands, all bar one of which are classified
into our three core categories of health,
hygiene and home.
Health – 29% of Core Net Revenue
Consumer health has a number of attractive
features as a category and we have built the
skill set to win in these categories.
Good health is the key to happiness.
• No.1 worldwide in condoms for both
safe and more pleasurable sex, with the
Powerbrand Durex.
• No.1 worldwide in cough with the
Powerbrand Mucinex.
• No.1 worldwide in medicated sore throat
products with the Powerbrand Strepsils.
• No.1 worldwide in upper gastro-intestinal
products with the Powerbrand Gaviscon.
• Leading position in analgesics in Europe and
Australia with the Powerbrand Nurofen.
• Leading positions in footcare in many
markets outside North America and Latin
America, with the Powerbrand Scholl.
Attractive Features of Consumer Health:
Attractive demographics such as an emerging
middle class keen to manage their health
and an ageing population with greater needs.
Governments keen to encourage consumers
to self-medicate on symptom management,
as more complex diseases make ever greater
calls on their funds. Health brands have higher
consumer trust and loyalty; brands have
superior gross margins and finally there is
a fragmented market place, dominated by
prescription pharmaceutical companies with
typically less focus on and expertise in
consumer marketing.
RB Positioning and Ability to win:
Our consumer-centric and innovation-led
mindset, puts the consumers’ needs first.
We have built a global consumer health
infrastructure and are present in all of the major
consumer health categories. The combination
of our consumer focused and innovation-led
mindset, our R&D and regulatory capabilities,
and our global infrastructure, positions us well
for continued growth and outperformance.
Growth Drivers
Growth will be driven by three core
components:
• Science-based innovations: Our R&D
department sits firmly alongside our category
organisation and is core to the development
of scientifically driven and consumer-focused
innovation. We don’t discover new molecules
rather we mine the wealth of existing science
and use our technical expertise and capability
to deliver products, using that science, which
consumers find relevant, convenient, know
and trust. For example, when you have a
headache, your number one priority is to get
rid of pain quickly, so we developed Nurofen
Express, a patented combination of ibuprofen
and sodium which speeds up the release of
the active ingredient and so targets pain
twice as quickly as an ibuprofen-only product.
• Brand extensions: Trust is important within
consumer health, and we build on the trust
and loyalty we have created within our
brands to create opportunities in adjacent
segments. Take for example Mucinex, our
market-leading cough and congestion
product in the US. We have built on the
equity we created in this brand to launch
Mucinex Fast Max in the wider cold and
flu category in 2011-2012, and then
subsequently into the sinus category in 2013.
And for 2014 we have now announced our
entry into the allergy category with our
new Mucinex Fast Max Allergy tablets, a
non-drowsy antihistamine with 24-hour relief
from indoor and outdoor allergies.
• Geographic roll outs: Our global consumer
health infrastructure and go-to-market
capability will facilitate further geographic
expansion of our existing brands. We have
already had significant success with Gaviscon,
a longstanding brand in our portfolio. We
have also recently announced the launch of
our newly acquired MegaRed brand in over
20 countries during 2014.
Hygiene – 43% of Core Net Revenue
Good hygiene is the foundation of healthy
living and we believe it is important to educate
consumers about good hygienic practices. Our
Powerbrands are positioned with this in mind
and we have a number of large and market-
leading Powerbrands in hygiene.
Hygiene is the foundation of
healthy living.
• No.1 worldwide in antiseptic liquids with the
Powerbrand Dettol.
• 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.1 worldwide in automatic dishwashing
(products used in automatic dishwashers)
with the Powerbrand Finish.
• No.1 worldwide in the overall surface care
category due to leading positions across
disinfectant cleaners, non-disinfectant
multi-purpose cleaners, lavatory care,
speciality cleaners and polishes/waxes.
• No.1 worldwide in depilatories with the
Powerbrand Veet.
• No.2 worldwide in lavatory care with Lysol in
North America and the Powerbrand Harpic,
across Europe and developing markets.
9
RB Annual Report 2013
• No.2 worldwide in pest control with
the Powerbrand Mortein, the Group’s
international brand, supported by local brand
franchises like d-Con in North America.
particularly tough stains. The tip exchange has
proved a great success and we have already
seen encouraging penetration improvements in
Vanish during the year.
• No.3 worldwide in acne treatment with the
Powerbrand Clearasil.
The hygiene category is spearheaded by our
Dettol/Lysol Powerbrands; ‘trusted champions
of health, everyday’. We undertake many
campaigns to help educate consumers on good
hygienic practices in emerging markets, such as
‘new mums’ hospital visit initiatives. We visit
new mums in hospital and educate them about
the importance of healthy habits around their
home when they take their new child home for
the first time. We also visit schools as part of
our ‘healthy hands’ campaign and teach
children the importance of washing their
hands, and how to do it properly.
These are just a few examples of where we
believe we have a significant opportunity to
grow awareness and penetration of our brands
through consumer targeted education, coupled
with the right innovations for healthy living.
Home – 22% of Core Net Revenue
Home will always be the centre of a family’s
world and our market-leading home care
Powerbrands are positioned to create
happier homes.
Home is the centre of family life.
• 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.2 worldwide in air care with the
Powerbrand Air Wick.
• 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.
We have a proven track record of bringing
innovation that consumers love. A good
example of our innovative approach to this
category is our new Vanish ‘Superbar’. It has
been designed specifically for emerging
markets and has made Vanish more affordable
to consumers where price remains a barrier and
where people don’t have washing machines for
their clothes. We also set up the online ‘Vanish
tip exchange’ during the year. This was a
business development initiative aimed at
creating an online community for consumers
to discuss how they use Vanish to get rid of
Medium-term KPI
Our prime portfolio focus is on health and
hygiene and we had a medium-term KPI that
72% of our core revenue will come from health
and hygiene brands by 2015. At the end of
2013 we actually achieved this KPI due to our
strong organic growth, supplemented by
acquisitions. We are now targeting to increase
this by +1% per annum going forward.
Portfolio Brands
We have a number of local brands which do
not fit with our health, hygiene and home
focus. These are managed with a focus on local
scale and cash generation.
POweRMARKeTS AND ORGANISATION
– STRATeGIC PILLARS 2 & 3
The second 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. These are
markets where we see exceptional potential for
growth and where we have an ability to win.
The third pillar of our strategy is organisation,
where we seek a balance of emerging markets
and developed markets. We take a consumer-
centric view of the world and see seven major
consumer clusters, around which we organise
ourselves. Each cluster has one or more
Powermarkets within it. Consumers within
these clusters have significant similarities in
how they use, choose and buy our categories
of consumer goods and so it makes sense to
group them together.
The first three of these consumer clusters are
the consumers of Latin America, North Asia
and South Asia, which together with Australia
and New Zealand we group together into one
organisational structure named LAPAC. The
next three clusters are Russia and CIS, Middle
East, North Africa and Turkey, and sub-Saharan
Africa, and we group these three together into
one organisational structure called RUMEA. The
seventh consumer cluster comprises Europe and
North America (ENA). 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.
Medium-term KPI
Our 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 2013 they represented 43%. In 2013
our progress was impacted by adverse currency
movements in a number of emerging markets,
by weaker performance in RUMEA and by our
Schiff acquisition within ENA.
10
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
MARGINS – STRATeGIC PILLAR 4
The fourth pillar of our strategy is margin.
Increasing gross margin is a key priority. It is at
the forefront of our ‘virtuous’ earnings model.
Gross margin is an indicator of our ability to
drive topline growth over time with the key
drivers being the following:
• Improving the mix: We focus on categories
where we can add real value for consumers,
and earn a corresponding significant and
sustainable margin.
• Cost optimisation programmes: this is a
continual process in our business and not a
stop-start effort. Now called ‘Project Fuel’,
we are continually looking for greater
efficiencies and savings within our supply
chain. We also look at our products, with a
relentless focus on doing things at a cheaper
cost, and enhancing quality and the
consumer experience.
• Pricing: we look to take price increases
where appropriate.
Gross margin increased by 150 bps to 59.4%
in 2013 due to a combination of the above
factors and positive mix arising from the
discontinuation of our private label business
during 2012.
Gross Margin expansion to Fund More
Investment in our Brands
Our gross margin growth funds investment
behind our brands, which we have defined as
BEI (Brand Equity Investment). BEI encompasses
TV and print, social and digital media, and
consumer and medical marketing. It is a key
metric for us and represents a combination of
category and penetration building activities, as
well as consumer and doctor awareness and
education programmes.
In 2013 BEI was 13.0%, an increase of
30 bps over the prior year, and helped drive
total net revenue growth of 7% (constant,
ex RB Pharmaceuticals) a strong
outperformance versus market growth.
RB Annual Report 2013Strategic Report Operational Detail
Brand Equity Investment
% of net revenue (ex RB Pharmaceuticals)
12.7
13.0
12.0
15
12
9
6
3
0
2011
2012
2013
1
5
0
Declared dividend per share pence
*adjusted to exclude the impact of exceptional items and
tax effects thereon
Our gross margin growth also funds our
investment in the capabilities we need in
order to continuously bring new innovation
to our consumers. We have strengthened our
consumer health capabilities by increasing our
investment behind clinical, medical, regulatory
134.0
and compliance. We have also increased
investment in our emerging market areas of
RUMEA and LAPAC as we implement our
strategy of further resource allocation to
these markets.
125.0
1
2
0
9
0
6
0
We have invested more than £200m
incrementally over the past two years as we
prioritise the long-term, sustainable growth of
our brands.
3
0
0
2008
2010
Aiming for Moderate Operating Margin
2012
2009
2011
expansion over the Medium-term
The combination of our focus on gross margin
expansion, and relentless cost containment
funds both investment in our business and
moderate operating margin expansion over the
medium-term.
In 2013 we increased adjusted margins by
20 bps (ex RB Pharmaceuticals) ahead of our
ingoing target.
Non-core Businesses
RB Pharmaceuticals
RB Pharmaceuticals is a pioneer in the field of
innovative prescription treatments for chronic
diseases of addiction. It 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. In the US,
Suboxone lost the exclusivity afforded by its
orphan drug status on 8 October 2009.
On 31 August 2010, the Group announced
that it had received approval from the US Food
and Drug Administration for its 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.
In October 2013 we announced our decision
to undertake a strategic review of this business.
This review is underway and we will update our
Shareholders during the course of 2014.
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).
12
15
Mergers and Acquisitions (M&A)
9
6
3
0
We believe opportunities will continue to
arise to augment our organic growth via M&A
over time. The consumer health segment is a
fragmented market and RB is well positioned to
take advantage of consolidation opportunities
which may arise. We require a number of
criteria to be fulfilled before considering
any inorganic opportunities. They must be
strategically compelling, able to perform better
under the ownership of RB, fit within a part of
the business where we have the managerial
depth to integrate them quickly and effectively,
and must be value accretive.
15
Generating Shareholder Value
12
9
6
A Faster Growing P&L and Market
Outperformance
Our core business, under the four pillars of our
strategy, is aimed at positioning RB in faster
growing markets and faster growing and
higher margin categories. With relentless focus
on gross margin and investing virtuously we
seek to generate Shareholder value through
sustainable top line growth and moderate
margin expansion in the medium-term.
3
0
Strong Focus on Net working Capital and
Cash Conversion
We continue to target operational management
on net working capital and in 2013 achieved
110% cash conversion of our net income. By
emphasising working capital management,
we are able to convert a high proportion of
operating profit into cash. Further, our tight
control over net capital expenditure (purchases
less disposals of property, plant and equipment
and intangible assets) means that we are able
to convert a high proportion of our net cash
generated from operating activities into free
cash flow (i.e., net cash generated from
operating activities less net capital expenditure).
Sustainable Returns to Shareholders
Our dividend payout ratio has been maintained
at 50% of adjusted net income and this year’s
dividend of 137p represents a 2% increase
over the prior year. We have also undertaken
a modest share buy back programme of
around £280m which broadly equals the
level of new share issuance for employee
incentive programmes.
OuR ReSOuRCeS
The principal resource is management and
employees. The other 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.
Talented, Global employees
Our strategy is delivered by highly talented
and driven people from around the world.
Diverse backgrounds and experiences foster a
culture of entrepreneurism and achievement.
Gaviscon – it’s About
the Science
Medical journals are endorsing the
science behind Gaviscon, proving
how it resolves the pain of the acid
pocket caused after eating
food. RB health professionals
have been spreading the
news at leading gastro-
intestinal symposia from
Shanghai to Berlin.
Our culture is underpinned by a highly
geared, performance-driven remuneration
structure applied universally to our Top400
global leaders.
A robust supply of talented staff for the
Group is attributable to the Group’s
commitment to provide challenging, global
careers for confident high achievers, supported
by a highly leveraged performance-contingent
compensation policy. Our executive leadership
team has extensive experience in the FMCG
and health care sectors. The members of our
Executive Committee have been with us for
an average of 12 years.
The Group believes its ability to attract and
retain the excellent management needed
relies on continuing to offer diverse global
experiences coupled with performance-driven
remuneration. The Group trains and develops
its middle and senior 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 a number of formal training
modules for Top400.
During 2013, the Group ran over 46 courses
across these modules, providing approximately
450 trainings of the Top400. 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 quarterly (at least) by 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 55 nationalities. Over 62% 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
2013 was 11%, of which 7% was involuntary,
which the Group considers excellent retention,
balanced with the need to refresh the team
with new talent. 2013 saw 46 promotions,
63 moves, and 29 external recruits. The Group
ended the year with a low level of vacancies
within the Top400 of 11, or around 3% of the
measured group.
11
RB Annual Report 2013Strategic Report Operational Detail The percentages of female members in the
Group’s Director, senior manager and all
employee populations are 10%, 14% and
41% respectively.
The Group has designated the members of
its Top40 population as RB’s ‘senior managers’
for the purposes of the gender split disclosure
required by s414C of Companies Act 2006.
The total number of employees to which the
split relates is 24,514. This figure is different
from the total employee numbers reported
as it excludes seasonal labour which varies
significantly during the year and for which
gender identifiers are not recorded.
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 brands, brand names
and intellectual property. The Group’s major
brand names are protected by 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.
Our Supply Chain
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
Durex & MTV
#someonelikeme
Durex can reach people and with MTV
it reached 900 million people across
36 countries through the internet and
live music with its #someonelikeme
campaign to promote
great sex, safe from
transmission of HIV
and other diseases.
12
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 additional demand for
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.
OuR STRuCTuRe
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.
Our R&D facilities are located at 28 different
sites (many of which are situated in or
alongside our production facilities). Our main
R&D facilities are located in Hull (England),
Montvale, New Jersey (US), Dongguan (China),
Salt Lake City (US), Ludwigshafen (Germany),
Gurgaon (India), Mira (Italy) and Bangkok
(Thailand).
Technological change and product
improvement is a key determinant of our
success. We believe that our success in
introducing new and improved products comes
from our focus on developing a pipeline of
product innovation through consumer-focused
approaches. We maintain a large category
development organisation (including market
and consumer research, R&D, and marketing
and sales best practice) to fuel the innovation
pipeline and share category success factors
and learning. We undertake R&D to support
the development and commercialisation of
new and improved products in all of our
product categories and for increased
manufacturing efficiencies.
The global 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 48 production facilities worldwide.
Facilities are located in Europe (15 facilities) and
North America (six), Asia (18), Latin America
(five), and Africa Middle East (four).There are a
small number of facilities in higher risk labour
and social environments.
OuR 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. 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. The
Group’s competitors differ in various segments
of the industry. 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 multinational competitors include
pharmaceutical companies such as Bayer,
GlaxoSmithKline, Johnson & Johnson and
Novartis and FMCG companies like Clorox,
Colgate-Palmolive, Henkel, Procter & Gamble,
SC Johnson and Unilever. There are also 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.
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 regulatory) to fuel the innovation pipeline
and share category success factors and
learnings. The Group invested £199m in R&D in
2013 (2012: £171m). R&D is a key contributor
to innovative new products, but the Group
does not believe that R&D spend is the
dominant performance indicator for innovation
generation and success. Understanding of, and
insights into, consumer behaviour and needs,
RB Annual Report 2013Strategic Report Operational Detail ability to prioritise and focus effort, and speed
of implementation and reaction are also critical.
INTeRNATIONAL OPeRATIONS AND
ReGuLATORY POSITION
The health and hygiene industries are heavily
regulated by, inter alia, the European Union
(EU) and individual country governments
around the world. The home care industry has
regulation, but to a lesser extent. 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 15 to 19 of this Report.
We take compliance extremely seriously and
have committed resource and management
attention to these matters. Additionally the
Group maintains and continues to improve
a robust compliance training programme,
ensuring that all senior managers sign an
annual disclosure, and executive management
sign additionally a reporting document
certifying compliance with the Group’s Code
of Conduct.
OuR PeRFORMANCe IN 2013
The results include the business of Schiff from
14 December 2012, Guilong from 8 January
2013, and BMS from 8 May 2013, the dates of
acquisition/start of the collaboration. Where
appropriate, the term ‘like-for-like’ describes
the performance of the business on a
comparable basis, excluding the impact of
acquisitions, disposals, discontinued operations
and translational foreign exchange movements.
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 and
excludes RB Pharmaceuticals and Food. Where
appropriate, the term ‘adjusted’ excludes the
impact of exceptional items.
Total net revenue was £10,043m, an increase
of +7% at constant exchange rates excluding
RB Pharmaceuticals or +5% like-for-like (ex
RB Pharmaceuticals). Our like-for-like growth
was health and hygiene led as we continue
to focus on and invest disproportionately in
these categories, delivering science-based
innovations, brand extensions and geographic
roll outs. Mucinex, Durex, Dettol and Lysol
performed particularly well in 2013. From a
geographic perspective over two-thirds of the
contribution to like-for-like growth came from
our emerging market areas of LAPAC and
RUMEA. Our developed market area of ENA
delivered like-for-like growth of +3%, a very
strong performance in challenging market
conditions. The impact of net M&A added +2%
to total growth with our acquisitions of Schiff
and Guilong and our collaboration with BMS
in Latin America (LATAM) all performing
strongly, and ahead of ingoing expectations.
RB Pharmaceuticals net revenue declined by
8% (at constant rates) due to the loss of our
higher margin tablet sales in the US following
our voluntary withdrawal of Suboxone tablets.
However market share of Suboxone Film in the
US was sustained at around 68% despite the
launch of generic tablets in March.
Gross margin increased by +150 bps to 59.4%.
This was due to a combination of improved
mix, modest price increases, cost optimisation
programmes (‘Project Fuel’) and the non-
recurring impact of our withdrawal from the
private label business. These improvements
were not as strong in the second half, which
also saw adverse currency movements and a
stronger comparative.
We raised investment behind our brands (as
defined by our BEI metric), by +30 bps to
13.0% of net revenue (ex RB Pharmaceuticals),
equating to an incremental £100m investment
over the prior year (at constant rates). The
increase in brand equity investment is focused
on Powerbrands, Powermarkets and new
initiatives, as well as our newly acquired brands.
We also increased investment behind
capabilities important to our future growth – in
particular in the areas of consumer health and
emerging markets.
Operating profit as reported was £2,345m,
-4% versus 2012 (-4% constant), reflecting the
impact of an exceptional pre-tax charge of
£271m (2012: £135m). Details of the
exceptional charge are set out in note 3 and
relate to a provision for historic regulatory
issues, principally competition law, restructuring
costs in relation to the new organisation, and
acquisition and integration costs. On an
adjusted basis, operating profit was ahead
+2% (+1% constant) to £2,616m. The adjusted
operating margin decreased by -90 bps to
26.0%. Excluding RB Pharmaceuticals, the
adjusted operating margin increased by
+20 bps to 23.6%.
Net finance expense was £31m (2012: £34m).
The tax rate was 25% after deducting
the exceptional charge, and 24% for
adjusted profit.
Net income as reported was £1,739m, a
decrease of -5% (-5% constant) versus 2012.
On an adjusted basis, net income rose +2%
(+2% constant). Diluted earnings per share of
238.5p was -4% lower on a reported basis; on
an adjusted basis, the growth was +2%
to 269.8p.
Segmental Performance At Constant
exchange Rates
The three geographical areas are responsible
for local execution of marketing and sales
programmes:
eNA. Total net revenue was £5,074m, with
like-for-like growth of +3% and total growth
of +4%. 2013 was a strong year for ENA with
growth returning to most parts of Europe, with
the exception of Southern Europe. All of our
consumer health Powerbrands delivered strong
performances. Scholl, Strepsils and Nurofen in
particular performed well, behind innovations
such as the new Scholl Express Pedi for hard
skin and Nurofen for Children.
North America delivered another strong
performance, driven by Mucinex brand
extensions, improved in-store execution
and targeted digital and traditional media
campaigns. Lysol also produced an excellent
result behind innovations such as ‘Power and
Free’, and our recently launched ‘Healthing’
campaign to strengthen our core equity of
germ protection. We successfully integrated
Schiff in the US. Over achievement of synergies
allowed for increased reinvestment behind
the brands to drive penetration, distribution,
improved in-store activities and shelf presence.
The combination of Europe and North America
under one organisation is bringing greater
speed and scale to our innovations such as the
launch of MegaRed in Europe just one year
after acquisition.
Adjusted operating profit was £1,321m an
increase of +12% at constant. The adjusted
operating margin increased +160 bps.
LAPAC. 2013 total net revenue increased to
£2,511m, with like-for-like growth of +10%.
China experienced strong growth as we
executed our ‘power city’ roll out plans, and
increased distribution. On a category basis
Durex had a strong performance driven by
innovation and targeted digital and social
media campaigns. In hygiene, Dettol grew
strongly behind innovations in anti-bacterial
soaps, shower gels and antiseptics, and our
new Dettol kitchen gel, underpinned by our
‘Healthing’ campaign for new mums and kids.
In home, Vanish had a strong year as we
refocused on winning penetration through
our successful online ‘Vanish Tip Exchange’
programme in a number of countries.
Adjusted operating profit increased +12%
to £495m. Adjusted operating margin was
-30 bps lower at 19.7%. The margin was
reduced due to the amortisation of the BMS
collaboration agreement, which commenced
in May 2013.
RuMeA. 2013 net revenue was £1,356m, with
like-for-like growth of +5%. Growth has been
impacted by socio-economic issues in parts of
the area. We are also experiencing operational
issues in Turkey and South Africa. A number of
corrective actions have been put in place and
are showing modest early results.
However, a further slowing of market
conditions in Russia impacted growth in Q4
which was +3% on a like-for-like basis. In
spite of the slowing environment Nurofen
experienced strong growth in Q4 as we have
now lapped the upscheduling in Russia. In
hygiene, Veet, Dettol and Mortein had a good
quarter to complete a year of strong growth.
Adjusted operating profit declined by -2% to
£284m, a -120 bps decline in the adjusted
operating margin to 20.9%. Gross margin
enhancement from improved mix and pricing
was more than offset by increased investment
in BEI and capabilities to support future growth,
adverse transactional FX and employee-related
13
RB Annual Report 2013Strategic Report Operational Detail costs from management changes as we address
the operational issues.
The volatility in several of RUMEA’s markets
is likely to remain in the near term. However
we remain confident that the organisational
and operational changes being put in place,
together with our focus and strategy to drive
the penetration of our brands should improve
performance in the future.
The Group’s two non-core businesses, Food
and RB Pharmaceuticals, performed as follows:
Food. 2013 net revenue was £325m, a flat
performance versus the prior year and also
in the fourth quarter. Macro conditions
surrounding the food category remain
unchanged with weaker markets and
lower inflation.
RB Pharmaceuticals. 2013 net revenue was
£777m, a decrease of 8%. Our volume market
share for Film in the US exited the year at
68%, broadly maintained since the entry of
generic tablets. The underlying volume growth
in prescriptions in the US continues to be low
double digit growth. This growth is offset by
the loss of our higher margin tablet sales in
the US following our voluntary withdrawal of
Suboxone tablets in March and the entry of
generic tablets now competing with our Film.
Our non-US business was impacted by
government imposed price reductions in a
number of European markets.
Operating profit decreased -21% to £428m.
The operating margin was down -890 bps to
55.1%, in line with earlier guidance. The main
drivers of the margin decline are negative
leverage from the revenue decline, negative mix
of the lower margin albeit more sustainable
Film, and increased R&D investment in our
clinical pipeline. We expect this increase in R&D
investment to continue into 2014 and beyond
as we continue to build a strong, sustainable
growth business.
There have been no further material
developments in the three Hatch-Waxman
challenges to the Film patents in US. We expect
the litigation to follow the typical timelines
for Hatch-Waxman litigation, and believe the
formulation and process patent protection to
be strong.
RB Pharmaceuticals is a strong, sustainable
business with good long-term prospects. It
has a market-leading, physician and patient
preferred product in the US, with strong patent
protection up until 2030. The business outside
of the US has much potential in what are
currently under-treated markets. We also have
a strong pipeline, as we look to deliver to
patients the next generation products for
opioid addiction. These longer-term prospects
will be tempered with short-term volatility. We
continue to expect erosion of Film share with
some more price sensitive patients and payors
switching to cheaper alternatives. We are
pleased to announce that we have recently
appointed a new Chairman, Howard Pien, who
will play an important part in the next stage of
RB Pharmaceuticals’ evolution.
The strategic review we announced in October
of last year is underway. We will provide further
information on this review during the course
of 2014.
CATeGORY PeRFORMANCe
Health
Net revenue increased to £2,633m with
like-for-like growth of +10%. It was a very
strong year for our consumer health category
which had an excellent start. Innovation-led
growth was driven by Mucinex, with its further
expansion beyond cough and congestion into
sinus and cold & flu, and aided by a long and
strong season during the first half. These
successes provide a firm base on which to
launch a further category extension within the
Mucinex franchise, with the roll out of Mucinex
Allergy – 24-hour relief from indoor and
outdoor allergies, in 2014.
Our consumer health acquisitions are
performing strongly. In respect of Schiff in the
US the over achievement of synergies allowed
for increased reinvestment behind the brands,
improved shelf presence and distribution. In
China our Manyanshuning sore throat brand,
which came with the Guilong acquisition,
has had a strong year, and we are seeing
encouraging results from our collaboration
agreement with BMS in LATAM.
Hygiene
Net revenue increased to £3,835m, with
like-for-like growth of +7%. The performance
was driven by strong growth in the Dettol/Lysol
franchise across all three of our areas. Our
‘Healthing’ campaign, combined with the
continued expansion and success of the Power
& Free portfolio, drove growth across ENA. In
emerging market areas we continue to focus
on driving brand equity building initiatives such
as our new mums hospital visit, and schools
programmes. Our successful category extension
of Dettol Kitchen Gel has driven strong growth
in India for both Q4 and the full year. Hand
wash was strong in both developed and
2013 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 2013 excluding
RB Pharmaceuticals.
RB ex RB
Pharmaceuticals
%
£m
RB
Pharmaceuticals
%
£m
£m
Net revenue
Adjusted operating profit
Adjusted operating margin
9,266
2,188
+5%*
+7%**
+23.6%
777
428
-8%* 10,043
2,616
-21%**
55.1%
* like-for-like at constant exchange rates ** at constant exchange rates
Total RB
%
+4%*
+1%**
+26.0%
emerging market areas driven by the continued
success of Lysol/Dettol hand wash foam in the
US, Germany, Korea and China.
Harpic continued its strong momentum behind
penetration programmes and the launch of our
All-in-1 line extension in India.
Home
Net revenue increased to £1,974m, a like-for-
like growth rate of +2%. Vanish had a very
strong final quarter as we refocused the
strategy on penetration, underpinned by the
launch of our successful online ‘Vanish Tip
Exchange’ campaign in Europe and a number
of our emerging market countries.
Portfolio
Net revenue decreased to £499m, with a
like-for-like decline of -12%. This was due
principally to actions taken in the European
footwear business and continued weakness
in laundry detergents and fabric softeners in
Southern Europe.
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
Companies Act and with the accounting
policies set out in note 1 on pages 54 to 57.
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 £10,043m
(2012: £9,567m), an increase of +5%.
Net Finance expense: Net finance expense
was £31m (2012: £34m).
Tax: The effective tax rate was 25% (2012:
24%). This increase was primarily due to the
non-deductability of the exceptional items.
The adjusted tax rate was 24%.
Net working Capital: Net working capital
(inventories, trade and other receivables and
trade and other payables) was minus £863m
(2012: minus £700m).
Cash Flow: Cash generated from operations
was £2,756m (2012: £2,423m) and net cash
generated from operating activities was
£2,121m (2012: £1,888m). Net interest paid
was £24m (2012: £7m) and tax payments were
£611m (2012: £528m). Capital expenditure
was higher than the prior year at £225m (2012:
£177m). Acquisition of businesses of £418m
related to the acquisition of Guilong and
collaboration agreement with BMS.
Net Debt: At the end of the year net debt
was £2,096m (2012: £2,426m). This reflected
strong free cash flow generation, offset by the
payment of two dividends totalling £992m
and the acquisition of businesses for £418m.
The Group regularly reviews its banking
arrangements and currently has adequate
facilities available to it. The Group issued two
bonds in September 2013.
14
RB Annual Report 2013Strategic Report Operational Detail
ANNuAL KeY PeRFORMANCe INDICATORS (KPIs)
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
Net revenue growth excl. RB Pharmaceuticals
% like-for-like growth of net revenue
at constant exchange rates
Powerbrands
% of total net revenue from 19 Powerbrands
Gross margin %
Gross profit as % of total net revenue
2013
+5%
2012
Comments
+5%
Measures the increase in sales of the Group
(excl. RB Pharmaceuticals)
71%
70%
Measures the growth and importance of the
Group’s flagship brands
59.4%
57.9%
Measures the resources available for reinvestment
or profit growth
Brand Equity Investment (BEI)
BEI as % of total net revenue excl. RB Pharmaceuticals
13.0%
12.7%
Operating margin %* excl. RB Pharmaceuticals
23.6%
23.4%
Measures the rate of reinvestment in the
Group’s brands (excl. RB Pharmaceuticals)
Measures the profitability of the Group
(excl. RB Pharmaceuticals)
Adjusted net income*
Earnings per share (fully diluted)*
% change in earnings per share (fully diluted)*
Net cash flow from operations
Net working capital
(defined as inventories, trade and other receivables and
trade and other payables) as % of total net revenue
+2%
269.8p
+2%
£1,930m
+11%
-£863m
-8.6%
+6%
Measures the overall profitability of the Group
263.3p1
+7%
£1,735m
+10%
-£700m
-7.3%
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
Management turnover
4%
8%
% of Top400 management that have left the Group
* Adjusted to exclude the impact of exceptional items.
1 Restated. Refer to note 1 for further details.
exceptional Items: A total pre-tax exceptional
charge of £271m has been incurred during the
year in respect of the following:
• £225m charge for historic regulatory issues,
principally competition law; and
• £46m restructuring costs in relation to
the new organisation, acquisition and
integration costs.
These costs have previously been disclosed by
the Company. In 2012 an exceptional pre-tax
charge of £135m was incurred.
Balance Sheet: At the end of 2013, the Group
had total equity of £6,336m (2012: £5,922m),
an increase of +7%. Net debt was £2,096m
(2012: £2,426m) and total capital employed in
the business was £8,432m (2012: £8,348m).
This finances non-current assets of £12,248m
(2012: £12,009m), of which £761m (2012:
£736m) 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 £863m (2012: minus £700m), current
provisions of £215m (2012: £104m) and
long-term liabilities other than borrowings
of £2,554m (2012: £2,678m).
The Group’s financial ratios remain strong.
Return on Shareholders’ funds (net income
divided by total Shareholders’ funds) was
27.5% on a reported basis and 31.1% on an
adjusted basis (2012: 30.8% on a reported
basis and 32.7% on an adjusted basis).
Dividends: The Board recommends a final
dividend of 77p per share (2012: 78p) to give a
full year dividend of 137p per share (2012:
134p), an overall increase of +2%. The
dividend, if approved by Shareholders at the
AGM on 7 May 2014, will be paid on 29 May
to Shareholders on the register at the record
date of 21 February. The ex-dividend date was
19 February and the last date for election for
the share alternative to the dividend is 7 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 or to make a reliable estimate,
the Directors have made no provision for such
potential liabilities.
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.
OuR SuSTAINABILITY STRATeGY
& PeRFORMANCe
In line with the requirements of the 2006
Companies 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
performance management systems and
appropriate remuneration incentives, senior
management reports directly to the CEO on
sustainability matters on a regular basis. On the
Executive Committee (EC), the EVP Category
Development has operational accountability
for the implementation of sustainability (bar
charitable giving), in partnership with the EVP
Supply, and supported by the rest of the EC
within their respective areas and functions.
15
RB Annual Report 2013Strategic Report Operational Detail
In the category development organisation,
the Category Group Director – Sustainability,
Sourcing & Consumer Sciences manages the
sustainability programme on a day-to-day basis.
Our Senior Vice President (SVP) of Corporate
Communication and Affairs is responsible for
the Group’s strategic charitable giving. 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 (e.g. stress management).
Key areas of sustainability internal control
and 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 key 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 significant aspects,
Mucinex – When the
Cough Starts
Americans search online when their
coughs and colds start. RB partnered with
a uS specialist counting who was going
online where, so when
an area of the uS was
starting to catch a cold,
Mucinex was advertising
right there to tell them
how it could help.
16
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.
Key sustainability issues for
the business
• Sustainable product innovation
• Hygiene and illness-prevention
• Human rights
• Consumer behaviour change
• Responsible supply chain
• Product stewardship
• Natural raw material sourcing
• Environmental impact reduction
– water, energy, greenhouse gas
emissions (GHG), waste
• Pollution (contaminated land)
• Health and safety
Strategic Sustainability Priorities
The aspects the Group has identified are
common to many fast moving consumer
goods (FMCG) companies with well-known
brands and are essentially determined by the
Group’s sectors and the products the Group
manufactures and sells. The Group’s strategic
priorities therefore remain:
1 To achieve continual improvement in our
overall sustainability performance, focusing
on those issues where we can make a
significant difference including global health
and hygiene, sustainable product innovation,
greenhouse gas (GHG) emissions and water
impact; and
2 To manage our business in a socially and
ethically responsible manner.
The Group’s approach to sustainability, in
support of the Group’s vision, purpose and
business strategy, includes four key goals
for 2020:
• One-third reduction in carbon footprint and
water impact per dose of product.
• One-third of net revenue from more
sustainable products.
• Help over 200 million people to improve their
health and hygiene.
• Partner with Save the Children to deliver a
vision of stopping diarrhoea from being the
world’s second biggest cause of death of
children under five.
These high level goals are supported by specific
targets and functional programmes, grouped
under three areas: better design, better
production and healthier communities. 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 and
Human Rights
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 for responsible
production (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, 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.
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.
Under the Companies Act 2006 (Strategic and
Directors’ Report) Regulations 2013, quoted
companies are required to report their annual
carbon emissions. For the period 1 January
2013 to 31 December 2013 the Group’s
emissions in tonnes of carbon dioxide
equivalents (tCO2e) from:
• Combustion of fuel and operation of facilities
(Scope 1) were 80,806 tCO2e*.
• Electricity, heat, steam and cooling purchased
for own use (Scope 2) were 206,956 tCO2e*.
• Total Scope 1 and Scope 2 emissions were
287,762 tCO2e*.
The Group’s intensity measurement for the
same period was 0.0398 tCO2e* per unit of
production (tCO2e per 1000 CU).
* Data assured by Ernst & Young
Methodology for Calculating the Annual
Carbon emissions
We have reported on all of the emission sources
required under the Companies Act 2006
(Strategic and Directors’ Report) Regulations
2013. We report all GHG emissions from
operations (including global manufacturing,
warehouse, R&D) covered by the consolidated
financial statements for which we have
operational control with the exception of
offices’ emissions and MEDCOM fleet
emissions. We will endeavour to include
office and MEDCOM fleet emissions in 2014
reporting. In the case of acquisitions of
businesses, the emissions are included in
the first full calendar year of RB ownership.
CO2e emissions were calculated using
internationally recognised methodologies from
RB Annual Report 2013Strategic Report Operational Detail the WRI/WBCSD Greenhouse Gas Protocol and
International Energy Authority (IEA).
lost working day accident rate between 2012
and 2013; zero fatalities in 2013.
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 in 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.
RB’s Global Ingredient Guidelines (GIG)
RB has been monitoring and reviewing
ingredients for the past 12 years and has been
carrying out a range of ingredients removal and
restriction programmes outlined in our GIG.
Our objective is to continually improve the
environmental, safety and sustainable profile of
our products, by systematically removing
specific ingredients from product formulae and
packaging / device component specifications.
Our GIG combines regulatory, sustainability and
safety requirements for generic ingredient
groupings, plus specific directions on the use
(or the prohibition of use) of specific raw
materials / ingredients to assist formulators and
other Company employees in the development
and marketing of products that meet these
commitments.
Health and 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 heath and
safety issues and a programme covering
manufacturing sites, warehouses, distribution
centres and laboratories.
Progress
The Group has a long-standing record of
measuring and managing sustainability issues.
Progress to date includes:
• A 16% reduction in GHG emissions
from manufacturing & warehouse sites
(2000-2013).
• Continuation of RB’s tree planting initiative
for three more years (2012 – 2014). By the
end of 2013, 6.15 million native trees had
been planted in Canada (including 351,000
in 2013) which continues to make RB’s
manufacturing operations effectively carbon
neutral (2006-2014).
• A 52% reduction in manufacturing and
warehouse energy per unit of production
(2000-2013).
• A 43% reduction per unit of production of
water use (2000-2013).
• A 9% reduction per unit of production of
waste (2000-2013).
• A 93% reduction in accident rates since
2001, including over 5% reduction in the
The Group’s 2012 Sustainability Report,
published on 31 May 2013, describes progress
made in key sustainability topics. For example:
• At the end of 2012, the Group had achieved
a 25% reduction in lifecycle carbon
emissions per dose compared to the 2007
baseline. This was a reduction of 4.6%
compared to 2011.
• Our continued support of the international
charity Save the Children, reaching 150,000
children in 2012.
The 2013 Sustainability Report will be published
in April 2014 and will provide a full update on
progress towards meeting our new
sustainability goals and targets.
The sustainability and corporate responsibility
section on the Group’s website (www.rb.com/
sustainability) 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; Key Performance Indicators (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 is provided in the
Sustainability Report. Selected data in the
annual Sustainability Report is assured by
external auditors.
For more information see our 2012
Sustainability Report, published on 31 May
2013, at www.rb.com/sustainability-report2012
and also our 2013 Sustainability Report, to be
published in April 2014.
PRINCIPAL RISKS
RB operates a major risk assessment process
to identify, assess, control, mitigate and review
those risks it considers to be most significant
to the successful execution of our strategy. The
most senior managers of our business dedicate
time each year in a facilitated discussion with
the Group risk team to consider the risk
environment for their particular functional or
geographic area of responsibility and how their
emerging or known risks could impact on the
achievement of the Group’s strategic objectives;
similar sessions are held with the Group’s
external advisors. The key content from these
sessions are then synthesised into the Group’s
‘Top Ten’ risks, with each risk having an EC
owner, who is accountable for executing the
current control strategy and for compiling and
executing a plan of mitigating actions to
properly manage the Group’s exposure to that
risk. Progress is reviewed periodically and the
full output from the major risk assessment
process is formally submitted annually by the
EC to the Board for its consideration and
endorsement. Through the course of each year,
the EC and Board agendas address all of the
top risks through specific deep dives to ensure
proper focus and progress with mitigation.
The Group’s activities expose it to a number
of risks which, while actively managed, as
described above, may still adversely impact the
business and its financials. The principal 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,
with a more expansive explanation provided
on pages 93 to 100 of this report. The Group
recognises the risks described here and has
taken measures, addressed in this report and
in previous reports, to mitigate these risks.
We could be adversely affected by economic
conditions in, and political developments
affecting, the markets in which we operate.
A variety of factors may adversely affect our
results of operations and financial condition
during periods of economic uncertainty or
instability, social or labour unrest or political
upheaval in the markets in which we operate.
Such periods may also lead to government
actions, such as imposition of martial law,
trade restrictions, foreign ownership
restrictions, capital, price or currency controls,
nationalisation or expropriation of property
or other resources, or changes in legal and
regulatory requirements and taxation regimes.
We may also be unable to access credit markets
materially adversely affecting our liquidity and
capital resources or cost of capital.
Our Powerbrands collectively contribute a
significant portion of our revenue, and any
material adverse change to demand for existing
Powerbrands, or any future products we may
develop, could have a material adverse effect
on our business.
Consumer preferences, tastes and habits
are constantly evolving. Various factors,
some of which are beyond our control, may
have an adverse impact on demand for our
Powerbrands. Similarly, we may fail to
respond to changing consumer wants or
fail to differentiate our Powerbrands from
competitors’ products, both of which
could adversely impact consumer demand
for our products.
Our business, financial condition, and results of
operations, substantially depend on our ability
to improve our existing products, and
successfully develop and launch new products
and technologies.
If we are unable to successfully develop,
launch and market new products that obtain
consumer interest and acceptance, we may be
unable to compete and maintain or grow our
market share. If we enter new categories or
geographies in which we have limited
experience, we may be exposed to unexpected
or greater risks.
Substantial harm to our reputation, or the
reputation of one or more of our brands, may
materially adversely affect our business.
Various factors may adversely impact our
reputation, including product quality
inconsistencies or contamination resulting in
recalls. Reputational risks may also arise from
our third parties’ labour standards, health,
safety and environmental standards, raw
material sourcing, and ethical standards. We
may also be the victim of product tampering or
counterfeiting or grey imports. Any litigation,
17
RB Annual Report 2013Strategic Report Operational Detail disputes on tax matters and pay structures may
subject us to negative attention in the press,
which can damage reputation.
We could be materially adversely affected by
the loss of revenue from the sales of Suboxone
and Subutex.
Our RB Pharmaceuticals’ business may face
price pressure or share loss from the increased
branded and generic competition that is
entering the market both in the US and in
the rest of world leading to a material
reduction in net revenue from this product
adversely affecting our overall revenues and
operating profit.
We could be impacted by the fact we compete
in intensely competitive industries.
We compete with well-established local,
regional, national and international companies
including private label and generics. Some of
these may have more resources to establish
and promote their products. If we are unable
to offer products that consumers choose over
our competitors’ products, or maintain
successful relationships with our trade
customers, who determine access to shelf space
and promotions, or to effectively compete in
new channels, our business and results could
be materially impacted.
We are exposed to foreign currency exchange
rate risk.
In FY 2013, 93% of our net revenue was
derived from markets outside the UK. The
Sterling value of our revenues, profits and cash
flows from non-UK markets may be reduced or
our supply costs, as measured in Sterling in
those markets, may increase. Additionally,
competitors may benefit if they incur costs in
weaker currencies relative to Sterling. We
currently hedge some of our currency exposures
using financial instruments, but we may not
be effective.
We are subject to the risk that countries in
which we operate may impose or increase
exchange controls or devalue their currency.
We operate in markets which have been known
to impose exchange controls. Such controls
may restrict or make it impossible to repatriate
earnings, borrow on the international markets
to fund operations in that country or limit our
ability to import raw materials or finished
products. Additionally we operate in markets
that are prone to currency devaluations which
can make our products more expensive in local
currency terms.
We face risks of interruptions of our supply
chain and disruptions in our production
facilities, which could materially adversely affect
our results of operations.
We may face risks to continuity of supply arising
from certain specialised suppliers, both of raw
materials and of third party manufactured items.
Significant disruptions to our own, or our
suppliers’ operations, may affect our ability to
source raw materials and negatively impact our
costs. Suppliers may fail to fulfil their contractual
obligations. Replacing suppliers may require
them to be qualified under industry,
governmental or our standards, which could
require investment and may take time.
18
Volatility in the price of commodities, energy
and transportation may impact our profitability.
Increases in cost or decreases in availability
could adversely affect our profitability if we are
unable to pass on the higher costs as price
increases or achieve cost efficiencies.
systems in such countries may not be well-
established, reliable or enforced and there may
be difficulties in obtaining legal redress,
particularly against the state or state-owned
entities, creating higher operational costs and
risks to our business.
We have grown, and may continue to grow, in
part, through acquisitions, joint ventures and
business alliances, which involve various risks.
Acquisitions present a range of risks and
uncertainties, in addition to the risk of
management resource requirements to handle
the acquisition and the base business
simultaneously. There could be increased debt
and interest payments to fund larger acquisitions,
which could place pressure on our credit rating.
We may fail in achieving an acquisition yet still
bear substantial out-of-pocket expenses. We
may fail to achieve projected benefits of an
acquisition, or we may take on unforeseen
future liabilities with an acquisition.
We may be unable to attract and retain
qualified personnel, including key
senior management.
The market for talent is intensely competitive
and we could face challenges in sourcing
qualified personnel. If we are unable to achieve
our performance targets, our senior management
would not be entitled to their variable pay,
which may operate as a disincentive for them
to continue their employment with us.
A disruption to, or failure of, our information
technology systems and infrastructure, may
adversely affect our business.
Failures or disruptions to our systems or the
systems of third parties on whom we rely,
due to any number of causes, particularly if
prolonged, or, if any failure or disruption were
to impact our backup or disaster recovery plans,
could result in a loss of key data and/or affect
our operations. Sub-optimal implementations
of new systems could occur. Our computer
systems, software and networks may be
vulnerable to unauthorised access, computer
viruses or other malicious code and other cyber
threats that could have a security impact. All
of these could be costly to remedy and we may
be subject to litigation.
Our business is subject to significant
governmental regulation.
Regulation is imposed in respect of, but
not limited to, ingredients, manufacturing
standards, labour standards, product safety
and quality, marketing, packaging, labelling,
storage, distribution, advertising, imports and
exports, social and environmental responsibility
and health and safety. These regulations can
change and may become more stringent.
Additionally we are required to obtain, maintain
and update licences for some products. If we
are found to be non-compliant with applicable
laws and regulations, we could be subject to
civil remedies such as fines, injunctions or
product recalls, and/or criminal sanctions.
The laws and regulations to which we
are subject may not be transparent, may
be difficult to interpret, and/or may be
enforced inconsistently.
Emerging markets can pose heightened risks
with respect to laws and regulations. The legal
We could be subject to investigations and
potential enforcement action, which could have
a material adverse effect on our business.
We could be subject to regulatory investigations
or potential enforcement action that targets
ingredients, an industry, a set of business
practices or our specific operations. Regulatory
authorities and consumer groups may request
or conduct reviews of the use of certain of our
ingredients, or ingredient legislation may
change. These could result in a need to change
our formulations which could be costly or may
not be possible.
Historical or future violations of antitrust and
competition laws may have a material adverse
impact on our business, financial condition and
results of operations.
Failure to comply with applicable antitrust and
competition laws, rules and regulations in any
jurisdiction may result in civil and/or criminal
legal proceedings. As part of the announcement
of our HY 2013 results, we reported a provision
of £225m, principally relating to competition
matters. Our ultimate liability for such matters
could exceed this provision.
We operate in a number of countries in which
bribery and corruption pose significant risks,
and we may be exposed to liabilities under
anti-bribery laws for any violations. Any
violation of applicable money laundering laws
could also have a negative impact on us.
We are subject to the UK Bribery Act 2010, the
US Foreign Corrupt Practices Act of 1977, as
amended, and similar laws worldwide. Given
our extensive international operations, we are
exposed to significant risks, particularly with
respect to parties not subject to our control
such as agents and joint venture partners, and
also through businesses we acquire.
Our business is subject to product
liability claims.
We may be subject to legal proceedings and
claims arising out of our products, including
as a result of unanticipated side effects or
issues that become evident only after products
are widely introduced into the marketplace
or additionally claims that our products are
defective, contain contaminants, provide
inadequate warnings or instructions, or
cause personal injury to persons or damage
to property. We may be required to pay
compensation for losses or injuries or have
to pay substantial damages, and related costs,
or additionally be subject to the imposition of
civil and criminal sanctions.
Legal proceedings in respect of claims outside
the product liability area could also adversely
impact our business, results of operations and
financial condition.
Outside the product liability area, we are
subject to legal proceedings and other claims
arising out of the ordinary course of business
including, but not limited to, claims alleging
intellectual property rights infringement, breach
RB Annual Report 2013Strategic Report Operational Detail of contract, environmental laws and health and
safety laws, and advertising claims. Significant
claims, or a substantial number of small claims,
may be expensive to defend and may divert
management time and resources away from
our operations.
Labour disruptions may affect the results of
our operations.
A substantial portion of our workforce is
unionised, and we are party to collective
bargaining agreements covering approximately
one-third of our direct employees. Our ability
to negotiate these agreements satisfactorily or
our relationship with unions, including labour
disputes or work stoppages, could have an
adverse impact on our business.
Changes in tax legislation and other
circumstances that affect tax calculations could
adversely affect our financial condition and
results of operations.
We are subject to tax laws and transfer pricing
regulations in multiple jurisdictions, including
those relating to the flow of funds between RB
and its subsidiaries. Our effective tax rate in any
given financial year reflects a variety of factors
that may not be present in succeeding financial
years, and may be affected by changes in the
tax laws of the jurisdictions in which we
operate.Tax authorities may challenge our
arrangements and if material challenges were
to be successful, our effective tax rate may
increase, and we may incur significant costs.
Any of the foregoing could materially and
adversely affect our business.
We may be unable to secure and protect our
intellectual property rights.
Even if obtained, these rights may be
invalidated, circumvented or challenged in
future, and third parties may infringe on, or
misappropriate, our rights. We may fail to
discover any infringements of our intellectual
property rights, or be unable to successfully
defend and enforce our rights.
The loss of patent protection, ineffective
protection, or expiry of our patents may impact
our financial condition and results of operations.
Patent protection varies in different countries,
and can be substantially weaker in emerging
markets. We may face challenges in enforcing
or extending our current intellectual property
protections, or any protections we may obtain
in future, in these markets.
We may face challenges to our intellectual
property rights, including allegations of
infringement of others’ rights.
If we are unable to successfully defend against
these challenges, we may face various
sanctions, including injunctions, monetary
sanctions, product recalls, alterations to our
intellectual property, products, and/or
packaging, which could result in significant
expense and negative publicity.
Our business may be adversely affected by our
funding requirements.
Our liquidity needs are driven by our ability to
generate cash from operations and the level of
borrowings, the level of acquisitions, the level
of share repurchases and dividends, disposals,
target ratings for our debt and options available
to us in the equity and debt markets.
At 31 December 2013, we had £4,350m in
undrawn commitments. If we are not able to
access the commercial paper market to the
extent that we require, we may need to
drawdown amounts under our committed
bilateral credit facilities, which accrue interest at
floating rates. Increases in such rates could result
in significantly higher interest expense for us.
We are subject to risks relating to estimates and
assumptions that we are required to make, and
that may affect the reported amounts in our
financial statements.
The preparation of our financial statements
requires management to make some estimates
and assumptions based on management’s best
knowledge at the time. Actual amounts may
however ultimately differ from those estimates.
We are subject to a range of compliance and
routine risks as part of everyday business.
In order to manage the more numerous and
routine risks, the Group maintains a complete
and robust governance framework.
We may face risks based on changes to
market prices.
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.
We are subject to risks related to interest
rate changes.
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.
There is potential for credit risks with financial
institutions around the globe.
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.
Capital Management Risk
The Group’s objectives for managing capital are
to safeguard the Group’s ability to continue as
a going concern and maintain an efficient
capital structure to optimise the cost of capital.
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 £2,096m
(2012: £2,426m). 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 70 to 73.
A more detailed explanation of risks is on
page 93.
OuR PROSPeCTS
We are targeting:
• Net revenue growth of +4-5%*.
• Flat to moderate operating margin
expansion**.
These targets exclude RB Pharmaceuticals.
* At constant rates including the immaterial impact
of the BMS collaboration.
** Adjusted to exclude the impact of exceptional items.
Post Balance Sheet event
On 24 February 2014 part of a current wider
legal case was settled, which related to one of
the current provisions held at the balance sheet
date. The remaining provisions that were held
in relation to this case at the balance sheet date
are still considered to be appropriate.
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 Annual 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.
By Order of the Board
Rakesh Kapoor, CEO
7 March 2014
19
RB Annual Report 2013Strategic Report Operational Detail Governance & Remuneration Board of Directors and Executive Committee
Board of Directors and
Executive Committee
THe BOARD OF DIReCTORS
Adrian Bellamy (British) ‡ #
Appointed a Non-Executive Director in 1999
and 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 formerly Chairman of The Body Shop
International plc and a director of various
companies including Gucci Group NV and
The Robert Mondavi Corporation.
Richard Cousins (British) ‡ #
Appointed a Non-Executive Director in 2009.
He is CEO of Compass Group PLC. He was CEO
of BPB plc, and Non-Executive Director of P&O
and HBOS. Richard will not offer himself for
re-election at the AGM in May 2014 and will
retire from the Board after the AGM.
Nicandro Durante (Brazilian/Italian) #
Appointed a Non-Executive Director in
December 2013. He is CEO of British American
Tobacco p.l.c. (BAT). Nicandro has had an
extensive career at BAT and became Chief
Operating Officer in January 2008 and CEO
in March 2011.
Dr Peter Harf (German) #
Appointed a Non-Executive Director in 1999
and is the Deputy Chairman. He was Chairman
of the Remuneration Committee until June
2004. Peter is the CEO of Parentes Holding SE
(formerly Joh. A. Benckiser) and a Director of
Coty Inc. He is also Chairman of Labelux and
the non-profit DKMS foundation.
Adrian Hennah (British)
Appointed CFO Designate in January 2013 and
Director and CFO in February 2013. He joined
following six years at Smith & Nephew plc as
CFO. 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 also worked at PwC in
audit and consultancy. He is a Non-Executive
Director of Reed Elsevier PLC and Reed
Elsevier NV.
Kenneth Hydon (British) * #
Appointed a Non-Executive Director in 2003
and Chairman of the Audit Committee in
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 Director between 2005
and 2006. He retired as CFO of Vodafone
Group plc in 2005 and was a Non-Executive
Director of Tesco PLC from 2004 to 2013. He is
a Non-Executive Director of Pearson plc and
Merlin Entertainments PLC.
Rakesh Kapoor (Indian) #
Joined the Board in September 2011 following
his appointment as CEO of the Company. He
20
joined RB in 1987 and served in various
regional and central marketing roles. He
was appointed EVP Category Development in
2006 with responsibility for global category
management, R&D, media, market research
and strategic alliances.
André Lacroix (French) * #
Appointed a Non-Executive Director in 2008
and the Senior Independent Director in June
2013. 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.
Judith Sprieser (American) ‡ #
Appointed a Non-Executive Director in 2003 and
Chair of the Remuneration Committee in 2004.
She was previously CEO of Transora, Inc., 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) * #
Appointed a Non-Executive Director in 2010.
He was CFO of Cobham plc from 2003 until
2013. He is a chartered accountant and
previously held senior finance positions at
Cable & Wireless plc and British Airways plc.
He is Non-Executive Director and Chairman-
designate of PayPoint plc and a Non-Executive
Director of Thomas Cook Group.
* 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.
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.
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).
Frederic Larmuseau (Belgian)
eVP, RuMeA. Joined in 2001 as marketing
director for Malaysia & Singapore. In 2003 he
became regional marketing director for East
Asia and in 2005 became Global Category
Director for Vanish. In 2008 he was appointed
General Manager for Brazil and a year later was
promoted to SVP Regional Director Latin
America. In January 2013, Frederic was
appointed to SVP Regional Director North
America and was appointed EVP of RUMEA in
June 2013.
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.
RB Annual Report 2013 Governance & Remuneration Report of the Directors
Report of the Directors
The Directors submit their Annual Report
and audited consolidated financial
statements of the Group for the year
ended 31 December 2013 to the members
of the Company.
Future Developments
Information on the likely future developments
of the Group is set out in the Operational Detail
on pages 9 to 19 and in the Chief Executive’s
Statement on pages 3 to 8 respectively.
Audited results for the period are set out on
pages 50 to 84.
In the view of the Directors, the Group’s
likely future developments will centre on its
main product categories of health, hygiene
and home.
Risk Management Objectives and Policies
The Group’s financial risk management
objectives and policies are set out on pages 17
to 19 of the Strategic Report and in note 14 on
pages 70 to 73.
The information referred to above is
incorporated by reference into, and shall be
deemed to form part of, this Report. 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 2013, the Directors resolved to pay an
interim dividend of 60p per ordinary share
(2012: 56p). The dividend was paid on
26 September 2013. The Directors are
recommending a final dividend for the year
of 77p per share (2012: 78p) which, together
with the interim dividend, makes a total for the
year of 137p per share (2012: 134p). The final
dividend, if approved by the Shareholders, will
be paid on 29 May 2014 to Shareholders on
the register at the close of business on
21 February 2014.
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 2013
amounted to £199m (2012: £171m).
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 Strategic
Report on page 5.
Employees
During 2013, the Group employed an average
of 37,100 (2012: 35,900) people worldwide, of
whom 3,700 (2012: 3,700) 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, race,
ethnicity 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. 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 Directors who held office during year and
those serving at the date of this report are:
Adrian Bellamy
Richard Cousins
Liz Doherty (resigned 12 February 2013)
Nicandro Durante (appointed 1 December
2013)
Peter Harf
Adrian Hennah (appointed 12 February 2013)
Kenneth Hydon
Rakesh Kapoor
André Lacroix
Graham Mackay (resigned 12 June 2013)
Judith Sprieser
Warren Tucker
Biographical details of the current Directors are
set out on page 20.
Graham Mackay, who served on the Board as
Non-Executive Director and was the nominated
Senior Independent Director, resigned as a
Director of the Company on 12 June 2013.
André Lacroix was designated as the Senior
Independent Director on 12 June 2013.
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 on
page 46 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 34 to 46.
Environmental, Social and Governance
(ESG) Matters
Information on ESG and related matters is set
out in the Strategic Report on pages 15 to 17.
Disclosure of Greenhouse Gas (GHG)
Emissions
Information on the required disclosure of the
Group’s GHG emissions for the year ended
31 December 2013 is set out in the Strategic
Report on pages 16 to 17.
Sustainability and Corporate Responsibility
Information on the Group’s management of
sustainability and corporate responsibility issues
is provided in the Strategic Report on pages 15
to 17 and in the Group’s annual Sustainability
Reports, which provide information on its
policies, programmes, targets and progress in
this area.
Political Donations
No political donations or expenditure of the
type requiring disclosure under s.366 and s.367
of the Companies Act 2006 (2006 Act) were
made in the year ended 31 December 2013 nor
are any contemplated.
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.
21
RB Annual Report 2013 Governance & Remuneration Report of the Directors
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.
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 26
to 32 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 2013, the Company’s issued
share capital consisted of 719,802,329 ordinary
shares of 10p each with voting rights and
16,732,850 ordinary shares of 10p each held
in Treasury. Details of changes to the ordinary
shares issued and of options and awards
granted during the year are set out in note 22
to the financial statements.
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 2013 to allot shares up to
a nominal amount of £21m. That authority
will apply until the conclusion of this year’s
AGM. At this year’s AGM on 7 May 2014,
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. The authority sought
would, if granted, expire at the earlier of 30
June 2015 or at the conclusion of the AGM of
the Company held in 2015. Excluding Richard
Cousins who will retire at the 2014 AGM, the
Board has confirmed that, in accordance with
the UK Corporate Governance Code (Code),
all other 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.
Substantial Shareholdings
As at 4 March 2014, 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
10.65 76,659,342
5.77 41,561,763
4.06 29,255,679
% of total
voting rights
No of
ordinary
shares
Nature of
holding
Indirect
Indirect
Indirect
22
Authority to Purchase Own Shares
Shareholders approved a resolution for the
Company to make purchases of its own shares
at the AGM in 2013. The Directors announced
their intention to commence a share repurchase
programme during 2013 for the repurchase
of up to 6 million 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 2013, market
purchases of 6 million of the Company’s
ordinary shares were made during 2013 at a
total cost of £278,705,370 including stamp
duty. The authority granted at the AGM in
2013 remains valid until the conclusion of this
year’s AGM on 7 May 2014 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. This
authority will be limited to a maximum of
73 million ordinary shares and sets the
minimum and maximum prices which may be
paid. The Company’s intention would be 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 seventh AGM of the
Company, to be held on Wednesday, 7 May
2014 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 2013
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.
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
7 March 2014
RB Annual Report 2013
Governance & Remuneration Report of the Directors
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 7 March 2014 had the following beneficial interests (unless stated otherwise) in the
ordinary shares of the Company:
Adrian Bellamy
Richard Cousins
Nicandro Durante (appointed 1 December 2013)
Peter Harf
Adrian Hennah (appointed 12 February 2013)
Kenneth Hydon
Rakesh Kapoor
André Lacroix
Judith Sprieser
Warren Tucker
7 March 2014
31 December 2013
31 December 2012
22,813
2,429
0
4,109
13,629
5,510
22,813
2,429
0
4,109
13,629
5,510
21,966
2,262
n/a
3,806
n/a
5,337
317,537
317,537
281,869
2,253
3,809
1,694
2,253
3,809
1,694
2,086
3,631
1,527
Notes
1 No person who was a Director (or a Director’s connected person) on 31 December 2013 and at 7 March 2014 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.
23
RB Annual Report 2013
Governance & Remuneration Chairman’s Statement on Corporate Governance
Chairman’s Statement on
Corporate Governance
The UK Corporate Governance Code (Code)
issued by the Financial Reporting Council
(FRC) in September 2012 was applicable to
the Company throughout the financial year
ended 31 December 2013.
The FRC confirmed that the recent changes
to the Code together with changes to the UK
Stewardship Code are intended to increase
director accountability and encourage greater
stakeholder engagement, whilst promoting the
interest of Shareholders. Through the reports
on the work of the Board and its committees,
the changes provide investors with greater
insight into the activities of listed companies.
The Board takes seriously its responsibility for
effective corporate governance and delivery of
long-term Shareholder and stakeholder reward
and its 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 whilst
managing the business effectively, responsibly
and with integrity, so that we demonstrate
accountability and maintain the trust of all our
stakeholders. 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. 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.
We are constantly seeking to develop our
practices and governance framework to ensure
that transparency and good governance
permeate through the Group at all levels. Our
professional employees are annually required
to confirm compliance with corporate policies
and are encouraged to suggest improvements.
This ensures we maintain a dynamic process
of enhancement which enables our operating
businesses and group functions to operate with
an appropriate awareness and recognition of
their governance and regulatory obligations.
Composition of the Board
The current and future composition of the
Board remains an issue to which I and the rest
24
of the Board give our full attention. We remain
mindful of the recommendations of the Code
on length of service and diversity and it is our
aim to comply with these recommendations
without compromising the culture that drives
the success of our business. Unfortunately, our
Senior Independent Director, Graham Mackay,
had to retire from the Board in June 2013 for
health reasons and sadly passed away on
18 December 2013. Graham brought
exceptional talents to the Board’s activities and
he will be missed. The Board, on behalf of the
Company and its Shareholders, is grateful for
Graham‘s significant contributions over the
past eight years and sends condolences and
best wishes to his family. We have sought to
strengthen the Board with the appointment of
Nicandro Durante, who brings experience of a
highly regulated and innovation-led industry,
alongside extensive emerging markets’
experience, having worked in Asia, Africa and
Latin America. He adds further international
diversity to the Board. We continue to seek to
recruit additional Non-Executive Directors who
will bring a diverse range of skills, experience
and perspectives to the Board’s activities.
We announced at the end of December 2013
that Richard Cousins will not offer himself for
re-election at the 2014 AGM and will stand
down at the close of business of the 2014
AGM after having served as a Non-Executive
Director since October 2009.
The Board includes Peter Harf who, as a
Shareholder-nominated Director, was not
independent on appointment. Both Peter
and I have served on the Board since 1999. In
addition, Judith Sprieser and Kenneth Hydon
have now been on the Board for a period
exceeding ten years. The Board remains keen to
ensure compliance with the recommendations
of the Code but recognises that both Kenneth
and Judith have been diligent servants of the
Company who continue to add value to the
activities of the Company as a whole. To ensure
continuity and a successful transition, the Board
recommends that Judith and Kenneth be
re-appointed to the Board at the 2014 AGM.
In recognition of their length of service, both
Judith and Kenneth will step down as Chairs
of the Remuneration and Audit Committees
respectively before the end of the year, upon
completion of this year’s exercise to refresh the
composition of the Board.
To ensure that the Board is able collectively to
increase its focus on Board composition, the
membership of the Nomination Committee was
increased in November 2013 to include all the
Non-Executive Directors and the CEO. 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
so that they continue to reflect the spirit and
emphasis of the Code, remain fit for purpose
and relevant to how RB operates.
Board Evaluation
The Code recommends that FTSE 350
companies should undertake an external
evaluation at least once every three years.
The 2009 to 2012 Board evaluations were all
undertaken internally. The recent evaluation for
the year ended 2013 was externally facilitated
by Egon Zehnder Limited. The summary
outcome applauded the Company’s focus on
Shareholder value and the quality of the Board’s
decision making. It recognised the Board’s
efficiency and focus but noted certain
improvement opportunities on governance
and Board succession matters. The
recommendations to move the Board’s
performance from good to great are further
discussed in the performance evaluation section
on page 28 of this Report.
Succession Planning
Succession planning to the Board and senior
management roles remains one of the key
areas to which the Board gives due attention.
Progress continues to be made in this area and
part of that progress is to ensure diversity in
succession planning and to give members of
RB’s senior management more exposure to the
Board and externally. Additional information
on RB’s succession planning activities at senior
management levels is within ‘Resources’ on
pages 11 to 12 of the Strategic Report. Our
disclosure includes the new Companies Act
2006 requirement to report specifically on the
gender split for the Board, senior managers and
total employee numbers.
Annual Re-elections
All the Directors submitted themselves for
re-election at the 2013 AGM and excluding
Richard Cousins who is retiring after the AGM,
will submit themselves for re-election at the
2014 AGM and at future AGMs in compliance
with the Code.
Diversity
The Company operates within a corporate
diversity and inclusion policy framework
adopted and reviewed by the Executive
Committee. The Davies recommendation for
boards to have a minimum of 25% female
representation by 2015 is an aspiration the
Company considers carefully as part of its
recruitment exercises.
The Board reiterates its view that facilitating
and promoting diversity in its broadest sense
has helped propel the Company’s success to
date. It remains its practice to ensure that the
Company’s Top40 executive roles, in particular,
RB Annual Report 2013 Governance & Remuneration Chairman’s Statement on Corporate Governance
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 implement
the Company’s global vision and objectives
and 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 31 December 2013:
• 10% (2012: 10%) of the Board is female and
50% (2012: 50%) are non-UK nationals;
• 11% (2012: 11%) of the Executive
Committee is female and 78% (2012: 78%)
are non-UK nationals; and
• 14% (2012: 15%) of the Top40 managers
are female and 66% (2012: 70%) are
non-UK nationals.
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 it believes contributes to the Company’s
growth and success. As at 31 December 2013:
• 42% (2012: 41%) of the Group’s
professional population of 7,079 is female;
and
• 17% (2012: 16%) of the Group’s Top400
population is female.
Gender balance has improved consistently
across the professional population.
14, 49 and 95 (2012: 16, 44 and 94)
nationalities are represented in the Top40,
Top400 and professional populations
respectively.
Risk Management and Appetite
The Board monitors the level of risk through
the Group’s major risk assessment process.
We remain committed to building on and
improving our understanding of the key risks
facing the Group and its business operations
and we constantly refine our appetite and
tolerance of such risks.
Explanation on Areas of Non-compliance
with the Code (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 a Shareholder-
nominated Director, have both served on
the Board since 1999 and will be offering
ourselves for re-election at the 2014 AGM;
• Kenneth Hydon and Judith Sprieser have
now each been on the Board for over ten
years. The Company continues to benefit
from the skills and experience they bring
to their roles and, with continuity in mind,
Judith and Kenneth have agreed to stand
for re-election at the AGM for a further year,
before stepping down at the AGM in May
2015 by which time they would have served
on the Board for 11 years. Judith and
Kenneth will step down as Chairs of their
respective committees by the end of the
year, following the outcome of the ongoing
refresh of the Board’s composition.
Recognising that it is important that the
Board retains relevant knowledge and
experience to continue its delivery of
Shareholder value and provide continuity
and consistency in the development and
application of the Company’s strategic
objectives, the Board will continue its efforts
to refresh the membership of the Board in
the short-term;
• Following the retirement of Graham Mackay
from the Board in June 2013, for the period
from June 2013 until the date of this report,
the Remuneration Committee was not
composed of a majority of independent
Non-Executive Directors. For the same
reason, the Nomination Committee was not
composed of a majority of independent
Non-Executive Directors from June 2013 until
November 2013 when the Board resolved
to change the terms of reference on
membership of the Nomination Committee
to include all Non-Executive Directors; and
• Judith Sprieser, in her capacity as Chair
of the Remuneration Committee, was
unfortunately absent from the 2013 AGM
held on 2 May 2013.
The Board has instructed me to confirm that,
notwithstanding the foregoing disclosures and
following the externally facilitated performance
evaluation undertaken during 2013, 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
26 to 32 contains a summary of the Company’s
governance arrangements and the regulatory
assurances required under the Code. Except as
explained above, the Company has complied
with the Code throughout the year ended
31 December 2013.
Adrian Bellamy
Chairman
7 March 2014
25
RB Annual Report 2013 Governance & Remuneration Corporate Governance Report
Corporate Governance Report
Report of the Board
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
1 October 2012. This Report sets out how the
Company has applied the Main Principles of the
Code throughout the year ended 31 December
2013 and as at the date of this Report.
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
principal international competitors. 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 2013 as part of the
performance evaluations conducted for the
2013 financial year.
The principal activities undertaken by the Board
are set out in the Strategic Report on pages 3
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
resolution) to consider specific matters which
it has reserved to itself for decision.
In 2013, there were five regular Board meetings
(plus two additional meetings). 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.
Additionally, 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 20.
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;
• Power to acquire and dispose of businesses
and to approve unbudgeted capital
expenditure projects subject, in each case,
to a £50m limit; and
Number of Scheduled Meetings Attended during 2013
Adrian Bellamy
Richard Cousins
Nicandro Durante
Peter Harf
Adrian Hennah
Kenneth Hydon
Rakesh Kapoor
André Lacroix
Graham Mackay
Judith Sprieser
Warren Tucker
Note
(a)
(b)
(c)
(b)
Board
5
5
n/a
4
4
5
5
5
1
4
5
Audit
Remuneration
Nomination
4
4
1
4
1
n/a
1
1
1
1
1
4
4
4
Notes
(a) There were no scheduled Board meetings in 2013 subsequent to the appointment of Nicandro Durante.
(b) Peter Harf and Judith Sprieser were unavoidably absent from one meeting each.
(c) Graham Mackay did not attend any meeting after February 2013 and formally retired from the Board due to ill health on 12 June 2013.
(d) Liz Doherty retired from the Board on 12 February 2013 and did not attend the scheduled Board meeting on the same date.
26
RB Annual Report 2013
Governance & Remuneration Corporate Governance Report
• Power to instruct advisers and to instigate
• Leading the annual performance evaluation
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’ and other
stakeholders’ concerns;
• Overseeing the induction, information and
support provisions for Directors; and
of the Board and its Committees.
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 the Chairman, Adrian
Bellamy, seven Non-Executive Directors 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 20.
Additional biographical details are available
from the Company’s website.
The Board identified Graham Mackay as the SID
until his retirement in June 2013 when André
Lacroix succeeded Graham as SID. The Board
has determined that the majority of Non-
Executive Directors (excluding the Chairman)
are independent as recommended by the Code.
The Board deemed Judith Sprieser and Kenneth
Hydon as independent notwithstanding that
they have served over ten years. 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 slightly
in excess of 10%. The Company announced
in December 2013 that Richard Cousins,
Non-Executive Director, will not offer himself
for re-election at the 2014 AGM.
Report of the Nomination Committee
B.2: NOMINATION COMMITTEE AND
BOARD APPOINTMENTS
Nomination Committee
Until November 2013, the Nomination
Committee comprised the Chairman, who also
chairs the Committee, the CEO, the Deputy
Chairman, the SID and the Chairs of both
the Audit and Remuneration Committees.
Following its meeting in November 2013,
the Board agreed that the composition of the
Nomination Committee would be increased
to include all Non-Executive Directors plus the
CEO. 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:
• Consideration of the current and future
composition of the Board; and
• Together with the rest of the Board, the
appointment of Nicandro Durante as an
additional Non-Executive Director on
1 December 2013.
Board Appointments
The process leading up to the appointment
of Nicandro Durante commenced with the
appointment of Egon Zehnder Limited (Egon
Zehnder) who worked with the Chairman and
the Board to put together a profile based on
the Board’s consensus of the key attributes
required. In addition, the outcomes from the
interviews undertaken as part of the externally
facilitated Board performance evaluation fed
into this process to ensure that there was good
alignment from the Board on the profile for
candidates. The Board received the CVs of
approximately ten potential candidates who
had been short listed following an initial review
by the Chairman and members of the
Nomination Committee. Following feedback
and recommendations from individual Board
members, the Chairman met with the
recommended candidates. The Deputy
Chairman, the CEO, the SID and the Group
General Counsel also met with Nicandro who
indicated a willingness to accept an offer
following his own due diligence process. The
Board approved the appointment of Nicandro
and delegated authority to the Chairman to
finalise terms and dates.
The Board reviews the medium and long-term
succession plans for the Executive Directors
annually. All Non-Executive Directors are kept
involved in the recruitment process for both
Executive and Non-Executive Directors.
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
27
RB Annual Report 2013 Governance & Remuneration Corporate Governance Report
Report of the Nomination Committee (continued)
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.
As part of the recruitment drive, Egon Zehnder
was given a specific remit to ensure that more
female and international candidates were put
forward for consideration and the Committee,
together with the full Board, considered and
discussed the CVs of potential candidates at
their November meetings. The Chairman and
the Committee are continuing the search to
refresh the composition of the Board with
high-calibre candidates who will complement
the Group’s strengths and contribute to its
diversity and business success.
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 externally facilitated evaluation of the
Board’s performance undertaken in 2013
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
Directors and key 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
2012 meeting was held in Brazil and the 2013
meeting was held in China. The Board plans to
visit its operating unit in Salt Lake City, USA
during 2014. 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 detailed presentation on and review
of the Company’s investor relations activities at
its November meeting.
28
The Chairman has overall responsibility
for ensuring that the Directors receive the
information and training required for their
roles. 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.
The Company was subject to an FSA (now FCA)
enquiry during 2012 which is still ongoing as at
the date of this Annual Report. This related to
an inadvertent breach of the Listing Rules and
the Disclosure and Transparency Rules relating
to a pledge (now redeemed) over shares held
by the CEO (acquired when he was an
Executive Committee member prior to his
appointment as CEO) and a disposal of
Company shares by a person discharging
managerial responsibilities without the
appropriate disclosures being made.
B.5: INFORMATION AND SUPPORT
All members of the Board receive timely reports
on items arising at meetings of the Board to
enable 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 Committees throughout the year. From 2009
to 2012, it carried out a formal and rigorous
internal evaluation of its Committees and of
individual Directors with a view to improving
the effectiveness of the Board and its
Committees and RB’s overall performance.
The evaluation of the Board’s performance
during 2013 was undertaken with support
from an external facilitator.
2013 Evaluation: Egon Zehnder was retained
to facilitate the 2013 Board performance
evaluation. Its remit included a focus on Board
performance measured primarily by the growth
of Shareholder value with due cognisance given
to the Board’s focus on the business and its
strategy. Particular attention was also given
to personnel issues and the special and critical
culture of the Company. Egon Zehnder received
details of the 2011 and 2012 Board
performance evaluations and presented at the
July and November Board meetings.
Egon Zehnder met with individual Directors
using a pre-circulated two-page discussion
guide which enabled them to reflect and
gather their thoughts ahead of the meeting.
They also met with the Company Secretary and
the Group General Counsel who attend all
Board meetings.
The individual discussion covered the strategic
alignment and the impact of the Company’s
re-stated vision on Board composition and
future structure. Other areas in scope included
Board meetings and dynamics, reporting to
Shareholders, governance and Board processes,
business performance, information flows, risk
and people related issues. Two areas of specific
focus, used as case studies of the Board’s
decision-making, were the re-focus of the
strategic direction of the Company into health,
hygiene and home and the acquisitions
undertaken during 2012/2013. The key
objective was to ensure that the Board focuses
on how it adds value to the business and
captures the learning for future decision-
making. Key recommendations which the
Board will progress include:
• Board composition: the Board should
continue to seek to bolster its numbers
with up to three additional Non-Executive
Directors;
RB Annual Report 2013 Governance & Remuneration Corporate Governance Report
• Chairman succession: the Nomination
Committee should commence the planning
process to identify a successor for the
Chairman’s role;
• Interaction with Executive Directors: the
Executive Directors were encouraged to share
their thoughts and plans at an earlier stage
to encourage debate;
• Project specific updates: an increase in the
regularity of updates to the Board on the
projects it oversees was recommended;
• Approach on remuneration: the
Remuneration Committee was encouraged
to discuss the impact of policy and regulatory
issues with the Board to promote Board
alignment on relevant issues; and
• Review of decisions: noting that it operated
good post-acquisition reviews, the Board
was encouraged also to review other key
decisions on a regular basis.
Egon Zehnder also provides consultancy
services to the Board’s recruitment activities.
The Board recognised the benefit of using
Egon Zehnder for its performance evaluation
on the basis that this would provide a better
understanding of the Board and its dynamics
which would feed into the candidate
search process.
Progress Update on Items from the 2012
Evaluation: The 2012 evaluation was
undertaken internally in a detailed and rigorous
manner which started with an email from the
Company Secretary to all Directors inviting their
comments on the effectiveness of the Board
the responses from which were used to develop
a framework for the debate at the evaluation
meeting. Key actions from the 2012 Board
performance evaluation and progress made
since then include:
• Corporate strategy: the objective was to
ensure that the Non-Executive Directors
received relevant information well in advance
of meetings to facilitate their understanding
of management’s key strategic focus.
Strategic issues are discussed at every
meeting with management sharing their
thoughts earlier and this enabled both
management and the Board to take swift
actions on key opportunities.
• Investor Relations: the objective was for
additional clarity on the Company’s investor
relations strategy. The Board was given a
presentation on the Company’s investor
relations strategy during the year and, in
November 2013, the Company held a
well-received two-day strategy event at
which the investor community met all the
members of the Executive Committee,
gaining an understanding of the depth
and capability of management and the
Company’s consumer health and emerging
markets’ strategies.
• Advance papers to the Board: the
improvement in the quality and timing
of papers to the Board was noted.
Management was advised to keep a tight
rein on the quantity of advance material to
ensure that Board information was succinct
and essential.
• Offsite Board meeting: the objective was
to help the Board make the most of the
meeting and use it as an opportunity to meet
Top400 executives in less formal settings.
The offsite meeting in China during 2013
took place over four days, twice the normal
time previously allocated for such meetings.
This afforded the Board an opportunity to
immerse itself in the China business. Future
offsite meetings will follow this more
detailed programme.
• People and succession: the objective
was to deliver an increased exposure of the
Top400 to the Non-Executive Directors. In
addition to meeting the managers of the
Chinese business, the Board received
presentations from the other members of
the Executive Committee, Top40 and Top400
executives during the year.
These outcomes and actions fed into the
externally facilitated evaluation carried out in
2013 and will continue to aid benchmarking
and the measurement of progress in the
coming years.
The 2013 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
was undertaken by the SID with input from his
fellow Non-Executive Directors, the CEO and
the 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 Code recommendations,
all the Directors will submit themselves for
re-election/election at the 2014 AGM.
Excluding Richard Cousins who will not stand
for re-election at the 2014 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 establish 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 2014 AGM. The date each Director was
originally appointed to the Board is included
in the biographical details on page 20.
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 fair, 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 fair, 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 operating 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 54 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 pages 47 to 49.
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 the
Strategic Report on pages 9 to 11.
The Statement of Directors’ Responsibilities on
page 33 details the Directors’ responsibility for
the financial statements, for disclosing relevant
audit information to the Auditors and for
ensuring that the Annual Report is fair,
balanced and understandable. An extra step
involving an additional review of the draft
Annual Report and a teleconference of the
Board was added to the approval process so
that the full Board, acting together, could
confirm that the Annual Report was fair,
balanced and understandable.
The going concern statement required by the
Listing Rules and the Code is set out in the
Statement of Directors’ Responsibilities on
page 33.
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.
29
RB Annual Report 2013 Governance & Remuneration Corporate Governance Report
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 2013, RB operated
three area organisations covering ENA,
LAPAC and RUMEA together with RB
Pharmaceuticals and Food, and centralised
functions covering category development,
supply, sales, finance, 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
reviewed by the Board. Long-term business
plans are also prepared and 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 strategic 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
Strategic Report on pages 17 to 19 and fuller
details of RB’s relationships and principal risks
are set out on pages 93 to 100;
• 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;
• Compliance Controls – the Group
maintains a compliance control programme
that includes an independent and
anonymous whistleblower reporting system,
systematic reviews by the internal audit
function, annual management reviews and
personal compliance certification as well as
specialised training in specific areas and
functions of the business. Management
provides the Board with regular updates on
the compliance controls of the Group and
considers recommendations for continuous
improvement; 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 21 to 22.
Report of the Audit Committee
C.3: AUDIT COMMITTEE AND AUDITORS
Introduction
In 2013 changes were made to the UK
Governance Code. We reviewed our Terms
of Reference and Annual Plan in the light of
these changes particularly with respect to
Shareholder information being fair, balanced
and understandable. The production of the
Annual Report is a complex task which is
completed in a relatively compressed timeframe
so we established a robust process for the
review and approval of its contents in
accordance with the new requirements.
The Committee recognises that independent
and effective auditors are essential. The Internal
Audit plan is risk based and the Head of
Internal Audit has dual reporting lines to the
CFO and me. In 2013 the routine rotation of
both of PricewaterhouseCoopers LLP’s (PwC)
engagement partners took place and the
Committee conducted a thorough review of
30
PwC’s effectiveness and value for money.
The Committee is aware of the Competition
Commission’s and EU’s recommendations on
audit tender and rotation and our current
expectation is that an audit tender process will
commence no later than 2019.
Throughout the year the Committee focused
on providing reassurance to the Board on the
integrity of the Company’s financial reporting,
internal controls framework and risk
management processes. The Committee has
met with operational business management
including local management when the Board
visited China.
This will be my last report to Shareholders and
I should especially like to thank André and
Warren for their personal contributions and
dedication to the work of the Committee.
Kenneth Hydon
Chairman of the Audit Committee
Audit Committee
The Audit Committee comprises three
Independent Non-Executive Directors: Kenneth
Hydon, FCMA, FCCA, FCT, Chairman since 16
November 2006, (whom the Board has deemed
independent notwithstanding he has served ten
years on the Board), André Lacroix, Diploma,
ESCP and Warren Tucker, BSc Economics &
Accounting, MBA, ACA. Kenneth Hydon was
CFO of Vodafone Group plc until July 2005 and
is Chairman of the Audit Committees of both
Pearson plc and Merlin Entertainments PLC,
and was in the role at Tesco plc until 2013.
Warren Tucker was CFO of Cobham plc until
May 2013. 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.
RB Annual Report 2013 Governance & Remuneration Corporate Governance Report
Report of the Audit Committee (continued)
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;
• 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
processes covering assurance providers,
geographical and functional areas.
During 2013 the Audit Committee:
• Met four times;
• Considered detailed risk and control reviews
for selected Group major risks covering
business transformation, regulatory
compliance, data privacy, business continuity
planning, legal and tax disputes, quality
assurance and bribery;
• Reviewed local country and regional risks and
control status during the overseas Board visit;
• Reviewed the approach to deliver an upgrade
to the Group’s ERP and monitored delivery of
that programme;
• Approved updates to the Finance Policy
Manual and the Treasury policies;
• Monitored whistleblowing activities and
The Audit Committee has considered the
following areas of significant judgement,
complexity or estimation in relation to the 2013
Group financial statements:
• Acquisition accounting – valuation of
acquired intangible assets
In May 2013 the Group obtained regulatory
approval for a three-year collaboration
agreement with Bristol-Myers Squibb in
certain parts of Latin America. The
Committee reviewed papers prepared by
management addressing the accounting
treatment applied, and the assumptions
adopted in determining the fair value of
assets and liabilities acquired including
goodwill, the three-year collaboration
agreement intangible asset and the prepaid
option. Based on this review the Committee
is comfortable that accounting for the
transaction as a business combination under
IFRS 3 (Revised) Business Combinations is
appropriate and the assumptions applied
are reasonable.
• Tax provisioning
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 the approach of the authorities is
particularly difficult to predict. Where
appropriate, provisions are made based on
an assessment of each case. The level of
provisioning for these tax investigations is an
issue where management and tax judgement
is important. The Committee has debated
with management the key judgements
made, including relevant professional advice
that may have been received in each case,
and considers the tax provisioning levels to
be appropriate.
In addition, the Audit Committee has
considered a number of other matters in
relation to the 2013 Group financial
statements, including:
reviewed the policy;
• Impairment testing of goodwill and indefinite
• Reviewed and updated the policy for
non-audit fees to the Auditors and
monitored its application;
• Reviewed the Audit Committee terms of
reference and the annual ‘Standing Agenda’;
• Reviewed the work and effectiveness of 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
dealing with the workload.
life intangible assets
Management performs an annual
impairment review for goodwill and other
intangible assets with indefinite lives,
including the Group’s Powerbrands. This is
important given the significance of these
items to the Group’s Balance Sheet. Key
judgements include estimates of future
business performance and cash generation,
discount rates and long-term growth rates
(refer to note 9 of the Group Financial
Statements for further detail). The
Committee has reviewed management’s
analysis, including an assessment of the
discount rates used, the appropriateness
of specific risk factors applied to individual
cash generating units and the adequacy
of sensitivities applied. As a result of this
review the Committee is comfortable
with management’s conclusion that no
impairment is required and that the indefinite
life of the Group’s Powerbrands and various
other brand intangible assets continues to
be appropriate.
• Legal liability provisioning
For the year ended 31 December 2013, the
Group has recognised certain exceptional
legal costs relating to historical regulatory
investigations by various government
authorities totalling £225m. The level
of provisioning for these regulatory
investigations is a matter where management
and legal judgement is important. The
Committee has discussed with management
the key judgements made, including relevant
legal advice received.
• Exceptional items
The Committee has considered the
presentation of the Group financial
statements and, in particular, the
presentation of exceptional items and
the items included within such measures.
The Committee has discussed this with
management and agrees that the
presentation provides more meaningful
information to Shareholders about the
underlying performance of the Group.
The Audit Committee notes that trade spend
was an area of focus for the Auditors. It is the
Committee’s view that whilst trade spend is a
significant expense for the Group and involves
an element of judgement, management
operates an appropriate control environment
which minimises the risks in this area. The
Auditor’s risk assessment is made before
consideration of the control environment. In
addition, there have been no significant items
or issues which have arisen during the year in
relation to trade spend which would need to
be brought to the attention of the Audit
Committee and, as a result, the Committee
does not consider that this is a significant issue
for disclosure in its report.
Auditors and Auditor Independence
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 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 lead audit partner was rotated-off
during 2013. Our current expectation is that we
will commence preparations for a competitive
tender no later than 2019. There are no
31
RB Annual Report 2013
Governance & Remuneration Corporate Governance Report
Report of the Audit Committee (continued)
The Company’s published policy on non-audit
fees states that, on an annual basis, non-audit
fees should not normally be in excess of 50%
of the Group’s external audit and audit related
fees on an aggregate basis. The Board confirms
that, for the year ended 31 December 2013,
non-audit fees were less than 50% of the audit
and audit related fees.
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 61.
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.
Code. The third member of the Committee
is the Chairman, Adrian Bellamy, who was
independent on appointment.
Detailed information on the Committee
and its activities is set out in the Directors’
Remuneration Report on pages 34 to 46.
E: Relations with Shareholders
E.1: RELATIONS WITH SHAREHOLDERS
The Board is committed to effective
communications between the Company and its
Shareholders. The Executive Directors and the
Director of Investor Relations meet regularly
with institutional Shareholders and financial
analysts 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. The investor relations
programme includes:
• Formal presentations of full year and half
year 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 issues of concern to the investors;
• Response 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.
Over two days in November 2013, the
Company held an investor event with the twin
objectives of:
• Demonstrating the significant talent within
RB’s management team outside the CEO and
CFO; and
• Updating investors on the Company’s value
creation model and its ability to outperform
with particular focus on health and hygiene,
Powermarkets and emerging markets.
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.
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.
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.
D: Remuneration
D.1: THE LEVEL AND COMPONENTS
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 components 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 34 to 46.
D.2: REMUNERATION COMMITTEE AND
PROCEDURE
The Remuneration Committee chaired by Judith
Sprieser comprised four members until June
2013 when it reduced to three following
Graham Mackay’s retirement from the Board
due to ill health. As at August 2013, Judith
Sprieser had served ten years on the Board.
Nonetheless, pursuant to Code provision B.1.1,
the Board has determined that, in its opinion,
Judith Sprieser remains independent. Richard
Cousins is considered independent under the
32
RB Annual Report 2013 Governance & Remuneration Statement of Directors’ Responsibilities
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
International Financial Reporting Standards
(IFRSs) as adopted by the European Union, and
the parent Company financial statements in
accordance with United Kingdom 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
European Union 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 Companies Act 2006 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 United Kingdom
governing the preparation and dissemination of
financial statements may differ from legislation
in other jurisdictions.
Disclosure of Information to Auditors
The Directors, having made appropriate
enquiries, state that:
1 So far as each Director is aware, there is
no relevant audit information of which the
Company’s Auditors are unaware; and
2 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
7 March 2014
The Directors consider that the Annual Report
and Financial Statements, taken as a whole, is
fair, balanced and understandable and provides
the information necessary for Shareholders to
assess a company’s performance, business
model and strategy.
Each of the Directors, whose names and
functions are listed on page 20 confirms that,
to the best of his/her 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 Strategic Report on pages 1 to
19. 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
Strategic Report on page 19 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.
33
RB Annual Report 2013 outlined above, the CEO will only receive value
from this additional benefit if truly exceptional
performance is delivered.
These changes are covered more fully in the
Annual Report on Remuneration.
Some of our Shareholders expressed a
preference for EPS to be supplemented by
a second measure, such as return on capital
employed, in our LTIP. The Committee
considered this feedback in depth and
concluded, on balance, that it wished to
maintain the simplicity and consistency of the
LTIP. The Committee believes that the heavy
weighting of the long-term variable equity
component of pay for Executives, together with
our demanding executive share ownership
requirements (equivalent to up to 30x salary)
reduce the need for a second measure since the
proportion of personal net worth that the
Executive Directors have invested in Company
shares already strongly motivates them to act in
a manner consistent with the best interests of
our Shareholders.
I hope that this Remuneration Report achieves
the aim of improved transparency and clarity
under the new reporting requirements, and
that we can count on your support at the
forthcoming AGM for both our Remuneration
Policy and the decisions we have taken as a
Committee during the year.
Judith Sprieser
Chairman of the Remuneration Committee
Governance & Remuneration Directors’ Remuneration Report
Directors’ Remuneration Report
This Directors’ Remuneration Report has been
prepared in accordance with the provisions of
the Companies Act 2006 and Schedule 8 of
the Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment)
Regulations 2013. The Report meets the
requirements of the UK Listing Authority’s
Listing Rules and the Disclosure and
Transparency Rules. In this Report we describe
how the principles of good governance relating
to directors’ remuneration, as set out in the
UK Corporate Governance Code (September
2012) (the Code), are applied in practice.
The Remuneration Committee confirms that
throughout the financial year the Company has
complied with these governance rules and best
practice provisions.
Introduction
On behalf of the Board of Directors, it gives me
great pleasure to present to you the Directors’
Remuneration Report for the year ended
31 December 2013 for which we will be
seeking approval at the Annual General
Meeting (AGM) on 7 May 2014. In line with
the new reporting regulations that came into
effect on 1 October 2013, this Directors’
Remuneration Report is split into three parts:
this Annual Statement, a Policy Report (subject
to a binding Shareholder vote at the 2014
AGM) and an Annual Report on Remuneration
(subject to an advisory vote). I and my
colleagues on the Remuneration Committee
hope that the new layout of the Remuneration
Report is clear, transparent and helpful, and
that we can count on your support for our
Remuneration Policy and its implementation
during the year.
Context for Executive Remuneration at RB
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. 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. Central to our pay
philosophy are the principles of:
• Simplicity;
• Shareholder alignment; and
• Pay for performance.
We reinforce our philosophy by positioning
Executive Director fixed pay (base salary,
pension and benefits) around median market
levels, but providing Executive Directors with
incentive opportunities strongly linked to
performance to enable above-market pay
opportunities for above-market performance
in terms of growth, profitability and
Shareholder returns.
MAJOR DECISIONS ON, AND CHANGES TO,
EXECUTIVE DIRECTORS’ REMUNERATION
DURING THE YEAR
The Structure of 2014 LTIP Awards
(granted in December 2013)
During the first quarter of 2013, I held
meetings with a number of our largest
Shareholders on the subject of executive
remuneration. The Committee, and the Board
of Directors 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 our long-term
incentive plan (LTIP); in particular, the sole use
of adjusted earnings per share (EPS), the EPS
performance range, and the vesting level for
achieving threshold performance.
Following a review of our LTIP in response
to this feedback, the Committee agreed to
make two changes to awards granted in
December 2013:
• A widening of the performance range for
EPS compound annual average growth
(CAAG) from 6%-9% p.a. to 6%-10% p.a.
• A reduction in the threshold vesting level
from 40% to 20% of maximum.
The Committee feels these changes reinforce
our philosophy of above-market pay only for
above-market performance. The new maximum
vesting level of an EPS CAAG of 10% p.a. is
equivalent to a top quintile (i.e. above 80th
percentile) level of performance. In addition, we
have maintained a threshold EPS CAAG target
of 6% p.a. which is above market median
performance, but reduced the level of vesting
from 40% to 20% which substantially reduces
the value of the LTIP to participants at this
minimum level of performance.
The number of shares awarded to the CEO in
December 2013 was increased from 200,000 in
December 2012 to 240,000. The number of
options awarded remained unchanged from
previous years. The increase in the number
of shares was considered appropriate in order
to recognise the strong performance of the
CEO since his appointment and still remains
significantly below the LTI awards that were
made to the previous CEO. Given the changes
34
RB Annual Report 2013 Governance & Remuneration Directors’ Remuneration Report
Directors’ Remuneration Policy
This section of the report sets out the Remuneration Policy for Executive Directors and Non-Executive Directors, which Shareholders will be asked
to approve at the 2014 AGM on 7 May 2014. The Committee intends that the policy will come into effect on this date, if approved by Shareholders,
and be effective for three years.
A summary of the Directors’ Remuneration Policy is summarised in the table below:
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE
Component purpose and
link to strategy
Operation
Variable Remuneration (incentives)
Annual bonus
To drive strong
financial performance
with significant reward
for over achievement
of annual targets
Financial targets are set by the Committee at the
start of the year, with reference to prevailing
growth rates in RB’s peer group, and across the
health care and FMCG industries more broadly.
At the end of the year, the Committee determines
the extent to which these have been achieved.
Performance is assessed on an annual basis, using
a multiplicative combination of the payouts for
performance against each of the financial targets.
Bonus payouts are in cash.
Under the terms and conditions of the plan, the
Company has the right to seek redress and
damages from any individual who has been found
to have breached the Company’s Code of
Conduct. 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.
The Committee has discretion to adjust the
formulaic bonus outcomes both upwards and
downwards (including to zero and capped at the
maximum payout) to ensure alignment of pay with
performance, e.g. in the event performance is
impacted by unforeseen circumstances outside of
management control.
The LTIP comprises grants of share options and
awards of performance shares (based on a fixed
number), which vest subject to the achievement
of stretching performance targets.
The LTIP has a performance period of at least
three years and a minimum vesting period
of three years.
The LTIP opportunity and the combination of share
options and performance shares are reviewed
annually with reference to market data and the
associated cost to the Company, calculated using
an expected value methodology.
The performance condition is reviewed before
each award cycle to ensure it remains
appropriately stretching.
The Committee has discretion to adjust the
formulaic LTIP outcomes to improve the alignment
of pay with value creation for Shareholders to
ensure the outcome is a fair reflection of the
performance of the Company.
LTIP
(share options and
performance shares)
To incentivise and
reward long-term
performance, and
align the interests of
Executive Directors
with those of
Shareholders
Opportunity
Performance measures
Target opportunity:
CEO: 120% of salary
CFO: 90% of salary
Maximum opportunity:
3.57x Target
(CEO: 428% of salary)
(CFO: 321% of salary)
Performance will be assessed
against the growth in one or
more key financial metrics of
the business determined on an
annual basis.
The weighting between
different financial metrics will
be determined each year
according to business priorities.
For threshold performance,
the bonus payout will be nil.
Further details, including
the performance measures
for the current financial year,
are disclosed in the Annual
Report on Remuneration.
The Committee calibrates LTIP share
award and option grant sizes as a
fixed number, with periodic
adjustments to ensure that the fair
value of an Executive Director’s total
remuneration is appropriately
positioned relative to peers.
The maximum award to
any individual in one year
will be 300,000 shares and
600,000 options.
Details of the LTIP opportunity
in respect of each year will be
disclosed in the Annual Report
on Remuneration.
Dividends do not accrue
on unvested share awards or on
shares underlying options before
they are exercised.
Vesting of the LTIP is subject
to continued employment
and the achievement of
stretching adjusted diluted EPS
growth targets.
Threshold performance will
result in 20% of maximum
vesting. The vesting level will
increase on a sliding scale
from this threshold to 100%
vesting for Stretch levels
of performance.
Further details, including
the performance targets
attached to the LTIP in
respect of each year, are
disclosed in the Annual Report
on Remuneration.
Sharesave
To encourage the
ownership of RB shares
An HMRC approved scheme where employees
(including Executive Directors) may save a monthly
amount over three years. Options granted at up to
a 20% discount.
Savings capped at the limit set
by HRMC.
n/a
35
RB Annual Report 2013 Governance & Remuneration Directors’ Remuneration Report
EXECUTIVE DIRECTOR REMUNERATION POLICY TABLE (CONTINUED)
Component purpose and
link to strategy
Operation
Base Salary and Benefits
Base Salary
To enable the total
package to support
recruitment and
retention
Base salaries are reviewed annually typically with
effect from 1 January.
Salary levels/increases take account of:
• Competitive practice in the Company’s
remuneration peer group, comprising
international companies of a similar size
and scope of operations.
• Individual performance.
• Salary increases awarded across the Group
as a whole.
Opportunity
Performance measures
Salaries for Executive Directors
should typically be around the
median for competitors.
n/a
Salaries in respect of the year under
review (and for the following year)
are disclosed in the Annual Report
on Remuneration.
To avoid setting expectations of
Executive Directors and other
employees, no maximum salary is
set under the Remuneration Policy.
Salary increases for Executive
Directors will be aligned with those
of the wider workforce which take
into account performance.
Increases may be made above this
level to take account of individual
circumstances, which may include:
• Increase in the size or scope of
the role or responsibilities.
• Increase to reflect the individual’s
development and performance in
role. For example where a new
incumbent is appointed on a
below market salary.
Where increases are awarded in
excess of the wider employee
population, the Committee
will provide rationale in the relevant
year’s Annual Report on
Remuneration.
Pension
To provide appropriate
levels of retirement
benefit
Executive Directors may receive contributions into
the RB Executive Pension Scheme, a defined
contribution scheme, a cash allowance or
a combination thereof.
CEO: 30% of pensionable pay
CFO: 25% of pensionable pay
n/a
Base salary is the only element of remuneration
that is pensionable.
Benefits
To provide benefits
comparable to those
that would be provided
for an equivalent
position elsewhere
Executive Directors receive benefits which consist
primarily of the provision of a company car/
allowance and health care, although can include
other benefits that the Committee deems
appropriate, for example the cost of preparing tax
returns or home leave.
Relocation allowances and international transfer
related benefits may also be paid, where required.
n/a
None of the existing Executive
Directors received total taxable
benefits exceeding 10% of salary
during the last three financial years,
and it is not anticipated that the
cost of benefits provided will exceed
this level in the financial years over
which this policy will apply.
The Committee retains the
discretion to approve a higher cost
in exceptional circumstances
(e.g. relocation) or in circumstances
where factors outside the
Company’s control have changed
materially (e.g. increases in medical
coverage inflation).
Benefits in respect of the year under
review are disclosed in the Annual
Report on Remuneration.
36
RB Annual Report 2013 Governance & Remuneration Directors’ Remuneration Report
NOTES TO THE POLICY TABLE
Payments from Existing Awards
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the Remuneration Policy detailed
in this Report, i.e. before 7 May 2014. Details of these awards are disclosed in the Annual Report on Remuneration.
Performance Measure Selection and Approach to Target Setting
The measures used under the annual bonus are selected to reflect the Group’s main financial priorities for any given financial year. With regard to the
LTIP, the Committee regularly reviews the performance measure to ensure that it aligns well with the Company’s strategy and with our Shareholders’
interests. EPS is considered the most appropriate LTIP performance measure for a number of reasons:
• It focuses Executives on real profit growth which is strongly aligned with value creation at RB;
• It provides a well-recognised and accepted measure of the Company’s underlying financial performance; and
• It is a measure that the plan participants can directly impact and is easily measurable.
EPS is measured on an adjusted diluted basis, as shown in the Group’s financial statements, as this provides an independently verifiable measure
of performance. However the Remuneration Committee maintains the discretion to make adjustments to the measure if this is considered to be
appropriate. Any adjustments will be disclosed in the Annual Report on Remuneration.
Targets applying to the bonus and LTIP are reviewed annually, based on a number of internal and external reference points. Bonus targets take into
account prevailing growth rates in RB’s peer group, and across the health care and FMCG industries more broadly. LTIP targets reflect industry context,
expectations of what will constitute performance at the top of the peer group, and factors specific to the Company.
Remuneration Policy for other Employees
RB’s approach to annual salary reviews is consistent across the Group, with consideration given to the level of experience, responsibility, individual
performance and salary levels for comparable roles in comparable companies.
Senior employees are eligible to participate in an annual bonus scheme with similar metrics to those used for the Executive Directors. Opportunities and
specific performance conditions vary by organisational level, with business area-specific metrics incorporated where appropriate.
Senior managers, who comprise of the Top400 employees, are eligible to participate in the LTIP on broadly similar terms as the Executive Directors,
although award sizes vary by organisational level. In addition, Senior Executives, who comprise of the Top40 employees, are also required to build up
significant shareholdings in RB of between 30-50,000 shares, representing c.8x base salary.
All UK employees are eligible to participate in the Company’s Sharesave plan on identical terms.
Shareholder Alignment
The Committee recognises the importance of aligning Executive Directors’ and Shareholder interests through executives building up significant shareholdings
in the Company. Executive Directors are expected to acquire a significant number of shares over a period of eight years and retain these until retirement
from the Board of Directors. The shareholding requirement for the CEO is 600,000 shares and for the CFO is 200,000 shares.
Details of the Executive Directors’ current personal shareholdings are provided in the Annual Report on Remuneration on page 46.
NON-EXECUTIVE DIRECTOR REMUNERATION
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 (September 2012) guidelines, all Directors are subject to re-election annually at the AGM.
It is the policy of the Board of Directors that Non-Executive Directors are not eligible to participate in any of the Company’s bonus, share option,
long-term incentive or pension schemes. An element of the basic fee is, however, paid in RB shares.
Details of the policy on fees paid to our Non-Executive Directors are set out in the table below:
Component and objective
Approach of the Company
Fees (cash
and shares)
To attract and retain
Non-Executive
Directors of the highest
calibre with broad
commercial experience
relevant to the
Company
The fees paid to Non-Executive Directors are determined by the Board of Directors, with recommendations provided by
the Chairman and CEO. The fees of the Chairman are determined by the Remuneration Committee.
Additional fees are payable for acting as Deputy Chairman, Senior Independent Non-Executive Director and as Chairman
of the Audit and Remuneration Committees. Members of the Audit and Remuneration Committees also receive an
additional fee.
Fee levels may be reviewed annually, with any adjustments effective 1 January. Fees are reviewed by taking into account
external advice on best practice and competitive levels, in particular at FTSE 30 and FTSE 100 companies. Time commitment
and responsibility are also taken into account when reviewing fees.
Chairman and Non-Executive fees are delivered partly in cash and partly in RB shares which must be held until retirement
from the Company.
The fees paid to the Chairman and Non-Executive Directors in respect of the year under review (and for the following year),
including the split between cash and shares, are disclosed in the Annual Report on Remuneration.
Aggregate fees are limited to £1.5m by the Company’s Articles of Association.
37
RB Annual Report 2013 Rakesh Kapoor, CEO
£m
Salary
Annual
bonus
LTIP
Minimum
On-target
Maximum
Adrian Hennah, CFO
£m
Salary
Annual
bonus
LTIP
2
0
1
6
1
2
8
4
0
1
0
8
6
4
2
0
1
0
0
8
0
6
0
4
0
2
0
0
Minimum
On-target
Maximum
Salary, Pension
& benefits
Annual
bonus
LTIP
% vesting
6%
7%
8%
9%
Average three year earnings per share growth (p.a)
20000
16000
12000
8000
4000
0
10000
8000
6000
4000
2000
0
100
80
60
40
20
0
Governance & Remuneration Directors’ Remuneration Report
SCENARIO ANALYSIS
The charts below provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split between the different
elements of remuneration under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’.
Potential reward opportunities are based on RB’s Remuneration Policy, applied to 2014 base salaries. The annual bonus and LTIP are based on the maximum
opportunity levels applying for FY 2014. Benefits are based on those benefits paid in respect of FY 2014.
Note that the LTIP awards granted in a year do not normally vest until the third anniversary of the date of the AGM which follows the third anniversary
of grant and the projected values exclude the impact of share price movement.
Rakesh Kapoor, CEO
£m
6%
20%
74%
Adrian Hennah, CFO
£m
14%
35%
Maximum
24%
21% 55%
On-target
4.87
100%
Minimum
1.16
18.25
Maximum
41% 29% 30%
On-target
1.75
100%
Minimum
0.71
51%
5.11
0
48
1
2
16
20
0
1
2
3
4
5
6
Salary, pension and benefits
Annual bonus
Long-term incentives (share options and performance shares)
Valuation Assumptions
The ‘Minimum’ scenario reflects base salary, pension and benefits (i.e. fixed remuneration), being the only elements of the Executive Directors’
remuneration package not linked to performance.
The ‘On-target’ scenario reflects fixed remuneration as above, plus target bonus payout (120% and 90% of salary for the CEO and CFO, respectively)
and LTIP threshold vesting at 20% of the maximum award level.
Rakesh Kapoor, CEO
£m
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout under all incentives (428% and 321% of salary for the CEO and CFO, respectively,
Maximum
under the annual bonus, and full vesting of LTIP awards).
18.25
The value of performance shares and share options is based on the price at grant of £47.83 (11 December 2013). Share options are valued as 10% of
face value which has been calculated using a Black-Scholes option pricing model and assumptions aligned to the three-year performance period.
4.87
On-target
APPROACH TO RECRUITMENT REMUNERATION
External Appointment
Minimum
In cases of hiring or appointing a new Executive Director from outside the Company, the Remuneration Committee may make use of all existing
components of remuneration, as follows:
1
1.16
48
20
16
2
0
Component
Base salary
Benefits
Pension
Approach
Award
The base salaries of new appointees will be determined by reference to relevant market
data, experience and skills of the individual, internal relativities and their current basic
salary. Where new appointees have initial basic salaries set below market, the shortfall
to median may be managed with phased increases over a period of two or three years
subject to their development in the role.
New appointees will be eligible to receive benefits which may include (but are not limited
to) the provision of a company car or car allowance, health care and any necessary
relocation expenses in line with ongoing Remuneration Policy.
New appointees will receive pension contributions and/or an equivalent cash supplement
in line with existing executives as set out in the ongoing Remuneration Policy.
Annual bonus
The structure described in the policy table will apply to new appointees with the relevant
maximum opportunity.
Target: 120% of salary
Multiple: 3.57x Target
LTIP
New appointees will be granted awards under the LTIP on the same terms as other
executives, as described in the policy table. LTIP grants can take the form of performance
shares, share options or a combination of the two.
300,000 performance shares
600,000 share options
The overall limit of variable remuneration will be as set out in the policy table taking into account the maximum value of the annual bonus and the
maximum awards of options and shares under the LTIP.
The Committee may make an award in respect of a new appointment to ‘buy out’ incentive arrangements forfeited on leaving a previous employer,
i.e. over and above the approach outlined in the table above. In doing so, the Committee will consider relevant factors including any performance
conditions attached to these awards and the likelihood of those conditions being met with the intention that the value awarded would be no higher
than the expected value of the forfeited arrangements and made on a like-for-like basis.
38
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
07
08
09
10
11
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
RB Annual Report 2013
Governance & Remuneration Directors’ Remuneration Report
Internal Promotion
In cases of appointing a new Executive Director by way of internal promotion, the policy will be consistent with that for external appointees, as detailed
above. Where an individual has contractual commitments made prior to their promotion to Executive Director level, the Company will continue to
honour these arrangements even in instances where they would not otherwise be consistent with the prevailing Executive Director Remuneration Policy
at the time of appointment.
Non-Executive Directors
In recruiting a new Non-Executive Director, the Remuneration Committee will use the policy as set out in the table on page 37. A base fee in line with
the prevailing fee schedule would be payable for membership of the Board of Directors, with additional fees payable for acting as Deputy Chairman,
Senior Independent Director, as Chairman of the Audit and Remuneration Committees, and for being a member of the Audit and Remuneration
Committees. Fees will be delivered partly in cash and partly in RB shares to be held until retirement from the Company.
SERVICE CONTRACTS AND EXIT PAYMENT POLICY
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee. In accordance with
general market practice, each of the Executive Directors has a rolling service contract which is terminable on twelve months’ notice and this practice will
also apply for any new Executive Directors. In such an event, the compensation commitments in respect of their contracts could amount to one year’s
remuneration based on base salary, benefits in kind and pension rights during the notice period. Termination payments may take the form of payments
in lieu of notice. Copies of Executive Director service contracts are available to view at the Company’s registered office.
The Company’s policy on any termination payments is to consider the circumstances on a case-by-case basis, taking into account the relevant
contractual terms in the executive’s service contract and the circumstances of the termination. The table below summarises how awards under the
annual bonus and LTIP are typically treated in specific circumstances, with the final treatment remaining subject to the Committee’s discretion as
provided under the rules of the plan:
Reason for cessation
Timing of vesting/payment
Calculation of vesting/payment
Annual Bonus
Voluntary resignation or
termination with ‘cause’
Not applicable
No bonus to be paid for the financial year.
All other circumstances
At the end of the financial year
Bonuses will be paid only to the extent that
objectives set at the beginning of the plan year
have been met. Any such bonus will be paid on
a pro rata basis up to the termination date.
LTIP
Voluntary resignation or
termination with ‘cause’
Ill-health, injury, permanent
disability, retirement with the
agreement of the Company,
redundancy or any other
reason that the Committee
determines in its
absolute discretion
Not applicable
Unvested awards lapse.
After the end of the financial year in which the cessation of
employment occurs; or at the discretion of the Committee,
after the end of the relevant performance period.
Death
As soon as possible after date of death
Change of control
On change of control
The Committee determines whether and to
what extent outstanding awards vest based
on the extent to which performance conditions
have been achieved (either to the end of the
financial year in which cessation of employment
occurs, or over the full performance period)
and the proportion of the performance
period worked.
The Committee may disapply performance
conditions but will reduce awards to reflect the
proportion of the performance period worked.
Awards will vest to the extent that any
performance conditions have been satisfied
(unless the Committee determines that the
performance conditions should not apply).
Awards will also be reduced pro rata to
take into account the proportion of the
performance period not completed, unless
the Committee decides otherwise.
Awards may alternatively be exchanged
for new equivalent awards in the acquirer,
where appropriate.
39
RB Annual Report 2013 Governance & Remuneration Directors’ Remuneration Report
EXTERNAL APPOINTMENTS
With the approval of the Board of Directors in each case, and subject to the overriding requirements of the Company, Executive Directors may accept
one external appointment as a Non-Executive Director of another company and retain any fees received. Details of external appointments and the
associated fees received are included in the Annual Report on Remuneration.
CONSIDERATION OF CONDITIONS ELSEWHERE IN THE COMPANY
The Committee does not consult with employees specifically on Executive Remuneration Policy. However, the Company seeks to promote and maintain
good relations with employee representative bodies – including trade unions and works councils – as part of its employee engagement strategy, and
consults on matters affecting employees and business performance as required in each case by law and regulation in the jurisdictions in which the
Company operates. Although the Company does not consult employees on executive remuneration, the Committee is mindful of the salary increases
applying across the rest of the business in relevant markets when considering salaries for Executive Directors.
CONSIDERATION OF SHAREHOLDER VIEWS
The Committee considers Shareholder views received during the year and at the Annual General Meeting each year, as well as guidance from Shareholder
representative bodies more broadly, in shaping Remuneration Policy. The Committee Chairman speaks with a number of the Company’s largest Shareholders
on the subject of executive remuneration at least on an annual basis. The majority of Shareholders are supportive of the Company’s philosophy and
policy on remuneration, and the Committee will continue to keep its Remuneration Policy under regular review, to ensure it continues to reinforce the
Company’s long-term strategy and aligns closely with Shareholders’ interests. The Committee will continue to consult our major Shareholders before
making any significant changes to our Remuneration Policy.
Annual Report on Remuneration
The following section provides details of how our Remuneration Policy was implemented during the year ended 31 December 2013.
REMUNERATION COMMITTEE MEMBERSHIP IN 2013
As of 31 December 2013, the Remuneration Committee comprised three Non-Executive Directors.
• Judith Sprieser (Chairman)
• Richard Cousins
• Adrian Bellamy
Graham Mackay was also a member of the Remuneration Committee until 12 June 2013 when he retired from the Board. As at 31 December 2013,
Judith Sprieser has served ten years on the Board of Directors. Nonetheless, pursuant to Code provision B.1.1, the Board of Directors has determined
that, in its opinion, Judith Sprieser remains independent. Richard Cousins is considered independent under the Code. Adrian Bellamy, Chairman of the
Company, was independent on appointment but has served on the Board of Directors for more than nine years.
The Committee’s purpose is to assist the Board of Directors 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, and subject to approval by, the Board of Directors, 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;
• 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 of Directors and the CEO are responsible for evaluating and making recommendations to the Board of Directors 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.
The Remuneration Committee held four scheduled meetings and one additional meeting during the year and details of members’ attendance at
meetings are provided in the Corporate Governance section on page 26.
ADVISERS
Kepler Associates (‘Kepler’) was originally appointed by the Committee as independent advisor in mid-2012 following a competitive tender process,
and was retained during 2013. The Committee undertakes due diligence periodically to ensure that Kepler remains independent of the Company and
that the advice provided is impartial and objective. Kepler is a founding member and signatory of the Code of Conduct for Remuneration Consultants,
details of which can be found at www.remunerationconsultantsgroup.com. During 2013, Kepler provided support to the Committee in relation to short
and long-term incentive design, benchmarking executive remuneration structure and levels, and the consultation of Shareholders on remuneration
matters. Kepler Associates does not advise the Company on any other matters. Their total fees for the provision of remuneration services to the
Committee in 2013 were £215,935 on the basis of time and materials.
40
RB Annual Report 2013
Governance & Remuneration Directors’ Remuneration Report
SUMMARY OF SHAREHOLDER VOTING AT THE 2013 AGM
The following table shows the results of the advisory vote on the 2012 Remuneration Report at the 2013 AGM:
For (including discretionary)
Against
Total votes cast (excluding withheld votes)
Votes withheld
Total votes cast (including withheld votes)
Total number of votes
% of votes cast
421,057,300
93,881,447
514,938,747
11,173,126
526,111,873
81.77%
18.23%
100.0%
Whilst the level of support for the Remuneration Report was broadly similar to that received at the 2012 AGM (84%), the Committee recognises that
there remain a number of areas of concern for Shareholders, including incentive award opportunities and the use of a single long-term performance
measure (EPS growth). The Committee believes the existing incentive arrangements are simple, reinforce our remuneration principles and align
Executives closely with the interests of our Shareholders. In addition, the requirement for Senior Executives to build up significant shareholdings in the
Company further supports our policy of executive alignment with Shareholders’ interests. The Committee regularly reviews the incentive arrangements
for Executive Directors and, taking into account the feedback received from our Shareholders, decided to make a number of changes to LTIP awards
that were granted in December 2013, including a reduction in the threshold vesting level and an extension to the EPS performance range as explained
in the Remuneration Committee Chairman’s letter.
Single Total Figure of Remuneration for Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended 31 December 2013 and the
prior year. The values of each element of remuneration are based on the actual value delivered, where known. For the year ended 31 December 2012,
the LTIP value has been restated to reflect the actual value of LTIP awards that vested on 2 May 2013 (at a share price of £46.77, rather than the
estimated value based on £37.99, being the three-month average share price to 31 December 2012):
Rakesh Kapoor
Adrian Hennah1
Liz Doherty2
2013
£
2012
£
2013
£
2012
£
2013
£
2012
£
Base salary
Taxable benefits3
Annual bonus4
LTIP
Pension benefit6
Other
Total
31,000
38,585
832,000 800,000 550,000
20,992
3,564,288 1,814,000 1,767,150
2,010,2405 5,527,800
–
247,200 238,000 135,500
– 1,395,7507
–
–
–
–
–
–
–
4,044
90,100 428,000
24,000
78,153 729,000
–
73,000
–
–
12,500
–
6,692,313 8,410,800 3,869,392
– 184,797 1,254,000
1 Adrian Hennah joined the Board of Directors as CFO on 12 February 2013. However he was employed by the Company from 1 January 2013 and the
figures above represent all payments from the commencement of his employment. During 2013, Adrian Hennah served as a Non-Executive Director
of Reed Elsevier PLC, for which he retained fees of £65,000. These fees are excluded from the table above.
2 Liz Doherty stepped down from the Board of Directors on 12 February 2013 but was maintained in employment with the Company until
15 March 2013. The figures above represent all payments until the cessation of her employment. Details of payments made on cessation of
employment are provided on page 44.
3 Taxable benefits consist primarily of company car or car allowance, health care and home leave.
4 Cash payment for performance during the year. See ‘Annual Bonus in respect of 2013 performance’ on page 42 for details.
5 Reflects the estimated value of LTIP shares and options granted in December 2010 which are due to vest on 7 May 2014 at 40%. These have been
valued using an average share price over Q4 of £46.88. See the relevant sections on pages 42 for further details.
6 During the year Rakesh Kapoor participated in the RB Executive Pension Plan, a defined contribution scheme, in relation to which the Company
contributed £50,000 in the year (2012: £50,000 for Rakesh Kapoor and Liz Doherty). The Company also paid Executive Directors a cash allowance
which amounted to £197,200 and £135,500 for Rakesh Kapoor and Adrian Hennah, respectively. In combination these payments reflect the full
pension provision outlined in the policy table (2012: £188,000 for Rakesh Kapoor and £23,000 for Liz Doherty).
7 Includes a sign-on award of £200,000, paid on appointment, partially to replace the value of deferred bonus awards at his previous employer. Value
also includes a cash lump sum equal in value to 25,000 RB shares of £1,195,750, the net amount of which has been used to purchase shares which
are retained as part of the Executive share ownership obligation.
41
RB Annual Report 2013
Governance & Remuneration Directors’ Remuneration Report
INCENTIVE OUTCOMES FOR THE YEAR ENDED 31 DECEMBER 2013 (AUDITED)
Annual Bonus in Respect of 2013 Performance
The performance measures attached to the 2013 annual cash bonus plan were net revenue and net income growth. As in 2012, target performance
was calibrated to deliver a bonus of 120% and 90% of salary for the CEO and CFO respectively, with bonus payments worth up to 3.57x these target
amounts (equivalent to 428% of salary for the CEO and 321% of salary for the CFO) available for truly exceptional performance. Performance under
each of the measures is combined multiplicatively such that Threshold performance would deliver zero bonus whilst Stretch performance would deliver
3.57x target bonus.
The net revenue and net income targets set at the start of the year (not disclosed as we consider them to be commercially sensitive) took into account
the fact that generics for Suboxone tablets entered the US market in late February 2013, and were anticipated to have a material impact on the revenue
and profitability of the RB Pharmaceuticals business. Despite the challenges faced within RB Pharmaceuticals, the Group has delivered exceptional
performance, by continuing to grow the core business and maintaining market share within RB Pharmaceuticals.
• Excluding RB Pharmaceuticals, net revenues have increased 7% based on a constant exchange rate and 5% on a like-for-like basis. These are well
above the general market growth rates. This growth has been led by our new strategy to drive health and hygiene Powerbrands together with our
focus on 16 Powermarkets.
• Excluding RB Pharmaceuticals, adjusted operating profit has also increased by 7% based on a constant exchange rate, with margins increasing to
23.6%, exceeding targets.
• Our volume film market share for total buprenorphine prescriptions in the US has been maintained at 68% since the launch of generic tablets which
demonstrates an outstanding performance despite huge challenges being faced in this area.
• Excellent progress has been made with our acquired businesses. The effective ongoing integration of Schiff and effective collaboration agreements
with BMS and Guilong has proven again RB’s strength to acquire high quality businesses and delivering superior shareholder value.
• We have also delivered a significant gross margin expansion of +150 bps and net working capital improvements of £163m to minus £863m.
• This strong performance has resulted in a dividend payment which is 2% above that delivered last year.
Based on performance measures against the targets, but also supported by the overall financial results outlined above, the Committee has decided to
make an annual bonus award of 428% of base salary to the CEO and 321% of base salary to the CFO, equivalent to 3.57x target bonus.
CEO’s 2011 LTIP
LTIP awards for 2011 were dependent on compound average annual growth (CAAG) in adjusted EPS over the three-year period ending on 31 December
2013. The threshold target for awards was growth of 6% p.a., with awards vesting in full for growth of 9% p.a. The threshold performance target was
achieved and the CEO’s LTIP award (granted to him when he was EVP, Category Development) may vest to the following extent in May 2014 for
performance over the completed three-year period:
Awards
Shares
Options
Interests
held
60,000
180,000
Exercise
price
n/a
£34.64
Vesting
%
40%
Interests
vesting
24,000
72,000
Date
vesting
Assumed
market price
7 May 2014
7 May 2014
£46.88
Estimated
value
£1,125,120
£881,280
The value disclosed above and in the single total figure of remuneration table on page 41 captures the full number of interests vesting. As the market
price on the date of vesting is unknown at the time of reporting, the value is estimated using the average market value over the last quarter of 2013
of £46.88. The actual value at vesting will be trued-up in the 2014 Annual Report on Remuneration.
Former CFO’s LTIP awards
In line with the LTIP rules, Liz Doherty’s outstanding LTIP share awards and option grants did not lapse on cessation of employment, but were prorated
for the time elapsed from the start of each respective performance period to cessation of employment. Performance was tested over the performance
period to 31 December 2013 to determine the vesting outcome for each time prorated award (which is due to vest in May 2014), as follows:
Awards
Shares
Shares
Options
Date of
grant
9 February 2011
5 December 2011
5 December 2011
Interest
granted
10,000
45,000
90,000
Exercise
price
Time
prorated interest1
Vesting
%
Interests
vesting
Assumed
market price
n/a
n/a
£32.09
7,372
18,173
36,346
40%
0%
0%
2,949
0
0
£46.88
Estimated
value
£138,249
£0
£0
1 Reflects the number of weeks elapsed from the start of the performance period (1 January) to cessation of employment (15 March 2013).
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)
The following Non-Executive Director fee policy was in place for the year ended 31 December 2013:
Role
Chairman
Deputy Chairman
Non-Executive Director
Chairman of Audit Committee
Chairman of Remuneration Committee
Member of Audit Committee
Member of Remuneration Committee
Senior Independent Director
42
Cash fee
£308,000
£82,000
£70,000
£30,000
£30,000
£15,000
£15,000
£12,000
Fee delivered
in RB shares
£67,000
£18,000
£15,000
–
–
–
–
–
RB Annual Report 2013
Governance & Remuneration Directors’ Remuneration Report
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (CONTINUED)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended 31 December 2013 and
the prior year:
2013 fees £
2012 fees £
Adrian Bellamy
Richard Cousins
Peter Harf
Kenneth Hydon
André Lacroix1
Judith Sprieser
Warren Tucker
Graham Mackay2
Nicandro Durante3
Base fee
Cash
Shares
Committee
fees
2013
Total
Base fee
Cash
Shares
Committee
fees
2012
Total
308,000
70,000
82,000
70,000
70,000
70,000
70,000
35,000
7,083
67,000
15,000
18,000
15,000
15,000
15,000
15,000
15,000
–
– 375,000 283,000
61,500
65,500
61,500
61,500
61,500
61,500
61,500
–
15,000 100,000
15,000 115,000
30,000 115,000
21,000 106,000
30,000 115,000
15,000 100,000
63,500
13,500
7,083
–
62,000
13,500
14,500
13,500
13,500
13,500
13,500
13,500
–
– 345,000
85,000
90,000
95,000
85,000
95,000
85,000
92,000
–
10,000
10,000
20,000
10,000
20,000
10,000
17,000
–
1 André Lacroix was appointed as Senior Independent Director with effect from 12 June 2013.
2 The fees paid to Graham Mackay for 2013 relate to the period 1 January 2013 to 12 June 2013 when he stepped down from the Board of Directors.
3 Nicandro Durante was appointed a Non-Executive Director with effect from 1 December 2013.
SCHEME INTERESTS AWARDED IN 2013 (AUDITED)
LTIP
In December 2013, Executive Directors were granted the following awards under the LTIP, based on a fixed number of shares and share options:
Performance shares
Rakesh Kapoor
Adrian Hennah
Share options
Rakesh Kapoor
Adrian Hennah
Date of grant
11 December 2013
Shares
over which
awards
granted
240,000
45,000
400,000
Market
price
at date
of award1
Exercise
price2
Face
value3
Performance
period
Exercise/
vesting period
£46.69
n/a
£11,205,600
£2,101,050
£18,676,000
1 Jan 14 –
31 Dec 16
May 17
1 Jan 14 –
31 Dec 16
May 17 –
Dec 23
11 December 2013
£46.69
£47.83
90,000
£4,202,100
1 The market price on the date of award is the closing share price on the date of grant.
2 The exercise price is based on the average closing share price over the five business days prior to the date of grant.
3 Based on the market price at the date of award.
Consistent with awards made since December 2008, vesting of the LTIP awards is dependent on the achievement of targets relating to compound
average annual growth (CAAG) in EPS over a three-year period. EPS is measured on an adjusted diluted basis, as shown in the Group’s financial
statements, as this provides an independently verifiable measure of performance. However the Remuneration Committee maintains the discretion to
make adjustments to the measure if this is considered to be appropriate. Any adjustments will be disclosed in the Annual Report on Remuneration.
There is no retesting. Awards granted in December 2013 will vest on the following, revised schedule:
EPS CAAG
Proportion of awards vesting (%)
<6%
Nil
6%
20%
Between 6% and 10%
Straight-line vesting between 20% and 100%
>10%
100%
In addition to the above awards and as disclosed in the 2012 Directors’ Remuneration Report, following his appointment as CFO in February 2013,
Adrian Hennah was granted the following awards under the LTIP, based on a fixed number of shares and share options in the form of performance
shares and share options:
Date of grant
Shares over
which awards
granted
Market price at
date of award1
Exercise
price2
Face
value3
Performance
period
Exercise/
vesting period
Performance shares
Adrian Hennah
Share options
Adrian Hennah
13 February 2013
45,000
£44.19
n/a
£1,988,550
13 February 2013
90,000
£44.19
£42.61
£3,977,100
1 Jan 13 –
31 Dec 15
May 16
1 Jan 13 –
31 Dec 15
May 16 –
Feb 23
1 The market price on the date of award is the closing share price on the date of grant.
2 The exercise price is based on the average closing share price over the five business days prior to the date of grant.
3 Based on the market price at the date of award.
43
RB Annual Report 2013
Governance & Remuneration Directors’ Remuneration Report
Vesting of Adrian Hennah’s LTIP awards is dependent on the achievement of targets relating to compound average annual growth (CAAG) in EPS over
a three-year period, as summarised in the table below. There is no retesting.
EPS CAAG
Proportion of awards vesting (%)
<6%
6%
7%
8%
>9%
Nil
40%
60%
80%
100%
Additionally, to reflect forfeited long-term incentive awards in relation to his previous employment, in December 2013 Adrian Hennah received, and in
December 2014 will receive (subject to continued employment at each relevant award date), a cash lump sum equal in value to 25,000 RB shares, based
on the option price for the annual LTI grant made in each relevant December.
In relation to this arrangement Adrian Hennah was awarded a cash sum of £1,195,750 equating to 25,000 RB shares at the option price for the annual
LTI grant made on 11 December 2013. Following deductions for tax, Adrian Hennah used the net proceeds to purchase 13,629 RB shares which will be
retained under his share ownership obligation.
PERCENTAGE CHANGE IN CEO REMUNERATION
The table below shows the percentage change in CEO remuneration from the prior year compared to the average percentage change in remuneration
for all UK employees who form part of the senior management team (Top400). This group has been chosen as it represents the most appropriate
comparator group for reward purposes for our UK-based Group Chief Executive.
The analysis excludes part-time employees and is based on a consistent set of employees, i.e. the same individuals appear in the 2012 and
2013 populations.
Base salary
Taxable benefits
Annual bonus
CEO
% change 2012-2013
Other employees
% change 2012-2013
4%
24%
96%
3%
0%
51%
The difference in the percentage change of the annual bonus for the CEO and other employees is primarily a result of the fact that different targets are
set for different areas of the business which are subject to different challenges.
The percentage change in taxable benefits for other employees excludes international transfer benefits as this is volatile from year to year based on each
individuals circumstance.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows Shareholder distributions (i.e. dividends and share buy backs) and total employee pay expenditure for FY 2012 and FY 2013,
along with the percentage change in both.
Shareholder distributions (dividends and share buy backs)
Total employee expenditure
2013
£m
1,271
1,329
2012
£m
1,451
1,220
% change
2012-2013
-12.4%
8.9%
EXIT PAYMENTS MADE IN THE YEAR (AUDITED)
As outlined in last year’s Remuneration Report, Liz Doherty received a lump-sum termination payment which reflected historical contractual terms and
company policy in April 2013 totalling £705,392. As disclosed last year, the Committee has updated the termination provisions for the CEO and the
new CFO so that they are aligned with best practice and limited to 12 months base salary.
The payment to Liz Doherty consisted of a severance payment of £203,490 and a contractual payment in respect of one-half of annual base salary
(£214,200) and a payment in respect of one-half of the average APP payout for the previous two years (£287,702).
Unvested share and option awards held by Liz Doherty at the time of her ceasing to be employed by RB will vest in May 2014 based on performance to
31 December 2013, in accordance with the LTIP rules. The awards were also reduced pro rata to reflect the proportion of the performance period not
completed at the point of cessation of employment. The value of these LTIP awards is £138,249.
PAYMENTS TO PAST DIRECTORS (AUDITED)
No payments were made to past Directors in the year.
REVIEW OF PAST PERFORMANCE
The graph below shows the TSR of the Company and the UK FTSE 100 Index over the five-year period from 1 January 2009 to 31 December 2013.
The index was selected on the basis of companies of a comparable size in the absence of an appropriate industry peer group in the UK. The table below
details the Chief Executive’s single figure of remuneration over the same period.
Historical TSR Performance
Historical TSR performance
Growth in the value of a hypothetical holding over the five years to 31 December 2013.
Growth in the value of a hypothetical holding over the 5 years
to 31 December 2013
£ Value of £100 invested at 31 December 2008
Reckitt Benckiser
FTSE 100
225
200
175
150
125
100
75
DEC 08
DEC 09
DEC 10
DEC 11
DEC 12
DEC 13
FTSE 100 comparison
US Peer group comparison
44
£
200
175
150
125
100
75
50
DEC 07
DEC 08
DEC 09
DEC 10
DEC 11
DEC 12
RB Annual Report 2013
Governance & Remuneration Directors’ Remuneration Report
CEO single figure of remuneration (£000)
Rakesh Kapoor
Bart Becht
STI award against maximum opportunity
LTI award against maximum opportunity
2009
2010
2011
2012
2013
£4,497
£28,881 £17,150 £18,076
31%
100%
100%
100%
76%
100%
£8,411
£6,692
53%
100%
100%
40%
IMPLEMENTATION OF EXECUTIVE DIRECTOR REMUNERATION POLICY FOR 2014
Base Salary
Base salaries are reviewed taking into account competitive practice for similar roles in the Company’s remuneration peer group, comprising 19 international
companies and individual performance. Following its review of salary levels in late 2013, the Committee approved the following base salary increases
with effect from 1 January 2014:
Executive Director
Rakesh Kapoor
Adrian Hennah
Base salary at
1 January 2013
£832,000
£550,000
Base salary from
1 January 2014
£865,000
£561,000
Percentage
increase
4%
2%
The base salary increases for Executive Directors takes into account performance and follows the same base salary merit increase guidelines as other
UK employees. The average salary increase was c.3%, effective 1 January 2014.
Pension
The CEO and CFO continue to receive pension contributions (or equivalent cash allowances) of 30% and 25% of salary, respectively.
Performance Related Annual Bonus
For 2014, there will be no changes to the annual bonus opportunities for Executive Directors. Bonuses will continue to be based on RB’s absolute net
revenue growth (in Sterling at a constant exchange rate) and absolute net income growth (in Sterling at constant exchange rate), with the outcome
under each of the measures combined multiplicatively to give a bonus outcome of 3.57x the target bonus opportunity if both Stretch targets are met.
Following the announcement of the strategic review of RB Pharmaceuticals, for 2014, 90% of the bonus opportunity will be based on the performance
of the base business (excluding RB Pharmaceuticals) and 10% of the bonus opportunity based on the performance of RB Pharmaceuticals.
We have not disclosed the performance targets for 2014 as we consider them to be commercially sensitive. However, we commit to disclosing the
targets retrospectively in the directors remuneration report for the year ending December 2015.
LTIP
LTIP awards for FY 2014 were granted in December 2013. Details of these awards are summarised on page 43. Awards to be made in December 2014
will be disclosed in the Annual Report of Remuneration in next year’s Remuneration Report.
IMPLEMENTATION OF NON-EXECUTIVE DIRECTOR REMUNERATION POLICY FOR 2014
Chairman and Non-Executive Director Fees
With effect from 1 January 2013, the fee payable to the Chairman of the Board of Directors is £375,000 per annum and the basic fee payable to
each Non-Executive is £85,000 per annum, of which £67,000 and £15,000 is paid in the form of RB shares respectively. The additional fee payable for
chairing either of the Audit and Remuneration Committees is £30,000 per annum, and for acting as the Senior Independent Director is £12,000 per
annum. The Deputy Chairman receives an additional fee of £15,000 of which £3,000 is delivered in RB shares.
Chairman and Non-Executive Director fee levels will next be reviewed in 2014, with any changes effective from 1 January 2015.
Executive Directors’ Shareholding Requirements (audited)
The table below shows the shareholding of each Executive Director against their respective shareholding requirement as at 31 December 2013:
Shares held
Options held
Owned Performance
tested but
unvested
(B)
outright or
vested
(A)
Vested Performance
but not
exercised
(C)
tested but Shareholding
guideline
# shares
unvested
(D)
Rakesh Kapoor
Adrian Hennah
317,537 700,000 360,000 1,380,000 600,000
– 180,000 200,000
13,629
90,000
Rakesh Kapoor has exceeded his prorated target based on tenure to date and Adrian Hennah has made good progress towards his target during his
first year as an Executive Director to the satisfaction of the Committee. Due to the levels of shareholdings of the current executive directors, LTIP awards
that vest over the next three to five years will be required to be held until the director reaches their share ownership guideline. Indeed, we require
directors to build up their share ownership guideline over eight years in equal instalments. This results in Directors having to buy shares from their own
resources. The Committee also intends to consider during the year the extent to which Executives may be required to hold shares following their
departure from the Board. Details of the scheme interests contained in columns B-D are provided in the table overleaf.
45
RB Annual Report 2013
Governance & Remuneration Directors’ Remuneration Report
DIRECTORS’ INTERESTS IN SHARES AND OPTIONS UNDER THE LTIP (AUDITED)
LTIP
Liz Doherty*
Options
Performance-based
restricted shares
Adrian Hennah
Options
Performance-based
restricted shares
Rakesh Kapoor
Options
Performance-based
restricted shares
Notes
Grant date
At
1.1.13
Granted
during
the year
Exercised/
vested
during
the year
At
31.12.13
or date of
cessation
Option
price £
Market
price at
date of
award
£
Market
price at
date of
exercise/
vesting £
1
1
1
1
1
1
1
2
2
1
1
1
3
1
1
1
1
3
5.12.11
90,000
9.2.11
5.12.11
10,000
45,000
–
–
–
13.2.13
11.12.13
13.2.13
11.12.13
–
–
–
–
90,000
90,000
45,000
45,000
–
90,000
32.09
–
–
–
–
–
10,000
45,000
32.70
32.19
90,000
90,000
42.61
47.83
45,000
45,000
44.19
46.69
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
11.12.13
400,000
120,000
–
180,000
180,000
180,000
400,000
400,000
400,000
45.90
29.44
27.29
31.65
34.64
32.09
39.14
47.83
60,000
7.12.09
1.12.10
60,000
5.12.11 200,000
3.12.12 200,000
11.12.13
240,000
60,000
60,000
200,000
200,000
240,000
46.77
31.80
34.08
32.19
39.66
46.69
Exercise/
vesting period
May 14
May 14
May 14
May 16–Feb 23
May 17–Dec 23
May 16
May 17
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 17–Dec 23
May 13
May 14
May 15
May 16
May 17
Exercise
period
Sharesave Scheme
Rakesh Kapoor
Adrian Hennah
At
1.1.13
796
Grant date
8.9.08
4.9.13
Granted
during
the year
Exercised
during
the year
Lapsed
during
the year
At
31.12.13
Option
price
(£)
Market
price at
exercise (£)
796
21.92
Feb 16–July 16
403
403
37.20
Feb 19–July 19
Notes
1 Vesting of LTIP is subject to the achievement of the following compound average annual growth (CAAG) in adjusted EPS over a three-year period:
EPS CAAG for awards granted in December 07-12
Proportion of awards vesting (%)
2 Options which are vested but unexercised.
<6%
Nil
6%
40%
7%
60%
8%
80%
>9%
100%
3 Vesting of LTIP is subject to the achievement of the following compound average annual growth (CAAG) in adjusted EPS over a three-year period:
EPS CAAG for awards granted in December 13
Proportion of awards vesting (%)
<6%
Nil
6%
20%
7%
40%
8%
60%
9%
80%
>10%
100%
* Details of Liz Doherty outstanding share LTIP share awards and option grants including vesting % and prorated awards based on cessation of
employment are included on page 42 (former CFO’s LTIP awards).
46
RB Annual Report 2013
Financial Statements Independent Auditors’ Report
Independent Auditors’ Report to the
Members of Reckitt Benckiser Group plc
Report on the Group Financial
Statements
Our Opinion
In our opinion the Group financial statements
defined below:
• Give a true and fair view of the state of the
Group’s affairs as at 31 December 2013 and
of the Group’s profit and cash flows for the
year then ended;
• Have been properly prepared in accordance
with International Financial Reporting
Standards (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 IAS Regulation.
This opinion is to be read in the context of
what we say in the remainder of this report.
Separate Opinion in Relation to IFRSs as
Issued by the IASB
As explained in note 1 to the financial
statements, the Group, in addition to applying
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.
What we have Audited
The Group financial statements, which are
prepared by Reckitt Benckiser Group plc,
comprise:
• The Group balance sheet as at 31 December
2013;
• The Group income statement and statement
of comprehensive income for the year
then ended;
• The Group statement of changes in equity
and cash flow statement for the year then
ended; and
• The notes to the Group financial
statements, which include a summary of
significant accounting policies and other
explanatory information.
The financial reporting framework that has
been applied in their preparation comprises
applicable law and IFRSs as adopted by the
European Union.
Certain disclosures required by the financial
reporting framework have been presented
elsewhere in the Annual Report and Financial
Statements (the ‘Annual Report’), rather than in
the notes to the financial statements. These are
cross-referenced from the financial statements
and are identified as audited.
What an Audit of Financial Statements
Involves
We conducted our audit in accordance with
International Standards on Auditing (UK and
Ireland) (‘ISAs (UK & Ireland)’). 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 Group financial statements and to
identify any information that is apparently
materially incorrect based on, or materially
inconsistent with, the knowledge acquired by
us in the course of performing the audit. If
we become aware of any apparent material
misstatements or inconsistencies we consider
the implications for our report.
Overview of our Audit Approach
Materiality
We set certain thresholds for materiality. These
helped us to determine the nature, timing and
extent of our audit procedures and to evaluate
the effect of misstatements both individually
and on the financial statements as a whole.
Based on our professional judgement, we
determined materiality for the Group financial
statements as a whole to be £128m. This is
calculated as being 5% of profit before tax
adjusted for exceptional items.
We agreed with the Audit Committee that
we would report to them misstatements
identified during our audit above £6m as
well as misstatements below that amount
that, in our view, warranted reporting for
qualitative reasons.
Overview of the Scope of our Audit
The Group is primarily structured along
three geographic regions being LAPAC (Latin
America, North Asia, South East Asia, Australia
and New Zealand), RUMEA (Russia and the
CIS, Middle East, North Africa, Turkey and
sub-Saharan Africa), ENA (Europe and North
America) with separate segments for the Food
and RB Pharmaceuticals businesses. The Group
financial statements are a consolidation of
reporting units, comprising the Group’s
operating businesses in these regions and
centralised functions.
In establishing the overall approach to the
Group audit, we determined the type of work
that needed to be performed at reporting units
by us, as the Group engagement team, or
component auditors within PwC UK and from
other PwC network firms operating under our
instruction. Where work was performed by
component auditors, we determined the level
of involvement we needed to have in the audit
work at those reporting units to be able to
conclude whether sufficient appropriate audit
evidence had been obtained as a basis for our
opinion on the Group financial statements as
a whole.
Accordingly, we identified 58 reporting units
out of the Group’s 699 reporting units which,
in our view, required an audit of their complete
financial information, either due to their size
or their risk characteristics. These 58 reporting
units accounted for 74% of the Group’s profit
before tax and 75% of the Group’s revenue.
Our audit work at these reporting units,
together with additional procedures performed
at the Group level, gave us the evidence we
needed for our opinions on the Group financial
statements as a whole.
Areas of Particular Audit Focus
In preparing the financial statements,
the Directors made a number of subjective
judgements, for example in respect of
significant accounting estimates that involved
making assumptions and that consider future
events that are inherently uncertain. We
primarily focused our work in these areas
by assessing the Directors’ judgements
against available evidence, forming our own
independent judgements, and evaluating the
disclosures in the financial statements.
In our audit, we tested and examined
information, using sampling and other auditing
techniques, to the extent we considered
necessary to provide a reasonable basis for
us to draw conclusions. We obtained audit
evidence through testing the effectiveness
of controls, substantive procedures or a
combination of both.
We considered the following areas to be
those that required particular focus in the
current year. This is not a complete list of all
risks or areas of focus identified by our audit.
We discussed these areas of focus with the
Audit Committee. Their report on those matters
that they considered to be significant issues in
relation to the financial statements is set out
on page 31.
47
RB Annual Report 2013 Financial Statements Independent Auditors’ Report
Area of focus
How the scope of our audit addressed the area of focus
Trade Spend Accruals
The business enters into a number of sales agreements with
customers that have a wide range of terms (promotions, rebates
& discounts). Estimates of the trade obligations in connection
with these agreements (trade spend accruals) are material to the
balance sheet.
We focused on this area because of the high level of judgement
required in accounting for trade spend due to varying contractual
terms and the fact that elements of the calculation are subjective
and may not be finalised until after the year end. Accordingly the
focus of our work includes the completeness and valuation of
the estimates.
Provision for Uncertain Tax Exposures
The Group has material tax exposures relating to potential or existing
challenges by tax authorities in a number of territories around the
world. These arise for a number of reasons including transactions
undertaken where the applicable tax treatment is uncertain or
judgemental or due to transfer pricing arrangements arising from
centralised functions.
We focused on this area because of the level of judgement required
to be applied by management in quantifying appropriate provisions
against these exposures. Changes in assumptions could materially
impact the amounts recorded in the financial statements.
Acquisition of BMS Collaboration Agreement
We focused on this area because it was a complex transaction which
required the Directors to exercise a significant level of judgement,
particularly around the valuation of the assets and liabilities acquired
and the timing of their recognition.
(Refer also to note 26 to the financial statements.)
We agreed trade spend terms to underlying customer contracts and assessed
whether estimates of trade spend were consistent with the terms set out in
the contracts. We evaluated movements in trade spend estimates based on
the accuracy of historic estimates, as well as against expectations derived from
underlying contracts, to ascertain whether current year accruals were in line
with the obligations. We also compared historical accuracy of prior year trade
spend accruals to the actual liabilities incurred. In addition we tested a
number of controls relating to trade spend accruals, covering items such as
the segregation of duties over the creation and approval of the accruals and
both the review and resolution of variations between expected and actual
trade spend deductions awarded.
We obtained a detailed understanding of the Group’s tax strategy and
assessed key technical tax issues and risks related to business and legislative
developments. We obtained explanations and evidence from management
regarding the tax treatments applied to material transactions and an
understanding of the transfer pricing policy within the Group. We challenged
the key assumptions, particularly in relation to significant transactions
undertaken in the period and where there have been significant
developments in communications with local tax authorities, as well as
undertaking a critical assessment of evidence that supports any provisions.
We evaluated the Directors’ assessment of this transaction as a business
combination and discussed the rationale for the accounting principles applied
around the timing of recognition of certain assets and liabilities. We obtained
management’s valuations of the acquired assets and liabilities and evaluated
these by comparing management’s cash flow forecasts to Board approved
plans. In addition we challenged the assumptions supporting the acquisition
synergies and tax benefits by comparing these to supporting third party
market data, as well as comparing forecasts to historic performance.
We performed sensitivity analysis over key drivers within the cash flow
forecasts, including revenue, operating profit and estimated synergies, as
well as the key assumptions around discount and growth rates. We then
considered the likelihood of such movement in these key assumptions arising
in assessing the appropriateness of the overall valuations.
Risk of Fraud in Revenue Recognition
ISAs (UK & Ireland) require us to consider the risk of fraud in
revenue recognition.
As a consumer goods group a large number of sales agreements are
entered into with customers with a wide range of terms covering
promotions, rebates and discounts which increases complexity. In
addition, current economic conditions in certain territories can place
increased pressure on management to meet performance targets.
Accordingly there is a risk that revenue could be misstated.
We focused our procedures on the occurrence of transactions and whether
they were recorded in the period in which the Group became entitled to
record revenue. We performed a combination of testing internal controls
around revenue recognition and substantive testing of revenue recorded
during the year using data analysis and sampling techniques. We tested sales
transactions and credit notes raised around the year end and also reviewed
significant customer contracts, in order to assess whether the conditions for
revenue had been met. We also tested manual journals posted to record
revenue to determine whether those postings were consistent with the
Group’s revenue recognition policy.
Risk of Management Override of Internal Controls
ISAs (UK & Ireland) require that we consider this.
We assessed the overall control environment of the Group, including the
‘whistle-blowing’ arrangements. We interviewed senior management and the
Group’s internal audit function and specifically asked for their views on fraud
and instances of fraud noted during the year. We examined the significant
accounting estimates and judgements relevant to the financial statements
for evidence of bias by the Directors that may represent a risk of material
misstatement due to fraud. We also tested manual journal entries and
incorporated an element of unpredictability in the timing of our work
and samples in our testing plans.
48
RB Annual Report 2013
Financial Statements Independent Auditors’ Report
Going Concern
Under the Listing Rules we are required to
review the directors’ statement, set out on
page 33, in relation to going concern. We have
nothing to report having performed our review.
As noted in the directors’ statement the
Directors have concluded that it is appropriate
to prepare the Group’s financial statements
using the going concern basis of accounting.
The going concern basis presumes that the
Group has adequate resources to remain in
operation, and that the Directors intend it to
do so, for at least one year from the date the
financial statements were signed. As part of
our audit we have concluded that the Directors’
use of the going concern basis is appropriate.
However, because not all future events or
conditions can be predicted, these statements
are not a guarantee as to the Group’s ability to
continue as a going concern.
Opinion on Matters Prescribed by
the Companies Act 2006
In our opinion the information given in the
Strategic Report and the Report of the Directors
for the financial year for which the Group
financial statements are prepared is consistent
with the Group financial statements.
Other Matters on which we are
Required to Report by Exception
Adequacy of Information and
Explanations Received
Under the Companies Act 2006 we are
required to report to you if, in our opinion
we have not received all the information and
explanations we require for our audit. We
have no exceptions to report arising from
this responsibility.
Directors’ Remuneration
Under the Companies Act 2006 we are
required to report to you if, in our opinion,
certain disclosures of Directors’ remuneration
specified by law have not been made, and
under the Listing Rules we are required to
review certain elements of the report to
Shareholders by the Board on Directors’
remuneration. We have no exceptions to
report arising from these responsibilities.
Corporate Governance Statement
Under the Listing Rules we are required to
review the part of the Corporate Governance
Statement relating to the Company’s
compliance with nine provisions of the UK
Corporate Governance Code (‘the Code’).
We have nothing to report having performed
our review.
On page 33 of the Annual Report, as required
by the Code Provision C.1.1, the Directors state
that they consider the Annual Report taken as a
whole to be fair, balanced and understandable
and provides the information necessary for
members to assess the Group’s performance,
business model and strategy. On page 31,
as required by C.3.8 of the Code, the Audit
Committee has set out the significant issues
that it considered in relation to the financial
statements, and how they were addressed.
Under ISAs (UK & Ireland) we are required
to report to you if, in our opinion:
• The statement given by the Directors is
materially inconsistent with our knowledge
of the Group acquired in the course of
performing our audit; or
• The section of the Annual Report describing
the work of the Audit Committee does not
appropriately address matters communicated
by us to the Audit Committee.
We have no exceptions to report arising from
this responsibility.
Other Information in the Annual Report
Under ISAs (UK & Ireland), we are required
to report to you if, in our opinion, information
in the Annual Report is:
• Materially inconsistent with the information
in the audited Group financial statements; or
• Apparently materially incorrect based on, or
materially inconsistent with, our knowledge
of the Group acquired in the course of
performing our audit; or
• Is otherwise misleading.
We have no exceptions to report arising from
this responsibility.
Responsibilities for the Financial
Statements and the Audit
Our Responsibilities and those of
the Directors
As explained more fully in the Statement of
Directors’ Responsibilities set out on page 33,
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 ISAs
(UK & 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.
Other Matter
We have reported separately on the
Parent Company Financial Statements of
Reckitt Benckiser Group plc for the year ended
31 December 2013 and on the information
in the Directors’ Remuneration Report that is
described as having been audited.
Mark Gill (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 March 2014
49
RB Annual Report 2013 Financial Statements Group Income Statement & Group Statement of Comprehensive Income
Group Income Statement
For the year ended 31 December
Notes
Net revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Adjusted operating profit
Exceptional items
Operating profit
Finance income
Finance expense
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
2013
£m
10,043
(4,074)
5,969
(3,624)
2,345
2,616
(271)
2,345
25
(56)
(31)
2,314
(574)
1,740
1
1,739
1,740
242.1p
238.5p
Group Statement of Comprehensive Income
For the year ended 31 December
Net income
Other comprehensive (expense) / income
Items that may be reclassified to profit or loss in subsequent years
Net exchange adjustments on foreign currency translation, net of tax
Gains on net investment hedges
Gains on cash flow hedges, net of tax
Reclassification of foreign currency translation reserves on disposal of subsidiary, net of tax
Items that will not be reclassified to profit or loss in subsequent years
Remeasurements of defined benefit pension plans, net of tax
Notes
7
7
7
7
7
Other comprehensive expense, net of tax
Total comprehensive income
Attributable to non-controlling interests
Attributable to owners of the parent
1 Refer to note 1 for further details.
50
2013
£m
1,740
(369)
6
13
–
(350)
41
41
(309)
1,431
1
1,430
1,431
2012
(restated)1
£m
9,567
(4,029)
5,538
(3,096)
2,442
2,577
(135)
2,442
26
(60)
(34)
2,408
(583)
1,825
4
1,821
1,825
251.4p
248.4p
2012
(restated)1
£m
1,825
(255)
–
3
9
(243)
(41)
(41)
(284)
1,541
(1)
1,542
1,541
RB Annual Report 2013
Financial Statements Group Balance Sheet
Group Balance Sheet
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
1 Refer to note 26 for further details.
Notes
9
10
11
14
21
13
12
13
14
14
15
16
17
20
14
16
11
21
17
22
24
24
24
The financial statements on pages 50 to 84 were approved by the Board and signed on its behalf on 7 March 2014 by:
Adrian Bellamy
Director
Rakesh Kapoor
Director
2013
£m
11,141
761
47
–
50
249
12,248
746
1,306
22
17
2
808
2,901
2012
(restated)1
£m
11,162
736
49
2
27
33
12,009
735
1,407
4
20
4
887
3,057
15,149
15,066
(2,169)
(215)
(2,915)
(159)
(203)
(5,661)
(598)
(1,702)
(301)
(156)
(329)
(66)
(3,152)
(8,813)
6,336
74
243
(14,229)
15
(494)
20,725
6,334
2
6,336
(3,271)
(104)
(2,842)
(43)
(203)
(6,463)
(3)
(1,824)
(426)
(100)
(311)
(17)
(2,681)
(9,144)
5,922
73
184
(14,229)
2
(131)
20,022
5,921
1
5,922
51
RB Annual Report 2013
Financial Statements Group Statement of Changes in Equity
Group Statement of Changes in Equity
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
86
(14,229)
(1)
110
19,672
5,711
70
5,781
Share
capital
£m
73
3
3
3
–
2
13
13
13
1,821
1,821
4
1,825
(41)
(41)
3
(41)
3
(250)
(250)
(5)
(255)
9
9
(241)
(41)
(279)
(241)
1,780
1,542
(5)
(1)
49
23
(535)
(916)
(51)
98
49
23
(535)
(916)
(51)
(4)
(55)
(9)
9
(284)
1,541
98
49
23
(535)
(920)
(106)
(9)
–
(1,430)
(1,332)
(68)
(1,400)
(131)
20,022
5,921
1,739
1,739
41
41
41
13
(369)
6
(309)
(369)
6
(363)
(363)
1,780
1,430
1
1
–
1
55
16
44
(279)
79
(992)
60
55
16
44
(279)
79
(992)
5,922
1,740
41
13
(369)
6
(309)
1,431
60
55
16
44
(279)
79
(992)
–
–
–
–
98
–
–
–
73
98
–
184
(14,229)
–
–
1
–
–
59
–
–
1
74
59
–
243
(14,229)
–
15
–
(1,077)
(1,017)
(494)
20,725
6,334
–
2
(1,017)
6,336
Restated1
Notes
Balance at 1 January 2012
Comprehensive income
Net income
Other comprehensive (expense) / income
Remeasurements of defined
benefit plans, 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
7
7
7
7
Total other comprehensive income / (expense)
Total comprehensive income / (expense)
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
Total transactions with owners
Balance at 31 December 2012
23
22
27
Comprehensive income
Net income
Other comprehensive income / (expense)
Remeasurements of defined benefit
plans, net of tax
Gains on cash flow hedges, net of tax
Net exchange losses on foreign
currency translation, net of tax
Gains on net investment hedges
7
7
7
Total other comprehensive income / (expense)
Total comprehensive income / (expense)
Transactions with owners
Proceeds from share issue
Share-based payments
Current tax on share awards
Deferred tax on share awards
Shares repurchased and held in Treasury
Treasury shares re-issued
Dividends
22
23
22
27
Total transactions with owners
Balance at 31 December 2013
1 Refer to note 1 for further details.
52
RB Annual Report 2013
Financial Statements Group Cash Flow Statement
Group Cash Flow Statement
For the year ended 31 December
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit
Depreciation, amortisation and impairment
Fair value losses/(gains)
Gain on sale of property, plant and equipment and intangible assets
Gain on sale of businesses
(Increase)/decrease in inventories
Decrease/(increase) in trade and other receivables
Decrease in payables and provisions
Non-cash exceptional items
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
Treasury shares re-issued
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 (decrease)/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
R ECONCILIATION OF NET CASH FLOWS FROM OPERATIONS
Net cash generated from operating activities
Net purchases of property, plant and equipment
Net cash flow from operations
1 Refer to note 1 for further details.
Notes
26
26
22
22
27
25
15
16
2013
£m
2,345
171
1
–
–
(61)
32
(18)
231
55
2,756
(49)
25
(611)
2,121
(200)
(25)
9
–
(418)
–
2
2
–
(630)
60
(279)
79
637
(1,002)
(992)
–
(28)
(1,525)
(34)
882
(43)
805
808
(3)
805
2,121
(191)
1,930
2012
(restated)1
£m
2,442
148
(7)
(13)
(32)
19
(16)
(167)
-
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
53
RB Annual Report 2013
Financial Statements Notes to the Financial Statements
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 and Changes in
Accounting Policy
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 (including derivative instruments) 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.
The Group applies, for the first time, amendments
to IAS 1 Presentation of Items of Other
Comprehensive Income, IFRS 10 Consolidated
Financial Statements, IFRS 11 Joint Arrangements,
IFRS 12 Disclosure of Interests in Other Entities,
IFRS 13 Fair Value Measurement and IAS 19
(Revised) Employee Benefits.
Amendments to IAS 1 require items of other
comprehensive income that may be reclassified
to profit or loss to be presented separately
from items that will never be reclassified. The
statement of comprehensive income has been
revised accordingly.
IFRS 10 replaces previous guidance on control
and consolidation, IFRS 11 requires joint
arrangements to be accounted for as a joint
operation or as a joint venture depending on
the rights and obligations of each party to the
arrangement, and IFRS 12 requires enhanced
disclosures of the nature, risks and financial
effects associated with the Group’s interests
54
in subsidiaries, associates, joint arrangements
and unconsolidated structured entities. These
three standards are not mandatory under IFRS
as adopted by the EU for the Group until
1 January 2014; however the Group has
decided to early adopt the standards as of
1 January 2013. The impact on the Group of
applying these standards is not significant.
IFRS 13 explains how to measure fair value and
enhances fair value disclosures. The standard
does not significantly change the measurement
of fair value but codifies it in one place. The
impact on the Group is not significant.
The amendments under IAS 36 Impairment of
Assets in respect of the disclosure requirements
have been early adopted.
IAS 19 (Revised) replaces 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 used to measure the defined
benefit obligation at the beginning of the
period to the net defined benefit liability/asset.
In addition, the Group now treats the net
pension scheme interest amount as finance
income/expense. Previously the interest cost on
pension scheme liabilities and expected return
on pension scheme assets were classified in
either cost of sales or 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.
These restatements had no impact on the
balance sheet and the following impact on
the income statement and statement of
comprehensive income.
Year ended
31 December 2012
£m
Group income statement
Decrease in cost of sales
Decrease in net operating expenses
Increase in operating profit
Increase in finance expense
Decrease in tax on profit on
ordinary activities
Decrease in net income
1
6
7
(19)
4
(8)
Group statement of comprehensive income
Decrease in actuarial losses, net of tax
8
Increase in other comprehensive income 8
Net impact on total
comprehensive income
–
Basic, diluted, adjusted basic and adjusted
diluted earnings per share decreased by
1.1p for the year ended 31 December 2012
as a result of the adoption of IAS19 (revised).
The cash flow statement was restated as a
result of the change in operating profit, with an
offsetting decrease in payables and provisions.
A number of new standards, amendments and
interpretations are effective for annual periods
beginning after 1 January 2014 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.
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 is
exposed to, or has the rights to variable returns
from its involvement with the investee and has
the ability to use its power over the investee to
affect its returns.
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.
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.
Specific items of income and expense reported
to the Executive Committee 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.
RB Annual Report 2013
Financial Statements Notes to the Financial Statements
1 ACCOUNTING POLICIES (CONTINUED)
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 year
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.
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.
• Profit and loss account items at the average
Acquisition related costs are expensed as incurred.
rate of exchange for the year.
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
ten 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.
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.
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.
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 the Group, a
brand typically comprises an assortment of base
products and more innovative products. Both
contribute to the enduring nature of the brand.
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 unit, or group of 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 on
a straight line basis 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.
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.
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.
• Costs arising as a result of material
and non-recurring regulatory and
litigation matters.
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 of
disposal and its value in use.
55
RB Annual Report 2013 Financial Statements Notes to the Financial Statements
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.
The net interest amount is calculated by
applying the discounted rate used to measure
the defined benefit obligation at the beginning
of the period to the net defined benefit
liability/asset.
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 the investor is able to control the
timing of temporary differences and 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.
The net pension scheme interest is presented as
finance income/expense.
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.
Pension Commitments
Group companies operate defined contribution
and (funded and unfunded) defined benefit
pension schemes.
The proceeds received net of any directly
attributable transaction costs are credited to
share capital and share premium when the
options are exercised.
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.
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.
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).
1 ACCOUNTING POLICIES (CONTINUED)
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) required to get the inventory to its
present location and condition. Inventory
valuation 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.
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.
56
RB Annual Report 2013 Financial Statements Notes to the Financial Statements
1 ACCOUNTING POLICIES (CONTINUED)
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 affects
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 Investment Hedges
Gains and losses on those hedging instruments
designated as hedges of the net investments
in foreign operations are recognised in other
comprehensive income to the extent that the
hedging relationship is effective. Gains and
losses accumulated in the foreign currency
translation reserve are included in the income
statement when the foreign operation is
disposed of.
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.
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 property, plant 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 (refer to
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 continuing enduring nature of the
Group’s brands supporting the assumed
useful lives of these assets (refer to note 9).
• 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 (refer to note 26).
• 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 (refer to note 7).
• 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 (refer to note 11).
• The Group recognises legal provisions in line
the Group’s provisions policy. The level of
provisioning for regulatory investigation is
a matter where management and legal
judgement is important (refer to note 17).
57
RB Annual Report 2013
Financial Statements Notes to the Financial Statements
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.
The Group’s 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). 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 primarily sold in ENA.
The Scholl Footwear business, previously reported as part of RUMEA, is now reported as part of ENA. Comparative information has been restated on
a consistent basis.
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.
Specific items of income and expense reported to the Executive Committee outside of the individual segment financial information, are shown in the
Corporate segment. For the year ended 31 December 2013 the Corporate segment had £nil profit or loss (2012: £32m – relating primarily to the
disposal of the Paras Personal Care business).
Operating Segments
The segment information provided to the Executive Committee for the operating segments for the year ended 31 December is as follows:
2013
Net revenue
Depreciation, amortisation and impairment
Adjusted operating profit
Exceptional items
Operating profit
Net finance expense
Profit on ordinary activities before taxation
2012 (restated)1
Net revenue
Depreciation, amortisation and impairment
Adjusted operating profit
Exceptional items
Operating profit
Net finance expense
Profit on ordinary activities before taxation
ENA
£m
5,074
93
1,321
LAPAC
£m
2,511
48
RUMEA
£m
1,356
9
495
284
Food Corporate
£m
£m
325
5
88
–
–
–
Total
Ex-RBP
£m
9,266
155
2,188
ENA
£m
4,744
95
1,156
LAPAC
£m
2,327
32
RUMEA
£m
1,338
8
465
296
Food
£m
321
5
92
Corporate
£m
–
–
Total
Ex-RBP
£m
8,730
140
32
2,041
RBP
£m
777
16
428
RBP
£m
837
8
536
Total
£m
10,043
171
2,616
(271)
2,345
(31)
2,314
Total
£m
9,567
148
2,577
(135)
2,442
(34)
2,408
1 Restated for Scholl Footwear segment move from RUMEA to ENA (net revenue £66m and operating loss of £7m) and the impact of the accounting
policy change discussed in note 1.
58
RB Annual Report 2013
Financial Statements Notes to the Financial Statements
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 not presented to the Executive Committee are shown below as a
reconciling item.
2013
Inventories
Trade and other receivables
Total segment assets
Trade and other payables
2012 (restated)1
Inventories
Trade and other receivables
Total segment assets
Trade and other payables
ENA
£m
416
585
1,001
LAPAC
£m
RUMEA
£m
Food
£m
245
368
613
99
208
307
5
1
6
RBP
£m
129
112
241
Total
£m
894
1,274
2,168
(1,488)
(675)
(254)
(14)
(261)
(2,692)
ENA
£m
393
625
1,018
LAPAC
£m
RUMEA
£m
Food
£m
250
363
613
110
193
303
4
-
4
RBP
£m
108
178
286
Total
£m
865
1,359
2,224
(1,442)
(661)
(269)
(13)
(241)
(2,626)
1 Restated for Scholl Footwear segment move from RUMEA to ENA (£8m inventory, £24m trade and other receivables, £14m trade and other trade
payables).
The assets and liabilities are reported based upon the operations of the segment and the physical location of the asset or liability. There are a number of
Group assets and liabilities 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 operating segments
Unallocated:
Elimination of profit on inter-company inventory
Total inventories per the balance sheet
Trade and other receivables for operating segments
Unallocated:
Group 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 operating segments
Unallocated:
Group items
Total trade and other payables per the balance sheet
Other unallocated liabilities
Total liabilities per the balance sheet
2013
£m
894
(148)
746
1,274
32
1,306
2,052
13,097
15,149
(2,692)
(223)
(2,915)
(5,898)
(8,813)
2012
(restated)1
£m
865
(130)
735
1,359
48
1,407
2,142
12,924
15,066
(2,626)
(216)
(2,842)
(6,302)
(9,144)
Unallocated assets include goodwill and intangible assets, property, plant and equipment, deferred and current tax, available for sale assets, retirement
benefit surplus, other receivables, derivative financial assets and cash and cash equivalents. Unallocated liabilities include borrowings, provisions for
liabilities and charges, current and deferred tax liabilities, other liabilities and retirement benefit obligations.
1 Refer to note 26 for further details.
59
RB Annual Report 2013
Financial Statements Notes to the Financial Statements
2 OPERATING SEGMENTS (CONTINUED)
Analysis of Categories
The Group analyses its revenue by the following categories:
Health
Hygiene
Home
Portfolio brands
Food
RB Pharmaceuticals
Total
2013
£m
2,633
3,835
1,974
499
325
9,266
777
10,043
Net revenues
2012
£m
2,068
3,682
1,966
693
321
8,730
837
9,567
Health, hygiene, home and portfolio brands categories are all split across the three geographical segments of ENA, LAPAC and RUMEA. Food (which
is sold primarily in ENA) and RB Pharmaceuticals are recognised within their own operating 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:
2013
Net revenue
Goodwill and other intangible assets
Property, plant and equipment
Other receivables
2012 (restated)1
Net revenue
Goodwill and other intangible assets
Property, plant and equipment
Other receivables
1 Refer to note 26 for further details.
UK
£m
676
1,536
148
2
UK
£m
All other
countries
£m
US
£m
Total
£m
2,777
6,590
10,043
4,212
125
30
5,393
488
217
11,141
761
249
US
£m
All other
countries
£m
Total
£m
643
2,480
6,444
9,567
1,536
137
4
4,274
124
4
5,352
475
25
11,162
736
33
The net revenue from external customers reported on a geographical basis above is measured consistently with that in the operating 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.
60
RB Annual Report 2013
Financial Statements Notes to the Financial Statements
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
1 Refer to note 1 for further details.
2013
£m
(4,074)
(2,467)
(47)
(152)
(692)
(891)
5
(271)
2012
(restated)1
£m
(4,029)
(2,314)
(25)
(146)
(489)
(660)
13
(135)
(3,624)
(3,096)
Total foreign exchange losses of £16m (2012: £nil) 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
Legal provision
Acquisition, integration and restructuring costs
Total exceptional items
2013
£m
225
46
271
2012
£m
–
135
135
The Group incurred an exceptional charge of £271m during the year in respect of the following:
• £225m legal provision for historic regulatory issues (2012: £nil). Refer to note 17.
• £46m restructuring costs in relation to the new organisation, acquisition and integration costs (2012: £135m relating to the new organisation,
acquisition and integration costs, and withdrawal of private label). This consists primarily of redundancy and business integration costs which have
been included within operating expenses.
4 AUDITORS’ REMUNERATION
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Company’s Auditor and its associates.
Audit services pursuant to legislation
Audit of the Group’s annual accounts
Audit of the accounts of the Group’s subsidiaries
Audit related assurance services
Total audit and audit related services
Fees payable to the Company’s Auditor and its associates for other services:
Taxation compliance services
Taxation advisory services
Other assurance services
All other non-audit services
Total non-audit services
2013
£m
1.8
3.8
0.3
5.9
0.5
1.7
0.2
0.4
2.8
8.7
Included in the above is £0.1m (2012: £0.1m) in relation to the audit of the financial statements of associated pension schemes of the Group.
2012
£m
1.9
3.8
0.4
6.1
0.2
4.3
0.2
0.1
4.8
10.9
61
RB Annual Report 2013
5 EMPLOYEES
(a) Staff costs
The total employment costs, including Directors, were:
Wages and salaries
Social security costs
Net pension costs (excluding net pension interest)
Share-based payments
Notes
21
23
2013
£m
1,026
197
51
55
1,329
2012
(restated)1
£m
958
170
43
49
1,220
1 Net pension costs have been restated to exclude net pension scheme interest now included in net finance expense. Wages and salaries restated on a
consistent basis with 2013. Refer to note 1 for further details.
Details of Directors’ emoluments are included in the Directors’ Remuneration Report on pages 34 to 46, 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
2013
£m
17
1
14
1
33
2012
£m
11
1
15
4
31
Termination benefits and share-based payments include contractual commitments made to key management in 2013, comprising cash payments and
shares to vest in 2014.
(b) Staff numbers
The monthly average number of people employed by the Group, including Directors, during the year was:
2013
‘000
12.5
7.6
15.1
0.7
1.2
37.1
2013
£m
25
25
(31)
(8)
(11)
(6)
(56)
(31)
2012
‘000
13.9
7.1
13.7
0.6
0.6
35.9
2012
(restated)1
£m
26
26
(30)
(19)
(6)
(5)
(60)
(34)
ENA
RUMEA
LAPAC
RB Pharmaceuticals
Other
6 NET FINANCE EXPENSE
Finance income
Interest income on cash and cash equivalents
Total finance income
Finance expense
Interest payable on borrowings
Net pension scheme interest
Amortisation of issue costs of bank loans
Other finance expense
Total finance expense
Net finance expense
1 Refer to note 1 for further details.
62
Financial Statements Notes to the Financial Statements RB Annual Report 2013
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
1 Refer to note 1 for further details.
2013
£m
712
(52)
660
9
(95)
(86)
574
2012
(restated)1
£m
662
(21)
641
22
(80)
(58)
583
The standard rate of corporation tax in the UK changed from 24% to 23% with effect from 1 April 2013. Accordingly, the Company’s profits for the
year ended 31 December 2013 are taxed at an effective rate of 23.25% (2012: 24.5%).
UK income tax of £124m (2012: £138m) is included within current tax and is calculated at 23.25% (2012: 24.5%) 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 23.25% (2012: 24.5%)
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
1 Refer to note 1 for further details.
2013
£m
2,314
538
(67)
160
1
21
(9)
(95)
20
5
574
2012
(restated)1
£m
2,408
590
10
77
7
16
(58)
(80)
8
13
583
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 21% from 1 April 2014, the total tax charge in 2013 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
£95m reduction in the tax charge in the income statement. The tax (charge)/credit relating to components of other comprehensive income is as follows:
Net exchange adjustments on foreign currency translation
Gains on cash flow and net investment hedges
Reclassification of foreign currency translation reserve on disposal of subsidiary
Remeasurement of defined benefit pension plans (note 21)
Other comprehensive income
Current tax
Deferred tax (note 11)
Before
tax
£m
(369)
19
–
68
(282)
Tax
credit/
(charge)
£m
–
–
–
(27)
(27)
–
(27)
(27)
2013
After
tax
£m
(369)
19
–
41
(309)
Before
tax
£m
(256)
4
9
(52)
(295)
2012
(restated)1
After
tax
£m
(255)
3
9
(41)
(284)
Tax
credit/
(charge)
£m
1
(1)
–
11
11
(2)
13
11
1 Refer to note 1 for further details.
The tax credited directly to the statement of changes in equity during the year is as follows:
Current tax
Deferred tax (note 11)
2013
£m
16
44
60
2012
£m
23
–
23
63
Financial Statements Notes to the Financial Statements RB Annual Report 2013
8 EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
1 Refer to note 1 for further details.
2013
pence
242.1
238.5
273.8
269.8
2012
(restated)1
pence
251.4
248.4
266.5
263.3
Basic
Basic earnings per share is calculated by dividing the net income attributable to owners of the parent (2013: £1,739m (2012: £1,821m)) by the
weighted average number of ordinary shares in issue during the year (2013: 718,384,234 (2012: 724,238,235)).
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 potentially dilutive 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 2013, there were 4 million (2012: 4 million) 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
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
1 Refer to note 1 for further details.
2013
£m
1,739
271
(43)
1,967
2013
Average
number of
shares
718,384,234
9,829,873
838,787
2012
(restated)1
£m
1,821
135
(26)
1,930
2012
Average
number of
shares
724,238,235
8,098,123
659,327
729,052,894
732,995,685
64
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Goodwill
£m
Software
£m
Other
£m
9 GOODWILL AND OTHER INTANGIBLE ASSETS
Cost
At 1 January 2013
Additions
Arising on business combinations
Disposals
Exchange adjustments
At 31 December 2013
Accumulated amortisation and impairment
At 1 January 2013
Amortisation and impairment charge
Disposals
Exchange adjustments
At 31 December 2013
Brands
£m
7,757
1
113
–
(154)
7,717
82
3
–
1
86
3,335
–
71
–
(94)
3,312
28
–
–
(1)
27
Net book amount at 31 December 2013
7,631
3,285
Brands
(restated)1
£m
Goodwill
(restated)1
£m
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
Net book amount at 31 December 2012
Net book amount at 1 January 2012
1 Refer to note 26 for further details.
7,106
2
884
(37)
(198)
7,757
80
3
–
(1)
82
7,675
7,026
3,080
–
357
(17)
(85)
3,335
30
–
(1)
(1)
28
3,307
3,050
57
21
–
(2)
–
76
22
1
(2)
(1)
20
56
Software
£m
48
9
–
–
–
57
21
1
–
–
22
35
27
235
3
57
–
(12)
283
90
27
–
(3)
114
169
Other
£m
236
–
–
–
(1)
235
81
9
–
–
90
145
155
Total
£m
11,384
25
241
(2)
(260)
11,388
222
31
(2)
(4)
247
11,141
Total
(restated)1
£m
10,470
11
1,241
(54)
(284)
11,384
212
13
(1)
(2)
222
11,162
10,258
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.
Software includes intangible assets under construction of £52m (2012: £31m).
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
Total net book amount of intangible assets
1 Refer to note 26 for further details.
2013
£m
7,606
3,285
39
10,930
25
56
130
211
2012
(restated)1
£m
7,650
3,307
36
10,993
25
35
109
169
11,141
11,162
65
Financial Statements Notes to the Financial Statements RB Annual Report 2013
9 GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
Goodwill and other intangible assets with indefinite lives are allocated to a cash generating unit or a group of cash generating units (together ‘CGU’)
for the purposes of impairment testing.
Cash Generating Units
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 are health (sexual wellbeing), health (VMS), health (other), hygiene, home, and food.
Integration of the Schiff business was ongoing but not completed by year end. As a result this business continued to be treated as its own CGU, health
(VMS). This CGU will be reassessed following the completion of integration into the Group’s operations in 2014.
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
Food
1 Refer to note 26 for further details.
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 Goodwill
£m
£m
2013
Total
£m
2012 (restated)1
Indefinite
life assets
£m
Goodwill
£m
Total
£m
1,915
956
2,871
1,952
976
2,928
3,036
801
1,082
781
30
1,786
352
149
42
–
4,822
1,153
1,231
823
30
2,926
815
1,176
786
31
1,783
357
149
42
–
4,709
1,172
1,325
828
31
7,645
3,285
10,930
7,686
3,307
10,993
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.
Annual Impairment Review 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 with an extrapolated fifth year. These projections exclude any estimated future cash inflows or outflows
expected to arise from restructuring not yet implemented.
Cash flows beyond the five-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 (2012: 11%). Health (VMS) is predominantly
concentrated in one market, being the US. Therefore a pre-tax discount rate of 14% was applied, reflecting the increased risk associated with this CGU
from its market concentration and the fact that this is a relatively 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 (VMS)
Health (other)
Hygiene
Home
Growth %
4
2.5
1-4
0-4
0-2
Pre-tax
discount
rate %
11
14
11
11
11
Impairment Review
In October 2013 an impairment review was performed by comparing the recoverable amount of each CGU with its carrying amount, including
goodwill. No impairment was considered necessary. There were no significant changes in the period subsequent to the review.
Any reasonably possible change in the key assumptions on which the recoverable amounts of the health (sexual wellbeing), health (other), hygiene and
home CGUs is based would not imply an impairment.
With a recoverable amount exceeding its carrying value by £19m, the health (VMS) 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 and updated at the end of the
hindsight period in December 2013. Any significant change in assumptions could cause the carrying value to exceed the recoverable amount. For
example, if all other assumptions were held constant, a reduction of 100 bps of the assumed compound annual growth rate in undiscounted net cash
flows would result in the carrying value of this CGU exceeding its recoverable amount by £15m. Management expects that the completion of the
integration of the business with the health (other) CGU in 2014 will realise planned synergies and hence minimise the risk of impairment.
66
Financial Statements Notes to the Financial Statements RB Annual Report 2013
10 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2013
Additions
Arising on business combination
Disposals
Reclassifications
Exchange adjustments
At 31 December 2013
Accumulated depreciation and impairment
At 1 January 2013
Charge for the year
Disposals
Exchange adjustments
At 31 December 2013
Net book amount at 31 December 2013
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
Net book amount at 1 January 2012
1 Refer to note 26 for further details.
Land and
Plant and
buildings equipment
£m
£m
525
28
1
(4)
46
(20)
1,285
172
4
(44)
(46)
(49)
Total
£m
1,810
200
5
(48)
–
(69)
576
1,322
1,898
205
29
(4)
(6)
224
352
869
111
(35)
(32)
913
409
1,074
140
(39)
(38)
1,137
761
Land and
buildings
(restated)1
£m
Plant and
equipment
(restated)1
£m
Total
(restated)1
£m
512
13
1
(8)
(2)
21
(12)
1,272
153
7
(65)
(9)
(21)
(52)
1,784
166
8
(73)
(11)
–
(64)
525
1,285
1,810
189
24
(3)
(1)
(4)
205
320
323
863
111
(57)
(6)
(42)
869
416
409
1,052
135
(60)
(7)
(46)
1,074
736
732
The net book amount of assets under construction is £60m (2012: £62m). Assets under construction are included within plant and equipment.
The reclassification from plant and equipment to land and buildings of £46m (2012: £21m) shows the transfer of completed assets.
Capital expenditure which was contracted but not capitalised at 31 December 2013 was £30m (2012: £20m).
67
Financial Statements Notes to the Financial Statements RB Annual Report 2013
11 DEFERRED TAX
Deferred tax liabilities
At 1 January 2012
Charged/(credited) to the income statement
Credited to other comprehensive income
Arising on business combination
Disposal of business
Exchange differences
At 31 December 2012
Charged/(credited) to the income statement
Charged/(credited) to other comprehensive income
Charged/(credited) directly to equity
Arising on business combination
Exchange differences
Accelerated
capital
allowances
£m
Intangible
assets
£m
Short-term
temporary
differences
(restated)1
£m
Retirement
benefit
obligations
(restated)2
£m
Tax losses
£m
19
12
–
1
–
(1)
31
(11)
–
–
–
–
1,979
(92)
–
299
(15)
(46)
2,125
(96)
–
–
37
(42)
(184)
(29)
–
(13)
–
4
(222)
–
–
(44)
(12)
2
(6)
–
–
(9)
–
–
(15)
5
–
–
–
–
(36)
(51)
(10)
–
–
2
(95)
17
27
–
–
(5)
Total
£m
1,772
(160)
(10)
278
(15)
(41)
1,824
(85)
27
(44)
25
(45)
At 31 December 2013
20
2,024
(276)
(10)
(56)
1,702
1 Refer to note 26 for further details.
2 Refer to note 1 for further details.
Deferred tax assets
At 1 January 2012
Credited/(charged) to the income statement
Credited to other comprehensive income
Exchange differences
At 31 December 2012
(Charged)/credited to the income statement
Exchange differences
At 31 December 2013
Accelerated
capital
allowances
£m
Intangible
assets
£m
Short-term
temporary
differences
£m
Retirement
benefit
obligations
£m
Tax losses
£m
(5)
14
–
–
9
–
–
9
(16)
8
–
1
(7)
(6)
–
(13)
82
(44)
2
(2)
38
8
(3)
43
32
(32)
–
–
–
–
–
–
57
(48)
1
(1)
9
(1)
–
8
Total
£m
150
(102)
3
(2)
49
1
(3)
47
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 £163m (2012: £152m) have not been
recognised at 31 December 2013 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.
68
Financial Statements Notes to the Financial Statements RB Annual Report 2013
12 INVENTORIES
Raw materials and consumables
Work in progress
Finished goods and goods held for resale
Total inventories
2013
£m
155
35
556
746
2012
£m
157
27
551
735
The cost of inventories recognised as an expense and included as cost of sales amounted to £3,849m (2012: £3,821m). This includes inventory write
offs and losses of £46m (2012: £23m).
The Group inventory provision at 31 December 2013 was £69m (2012: £81m).
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
2013
£m
1,173
(44)
1,129
126
51
1,306
2012
£m
1,269
(47)
1,222
131
54
1,407
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 2013, trade receivables of £77m (2012: £92m) were past due but not impaired. The ageing analysis of trade receivables past due
but not impaired is as follows:
Up to 3 months
2013
£m
77
2012
£m
92
As at 31 December 2013, trade receivables of £71m (2012: £77m) were considered to be impaired. The amount of provision at 31 December 2013 was
£44m (2012: £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
2013
£m
33
38
71
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 sales 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
Brazil Real
Other currencies
2013
£m
101
282
283
107
533
2012
£m
37
40
77
2012
£m
99
305
388
89
526
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.
Non-current other receivables at 31 December 2013 were £249m (2012: £33m). £203m relates to a prepayment for an option to acquire legal title to
intellectual property (refer to note 26). The remaining balance relates to other non-current prepayments and receivables due after one year.
1,306
1,407
69
Financial Statements Notes to the Financial Statements RB Annual Report 2013
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Financial Instruments by Category
At 31 December 2013
Assets as per the balance sheet
Short-term deposits1
Trade and other receivables2
Derivative financial instruments – FX forward exchange contracts
Cash and cash equivalents
Liabilities as per the balance sheet
Borrowings (excluding finance lease obligations and bond)3
US$1bn bond (two tranches of US$500m at 2.125% and 3.625% respectively)4
Finance lease obligations3
Derivative financial instruments – FX forward exchange contracts
Trade and other payables5
Other non-current liabilities5,6
At 31 December 2012
Assets as per the balance sheet
Auction rate securities7
Short-term deposits1
Trade and other receivables2
Derivative financial instruments – FX forward exchange contracts
Cash and cash equivalents
Liabilities as per the balance sheet
Borrowings (excluding finance lease obligations)3
Finance lease obligations3
Derivative financial instruments – FX forward exchange contracts
Trade and other payables5
Other non-current liabilities5,6
Loans and
receivables
£m
Derivatives
used for
hedging
£m
Fair value
through
the P&L
£m
Available
for sale
£m
Carrying
value
total
£m
–
1,275
–
808
–
–
16
–
–
–
6
–
2
–
–
–
2
1,275
22
808
Derivatives
used for
hedging
£m
Other
financial
Fair value liabilities at
through amortised
cost
the P&L
£m
£m
–
–
–
–
–
–
–
–
–
159
–
–
2,167
595
5
–
2,768
45
Carrying
value
total
£m
2,167
595
5
159
2,768
45
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
Fair value
through
the P&L
£m
Other
financial
liabilities at
amortised
cost
£m
–
–
43
–
–
–
–
–
–
–
3,269
5
–
2,698
17
Carrying
value
total
£m
3,269
5
43
2,698
17
Fair
value
total
£m
2
1,275
22
808
Fair
value
total
£m
2,167
597
5
159
2,768
45
Fair
value
total
£m
2
4
1,366
4
887
Fair
value
total
£m
3,269
5
43
2,698
17
1 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.
2 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.
3 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.
4 The fair value of bonds at 31 December 2013 is a liability of £597m (2012: £nil). This value is derived using a quoted market rate in an active market
(level 1 classification).
5 Social security liabilities and other employee benefit liabilities are excluded as the analysis above is required only for financial instruments.
6 Included in other non-current liabilities is £21m (2012: £12m) to purchase the remaining shares of Shanghai Manon Trading Company Limited.
7 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 inactivity of this market there was uncertainty over whether they were likely
to be redeemed within one year and therefore were classified as non-current in 2012.
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.
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 (i.e. as prices) or indirectly
(i.e. 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 (i.e. unobservable inputs) (level 3).
70
Financial Statements Notes to the Financial Statements RB Annual Report 2013
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The fair value of forward foreign exchange contracts at 31 December 2013 is a liability of £159m (2012: £43m) and an asset of £22m (2012: £4m).
This value is determined using forward exchange rates derived from market sourced data at the balance sheet date, with the resulting value discounted
back to present value (level 2 classification).
As the value of level 3 instruments at 31 December 2013 is not material (2012: not material), no further level 3 disclosures have been made.
The Group has forward foreign exchange contracts that are subject to enforceable master netting arrangements which are not netted in the balance
sheet. The value of these contracts at 31 December 2013 is a liability of £137m (2012: £39m). This figure consisted of assets of £22m (2012: £4m) and
liabilities of £159m (2012: £43m).
The Group also has cash which is subject to a right of offset. As at 31 December 2013 the value of this cash was £27m (2012: £63m) of which
consisted of assets of £34m (2012: £63m) and overdrafts of £7m (2012: £nil). As at 31 December 2013 the value of cash assets outside of netting
agreements was £774m (2012: 824m) and the value of overdrafts outside of netting agreements was £3m (2012: £5m).
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 2013 was £5,287m payable (2012: £4,303m payable).
The Group has designated bonds totalling $1,000m (£597m) as the hedging instrument in a net investment hedge relationship. The hedged risk is the
foreign exchange currency risk on the value of the Group’s net investment in assets and liabilities denominated in US dollars. The net gain or loss under
this arrangement is recognised in other comprehensive income. The net effect on other comprehensive income for the year ended 31 December 2013
was a £6m gain (2012: £nil).
Cash Flow Hedge Profile
The Group held forward foreign exchange contracts denominated as cash flow hedges primarily in Euro, Australian dollars, Singapore dollars, Sterling
and US dollars. Notional value of the payable leg resulting from these financial instruments was as follows:
Euro
Australian dollar
Singapore dollar
Sterling
Canadian dollar
US dollars
Other
2013
£m
319
177
120
98
–
32
60
806
2012
£m
90
90
43
–
60
1
55
339
These forward foreign exchange contracts are expected to mature over the period January 2014 to January 2015 (2012: January 2013 to January 2014).
There is no ineffective portion recognised in the income statement arising from cash flow hedges (2012: £nil).
Gains and losses recognised in the hedging reserve in other comprehensive income on forward exchange contracts in 2013 of £13m gain (2012: £3m
gain) are recognised in the income statement in the year or years 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 £12m (2012: less than £1m). As at 31 December 2013 if all other currencies had strengthened/weakened by 5% against Sterling with all
other variables held constant, this would have had an immaterial effect on the income statement or Shareholders’ equity (2012: immaterial).
71
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Financial Statements Notes to the Financial Statements
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
The remaining major monetary financial instruments (liquid assets, receivables, interest and non-interest bearing liabilities) are directly denominated in
the local functional currency or are transferred to the functional currency of the Group through the use of derivatives.
(b) 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 £11m (2012: £9m) or decrease of £11m (2012: £9m), 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.
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+
A
AAA
A+
A+
A
A-
A-
A
2013
Limit
£m
Exposure
£m
200
150
125
300
150
150
125
75
75
125
142
113
97
92
83
79
78
59
57
52
Credit
rating
AA
A
A
–
A
–
A
A
A
A
2012
Exposure
£m
157
125
89
–
97
–
64
36
36
84
Limit
£m
175
125
100
–
125
–
100
75
100
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 2013, the Group had, in addition to its long-term debt of £598m (2012: £3m), committed borrowing facilities totalling £4,350m
(2012: £4,000m), of which £3,500m exceeded 12 months’ maturity. Of the total facilities at the year end, £nil (2012: £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
All borrowing facilities are at floating rates of interest.
72
2013
£m
850
500
3,000
4,350
2012
£m
400
850
2,750
4,000
RB Annual Report 2013
Financial Statements Notes to the Financial Statements
14 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)
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 2013 was £2,254m (2012: £1,574m).
The Group’s borrowing limit at 31 December 2013 calculated in accordance with the Articles of Association was £61,689m (2012: £60,468m).
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 2013
Commercial paper
Bonds
Other borrowings
Trade payables
Other payables
At 31 December 2012
Commercial paper
Other borrowings
Trade payables
Other payables
Total
£m
(2,159)
(744)
(22)
(991)
(1,826)
Total
£m
(3,250)
(24)
(948)
(1,767)
Less than Between 1 Between 2
1 year and 2 years and 5 years
£m
£m
£m
(2,159)
(17)
(19)
(991)
(1,777)
–
(17)
–
–
(15)
–
(354)
(3)
–
(34)
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)
Over
5 years
£m
–
(356)
–
–
–
Over
5 years
£m
–
–
–
–
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 2013
Forward exchange contracts
Outflow
Inflow
At 31 December 2012
Forward exchange contracts
Outflow
Inflow
Less than Between 1 Between 2
1 year and 2 years and 5 years
£m
£m
£m
(5,240)
5,099
(47)
47
–
–
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
(4,233)
4,190
(70)
70
–
–
–
–
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
2013
£m
2,096
6,336
8,432
2012
£m
2,426
5,922
8,348
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 2013 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 £2,096m (2012: £2,426m). The Group seeks to pay down net debt using cash
generated by the business to maintain an appropriate level of financial flexibility.
73
RB Annual Report 2013
15 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term bank deposits
Cash and cash equivalents
2013
£m
304
504
808
2012
£m
371
516
887
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 £109m (2012: £115m) of cash included in cash and cash equivalents is restricted for use by
the Group.
16 FINANCIAL LIABILITIES – BORROWINGS
Current
Bank loans and overdrafts1
Commercial paper2
Finance lease obligations
Non-current
Bonds
Finance lease obligations
2013
£m
18
2,149
2
2,169
2013
£m
595
3
598
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.
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:
Bonds
Finance leases (payable by instalments)
Over five years:
Bonds
Gross borrowings (unsecured)
Analysis of net debt
Cash and cash equivalents
Overdrafts
Borrowings (excluding overdrafts)
Current available for sale financial assets
Derivative financial instruments
Reconciliation of net debt
Net debt at beginning of year
Net (decrease)/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
74
2013
£m
18
2,149
2
299
3
296
2,749
2,767
2013
£m
808
(3)
(2,764)
2
(139)
(2,096)
2013
£m
(2,426)
(34)
1,002
(637)
–
(1)
(2,096)
2012
£m
19
3,250
2
3,271
2012
£m
–
3
3
2012
£m
19
3,250
2
–
3
–
3,255
3,274
2012
£m
887
(5)
(3,269)
4
(43)
(2,426)
2012
£m
(1,795)
264
112
(887)
(99)
(21)
(2,426)
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Financial Statements Notes to the Financial Statements
17 PROVISIONS FOR LIABILITIES AND CHARGES
At 1 January 2012 (restated)1
Charged to the income statement
Arising on business combination
Utilised during the year
Released to the income statement
Exchange adjustments
At 31 December 2012 (restated)2
Charged to the income statement
Arising on business combination
Utilised during the year
Released to the income statement
Exchange adjustments
At 31 December 2013
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Legal Restructuring
provisions
£m
provisions
£m
Other
provisions
£m
Total
provisions
£m
34
26
7
(8)
–
–
59
241
–
(9)
(6)
1
286
30
123
–
(87)
–
–
66
9
–
(39)
(12)
–
24
2013
£m
215
156
371
114
16
14
(41)
(23)
(1)
79
30
21
(40)
(29)
–
61
178
165
21
(136)
(23)
(1)
204
280
21
(88)
(47)
1
371
2012
(restated)2
£m
104
100
204
1 Provisions previously reported as ‘Other provisions’ have now been reported as ‘Legal’ and ‘Other’ provisions.
2 Refer to note 26 for further details.
Provisions are recognised when the Group has a present 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.
Legal provisions include £222m (2012: £nil) of exceptional legal provisions in relation to a number of historic regulatory investigations by various
government authorities in a number of markets. These investigations involve mainly competition law inquiries.
The restructuring provision relates principally to redundancies, the majority of which is expected to be utilised within one year.
Other provisions include onerous lease provisions expiring between 2014 and 2016 of £6m (2012: £7m) and environmental and other obligations
throughout the Group, the majority of which are expected to be used within five years.
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
2013
£m
57
90
23
170
2012
£m
37
72
32
141
Operating lease rentals charged to the income statement in 2013 were £71m (2012: £54m).
As at 31 December 2013, total amounts expected to be received under non-cancellable sub-lease arrangements were £4m (2012: £5m).
Amounts credited to the income statement in respect of sub-lease arrangements were £1m (2012: £2m).
19 CONTINGENT LIABILITIES
Contingent liabilities comprising guarantees relating to subsidiary undertakings, at 31 December 2013 amounted to £1m (2012: £3m).
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 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.
75
RB Annual Report 2013
20 TRADE AND OTHER PAYABLES
Trade payables
Other payables
Other tax and social security payable
Accruals
2013
£m
991
127
112
1,685
2,915
2012
£m
948
119
98
1,677
2,842
21 PENSION AND OTHER POST-RETIREMENT COMMITMENTS
The Group operates a number of defined benefit and defined contribution pension plans around the world covering many of its employees, which
are principally funded. The Group’s most significant defined benefit pension plan (UK) is a final salary plan, which closed to new entrants in 2005.
As at 31 December 2013 there were 6,902 (2012: 6,843) participants receiving benefits, 5,949 (2012: 6,168) participants with deferred benefits and
365 (2012: 516) active participants. Trustees of the plan are appointed by the Group, active members and pensioner membership, and are responsible
for the governance of the plan, including paying all administrative costs and compliance with regulations. The plan is funded by the payment of
contributions to the plan’s Trust, which is a separate entity from the rest of the Group. The Group also operates a number of other post-retirement plans
in certain countries. The major plan is in the US (US Retiree Health Care Plan), 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. This plan closed to new
members in 2009. As at 31 December 2013 there were 2,422 (2012: 2,691) eligible retirees and 1,061 (2012: 1,193) current employees potentially
eligible. A Benefits Committee of the plan is appointed by the Group, and is responsible for the governance of the plan, including paying all
administrative costs and compliance with regulations. This plan is unfunded.
Balance sheet assets for:
Other
Asset in balance sheet
Balance sheet obligations for:
UK
US (medical)
Other
Liability in balance sheet
Net pension liability
Income statement charge included in operating profit for2:
Defined contribution plans
Defined benefit plans (net charge excluding interest)
UK
US (medical)
Other
Total pension costs recognised in operating profit (note 5)
Income statement charge included in net finance expense (note 6)
Income statement charge included in profit on ordinary activities before tax
Remeasurements (gains)/losses for:
UK
US (medical)
Other
1 Refer to note 1 for further details.
2013
£m
50
50
(68)
(117)
(116)
(301)
(251)
27
9
3
12
51
8
59
(25)
(12)
(31)
(68)
2012
(restated)1
£m
27
27
(177)
(128)
(121)
(426)
(399)
25
8
(1)
11
43
19
62
34
2
16
52
2 The income statement charge included within operating profit includes current service cost, administrative costs, past service costs and gains and
losses on settlement and curtailment.
The amounts recognised in the balance sheet are determined as follows:
UK
£m
US
(medical)
£m
(1,223)
1,155
(68)
–
(68)
–
–
–
(117)
(117)
Other
£m
(258)
303
45
(111)
(66)
2013
Total
£m
UK
£m
US
(medical)
£m
(1,481)
1,458
(1,181)
1,004
(23)
(228)
(251)
(177)
–
(177)
–
–
–
(128)
(128)
2012
(restated)1
Total
£m
(1,438)
1,281
(157)
(242)
(399)
Other
£m
(257)
277
20
(114)
(94)
Present value of funded obligations
Fair value of plan assets
(Deficit)/surplus of funded plans
Present value of unfunded obligations
Liability in balance sheet
1 Refer to note 1 for further details.
76
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Financial Statements Notes to the Financial Statements
21 PENSION AND OTHER POST-RETIREMENT COMMITMENTS (CONTINUED)
The movement in the Group’s net liability is as follows:
Present value of obligation
Fair value of plan assets
UK
£m
US
(medical)
£m
Other
£m
Total
£m
UK
£m
US
(medical)
£m
At 1 January 2012 (restated)1
1,092
133
357
1,582
(896)
Current service cost
Curtailment gain
Interest expense/(income)
Remeasurements:
- Return on plan assets, excluding amounts included in
interest income
- (Gain)/loss from changes in demographic assumptions
- (Gain)/loss from change in assumptions
- Experience losses/(gains)
Exchange differences
Contributions – employees
Contributions – employers
Payments from plans:
Benefit payments
8
–
51
59
–
(4)
85
(6)
75
–
1
–
(46)
3
(4)
6
5
–
(3)
13
(8)
2
(6)
–
–
(6)
11
–
14
25
–
–
9
13
22
(13)
–
–
(20)
22
(4)
71
89
–
(7)
107
(1)
99
(19)
1
–
(72)
–
–
(42)
(42)
(41)
–
–
–
(41)
–
(1)
(70)
46
As at 31 December 2012 (restated) 1
1,181
128
371
1,680
(1,004)
1 Refer to note 1 for further details.
At 1 January 2013
Current service cost
Interest expense/(income)
Remeasurements:
- Return on plan assets, excluding amounts included in
interest income
- (Gain)/loss from changes in demographic assumptions
- (Gain)/loss from change in assumptions
- Experience (gains)/losses
Exchange differences
Contributions – employees
Contributions – employers
Payments from plans:
- Benefit payments
As at 31 December 2013
1,181
128
371
1,680
(1,004)
9
50
59
–
(10)
25
11
26
–
1
–
(44)
3
5
8
–
9
(13)
(8)
(12)
(2)
–
–
(5)
12
12
24
–
6
(21)
10
(5)
(1)
–
–
24
67
91
–
5
(9)
13
9
(3)
1
–
–
(44)
(44)
(51)
–
–
(51)
–
(1)
(99)
(20)
(69)
44
1,223
117
369
1,709
(1,155)
The significant actuarial assumptions used for the two major plans as at 31 December 2013 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
UK
%
3.6
3.4
3.1
3.1
4.4
3.6
–
2013
US
(medical)
%
–
–
–
–
4.8
–
5.0–9.0
–
–
–
–
–
–
–
–
–
–
–
–
(6)
6
–
–
–
–
–
–
–
–
–
–
–
–
(5)
5
–
UK
%
4.5
2.9
2.7
2.7
4.3
3.0
–
Other
£m
Total
£m
(216)
(1,112)
–
–
(10)
(10)
(6)
–
–
–
(6)
10
–
(75)
20
–
–
(52)
(52)
(47)
–
–
–
(47)
10
(1)
(151)
72
(277)
(1,281)
(277)
(1,281)
–
(15)
(15)
(26)
–
–
–
(26)
(1)
–
(4)
–
(59)
(59)
(77)
–
–
–
(77)
(1)
(1)
(108)
20
69
(303)
(1,458)
2012
US
(medical)
%
–
–
–
–
4.1
–
5.0–9.0
77
RB Annual Report 2013
21 PENSION AND OTHER POST-RETIREMENT COMMITMENTS (CONTINUED)
Assumptions regarding future mortality experience are set in accordance with published statistics and experience in each territory. For the UK plan 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
UK
years
28.4
30.3
2013
US
years
25.1
27.5
UK
years
28.2
30.1
2012
US
years
24.1
25.8
The average life expectancy in years of a pensioner retiring at aged 60 (15 years after the balance sheet date for the UK and 20 years after the balance
sheet date for the US), is as follows:
Male
Female
UK
years
30.2
32.2
2013
US
years
27.3
29.4
UK
years
30.0
31.9
2012
US
years
25.7
26.7
For the UK plan the mortality assumptions were based on the standard SAPS mortality table with medium cohort improvements to 2009 (scaled by 90%
for males and 100% for females). Allowance for future improvements is made by adopting the 2012 edition of the CMI series with a long term trend of
1.5% per annum.
For the US plan the mortality assumptions were determined using the RP2000 Generational Mortality Table.
The sensitivity of the UK defined benefit obligation to changes in the principal assumptions
Discount rate
RPI increase
Life expectancy
Change in assumption
Change in Defined
Benefit Obligation
Increase 0.1%
Increase 0.1%
Members younger by 1 year
Decrease by 1.8%
Increase by 1.4%
Increase by 2.3%
The above sensitivity analyses are based on a change in one assumption while holding all other assumptions constant. In practice, this is unlikely to
occur, and changes in some of the assumptions may be correlated.
Impact of medical cost trend rates
A one percentage 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
Group plan assets are comprised as follows:
Total equities
Total bonds
Total property
Total other assets
Fair value of plan assets
1 Refer to note 1 for further details.
2013
-1%
£m
(1)
(15)
UK
£m
407
521
68
8
2013
Total
£m
456
775
207
20
1,458
1,004
Impact on defined benefit obligation
2012
+1%
£m
2
20
US
(medical)
£m
–
–
–
–
–
-1%
£m
(1)
(16)
2012
(restated)1
Total
£m
550
623
75
33
1,281
Other
£m
143
102
7
25
277
+1%
£m
1
18
Other
£m
163
120
11
9
303
UK
£m
293
655
196
11
1,155
US
(medical)
£m
–
–
–
–
–
All Total equities and Total bonds are quoted investments. All Total other assets are unquoted investments.
Through its defined benefit pension plans and post-employment medical plans, the group is exposed to a number of risks, the most significant of which
are detailed below:
Asset volatility: The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this
yield, this will create a deficit. Both the UK and US plans hold equities, which are expected to outperform corporate bonds in the long-term while
providing volatility and risk in the short-term. As the plans mature, the Group intends to reduce the level of investment risk by investing more in assets
that better match the liabilities. All the UK plans have agreed with the Company a plan to de-risk the investment strategy of the plans at a pace that
is commensurate with a planned return to full funding over a reasonable time scale. The de-risking plan provides for a proportion of the investment
portfolio to move from equity holdings to government and corporate bonds over time. The corporate bonds are global securities with an emphasis on
the UK and US. However, the Group believes that due to the long-term nature of the plan liabilities and the strength of the supporting Group, a level
of continuing equity investment is an appropriate element of the Group’s long-term strategy to manage the plans efficiently.
Changes in bond yields: A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the
value of the plans’ bond holdings.
78
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Financial Statements Notes to the Financial Statements
21 PENSION AND OTHER POST-RETIREMENT COMMITMENTS (CONTINUED)
Inflation risk: Some of the Group pension obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most
cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation). The majority of the plans’ assets are either
unaffected by (fixed interest bonds) or loosely correlated with (equities) inflation, meaning that an increase in inflation will also increase the deficit.
In the US plans, the pensions in payment are not linked to inflation, so this is a less material risk.
Life expectancy: The majority of the plans’ obligations are to provide benefits for the life of the member. Whilst the plans allow for an increase in
life expectancy, increases above this assumption will result in an increase in the plans’ liabilities. This is particularly significant in the UK plan, where
inflationary increases result in higher sensitivity to changes in life expectancy.
Change in regulations: The Group is aware that future changes to the regulatory framework may impact the funding basis of the various plans in the
future. The Group’s pensions department monitors the changes in legislation and analyses the risks as and when they occur.
Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A large
portion of assets in 2013 consists of quoted equities and quoted bonds, although the group also invests in property, and cash. The group believes
that quoted equities offer the best returns over the long term with an acceptable level of risk. The Trustees of all the UK funds have moved the
overwhelming majority of their assets to low cost investment funds in consultation with the Company whilst maintaining a prudent diversification.
For the largest UK plan, a full independent actuarial valuation was carried out at 5 April 2010 and a new valuation is currently underway with an
effective date of 5 April 2013. For the US plan, a full independent actuarial valuation was carried out at 1 January 2012. The Group has agreed that it
will aim to eliminate the pension plan deficit in the UK and Ireland over the next four years. Funding levels are monitored on an annual basis and the
current agreed contribution rate is 19.5% of pensionable salaries in the UK and nil in the US. The triennial valuation for the largest UK plan (effective
date 5 April 2013) is due to be finalised during 2014, and any further contributions in excess of the ongoing contribution rate of 19.5% will be finalised
at that time. The total contribution expected for 2014 is £54m and will be finalised when the current UK plan valuation is signed off by the Group and
Trustee. The Group considers that the contribution rates set at the last valuation date, and any future further contributions in excess of the contribution
rate, will be sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs, will not increase
significantly. For the purpose of IAS19 the projected unit valuation method was used for the UK and US plans, rolling forward the preliminary UK plan
triennial valuation results (at 5 April 2013) and the 1 January 2012 US plan valuation to 31 December 2013. For the largest UK plan, the weighted
average duration of the deferred benefit obligation is 17.3 years (2012: 17.3 years).
22 SHARE CAPITAL
Issued and fully paid
At 1 January 2013
Allotments
At 31 December 2013
Issued and fully paid
At 1 January 2012
Allotments
At 31 December 2012
Equity
ordinary
shares
Nominal
value
£m
Subscriber
ordinary
shares
Nominal
value
£m
734,210,757
2,324,422
736,535,179
73
1
74
2
–
2
–
–
–
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
–
–
–
The holders of equity 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 2,324,422 ordinary shares (2012: 5,589,155 ordinary shares) were allotted and 4,258,793 ordinary shares were released from Treasury
(2012: nil) 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
4,638,734
1,571,035
6,209,769
40,000
333,446
6,583,215
2013
Consideration
£m
131
–
131
–
7
138
Number
of shares
3,024,735
1,405,345
4,430,080
20,000
1,139,075
5,589,155
Market Purchases of Shares
During 2013 the Company purchased 6,000,000 equity ordinary shares in accordance with its share buy back programme (2012: 14,991,643) all
of which are held as Treasury shares. The total amount paid to acquire the shares was £279m (including stamp duty) which has been deducted from
Shareholders’ equity (2012: £535m). 4,258,793 Treasury shares were released in 2013, leaving a balance held at 31 December 2013 of 16,732,850
(2012: 14,991,643).
2012
Consideration
£m
74
–
74
–
24
98
79
RB Annual Report 2013
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 £55m (2012: £49m).
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 ten years but vest according to the following compound average annual growth (CAAG) rates in adjusted earnings per share over a
three-year period:
CAAG
per year (%)
9
8
7
6
Adjusted 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 2013 and 31 December 2012 are included in the tables below which analyse the
charge for 2013 and 2012. 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
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
47.83 2014-16
– 2009-11
– 2010-12
– 2011-13
– 2012-14
– 2013-15
– 2014-16
12.80
15.44
18.16
23.00
29.72
27.80
31.80
34.08
32.19
39.66
46.69
27.80
31.80
34.08
32.19
39.66
46.69
24
23
22
20
20
25
26
26
25
20
19
25
26
26
25
20
19
2.6
2.3
2.4
2.2
1.8
3.1
3.5
4.3
5.4
4.3
3.7
3.1
3.5
4.3
5.4
4.3
3.7
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4.50
4.88
4.69
4.65
5.53
2.78
1.69
2.16
1.00
0.61
0.76
2.78
1.69
2.16
1.00
0.61
0.76
2.46
2.99
3.33
4.23
5.99
4.69
4.70
4.49
3.18
3.29
3.85
24.31
27.23
28.22
25.30
32.76
39.80
Grant date
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
11 December 2013
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
11 December 2013
Table 1: Fair value
Award
Share options
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Restricted shares
2009
2010
2011
2012
2013
2014
80
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Financial Statements Notes to the Financial Statements
23 SHARE-BASED PAYMENTS (CONTINUED)
Table 2: Share awards movements 2013
Award
Share options
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Restricted shares
2010
2011
2012
2013
2014
Other share awards
UK SAYE
US SAYE
Overseas SAYE
SOPP
Options
outstanding
at 1 Jan
Fair value of
one award
£
Granted/
2013 adjustments
number
number
Grant date
Movement in number of options
Options
outstanding
at 31 Dec
2013
number
Exercised
number
Lapsed
number
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
11 December 2013
07 December 2009
01 December 2010
05 December 2011
03 December 2012
11 December 2013
2.46
67,000
2.99 165,511
3.33 263,300
4.23 1,160,358
5.99 1,844,079
4.69 2,172,285
4.70 2,955,162
4.49 3,055,949
3.18 3,186,439
3.29 4,022,000
3.85
–
–
–
–
–
–
–
–
(67,000)
–
–
(52,061) 113,450
–
(35,000) 228,300
(841,856) 318,502
–
– (1,037,886) 806,193
(1,513) (1,075,071) 1,095,701
(1,469) (1,155,308) 1,798,385
(359,422) 2,558,032
(15,130) 2,920,395
– 3,320,588
– 4,020,400
4,667 (143,162)
14,000 (264,914)
90,000 (791,412)
–
– 4,020,400
–
27.23 1,344,186
2,333
(71,097)
28.22 1,396,412
25.30 1,477,571
7,000 (122,364)
32.76 1,986,000 104,000 (472,355)
–
39.80
– 1,985,000
–
(214,152) 1,113,496
(12,759) 1,349,448
– 1,617,645
– 1,985,000
(62) (1,344,124)
Various
Various
Various
Various
Various 662,986 134,254
Various 643,736 147,514
2,011
Various 1,084,343
50,000
Various 180,000
(52,920)
(68,637)
(76,991)
(10,000)
(138,332) 605,988
(158,136) 564,477
(36,978) 972,385
(40,000) 180,000
Weighted average exercise price (share options)
£32.13
£47.57
£37.03
£28.17
£36.57
Table 3: 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
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
–
–
–
–
–
–
–
–
(1,000)
–
(3,000)
–
–
(5,353)
– (182,958)
– (496,841)
(686,800) (147,161)
–
– 4,022,000
–
(67,319)
(196,000)
67,000
(233,000) 165,511
(318,671) 263,300
(355,000) 1,160,358
(943,590) 1,844,079
(813,696) 2,172,285
(91,202) 2,955,162
(6,257) 3,055,949
– 3,186,439
– 4,022,000
(2,000) (1,336,916)
24.31 1,338,916
27.23 1,493,830
28.22 1,620,015
25.30 2,010,200
32.76
(86,447)
25,000 (243,371)
(71,079)
–
(461,550)
– 1,986,000
–
–
–
(63,197) 1,344,186
(5,232) 1,396,412
– 1,477,571
– 1,986,000
Various
Various
Various
Various
(77,753)
Various 754,823 152,282
Various 722,362 203,972 (109,551)
(99,103)
Various 1,975,152
7,956
(10,000)
Various 100,000 110,000
(166,366) 662,986
(173,047) 643,736
(799,662) 1,084,343
(20,000) 180,000
Weighted average exercise price (share options)
£29.53
£38.11
£33.46
£24.37
£32.13
For options outstanding at the year end the weighted average remaining contractual life is 5.63 years (2012: 5.69 years). Options outstanding at
31 December 2013 that could have been exercised at that date were 4,360,531 (2012: 5,672,533) with a weighted average exercise price of £28.35
(2012: £26.08).
81
RB Annual Report 2013
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 2013 or 2012
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 2013 was £35m (2012: £27m).
The weighted average share price for the year was £45.80 (2012: £35.79).
Options and restricted shares granted during the year
Options and restricted shares which may vest or become exercisable at various dates between 2015 and 2021 are as follows:
Long-Term Incentive Plan 2007 – share options
Long-Term Incentive Plan 2007 – restricted shares
Reckitt Benckiser Senior Executives Share Ownership Policy Plan
Total
Savings-Related Share Option Schemes
UK Scheme
US Scheme
Total
Price to be paid
£
47.83
–
–
37.20
37.20
Number of
shares under
option
4,110,400
2,089,200
40,000
6,239,600
129,438
147,514
276,952
Options and restricted shares unvested/unexercised at 31 December 2013
Options and restricted shares which have vested or may vest at various dates between 2014 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
22.57
27.29
–
–
To
18.10
22.57
47.83
–
–
2013
341,750
318,502
16,519,694
6,065,789
180,000
23,425,735
2012
495,811
1,160,358
17,235,914
6,204,169
180,000
25,276,252
Savings-related share option schemes
UK Scheme
US Scheme
Overseas Scheme
Total
Price to be paid £
Number of shares under option
From
16.90
25.78
21.95
To
37.20
37.20
27.99
2013
605,988
564,477
972,385
2,142,850
2012
662,986
643,736
1,084,343
2,391,065
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.
82
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Financial Statements Notes to the Financial Statements
24 RETAINED EARNINGS AND OTHER 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 19 March 2013 the Group purchased an additional 25% of Shanghai Manon Trading Company Limited, thereby increasing its share to 75.01%.
The consideration for the transaction amounted to £28m, including transaction costs.
Key management compensation is disclosed in note 5a.
The principal subsidiary undertakings included in the consolidated financial statements at 31 December 2013 are disclosed in note 2 to the Parent Company
financial statements.
26 BUSINESS ACQUISITIONS AND DISPOSALS
a. Collaboration with Bristol-Myers Squibb (BMS)
On 8 May 2013 the Group received regulatory approval for a three-year collaboration agreement with BMS for a number of market-leading over-the-
counter consumer health care brands in Brazil, Mexico and certain other parts of Latin America. This 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,
was secured for an upfront cash payment of $482m (£311m).
This transaction is accounted for as a business combination under IFRS 3 (Revised) Business Combinations.
The collaboration agreement provides the Group with an immediate health care platform, distribution network and infrastructure in Latin America and
trusted brands with a strong fit with the Group’s existing health portfolio.
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.
Intangible asset
Deferred tax assets
Provisions
Net assets acquired
Goodwill
Consideration transferred for net assets and goodwill
Payment for prepaid option
Total consideration transferred
Cash consideration
Deferred consideration
Total consideration transferred
Provisional
fair value
£m
57
4
(16)
45
36
81
250
331
311
20
331
Related to the transaction, payments totalling £250m have been attributed to the future option to acquire legal title to the related intellectual property.
The option is exercisable by the Group at the end of the collaboration period, subject to certain payments, in addition to the £331m, to be made at that
time. The prepayment of this option is not an asset purchased as part of the business combination under IFRS 3 (Revised), and is therefore disclosed
separately in the table above. The prepayment is included in other non-current receivables.
The intangible asset acquired relates to the three-year collaboration agreement.
Goodwill represents the strategic premium to establish an immediate platform, infrastructure and distribution network in the Latin American over-the-
counter consumer health care market, the value of expected synergy savings, and assembled workforce.
Acquisition related costs of £3m are included in net operating expenses and exceptional items in the income statement.
The fair values of identifiable net assets are stated at provisional amounts which will be finalised within the 12-month hindsight period following
acquisition. Provisional fair value adjustments cover the recognition of acquired intangibles and their associated deferred tax and accounting
policy alignment.
All assets and liabilities are included within the LAPAC operating segment and the health category. The amount of revenue and profit of the BMS
business since acquisition were not material in the context of the Group Income Statement. Had the business been acquired on 1 January 2013, the
revenue and profit of the Group for the year would not have been materially different to those appearing in the Group Income Statement.
83
RB Annual Report 2013
26 BUSINESS ACQUISITIONS AND DISPOSALS (CONTINUED)
b. 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. This transaction has been accounted
for by the acquisition method.
The fair values of the identifiable assets and liabilities at the date of acquisition were provisionally estimated and disclosed in the 2012 Annual Report
and Financial Statements. The table below sets out the movements from the provisional fair values detailed in the 2012 Annual Report and Financial
Statements and the updated final fair values at acquisition date. The adjustments made to restate the Group balance sheet primarily relate to the
recognition of a minor brand intangible, and adjustments to provisions for legal matters and trade related expenses due to additional information which
has come to light during the hindsight period and recognition of related deferred tax liabilities.
These adjustments have been recorded as a prior year restatement of the balance sheet of the Group as at 31 December 2012. There is no impact to
the Group income statement for the year ended 31 December 2012.
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
Provisional fair
values at
acquisition date
£m
811
9
27
27
9
6
(99)
(42)
(37)
(268)
(3)
(1)
439
374
813
813
813
Additional
fair value
adjustments
£m
4
(1)
24
(10)
17
(17)
–
–
–
Final fair values
at acquisition
date
£m
815
8
27
27
9
6
(99)
(18)
(37)
(278)
(3)
(1)
456
357
813
813
813
The intangible assets acquired include the brand assets associated with Airborne, Digestive Advantage, MegaRed, Move Free and Schiff Vitamins.
c. Minor Acquisitions and Disposals
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 17 September 2012 the Group acquired a 100% interest in SICO by acquiring the trade and business assets of the leading Mexican condom
manufacturer.
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 for the year ended 31 December 2012, of which £15m arises from deferred tax.
27 DIVIDENDS
Dividends on equity ordinary shares:
2012 Final paid: 78p (2011: Final 70p) per share
2013 Interim paid: 60p (2012: Interim 56p) per share
Total dividends for the year
2013
£m
561
431
992
2012
£m
511
405
916
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2013 of 77p per share which will absorb
an estimated £554m of Shareholders’ funds. If approved by Shareholders it will be paid on 29 May 2014 to Shareholders who are on the register on
21 February 2014, with an ex-dividend date of 19 February 2014.
28 POST BALANCE SHEET EVENTS
On 24 February 2014 part of a wider legal case was settled, which related to one of the current provisions held at the balance date. The remaining
provisions that were held in relation to this case at the balance sheet date are still considered to be appropriate.
84
Financial Statements Notes to the Financial Statements RB Annual Report 2013
Financial Statements Five-year Summary
Five-year Summary
Income statement
Net revenue
Operating profit
Adjusted operating profit
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
2013
£m
2012
(restated)1
£m
2011
£m
2010
£m
2009
£m
10,043
9,567
9,485
8,453
7,753
2,345
2,442
2,395
2,130
1,891
2,616
(271)
2,345
(31)
2,314
(574)
(1)
2,577
(135)
2,442
(34)
2,408
(583)
(4)
2,487
(92)
2,395
(19)
2,376
(622)
(9)
2,231
(101)
2,130
6
2,136
(566)
(2)
1,891
–
1,891
1
1,892
(474)
–
Net income attributable to owners of the parent
1,739
1,821
1,745
1,568
1,418
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†
6,336
(863)
5,922
(700)
5,781
(701)
5,130
(639)
4,014
(867)
23.3%
75.6x
24.8%
238.5p
1.8x
137p
26.0%
84.4x
269.8p
2.0x
25.5%
71.8x
24.2%
248.4p
1.9x
134p
26.9%
75.8x
263.3p
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
† Dividend cover is calculated by dividing basic earnings/adjusted earnings per share by ordinary dividends per share relating to the year.
* Adjusted basis is calculated by adding/deducting the exceptional items from net income for the year.
1 Restated for change in IAS 19 as discussed in note 1 to the Group financial statements. 2011 and prior years have not been restated.
85
RB Annual Report 2013
Financial Statements Parent Company Independent Auditors’ Report
Parent Company Independent Auditors’
Report to the Members of Reckitt
Benckiser Group plc
Report on the Parent Company
Financial Statements
Our Opinion
In our opinion the Parent Company financial
statements:
• Give a true and fair view of the state
of the Parent Company’s affairs as at
31 December 2013;
• Have been properly prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice; and
• Have been prepared in accordance with the
requirements of the Companies Act 2006.
This opinion is to be read in the context of
what we say in the remainder of this report.
What we have Audited
The Parent Company financial statements,
which are prepared by Reckitt Benckiser Group
plc, comprise:
• The Parent Company balance sheet as at
31 December 2013; and
• The notes to the Parent Company financial
statements, which include a summary of
significant accounting policies and other
explanatory information.
The financial reporting framework that has
been applied in their preparation comprises
applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted
Accounting Practice).
In applying the financial reporting framework,
the Directors have made a number of subjective
judgements, for example in respect of
significant accounting estimates. In making
such estimates, they have made assumptions
and considered future events.
Certain disclosures required by the financial
reporting framework have been presented
elsewhere in the Annual Report and Financial
Statements (‘Annual Report’); rather than in
the notes to the financial statements. These are
cross-referenced from the financial statements
and are identified as audited.
What an Audit of Financial Statements
Involves
We conducted our audit in accordance with
International Standards on Auditing (UK &
Ireland) (‘ISAs (UK & Ireland)’). 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:
86
• 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 Parent Company financial statements
and to identify any information that is
apparently materially incorrect based on, or
materially inconsistent with, the knowledge
acquired by us in the course of performing the
audit. If we become aware of any apparent
material misstatements or inconsistencies we
consider the implications for our report.
Opinions on Matters Prescribed by
the Companies Act 2006
In our opinion:
• The information given in the Strategic Report
and 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.
• The part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the Companies
Act 2006.
Other Matters on which we are
Required to Report by Exception
Adequacy of Accounting Records and
Information and Explanations Received
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• We have not received all the information and
explanations we require for our audit; or
• 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.
We have no exceptions to report arising from
this responsibility.
Directors’ Remuneration
Under the Companies Act 2006 we are
required to report to you if, in our opinion,
certain disclosures of Directors’ remuneration
specified by law have not been made. We
have no exceptions to report arising from
this responsibility.
Other Information in the Annual Report
Under ISAs (UK & Ireland), we are required to
report to you if, in our opinion, information in
the Annual Report is:
• Materially inconsistent with the information
in the audited Parent Company financial
statements; or
• Apparently materially incorrect based on, or
materially inconsistent with, our knowledge
of the Parent Company acquired in the
course of performing our audit; or
• Is otherwise misleading.
We have no exceptions to report arising from
this responsibility.
Responsibilities for the Financial
Statements and the Audit
Our Responsibilities and those of the
Directors
As explained more fully in the Statement of
Directors’ Responsibilities set out on page 33,
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 and express an
opinion on the Parent Company financial
statements in accordance with applicable law
and ISAs (UK & 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.
Other Matter
We have reported separately on the Group
financial statements of Reckitt Benckiser Group
plc for the year ended 31 December 2013.
Mark Gill (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 March 2014
RB Annual Report 2013 Financial Statements Parent Company Balance Sheet
Parent Company Balance Sheet
As at 31 December
Fixed assets
Investments
Current assets
Debtors: amounts falling due within one year
Debtors: amounts falling due after more than one year
Current liabilities
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Provisions for liabilities
Net assets
EQUITY
Capital and reserves
Called up share capital
Share premium account
Profit and loss reserve
Total Shareholders’ funds
Notes
2013
£m
2012
£m
2
3
4
5
6
7
8
8
8
14,729
14,680
70
2
72
(5,676)
(5,604)
9,125
(222)
8,903
74
243
8,586
8,903
59
8
67
(4,498)
(4,431)
10,249
–
10,249
73
184
9,992
10,249
The financial statements on pages 87 to 92 were approved by the Board of Directors on 7 March 2014 and signed on its behalf by:
Adrian Bellamy
Director
Rakesh Kapoor
Director
87
RB Annual Report 2013
Financial Statements Notes to the Parent Company Financial Statements
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 s.408 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 year 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 year 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 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 year 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 less provision for impairment.
Provisions
Provisions are recognised when the Company has a present 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.
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 reserve.
Dividends
Dividends payable are recognised when they meet the criteria for a preset obligation (i.e. when they have been approved).
Cash Flow Statement
Reckitt Benckiser Group plc has presented a Group cash flow statement in its 2013 Annual Report and Financial Statements. The Directors have not
prepared a cash flow statement for the Company.
88
RB Annual Report 2013 Financial Statements Notes to the Parent Company Financial Statements
2 INVESTMENTS
Cost:
At 1 January 2013
Additions during the year
At 31 December 2013
Provision for impairment:
At 1 January 2013
Provided for during the year
At 31 December 2013
Net book amounts:
At 1 January 2013
At 31 December 2013
Shares in subsidiary
undertakings
£m
14,680
49
14,729
–
–
–
14,680
14,729
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 2013, all of which are included in the consolidated financial statements, are shown below.
Reckitt Benckiser plc
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
holding company
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
UK
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
Ordinary 100
With the exception of Reckitt Benckiser plc, 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: AMOUNTS FALLING 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: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Deferred tax assets
Deferred tax assets consist of short-term timing differences.
5 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Amounts owed to Group undertakings
Taxation and social security
2013
£m
70
2013
£m
2
2013
£m
5,673
3
5,676
2012
£m
59
2012
£m
8
2012
£m
4,491
7
4,498
Included in the amounts owed to Group undertakings is an amount of £5,671m (2012: £4,473m) 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.
89
RB Annual Report 2013
Financial Statements Notes to the Parent Company Financial Statements
6 PROVISIONS FOR LIABILITIES
Provisions are recognised when the Company has a present 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 for liabilities include indemnities provided by the Company to subsidiaries for exceptional legal provisions in relation to a number of historic
regulatory investigations by various government authorities in a number of markets. These investigations involve mainly competition law inquiries.
Provisions expected to be settled within one year are £137m (2012: £nil) and after more than one year but less than five years are £85m (2012: £nil).
7 CALLED UP SHARE CAPITAL
Issued and fully paid
At 1 January 2013
Allotments
At 31 December 2013
Issued and fully paid
At 1 January 2012
Allotments
At 31 December 2012
Equity
ordinary
shares
734,210,757
2,324,422
736,535,179
Equity
ordinary
shares
728,621,602
5,589,155
734,210,757
Nominal
value
£m
73
1
74
Nominal
value
£m
73
–
73
Subscriber
ordinary
shares
2
–
2
Subscriber
ordinary
shares
2
–
2
Nominal
value
£m
–
–
–
Nominal
value
£m
–
–
–
For details of the allotment of ordinary shares during 2013 refer to note 22 of the Group financial statements on page 79.
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.
8 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
Share
capital
Share
premium
Profit and
loss reserve
Movements during the year
At 1 January 2013
Loss for the financial year
Dividends
Shares allotted under share schemes
Capital contribution in respect of share-based payments
Share-based payments
Shares repurchased and held in Treasury
Treasury shares reissued
At 31 December 2013
Movements during the year
At 1 January 2012
Loss for the financial year
Dividends
Shares allotted under share schemes
Capital contribution in respect of share-based payments
Share-based payments
Shares repurchased and held in Treasury
At 31 December 2012
£m
73
–
–
1
–
–
–
–
74
£m
184
–
–
59
–
–
–
–
243
Share
capital
Share
premium
£m
73
–
–
–
–
–
–
73
£m
86
–
–
98
–
–
–
184
£m
9,992
(269)
(992)
–
49
6
(279)
79
8,586
Profit and
loss reserve
£m
11,447
(54)
(916)
–
43
7
(535)
9,992
Total
£m
10,249
(269)
(992)
60
49
6
(279)
79
8,903
Total
£m
11,606
(54)
(916)
98
43
7
(535)
10,249
Reckitt Benckiser Group plc has £8,288m (2012: £9,725m) of its profit and loss reserve available for distribution.
During 2013 the Company purchased 6,000,000 equity ordinary shares in accordance with its share buy back programme (2012: 14,991,643) all of
which are held as Treasury shares. The total amount paid to acquire the shares was £279m (including stamp duty) which has been deducted from
Shareholders’ equity (2012: £535m). 4,258,793 Treasury shares were released in 2013, leaving a balance held at 31 December 2013 of 16,732,850
(2012: 14,991,643).
90
RB Annual Report 2013
Financial Statements Notes to the Parent Company Financial Statements
9 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 £6m (2012: £7m) and National Insurance contributions were £3m (2012: £7m). 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 2013 is shown in note 23 of the Group financial statements on pages 80 to 82.
Table 1: Share awards movements 2013
Award
Share options
2007
2008
2009
2010
2011
2012
2013
2014
Restricted shares
2010
2011
2012
2013
2014
Other share awards
UK SAYE
Options
outstanding
Fair value of at 1 January
Grant date
one award
£
Granted/
2013 adjustments
number
number
08 December 2006
11 December 2007
08 December 2008
07 December 2009
01 December 2010
05 December 2011
03 December 2012
11 December 2013
07 December 2009
01 December 2010
05 December 2011
03 December 2012
11 December 2013
4.23 800,000
5.99 600,000
4.69 600,000
4.70 534,615
4.49 334,615
3.18 490,000
3.29 400,000
3.85
–
–
–
–
–
–
90,000
– 490,000
27.23 267,308
28.22 177,308
25.30 245,000
32.76 200,000
39.80
–
8,173
–
45,000
– 285,000
Movement in number of options
Options
outstanding at
31 December
2013
number
Exercised
number
Lapsed
number
–
–
–
–
(800,000)
(600,000)
(600,000)
(534,615)
(66,923) (267,692)
(53,654)
–
–
–
–
–
–
–
– 436,346
– 490,000
– 490,000
–
(267,308)
(33,461) (133,847)
(37,628)
–
–
–
18,173
– 207,372
– 245,000
– 285,000
04 September 2006
6.61
1,011
–
–
–
1,011
Weighted average exercise price
£29.79
£46.48
£33.51
£27.94
£39.97
Table 2: Share awards movements 2012
Options
outstanding
Fair value of at 1 January
Grant date
one award
£
Granted/
2012 adjustments
number
number
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
Movement in number of options
Options
outstanding at
31 December
2012
number
Exercised
number
– 800,000
– 600,000
(93,077) 600,000
(53,077) 534,615
– 334,615
– 490,000
– 400,000
Lapsed
number
–
–
–
(65,385)
(265,385)
–
–
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
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
Award
2007
2008
2009
2010
2011
2012
2013
Restricted shares
2009
2010
2011
2012
2013
Other share awards
UK SAYE
04 September 2006
6.61
1,011
–
–
–
1,011
Weighted average exercise price
£29.15
£39.14
£34.05
£28.87
£29.79
Further details of the share awards relating to the relevant Directors are set out in the Directors’ Remuneration Report on pages 34 to 46.
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 5.63 years (2012: 5.69 years).
The weighted average share price for the year was £45.80 (2012: £35.79).
91
RB Annual Report 2013
Financial Statements Notes to the Parent Company Financial Statements
10 AUDITORS’ REMUNERATION
The fee charged for the statutory audit of the Company was £0.05m (2012: £0.05m).
11 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 (2012: nil).
12 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.
13 DIVIDENDS
Dividends on equity ordinary shares:
2012 Final paid: 78p (2011: Final 70p) per share
2013 Interim paid: 60p (2012: Interim 56p) per share
Total dividends for the year
2013
£m
561
431
992
2012
£m
511
405
916
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2013 of 77p per share which will absorb an
estimated £554m of Shareholders’ funds. If approved by Shareholders it will be paid on 29 May 2014 to Shareholders who are on the register on
21 February 2014, with an ex-dividend date of 19 February 2014.
14 POST BALANCE SHEET EVENTS
On 24 February 2014 part of a wider legal case was settled, which related to one of the current provisions held at balance sheet date. The remaining
provisions that were held in relation to this case at the balance sheet date are still considered to be appropriate.
92
RB Annual Report 2013
Our Relationships and Principal Risks
Our Relationships and
Principal Risks
Relationships
The Group’s key external relationships are
broadly based. With our customers (retailers) no
single one accounts for more than 10% of net
revenue and our top ten customers account 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
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
materially adversely affect the Group’s ability
to deliver its strategic objectives is low.
Principal Risks
The principal and specific risks that, in the
opinion of the Directors, pose the most
significant threat to the delivery of the Group’s
listed strategic objectives are as listed:
Any of the following, or a combination of such
factors, could have a material adverse effect on
our business, prospects, results of operations or
financial condition.
We could be adversely affected by economic
conditions in, and political developments
affecting, the markets in which we operate.
We are one of the world’s leading
manufacturers and marketers of branded
health, hygiene and home products, selling a
comprehensive range of products through over
60 operating companies in nearly 200
countries. Consequently, our business and
results of operations are affected by changes
in both global economic conditions and the
individual markets in which we operate.
Global economic trends continue to pose
challenges, and in many of our markets,
austerity measures, constraints on consumer
lending and slow or no economic growth
continue to impede consumer purchasing
power and adversely impact consumer
confidence. In addition, terrorist acts, civil
unrest and other similar disturbances, as well
as natural catastrophes, can impact economic
conditions and consumer confidence, degrade
infrastructure, disrupt supply chains and
otherwise result in business interruption.
A variety of factors may adversely affect our
results of operations and financial condition
during periods of economic uncertainty or
instability, social or labour unrest or political
upheaval in the markets in which we operate.
For example, our operations and supply chains
may be disrupted. Consumers may purchase
less or switch to purchasing generic products,
private label products and economy brands,
as opposed to branded products, which could
impact our sales, or result in a shift in our
product mix from higher margin to lower
margin product offerings. In addition, we may
face increased pricing pressure or competing
promotional activity for lower-priced products
as competitors seek to maintain sales volumes.
Periods of economic upheaval may also expose
us to greater counterparty risks, including with
customers, suppliers and financial institutions,
who may become insolvent or otherwise
unable to perform their obligations. We may
also experience greater fluctuations in foreign
currency movements, increased commodity
prices and increased transportation and
energy costs. Periods of economic and
political upheaval may also lead to government
actions, such as imposition of martial law,
trade restrictions, foreign ownership
restrictions, capital, price or currency controls,
nationalisation or expropriation of property
or other resources, or changes in legal and
regulatory requirements, including those
resulting in potentially adverse tax
consequences. We may also be unable to
access credit markets, including the commercial
paper market, on favourable terms, or at all,
which could materially adversely affect our
liquidity and capital resources or significantly
increase our cost of capital.
Our Powerbrands collectively contribute a
significant portion of our revenue, and any
material adverse change to demand for existing
Powerbrands or any future products we may
develop, could have a material adverse effect
on our business.
Our results of operations depend to a
significant extent on our ability to launch
and sell products that appeal to, and are
accepted by consumers and, in particular, our
Powerbrands. Consumer preferences, tastes
and habits are constantly evolving. Various
factors, some of which are beyond our control,
may have an adverse impact on demand for
our Powerbrands. For example, certain
products within our health and hygiene
categories have in the past exhibited, and may
in the future exhibit, seasonal fluctuations.
Launch of new products or variants of our
existing Powerbrands may not neutralise the
impact of weak performance of one of
our Powerbrands. Similarly, our failure to
differentiate our existing Powerbrands or future
products from competitors, whether through
quality, innovation, marketing or otherwise,
may adversely impact consumer demand for
our products. Certain markets, including a
number of emerging markets in which we plan
to focus our investment and growth efforts,
exhibit more volatile demand in reaction to
macro-economic factors than other markets.
Similarly, if consumer patterns change within
the major consumer clusters that we have
identified, or fail to react as anticipated, we
may have to reassess our growth plans, and
alter our sales strategy.
If we are unable to respond to changes in
consumer demand in a timely or adequate
manner, or at all, and/or accurately predict or
anticipate factors that may impact demand,
and if we are unable to differentiate our brands
from competitors, our business, financial
condition and results of operations may be
materially and adversely affected.
Our business, financial condition, and results
of operations substantially depend on our
ability to improve our existing products, and
successfully develop and launch new products
and technologies.
Our ability to maintain and grow our market
share depends to a large extent on our ability
to successfully and cost-effectively introduce
and market new products (whether variants
of existing, or newly developed, products),
and to develop equipment, technology and
manufacturing processes for our products.
If we are unable to successfully develop, launch
and market new products that obtain consumer
acceptance, in a timely manner, or at all, we
may be unable to compete and maintain or
grow our market share. Any new product or
line extension may not generate sufficient
consumer interest and sales levels to become a
profitable product or to cover the costs of its
93
RB Annual Report 2013 Our Relationships and Principal Risks
development or promotion. In addition, if we
decide to pursue growth opportunities in new
categories and new category segments or in
regions in which we have no prior experience
or limited experience, we may become
exposed to unexpected or greater risks and
potential losses.
Product innovation and development generally
involve considerable costs, and may involve a
lengthy process. For example, research and
development (‘R&D’) required to develop health
products could take a significant period of time,
from discovery to commercial product launch,
and given the limited duration of patents,
the longer we take to develop and launch
a product, the less time for which we have
exclusivity, in which we can recoup our
development costs and seek to profit. We may
be unable to successfully complete clinical trials
and obtain applicable regulatory approvals in a
timely manner, or at all, and may fail to gain
market approval for our products. Additionally,
we may encounter infringement claims by
competitors, which may preclude or delay
commercialisation of our products. Any delays
could result in us not being the first to market,
and could undermine our competitive
advantage. If any of the products we are
currently developing, or may develop in future,
fail to become market-ready or to achieve
commercial success at expected levels, or at all,
we may incur substantial losses. If we fail to
develop or upgrade our equipment, technology
and manufacturing processes at least in line
with our competitors, we may be unable to
compete effectively and lose market share.
Substantial harm to our reputation, or the
reputation of one or more of our brands, may
materially adversely affect our business.
The majority of our brands have worldwide
recognition. Maintaining our established
reputation and trust with key stakeholders,
including consumers, customers and trading
partners is critical to our business. Various
factors may adversely impact our reputation,
including product quality inconsistencies or
contamination. We have in the past faced
quality-related issues, which resulted in trade
and consumer recalls and such recalls may have
a material adverse impact on our reputation.
Raw materials that we source for production
may become contaminated through the supply
chain, and other product defects may occur
due to human error or equipment failure,
among other things. Reputational risks may
also arise with respect to the methods and
practices of third parties that are part of our
supply chain, including labour standards,
health, safety and environmental standards,
raw material sourcing, and ethical standards
in the countries in which we operate. We may
also be the victim of product tampering. Any
perceived or actual concerns related to our
products, our supply chain, or the industry
more generally, such as the long-term effects
of household chemicals and OTC (over-the-
counter) drug ingredients on human health and
the environment, may be widely disseminated
online, on consumer blogs or other social
media sites, or via print and broadcast media.
94
Similarly, any litigation that we face may subject
us to increasing negative attention in the press.
In addition, companies with global operations
recently have come under criticism for
corporate tax planning, and criticism of our
structures or those of our peers could also
generate negative publicity. Any negative
publicity could significantly undermine our
reputation, and current methods of
dissemination of information (including the
ability of reports to ‘go viral’ online) mean
that potential threats to reputation can occur
in a very short period of time and reach a far
broader audience than historically was the case,
making it far more difficult to address.
Moreover, third parties may sell products that
are counterfeit or unauthorised versions of our
brands, or inferior ‘lookalike’ brands that
resemble ours. Consumers may confuse our
products with such brands.
We could be materially adversely affected by
the loss of revenue from the sales of Suboxone
and Subutex.
Our RB Pharmaceuticals business, which
manufactures and distributes Subutex (a
buprenorphine-based treatment for opiate
dependence) and Suboxone (a buprenorphine
and naloxone-based treatment for opiate
dependence), generated 8% of our net revenue
and 16% of our operating profit before
exceptional items in 2013.
The introduction of generic products typically
leads to a loss of sales of the branded product
and a decrease in the price at which branded
products can be sold. In the United States, the
exclusivity afforded to Suboxone by its orphan
drug status under the regulations of the US
Food and Drug Administration (‘FDA’) ended in
2009. Suboxone has marketing approval from
the European Commission for treatment in the
28 countries of the European Union, Norway
and Iceland, with data exclusivity until 2016.
Two manufacturers launched generic Suboxone
tablets in March 2013, which have gained a
13% volume (by mg) market share (according
to Source Healthcare Analytics’ Pharmaceutical
Audit Suite Weekly Data as at 27 December
2013) of the buprenorphine market in the
United States.
In March 2013, based on the enhanced
benefits of our Suboxone sublingual Film
(which we launched in August 2010) and the
reduction in unintended paediatric exposure
due to its unit-dose child resistant packaging,
we voluntarily withdrew our Suboxone tablets
from the US market. We expect other
manufacturers to introduce branded tablets
that contain buprenorphine.
Orexo has recently introduced branded tablets
that contain buprenorphine. These tablets
may capture market share from our Suboxone
sublingual Film. Although our Suboxone
sublingual Film has a volume market share of
68% of the US buprenorphine-based opioid
addiction treatment market, as of 31 December
2013, we expect that increased price pressure
will lead to a material reduction in net revenue
from this product and adversely affect our
overall revenues and operating profit.
In addition, our patents relating to the
Suboxone sublingual Film expire on various
dates through 2030. We have recently been
informed of the filing of abbreviated new drug
applications (‘ANDA’) by Par Pharmaceutical
Companies, Inc. (‘Par Pharmaceutical’), Watson
Laboratories, Inc. (‘Watson Laboratories’) and
Alvogen Pine Brook, Inc. (‘Alvogen’) for generic
Suboxone sublingual Films in the United States.
The FDA can approve an ANDA for a generic
version of a branded drug without requiring
the applicant to undertake the full clinical
testing necessary to obtain approval to market
a new drug. An ANDA applicant usually needs
to only submit data demonstrating that its
product has the same active ingredient(s) and
is bioequivalent to the branded product, in
addition to any data necessary to establish that
any difference in strength, dosage form,
inactive ingredients or delivery mechanism does
not result in different safety or efficacy profiles,
as compared to the reference drug. Although
we have filed a patent infringement lawsuit
against the ANDA applicants noted above,
which means that the FDA cannot approve the
generic entrant until the earlier of 30 months
or the disposition of the patent infringement
proceedings, the lawsuit may not be resolved in
our favour or we may choose to settle due to
the unpredictable nature and significant costs
of patent litigation. If any other generic
company is able to obtain FDA approval of its
generic Suboxone sublingual Film, it may be
able to launch its generic version of Suboxone
sublingual Film prior to the expiration of any
or all of the applicable patents covering our
Suboxone sublingual Film.
Further, pharmacies may discontinue stocking,
doctors may stop prescribing, and payors may
reduce the reimbursement on or may stop
reimbursing, Suboxone sublingual Film, which
may have an additional adverse impact on
our revenue.
Loss of revenue from the sales of Suboxone
and Subutex, whether due to competition from
generic products or due to decisions not to
prescribe or stock our drugs, could have a
material adverse effect on our results of
operations and our business.
We compete in intensely competitive industries.
We face vigorous competition worldwide. We
compete with well-established local, regional,
national and international companies that
target the same consumer base as we do, some
of whom may have more significant resources
with which to establish and promote their
products. We also face competition from
‘private label’ products, and generic non-
branded products, which typically are sold at
lower prices, by major retail companies, some
of whom may be our customers. Competition
from these sources has grown in recent years.
In the pharmaceutical sector, we also compete
with big generic manufacturers and smaller
branded firms, as well as R&D firms, which may
have more significant resources than we do.
Consolidation of key trade customers in the
sectors in which we operate may limit
opportunities for growth, and increase
competitive pressures further.
RB Annual Report 2013 Our Relationships and Principal Risks
Our products generally compete on the basis of
product quality and performance, promotional
activities, brand recognition, price, timely
development and launch, or other benefits to
consumers. If we are unable to offer products
that consumers choose over our competitors’
products, our business and results of operations
may be materially adversely affected. In
addition, our products compete with other
products for shelf space in retail stores and
for marketing focus, such as via in-store
promotional activities of our brands. Our
competitive position, and consequently sales of
our products, may be harmed to the extent that
we are unable to successfully maintain sound
working relationships with our trade customers,
who determine access to shelf space and
product placement on shelf, set retail prices
and control in-store promotional activities
of our brands, and can establish pricing
differentials between similar products on
shelf. As the retail sector becomes more
concentrated, retailers could impose downward
pressure on prices and require commercial
incentives before agreeing to offer our products
for sale to consumers. Further, to the extent
trade customers increase usage of their own
distribution networks and private label brands,
the competitive advantage we derive from
our brand equity could be impaired. In
addition, new sales channels have emerged,
and continue to emerge, such as sales made
through the Internet via online shopping,
which may affect customer and consumer
preferences, and competitive dynamics. If
we are unable to effectively compete in these
new channels, this could adversely impact our
results and our prospects. Moreover, increased
competition means that we need to spend
more on promotion of our products.
Any of the foregoing could have a material
adverse impact on our future sales and
prospects, consequently adversely impacting
our results of operations. Competition also
extends to administrative and legal challenges
of product claims and advertising. Responding
to legal challenges and defending our products
and intellectual property rights could result in
significant expenses and may divert resources
away from product and technological
innovation, which may have a material adverse
impact on our financial condition and results
of operations.
We are exposed to foreign currency exchange
rate risk.
We operate on a global basis, and hold assets,
incur liabilities, earn revenues, pay expenses,
and make investments in a number of
currencies, with our non-UK operations
generating a significant portion of our net
revenue. In FY 2013, 93% of our net revenue
was derived from markets outside the United
Kingdom. The Sterling value of our revenues,
profits and cash flows from non-UK markets
may be reduced or our supply costs, as
measured in Sterling in those markets, may
increase. Additionally, a number of our
competitors are based in countries whose
currencies fluctuate against Sterling, and they
may benefit from having their costs incurred
in weaker currencies relative to Sterling. We
prepare our financial statements in pounds
sterling, and our financial results are affected
by fluctuations among the relative value
of Sterling and other functional currencies,
particularly the US dollar and Euro. For
example, in FY 2013, we incurred a net
exchange loss on foreign currency translation,
net of tax, of £363m in our statement of
comprehensive income. Further, currency
translations may make it more difficult for
investors to understand the relative strengths
or weaknesses of the underlying business on
a period-to-period comparative basis.
We currently hedge some of our currency
exposures using financial instruments, and
we try to align our interest costs and operating
profits of our major currencies where possible,
which may not be effective. Hedging
transactions do not eliminate the exchange
rate risk entirely, and may not be fully, or at
all, effective.
We are subject to the risk that countries in
which we operate may impose or increase
exchange controls or devalue their currency.
We operate in a number of countries,
particularly emerging markets, which impose
exchange controls, including, but not limited
to, Argentina, Brazil, China, India, Russia,
South Africa and Venezuela. Such controls may
restrict or make it impossible to convert local
currency into other currencies, restrict our
ability to repatriate earnings from a country
(for example, £109m of our cash and cash
equivalents as at 31 December 2013 were
restricted for use by us), borrow on the
international markets to fund operations in
that country or limit our ability to import raw
materials or finished products, any or all of
which could materially adversely affect our
business, liquidity and results of operations.
In addition, emerging markets are prone to
currency devaluations, such as, for example, the
devaluation by the government of Venezuela of
its currency in February 2013, which tend to
make our products more expensive in local
currency terms.
We face risks of interruptions of our supply
chain and disruptions in our production
facilities, which could materially adversely affect
our results of operations.
We source our raw and packaging materials
(including bulk chemicals, plastics, pulp and
metal cans) and finished goods from a wide
variety of predominantly international chemical
and packaging companies and co-packers.
We also outsource the manufacture of some
of our products to third parties. Our suppliers
generally are diversified in terms of geography
and supplied items, but we may face risks to
continuity of supply arising from certain
specialised suppliers, both of raw materials and
of third party manufactured items, including
specialty chemicals and components. We may
also incur higher prices for raw materials than
we may otherwise have to pay if we adopted
a more concentrated approach to obtaining
supplies. More generally, significant disruptions
to our suppliers’ operations, such as disruptions
resulting from natural catastrophes (including
as a result of the effects of climate change),
pandemics or other outbreaks of diseases, acts
of war or terrorism, or otherwise, may affect
our ability to source raw materials on a more
global basis, and negatively impact our costs.
The failure of a number of third party suppliers
to fulfil their contractual obligations, in a timely
manner, or at all, may result in delays or
disruptions to our business. Replacing suppliers
may require a new supplier to be qualified
under industry, governmental or our standards,
which could require investment and may
take time.
In addition, a number of our facilities are
critical to our business and major or prolonged
disruption at those facilities, whether due
to accidents, sabotage or otherwise could
materially adversely affect our operations.
Moreover, sites in which our products are
manufactured are subject to supervision by
regulatory agencies, on both an ongoing and
ad hoc basis. For example, Suboxone sublingual
Film is manufactured at a single-source
production facility in the United States, and
FDA approval is generally limited to the specific
approved production facility. If we are unable
to obtain or produce sufficient quantities of a
particular product, at specifically approved
facilities, whether due to disruption to, or
failure of, our manufacturing processes, or
otherwise, we may fail to meet customer
demand on a timely basis, which could
undermine our sales and result in customer
dissatisfaction and damage to our reputation.
In addition, any failure to comply with
applicable legal requirements could lead to
interruption of production, product recalls,
seizures and revocation of licenses to operate
at any of our facilities.
Any interruption or disruption in our
supply chain, particularly if significant or
prolonged, could materially adversely affect
our business, prospects, results of operations
and financial condition.
Volatility in the price of commodities, energy
and transportation may impact our profitability.
Certain materials for the production or
packaging of finished goods, such as oil-related
commodities, are subject to fluctuating prices.
Increases in the costs or decreases in the
availability of these commodities, and
increases in other costs such as energy and
transportation, could adversely affect our
profitability if we are unable to pass on the
higher costs in the form of price increases or
otherwise achieve cost efficiencies. Even if we
were to increase the prices of our products,
competitors may opt not to adjust their prices
in response to increasing costs and customers
may refuse to pay higher prices. Our inability
to manage this risk effectively, or at all, could
have a material adverse effect on our results
of operations.
We have grown, and may continue to grow, in
part, through acquisitions, joint ventures and
business alliances, which involve various risks.
While we are principally focused on organic
growth, we have in the past grown, and expect
in the future to continue to grow, through
acquisitions. Acquisitions present a range of
risks and uncertainties.
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RB Annual Report 2013 Our Relationships and Principal Risks
Historically we have funded acquisitions
through short-term borrowings, which we
repaid through cash flow from our operations.
In the past three years, we have moved away
from this model due in part to the size of the
acquisitions. We expect that future acquisitions
will be funded through either additional
borrowings or through equity, or a combination
of the two. We are shifting our capital structure
in favour of more medium-term borrowings, in
part to be able to fund larger acquisitions. This
in turn could result in an increase in our net
debt, and will likely increase our level of interest
expense as we move away from the commercial
paper market, which has benefited from the
low interest rate environment following the
financial crisis. Material or transformative
acquisitions could require shareholder approval,
either due to the level of equity funding or due
to corporate governance requirements. While
we target a strong investment grade ‘A’ banded
credit rating for our debt, acquisitions of a
certain size, to the extent we rely more heavily
on debt funding, could place pressure on our
credit rating.
Our competitors may choose to target the same
acquisition candidates, and consolidation in the
industry may limit available opportunities for
acquisitions. We may also be restricted by
applicable antitrust laws, foreign investment
laws, or other laws and regulations, from
pursuing acquisitions, in which case we may
bear substantial out-of-pocket expenses
associated with a failed acquisition.
We may fail to achieve projected financial
results of acquisitions, including expected cost
and revenue synergies. In making acquisitions,
we make various assessments, including
expected growth rates which we may fail to
achieve. To the extent that economic benefits
associated with our acquisitions diminish in the
future, we may be required to record
impairment charges to goodwill or other assets,
which could affect our financial condition.
Through our acquisitions, we may also assume
unknown or undisclosed business, operational,
tax, regulatory and other liabilities, fail to
properly assess known contingent liabilities
or assume businesses with internal control
deficiencies. While we seek to mitigate these
risks in most of our transactions through,
among other things, due diligence processes
and indemnification provisions, we cannot be
certain that the due diligence processes we
conduct are adequate (particularly with respect
to acquisitions of privately held companies
and in countries where legislation and
transparency make the process more difficult)
or that the indemnification provisions and
other risk mitigation measures we put in place
will be sufficient.
We could also face significant risks related
to integration of the acquired businesses into
the RB Group, particularly if we attempt to
simultaneously integrate multiple businesses.
Acquisitions in emerging markets, such as
China, where we recently completed an
acquisition, may impose particular risks related
to integration across different corporate
cultures, systems, languages and other market
96
and regulatory risks. In addition, acquisitions in
markets in which we have limited or no prior
experience may pose a greater risk. Moreover,
integration of acquired businesses, as well as
any attendant internal reorganisation, can also
require significant management attention,
which may place strain on management
resources and processes, and otherwise disrupt
operations. Acquisitions can also place a strain
on Group-wide internal control systems.
If we are unable to effectively manage risks
associated with acquisitions, our business,
financial condition and results of operations
may be materially adversely affected.
In addition, we may choose to enter into joint
ventures, business alliances or collaboration
agreements, which could involve the same or
similar risks and uncertainties as are involved
in acquisitions. For example, we recently
entered into a three-year collaboration
agreement with Bristol-Myers Squibb for a
number of market-leading OTC consumer
health care brands in Brazil, Mexico and certain
other parts of Latin America. Joint ventures
generally involve a lesser degree of control over
business operations, which have in the past
presented, and may in the future present,
greater financial, legal, operational and/or
compliance risks.
We may be unable to attract and retain
qualified personnel, including key senior
management.
We invest in recruiting and training personnel
and senior management. Our business
depends, in part, on executive officers and
senior management to provide uninterrupted
leadership and direction for our business,
and qualified personnel for product R&D. This
need is all the more acute in the context of a
growing business, and the strategic internal
reorganisations and resource planning
programmes to promote and manage such
growth. The market for talent is intensely
competitive and may become increasingly
more competitive. We could face challenges
in sourcing qualified personnel, with the
requisite training and suitable international
experience, particularly in countries such as
China, where the availability of skilled
employees may be limited.
Further, variable pay is, and will continue
to be, the major element of our current
Executive Directors’ and Senior Executives’
total compensation package. If we achieve
our target levels of performance, the variable
elements will amount to 59%-76% of
Executive Directors’ total remuneration. If we
are unable to achieve our performance targets,
our senior management would not be entitled
to such variable pay, which may operate as
a disincentive for them to continue their
employment with us.
The loss of key personnel, or our inability
to recruit qualified personnel to meet our
operational needs, may delay, or curtail the
achievement of major strategic objectives,
and could adversely impact our business.
A disruption to, or failure of, our information
technology systems and infrastructure, may
adversely affect our business.
We are increasingly dependent on information
technology systems and infrastructure to
support a wide variety of key businesses
processes, including processing and storage of
confidential data, as well as for international
and external communications as part of our
logistics and distribution functions with
suppliers, customers and consumers. Failures
or disruptions to our systems or the systems
of third parties on whom we rely, due to any
number of causes, particularly if prolonged,
or if any failure or disruption were to impact
our backup or disaster recovery plans, could
result in a loss of key data and/or affect
our operations.
The combination of our recently initiated
strategic business reorganisation and enterprise
resource planning (ERP) programmes could
result in sub-optimal implementations and
reduced focus due to conflicting demands for
management attention.
Our computer systems, software and networks
may be vulnerable to unauthorised access (from
within our organisation or by third parties),
computer viruses or other malicious code and
other cyber threats that could have a security
impact. The occurrence of one or more of these
events potentially could jeopardise confidential,
proprietary and other information processed
and stored in, and transmitted through, our
computer systems and networks, or otherwise
cause interruptions or malfunctions in our
operations, which could result in significant
losses or reputational damage.
We may be required to expend significant
additional resources to modify our protective
measures or to investigate and remediate
vulnerabilities or other exposures, and we may
be subject to litigation and financial losses
that are either not insured against or not fully
covered through any insurance maintained by
us. Furthermore, we routinely transmit and
receive personal, confidential and proprietary
information by email and other electronic
means. We have discussed and worked with
customers, suppliers, counterparties and other
third parties to develop secure transmission
capabilities, but we do not have, and may be
unable to put in place, secure capabilities with
all such third parties and we may not be able to
ensure that these third parties have appropriate
controls in place to protect the confidentiality
of the information. An interception, misuse
or mishandling of personal, confidential or
proprietary information being sent to or
received from a customer, supplier,
counterparty or other third party could result
in legal liability, regulatory action and
reputational harm.
Our business is subject to significant
governmental regulation.
Our business and products are heavily regulated
by governments and other regulatory bodies in
the countries in which we operate. Regulation
is imposed in respect of, but not limited to,
ingredients, manufacturing standards, labour
RB Annual Report 2013 Our Relationships and Principal Risks
standards, product safety and quality,
marketing, packaging, labelling, storage,
distribution, advertising, imports and exports,
social and environmental responsibility and
health and safety. In addition, we are required
to obtain and maintain licenses in respect
of certain of our products, which must be
regularly updated in order to improve our
products and take into account any variations.
If we are found by regulators or courts to
have been non-compliant with applicable laws
and regulations, we could be subject to civil
remedies such as fines, injunctions or product
recalls, and/or criminal sanctions, any of which
could have a material adverse effect on our
business, reputation, financial condition and
results of operations.
We are subject to the introduction of new
regulations, modification of existing regulations
or changes in interpretations of existing or
new regulations. Changes to the laws and
regulations to which we and our operations
are subject, whether as a result of new or
more stringent requirements, or more stringent
interpretations of existing requirements,
could impact the way we conduct our business
or market our products (for example,
up-scheduling of an OTC product would result
in it being moved from on-the-shelf to behind
the counter) and could impose significant
compliance costs and have a material adverse
effect on our results of operations.
The laws and regulations to which we are
subject may not be transparent, may be
difficult to interpret, and/or may be enforced
inconsistently.
In our experience, emerging markets can pose
heightened risks with respect to laws and
regulations, when compared with countries
with more developed institutional structures.
Given our focus on growth in RUMEA and
LAPAC, we are exposed to heightened
regulatory risks. For example, in some
emerging market countries, the laws and
regulations to which we are subject may not
always be fully transparent, can be difficult to
interpret and may be enforced inconsistently.
The legal systems in such countries may not
be well-established or reliable. There may be
a lack of respect for the rule of law, a lack of
enforcement of property rights, inconsistent
or insufficient access to remedy through legal
systems, lack of judicial independence and
corruption, which could result in greater
uncertainty in enforcing contracts, difficulties
in obtaining legal redress, particularly against
the state or state-owned entities, and higher
operational costs and risks to our business.
We could be subject to investigations and
potential enforcement action, which could have
a material adverse effect on our business.
We could be subject to regulatory investigations
or potential enforcement action that targets
an industry, a set of business practices or our
specific operations. These investigations or
enforcement actions could be in respect of
specific industry issues or broader business
conduct issues. Moreover, these investigations
or enforcement actions could be triggered by
allegations of general corporate misconduct or
by allegations of individual employee
misconduct in violation of internal policies
and procedures.
announcement of our HY 2013 results, we
reported a provision of £225m, principally
relating to competition matters.
Regulatory authorities and consumer groups
may, from time to time, request or conduct
reviews of the use of certain ingredients that
are used in manufacturing our products, the
results of which may have a material adverse
effect on our business. For example, parabens,
a family of chemicals commonly used as
preservatives in personal care, cosmetic and
pharmaceutical products, underwent a review
by the European Commission’s Scientific
Committee on Consumer Safety in May 2013.
Based on the findings of that review,
restrictions were introduced to limit the use
of certain parabens (butyl and propyl) and
to ban others (iso) in cosmetic products
sold across Europe. Furthermore, several
European countries such as Denmark and
France are considering banning the use of
parabens altogether.
Ingredient legislation, such as the one related
to parabens, could have a detrimental impact
on our business, undermine our reputation and
goodwill and affect consumer demand for
products containing such ingredients. We may
voluntarily remove, or be required to remove,
certain ingredients from our products or any
products that we may acquire. We may not be
able to develop an alternative formulation,
successfully modify our existing products or
obtain necessary regulatory approvals on a
timely basis or at all, which could adversely
impact our business and results of operations.
Historical or future violations of antitrust and
competition laws may have a material adverse
impact on our business, financial condition and
results of operations.
We are subject to antitrust and competition
laws in the vast majority of countries in which
we do business. Failure to comply with
applicable antitrust and competition laws, rules
and regulations in any jurisdiction in which we
operate may result in civil and/or criminal legal
proceedings being brought against us.
We have in the past been, currently are, and
may in the future be, subject to investigations
and legal proceedings with respect to antitrust
and competition issues. In 2010, we were fined
£10.2m by the UK Office of Fair Trading (‘OFT’)
following our admission that we had infringed
UK and EU competition rules on abuse of
dominance in respect of our supply of Gaviscon
Original Liquid brand alginates/antacids to the
National Health Service. Based in part on the
OFT decision, we have received civil claims for
damages from the health authorities of
England, Wales, Scotland and Northern Ireland,
and certain pharmaceutical companies. We are
also involved in certain competition law-related
proceedings in other countries. Competition
and antitrust violations enquiries often continue
for several years, can be subject to strict
non-disclosure provisions, and, if laws are
deemed to have been violated, can result in
substantial fines and other sanctions, which
may have a material adverse effect on our
business, reputation, financial condition and
results of operations. As part of the
Our strategy for growth has historically
included, and continues to include, acquisition
activities, which are subject to antitrust and
competition laws. Such laws and regulations
may impact our ability to pursue, or delay the
implementation of, strategic transactions.
We operate in a number of countries in which
bribery and corruption pose significant risks,
and we may be exposed to liabilities under
anti-bribery laws for any violations. Any
violation of applicable money laundering laws
could also have a negative impact on us.
We are subject to anti-bribery laws and
regulations that prohibit us and our
intermediaries from making improper payments
or offers of payments to foreign governments,
their officials and political parties or private
parties, for the purpose of gaining or retaining
business, including the UK Bribery Act 2010,
the US Foreign Corrupt Practices Act of 1977,
as amended, and similar laws worldwide.
Given our extensive international operations,
particularly in emerging markets, where bribery
and corruption may be more commonplace, we
are exposed to significant risks, particularly with
respect to parties that are not always subject to
our control such as agents and joint venture
partners. These risks may be heightened for us
due to our operations in the health care sector,
which in recent years has experienced greater
compliance risks than other sectors. We may
also be held liable for successor liability
violations of such laws, committed by
companies which we acquire, or in which we
invest. Acquisitions also expose us to risk of
ongoing compliance issues until such time as
we can fully integrate acquired operations
into our compliance and control frameworks.
Moreover, due to the significant amounts of
money involved in global supply contracts,
there is also potential for suppliers to attempt
to bribe our employees. Actual or alleged
violations of anti-bribery laws could result in
severe consequences, including, but not limited
to, civil and criminal sanctions, termination of
contracts by our counterparties, disruptions
to our business and reputational harm, all of
which could materially and adversely affect our
financial condition and results of operations.
We also deal with significant amounts of
cash in our operations and are subject to
various reporting and anti-money laundering
regulations. Any violation of anti-money
laundering laws or regulations by us could have
a negative effect on our results of operations.
Our business is subject to product
liability claims.
As a product manufacturer, we are subject,
from time to time, to certain legal proceedings
and claims arising out of our products,
including as a result of unanticipated side
effects or issues that become evident only after
products are widely introduced into the
marketplace. Some of our products present
inherent dangers, including due to the presence
of chemicals, which if mishandled or misused,
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RB Annual Report 2013 Our Relationships and Principal Risks
could result in significant damage. We have
paid in the past, and may be required in the
future to pay, compensation for losses or
injuries that are allegedly caused by our
products. Product liability claims may arise,
among other things, from claims that our
products are defective, contain contaminants,
provide inadequate warnings or instructions, or
cause personal injury to persons or damage to
property. Product liability claims, if resolved
unfavourably, or if settled, could result in
injunctions and/or may require us to pay
substantial damages, and related costs,
including punitive damages, as well as result in
the imposition of civil and criminal sanctions.
If one of our products is found to be defective,
we could be required to recall it, and/or we
may be required to alter our trademarks, labels,
or packaging, which could result in adverse
publicity, significant expenses, potential
disruptions in our supply chain and loss of
revenue. We have in the past voluntarily
implemented, and may in the future face
product quality concerns and voluntarily
implement, product recalls, which could expose
us to product liability claims. Additionally,
complaints, investigations and litigation by
consumers or government authorities relating
to our products, our competitors’ products or
individual ingredients may result in judgments
that affect us and/or the industry in which we
operate. A recall of a product that is similar to
ours could result in confusion concerning the
scope of the recall and/or a decline in consumer
confidence about our products, which may
consequently impact our business and results
of operations. We may not be insured fully, or
at all, in respect of such risks, and we have in
the past, and may in the future, face disputes
with our insurers in the event that they refuse
to cover a particular claim. In such instances,
we may be required to bear substantial losses,
which could adversely impact our capital
expenditures, expenses and liabilities. Any of
the foregoing could materially adversely impact
our business, financial condition and results of
operations.
Legal proceedings in respect of claims outside
the product liability area could also adversely
impact our business, results of operations and
financial condition.
Outside the product liability area, we are
subject to legal proceedings and other claims
arising out of the ordinary course of business,
and we may become involved in legal
proceedings, which include, but are not
limited to, claims alleging intellectual property
rights infringement, breach of contract,
environmental laws and health and safety
laws. From time to time, we face consumer
complaints and/or civil or criminal investigations
in respect of our products and their alleged
purposes, including in respect of advertising
claims that we make about our products.
Significant claims, or a substantial number of
small claims, may be expensive to defend and
may divert management time and our resources
away from our operations. Where appropriate,
we establish provisions to cover potential
litigation-related costs. Such provisions may
turn out to be insufficient, and any insurance
98
coverage we maintain may not cover our losses
fully, or at all.
We cannot predict the outcome of individual
legal actions. We may settle litigation or
regulatory proceedings prior to a final judgment
or determination of liability. We may do so to
avoid the cost, management efforts or negative
business, regulatory or reputational
consequences of continuing to contest liability,
even when we believe we have valid defences
to liability. We may also do so when the
potential consequences of failing to prevail
would be disproportionate to the costs of
settlement. Substantial legal liability could
materially adversely affect our business,
financial condition or results of operations
or could cause significant reputational harm,
which could seriously harm our business.
Labour disruptions may affect our results
of operations.
A substantial portion of our workforce is
unionised, and our relationship with unions,
including labour disputes or work stoppages,
could have an adverse impact on our financial
results. We are a party to collective bargaining
agreements covering approximately one-third
of our direct employees. If, upon the expiration
of such collective bargaining agreements, we
are unable to negotiate acceptable contracts
with labour unions, it could result in strikes by
the affected workers and thereby significantly
disrupt our operations. Further, if we are
unable to control health care and pension
costs provided for in the collective bargaining
agreements, we may experience increased
operating costs and an adverse impact on
future results of operations.
Changes in tax legislation and other
circumstances that affect tax calculations could
adversely affect our financial condition and
results of operations.
We conduct business operations in a number
of countries, and are therefore subject to tax
and intercompany pricing laws in multiple
jurisdictions, including those relating to the
flow of funds between RB and its subsidiaries.
Our effective tax rate in any given financial year
reflects a variety of factors that may not be
present in succeeding financial years, and may
be affected by changes in the tax laws of the
jurisdictions in which we operate, or the
interpretation of such tax laws. Certain tax
positions taken by us are based on industry
practice, tax advice and drawing similarities
from our facts and circumstances to those in
case law. In particular, international transfer
pricing is an area of taxation that depends
heavily on the underlying facts and
circumstances and generally involves a
significant degree of judgement.
Changes in tax laws, regulations and related
interpretations and increased enforcement
actions and penalties may alter the environment
in which we do business, and tax planning
arrangements are frequently scrutinised by tax
authorities worldwide.
We have in the past faced, and may in the
future face, audits and challenges brought by
tax authorities, and we are involved in ongoing
tax investigations in a number of jurisdictions
around the world. If material challenges were
to be successful, our effective tax rate may
increase, we may be required to modify
structures at significant costs to us, we may
also be subject to interest and penalty charges
and we may incur costs in defending litigation
or reaching a settlement. Any of the foregoing
could materially and adversely affect our
business, financial condition and results
of operations.
We may be unable to secure and protect our
intellectual property rights.
Our business relies on protecting our brands
and intellectual property rights. We may not
be able to obtain and perfect our intellectual
property rights and, even if obtained, these
rights may be invalidated, circumvented or
challenged in future. Third parties may infringe
on, or misappropriate, our rights, by for
example, asserting rights in, or ownership of,
our trademarks, trade dress rights, designs,
patents, copyrights or other intellectual
property rights. If we fail to discover any
infringements of our intellectual property
rights, or are otherwise unable to successfully
defend and enforce our rights, our business,
prospects, and results of operations could be
materially adversely affected. Sales of
counterfeit or unauthorised versions of our
brands or inferior ‘lookalike’ brands which
resemble ours, could result in confusion among
consumers between our products and such
other brands. Consequently, our brand equity
and reputation may be undermined. Any failure
to perfect or successfully assert our intellectual
property rights could make us less competitive
and may have a material adverse effect
on our business, operating results and
financial condition.
In addition, our intellectual property rights
may be undermined if one of our trademarks
or brand names were to become a generic
name for, or synonymous with, a general class
of product or service. Should any of our
trademarks become genericised, competitors
may be allowed to use the genericised
trademark to describe their similar products
in certain countries.
The loss of patent protection, ineffective
protection, or expiration of our patents may
impact our financial condition and results of
operations.
Intellectual property laws and patent offices
are still developing, particularly in emerging
markets. Patent protection varies in different
countries, and can be substantially weaker
in emerging markets in which we operate,
when compared to the United States and the
European Union. We have in the past faced,
and may in the future face, significant
challenges in enforcing or extending our
current intellectual property protections, or any
protections we may obtain in future, in the
same manner as in more developed regions
such as the United States and European Union.
We have obtained patent protection for a
variety of our intellectual property, including the
composition of some of our products (such as
RB Annual Report 2013 Our Relationships and Principal Risks
detergent), and in respect of our prescription
drug Suboxone sublingual Film. Infringement
of our patent-protected intellectual property
may occur, particularly in emerging market
countries. Certain countries may adopt
measures to facilitate competition within their
markets from generic manufacturers, and
refuse to recognise patent protection. For
example, a recent decision in India not to grant
a new patent to an industry participant for a
modified form of a drug that holds patent
protection elsewhere, reflects the heightened
risk we may face in emerging markets.
Additionally, expiry of our patents may increase
competition and pricing pressures, and
adversely impact our sales revenue, if generic
products in the same or similar product class
were to emerge. We could be similarly
impacted if competitors lose patent protection
in a product class in which we compete.
We may face challenges to our intellectual
property rights, including allegations of
infringement of others’ rights.
We may face challenges to our intellectual
property rights from third parties, who allege
that we are infringing on their rights. If we
are unable to successfully defend against
allegations of infringement, we may face
various sanctions, including injunctions,
monetary sanctions for past infringement,
product recalls, alterations to our intellectual
property, products, and/or packaging, which
could result in significant expense and negative
publicity, and may have a material adverse
effect on our financial condition and results
of operations.
Our business may be adversely affected by our
funding requirements.
Our liquidity needs are driven by our ability to
generate cash from operations and the level of
borrowings (and related levels of headroom),
the level of acquisition, the level of share
repurchases and dividends, dispositions, target
ratings for our debt and options available to
us in the equity and debt markets. Historically
we have obtained our funding from the
commercial paper market and have benefited
from the low interest rate environment
following the financial crisis.
We maintain committed back-up credit
facilities, which have remained undrawn since
FY 2009. At 31 December 2013, we had
£4,350m in undrawn commitments. If we
are not able to access the commercial paper
market to the extent that we require, or at all,
we may need to drawdown amounts under
our committed bilateral credit facilities, which
accrue interest at floating rates based on
changes in certain published rates such as
LIBOR. Increases in such rates could result in
significantly higher interest expense for us,
which would negatively affect our results
of operations.
As part of our strategy to maintain financial
flexibility, as well as to procure additional
funding for future acquisitions, including both
bolt-on acquisitions as well as acquisitions that
may be more material in size, we are seeking
to increase the level of medium-term funding.
Implementation of this strategy will increase
our levels of interest expense compared to
recent years that benefited from low interest
rates since 2008.
We are subject to risks relating to estimates and
assumptions that we are required to make, and
that affect the reported amounts in our
financial statements.
The preparation of our financial statements
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 estimates are based
on management’s best knowledge at the time,
actual amounts may ultimately differ from
those estimates. For example, measurement
of intangible assets, both in acquisitions and
business combinations, requires us to identify
such assets and any assumptions and estimates
of future cash flows and appropriate discount
rates to value identified assets may be impacted
by various factors, including adverse economic
conditions, or integration issues.
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.
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.
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
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
99
RB Annual Report 2013 Our Relationships and Principal Risks
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.
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.
In maintaining an appropriate capital structure
and providing returns for Shareholders, in 2013
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 15, and
share buy backs.
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 £2,096m (2012:
£2,426m). 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
70 to 73.
100
RB Annual Report 2013 Notes
101
RB Annual Report 2013 Notes
102
RB Annual Report 2013 Notes
103
RB Annual Report 2013 Shareholder Information
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 2013 Annual Report and Notice of the 2014 AGM are
available to view at www.rb.com/online-annual-report-2013.
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 Wednesday, 7 May 2014 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 2013
The Directors have recommended a final dividend of 77p per share, for
the year ended 31 December 2013. Subject to approval at the 2014
AGM, payment will be on 29 May 2014 to all Shareholders on the
register as at 21 February 2014.
Company Secretary
Elizabeth Richardson
Registered Office
103-105 Bath Road, Slough, Berkshire SL1 3UH
Telephone: 01753 217800
Facsimile: 01753 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:
Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZY
Reckitt Benckiser Shareholder helpline: 0870 703 0118
Website: www.computershare.com/uk
104
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 2014 results
Publication of 2014 Annual Report and Accounts
Annual General Meeting
Analysis of Shareholders as at 31 December 2013
16 April 2014
7 May 2014
29 May 2014
28 July 2014
September 2014
21 October 2014
11 February 2015
April 2015
May 2015
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
9,774
14,368
24,142
No. of
holdings
14,678
4,047
3,770
459
558
165
366
99
24,142
Shares
719,378,732
17,156,447
736,535,179
Shares
3,052,238
2,964,286
7,687,368
3,250,149
13,143,965
11,768,568
114,891,103
579,777,502
736,535,179
‘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 Financial Services Register at www.fsa.gov.uk/register to
ensure they are authorised.
3 Use the details on the Financial Services Register to contact the firm.
4 Call the FCA Consumer Helpline on 0800 111 6768, if there are no
contact details on the Register or if they are out of date.
5 Search the FCA’s list of unauthorised firms and individuals to avoid
doing business with at www.fca.org.uk/scams.
6 If you are approached by fraudsters please contact the FCA using their
helpline, or share fraud reporting form at www.fca.org.uk/scams.
7 Consider getting independent financial advice.
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.
RB Annual Report 2013
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 2013
Right: Sustainability Report 2013 (report to be published at www.rb.com)
The following are trademarks of the Reckitt Benckiser group of companies
or used under license:
Airborne, Air Wick, Aqua Mist, Bang, Calgon, Cherry Blossom, Clearasil, d-Con,
Dermicool, Dermodex, Dettol, Digestive Advantage, Durex, Easywax, Filter & Fresh,
Finish, Flip & Fresh, Frank’s Red Hot, French’s, Freshmatic, Gaviscon, Graneodin, Harpic,
Harpic Hygienic, Luftal, Lysol, Manyanshuning, MegaRed, Micostatin, Move Free,
Mortein, Mucinex, Naldecon, No-Touch, Nugget, Nurofen, Our Home Our Planet,
Performax Intense, Picot, Power Plus, Quantum, Quantumatic, Resolve, Schiff, Schiff
Vitamins, Scholl, Spray ‘n Wash, Strepsils, Suboxone, Subutex, Tempra, 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
Cover photo credits: Getty Images, iStock, Save the Children,
Lucia Zoro / Save the Children
Printed by Leycol Printers Limited
The paper used for this report and the envelope used for postal
distribution are made from FSC (Forest Stewardship Council)®
certified sustainable forest stocks.
Reckitt Benckiser Group plc
103-105 Bath Road
Slough, Berkshire SL1 3UH
United Kingdom
www.rb.com