Reckitt Benckiser Group plc Annual Report 2015

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FY2015 Annual Report · Reckitt Benckiser Group plc

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betterbusiness

2015
Reckitt Benckiser Group plc (RB)
Annual Report and Financial Statements

We make a difference to
people’s lives through a
trusted portfolio of brands,
across consumer health,
hygiene and home.

Our vision
A world where people are
healthier and live better.

Our purpose
To make a difference, by
giving people innovative
solutions for healthier lives
and happier homes.

Our strategy

betterbusiness

betterfinancials
How we drive growth
and outperformance

bettersociety
How we support
our communities and
develop our people

betterenvironment
How we reduce
our environmental
impact

Contents
Strategic Report
1 Highlights
2 At a glance
4 Chairman’s Statement
7
Reasons why RB delivers
8 Chief Executive’s Review
10 Our unique culture
12 Strategic framework
14 Our market and resources

betterfinancials
16 – Our strategy to deliver
17 – Organisation
19 – Powermarkets
20 – Powerbrands
22 – Virtuous earnings model

bettersociety

24 – Workplace
26 – Communities
26 – Products

betterenvironment
27 – Greenhouse gas emissions
28 – Water
28 – Waste
29 – Sourcing
30 Our operating model
32 Our operating model in action
34 Creating stakeholder value
36 Financial Review
40 Strategic Risks

Chief Executive’s Review
on pages 8–9

Strategic framework on pages 12–13

Governance Report
46 Board of Directors
50 Executive Committee
52 Chairman’s Statement on
Corporate Governance

54 Corporate Governance Statement
60 Nomination Committee Report
61 Audit Committee Report
66 Directors’ Remuneration Report
68 Our remuneration at a glance
70 Annual Report on Remuneration
79 Directors’ Remuneration Policy
85 Report of the Directors
88 Directors’ Statement of Responsibilities

Financial Statements
89 Financial Statements

Any information contained in the 2015 Annual Report and Financial Statements on the price at which shares or other securities in Reckitt Benckiser Group plc have been bought or sold in the
past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance.

Highlights

betterfinancials

Net Revenue

£8,874m

Like-for-like1 growth +6%

Gross margin

59.1%

+140 bps

Adjusted1 earnings per share (diluted)

258.6p

+12%

Developing markets

30%

of Net Revenue

Adjusted1 operating margin

Health and Hygiene

26.8%

+210 bps

74%

of Net Revenue

Read more on pages 34–35

Create
For our Consumers
Create innovative products that meet
under-served demands

Scale
Scale our innovations,
to make them as global
as possible

Activate
For our Customers
Activate our ideas
through our customer
relationships while driving
consumer demand

For our People
Rewarding and challenging careers
+

For our Consumers
Innovative solutions that make a difference
+

For our Shareholders
Sustainable growth and outperformance
+

For our Customers
Leading brands that drive profitable
category growth and footfall
+

For our Communities
Healthier and happier communities
through the use of our products

Global leader in consumer health and hygiene1

1. Based on RB’s definition of hygiene plus consumer health sales. (Data sources: Hygiene: RB select categories (Euromonitor); Consumer

Health: OTC (Nicholas Hall) ; Condoms/Devices (ACNielsen); Foot care – (ACNielsen – select markets only).

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBOur world is changing…

Our market and resources

Our consumer landscape
is changing

Our environment
is changing

Healthcare costs are rising

Access to healthcare is not only a human
need – it is a basic human right. The current
infrastructure and health delivery systems are
creaking under the strain of ever-increasing
demand as they face a perfect storm of
pressures: burgeoning population, increased
longevity, and resource shortfalls among
doctors, nurses and other health professionals.

As the boundaries of science get pushed
back, we are able to offer more solutions
for health needs but that adds cost. As costs
spiral and resources diminish, what we can
least afford to do is reduce the healthcare
that people can access. We need a radical
rethink to find more cost-effective ways to help
consumers protect and manage their health.

Regulation is changing

The ever-changing global consumer landscape
exposes potential gaps in regulation in
environmental stewardship, patient safety and
data protection. In response, governments
are demanding more responsible behaviours
and accountability from all stakeholders.
Evolving laws and regulations mean companies
must innovate to keep pace and adapt their
products to exclude ingredients that may affect
safety or the environment and to reduce the
environmental footprint of their operations. This
favours forward-thinking companies who strive
for transparency and continuous improvement.

We are
living longer

Our incomes
are rising

Life expectancy is rising around the
world. Between 2015 and 2030, the
number of people aged over 60 is
expected to increase to more than 1.4
billion. Ageing populations are putting
ever greater demands on healthcare
services and motivating people to look
for new ways to promote wellbeing as
well as wellness.

An expanding middle class, particularly
in developing markets, means more
people have money to spend on
health and hygiene products after
meeting their essential needs. Increased
income also spurs development of
better infrastructure such as sanitation
systems, which further drives demand.

We are more
proactive (about health)

Longer life expectancies and rising
incomes are encouraging more of
us to actively look after ourselves
and prevent health issues before
they occur, for example through
better hygiene and healthier home
environments. We believe that self-care
is the new frontier of healthcare.

Our lives are busier

Modern life brings more opportunities
at work and at home but also more
demands on our time. This encourages
consumers to use easily accessible over-
the-counter health products, rather
than wait for a doctor’s appointment,
to seek out the fastest-acting hygiene
or laundry product and to look for
personal grooming and beauty
treatments that can be used at home.

We are always
connected

Advances in digital technology,
particularly mobiles, mean consumers
can make ever-greater use of online
resources and e-commerce to manage
lifestyles and healthcare. Sites such
as WebMD enable us to learn about
health and wellbeing, while Facebook
and other social media help us to
interact with brands and to exchange
information with people with similar
issues and interests. Consumers around

the world increasingly act on this
information by buying products online.

E-commerce enables companies to
gather data about consumers and
their preferences, to tailor offers that
are specific to them, and to provide a
consistent customer experience across
different countries and to increase
engagement. This requires companies
to have robust systems and processes
for gathering data and the ability to
analyse it to derive valuable insights
while protecting consumer privacy.

RB / Annual Report and Financial Statements 2015Our environment

is changing

Society and Shareholders
expect more

The licence to operate for companies like RB now encompasses
stakeholders’ expectations that can go beyond the letter of the
law and regulations. Continuous improvement on environmental
and social metrics is expected of responsible companies.

One particularly strong trend is a growing focus on tackling the
causes of easily preventable deaths and illness. For example,
each year around the world there are over 84,000 deaths from
sexually transmitted diseases, over half a million deaths of children
under the age of five from diarrhoea and over 610,000 deaths
from malaria, which can all be prevented.

We recognise the need to balance our desire for delivering
sustainable financial outperformance for our Shareholders with
delivering meaningful employment and economic viability for
the communities where we live and operate and protecting our
precious environmental resources.

Business must be a force for good across all three metrics.
prioritising one over the other is not sustainable.

How this links to our strategy

We believe we are uniquely placed
to respond to these global trends
through our betterbusiness strategy.

Our focus on Health, Hygiene and Home categories helps consumers
protect and improve their health and wellbeing as they enjoy longer
and more prosperous lives.

Our Powermarkets address the countries with the fastest growing
demand for these products. For example, we expect that in India
there will be 100 million more toilets by 2020 and we want to be
there and elsewhere to fulfil increased sanitation needs.

We continue to expand our e-commerce capabilities and to invest
in our IT and data analysis. This will help us exploit opportunities in
the emerging eHealth arena. We believe that digital capability will
revolutionise health monitoring and we are committed to be at the
forefront of this trend. In fact, 25% of all sales in China today are
via e-commerce and we anticipate this to be over 50% by 2020.

Our emphasis on an agile, responsive organisation enables us to
anticipate and address consumer needs quickly and effectively.
Consumer health is higher margin, which helps give us the financial
headroom to invest in innovation and in building brands, so that
consumers have access to the next generation of products that
meet their changing needs.

This approach drives financial outperformance, with revenues
growing faster than the market and increasing margins creating
value for our investors.

At the same time, we know that growth and responsibility go hand
in hand. Our betterbusiness strategy therefore also encompasses
our role in society – through the way we look after our people and
our community programmes – and our drive to continue to reduce
our environmental impact. Our betterbusiness strategy inspires us
to do the right thing every day.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBWhy we can deliver

betterfinancials
Our strategy to deliver

The betterfinancials element of our
strategy has four pillars, which focus
our business on faster-growing
markets and categories and enable
us to outperform.

THESE PILLARS ARE:

Organisation

Powermarkets

Powerbrands

We organise our business
into two geographical
areas1

ENA/DvM

Powermarkets

This helps us to allocate
resources effectively and
to scale our blockbuster
innovations. We continually
invest in and evolve our
organisation, to ensure
speed of decision making
and execution.

We have selected 16
Powermarkets, the
majority of which are in
developing markets.

They benefit from higher
growth, rising middle classes
and opportunities to increase
penetration. In addition to
their growth potential, our
Powermarkets are those
where we see the ability
to win.

Powerbrands
spread across1

Health

Hygiene

Home

These Powerbrands provide
over 80% of our revenue and
enable us to achieve higher
growth and higher margins.

Virtuous
earnings model

Gross
Margin

Net
Revenue

UNIQUE
CULTURE

Fixed cost

BEI

Operating
Margin

Our virtuous earnings model
gives us the capacity to
invest in top line growth,
while expanding our
operating margins.

1. Our total operations also

include Food.

1. French’s is also a Powerbrand.

See pages 17–18

See page 19

See pages 20–21

See pages 22–23

RB / Annual Report and Financial Statements 2015

Organisation

DESCRIPTION

For our business to continue to thrive, we need to organise it for
continued success. Growing organisations can become more complex
and slower to react, which is a major disadvantage in a fast-moving
industry. We therefore focus on how we can remain agile so that our
creativity is unleashed and we can be even more customer centric.

PROGRESS

At the start of 2015, we announced Project Supercharge. This is
primarily a cultural programme, born from our desire to always
be better. It is designed to fight the complexity that arises in
big companies, which means we must constantly simplify and
reduce the layers of decision making. Supercharge does this
by ensuring we focus on the two things that really matter: the
consumer and the retail customer. A full description of Supercharge
can be found on page 17 of our 2014 Annual Report.

Supercharge is already delivering substantial benefits for us, examples
of which include:
• Streamlining our portfolio of initiatives in support of blockbuster
innovations has enabled us to increase the average size of our
top 10 projects by 27% during 2015.

• Changing our geographical structure from the start of 2015,

combining our two areas focused on developing markets into a
single DvM area, and moving Australia, New Zealand, Russia, CIS
and Israel into our ENA area.

• Organising our business around clusters of similar consumers and
bringing developing markets under one leadership supports our
ability to deliver bigger, better and more scalable innovation,
combined with improved in-market activation at a country level.
Simplifying and delayering our structure has also provided funds
to reinvest in growing our revenue. We are already seeing benefits
from the new structure, including faster growth in Australia and
Russia, as a result of grouping them with similar countries, and the
ability to streamline decision making and share information between
markets more effectively.

• Deploying ‘Power of 1’ teams in both ENA and DvM, helping us
to deliver more efficient, effective and scalable roll-outs of our
innovations. Each Powerbrand is assigned a lead market. The Power
of 1 team in that market is now responsible, with input from the
other countries in its area, for developing a master launch package
for that innovation. This ensures consistency across the area and
avoids the time and cost of reworking the launch package for
individual countries.

As well as creating a simpler, more agile organisation, Supercharge is
providing substantial cost savings. We estimated these savings at the
time of announcement of the project as £100 million – £150 million
a year by 2017. The speed with which our people have embraced
Supercharge accelerated delivery of savings in 2015, contributing to our
operating margin enhancement this year (see page 22 for more details).

Creating a connected company
To improve our efficiency and support our ability to grow, we are
focusing our information technology investment into three main areas.

First, we have introduced a global process for managing our investment
so we create a standard set of systems. This ensures we only spend
money in one place and can then scale that system as required, rather
than duplicating investments in similar systems in different countries.

We are also enhancing the connectivity between our systems, so we
can generate insights more quickly. For example, connecting our sales
systems with our factories enables us to respond faster to changes
in demand for a product. This improved connectivity will enable us
to share data wherever it is needed in the business. During 2015,
we have also rolled out collaborative tools such as telepresence units
and document sharing. This helps create a more collaborative and
productive environment, in which people can work more closely
together, while reducing travelling costs.

In addition, we are improving efficiency by negotiating global deals
with IT suppliers and beginning to standardise and globalise our back
office processes.

OUTLOOK

After a highly successful first year of Supercharge, we are well
positioned to continue to reap the benefits in its second year and we
are now targeting the upper end of the initial £100 million – £150
million annual savings target.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBWhy we can deliver

betterfinancials
Organisation continued

ENA

Rob de Groot / Executive Vice President, ENA

PROGRESS

Total Net Revenue was £5,830 million, with LFL growth of +5%.
All European regions had a strong finish to the year, completing a year
of broad-based growth. Absolute growth was led by our larger markets
(UK, France, Germany and Spain) whilst smaller markets in Eastern and
South Eastern Europe had strong rates of growth. Australia performed
well throughout the year. Operational performance in Russia and CIS
was strong with an improved go-to-market model for our Consumer
Health business but the outlook remains uncertain given the current
market and currency issues.

North America had a good year with 3% LFL growth driven by the
launch of our successful Velvet Smooth Express Pedi under the new
brand name, Amopé, and in the second half, our new electronic nail
file. VMS brands were mixed with good growth in Digestive Advantage
and Move Free offset by weakness in Megared and Airborne. Mucinex
had a strong end to the year, benefitting from the launch of new liquid
filled caplets across the adult Fast Max Multi-Symptom and Sinus
variants. Lysol performed well, driven by health education programmes,
offset by competitive market conditions for Finish.

Adjusted Operating Profit increased +10% (constant) to £1,744 million;
the adjusted operating margin increased +210bps to 29.9%, due to
strong gross margin expansion and Project Supercharge initiatives.

Our priorities for 2016 include continuing our drive towards healthcare
brands, with a focus on higher-margin channels, as well as continuing
to build our e-commerce capabilities.

DvM

Frederic Larmuseau / Executive Vice President, DvM

PROGRESS

Total net revenue was £2,695 million, with LFL growth of +9%.
Growth came from all regions. In South Asia, India continued
to deliver improving growth trends. Our penetration-building
initiatives within Dettol and Harpic support the Government’s
health and hygiene initiatives. China had a strong performance
with Durex and e-commerce driven initiatives leading the
growth. Middle East, Turkey and South Africa also had strong
performances. Brazil remains challenging, although strong pest
demand in the second half helped mitigate some of the weakness.
Thailand, Indonesia and West Africa also remain challenging.

Adjusted Operating Profit increased by 19% (constant) to
£528 million; the adjusted operating margin was +210bps
higher at 19.6%. This was due to strong gross margin
expansion, combined with Supercharge initiatives.

Our priorities for 2016 include continuing to enhance distribution
and penetration to enable our products to reach even more consumers,
as well as continuing to build our e-commerce capabilities.

Food

PROGRESS

Total Net Revenue was £349 million, a +4% LFL increase versus prior
year at constant exchange rates. In North America growth was led
by Frank’s RedHot and the launch of French’s ketchup. Growth in
North America was partially offset by share losses in French’s mustard
due to a competitive entry. Increased distribution drove growth
outside the USA. Operating margins improved by +230bps to 29.2%
due to pricing initiatives and Project Supercharge efficiencies.

KEY PERFORMANCE INDICATORS

Like-for-like Net
Revenue growth

+6%

2015 target: +4%
2016 target: +4-5% at
constant exchange rates
Target to 2020: Total Net
Revenue growth which
outperforms the markets
in which we operate

Operating margin
Expansion

+210bps

2015 target: Moderate
to ‘nice’ expansion
2016 target: Moderate
margin expansion
Target to 2020: Moderate
margin expansion

PERFORMANCE

Exceeded our like-for-like Net Revenue growth target.
Gross margin expansion +140bps to 59.1%, driven by mix,

commodity costs and cost optimisation initiatives.
Adjusted Operating Margin up +210 bps to 26.8%.

RB / Annual Report and Financial Statements 2015Case study

China

While the full list of our Powermarkets is commercially sensitive,
we have said that China is one of them. So how have we treated
China differently since it became a Powermarket?

• First, we promoted it within our organisational structure,

from being designated as a small country within our hierarchy
to being its own region. This has reduced the number of
touch points and layers of management between it and the
CEO/top management.

• We then upscaled both the seniority and reward structure of
the management team. China is now a market where we put
our more senior and high potential people. It is also a stepping
stone for further promotion within RB. For example, our
General Manager in China has recently been promoted
to lead our Consumer Health division within our global
category function.

• We also prioritise investment behind our brands, distribution
and equity building capabilities. In fact China now has its
own dedicated digital media team.

This means that China will be slightly dilutive to our operating
margin in the short-term but we are happy to invest for growth.
China, in due course, will be a large market for us, with the right
product portfolio, strong gross margin and a similarly strong
operating margin.

In summary, our strategy is simple – we aim to be a ‘self-help’
company. By investing disproportionately behind, and moving
our centre of gravity towards, higher growth markets (our
Powermarkets) and higher growth brands (our Powerbrands),
we should become a higher growth business over the
long-term, even if market and category growth rates do
not materially change.

Powermarkets

DESCRIPTION

Our Powerbrand approach, where we disproportionately invest
resources and management talent behind our higher-growth,
higher-margin brands, has been successful for us. This success
encouraged us to adopt the same mindset to our markets, making our
‘Powermarkets’ one of the four pillars of our betterfinancials strategy.
These are markets where we see the highest potential for absolute
growth and where we have the capability and infrastructure to win.

By looking at our markets through this lens, we have identified
16 Powermarkets. A significant proportion of these are developing
markets, due to their higher growth potential and better penetration
opportunities for our brands. Our Powermarkets also include a number
of our larger developed markets, which will be significant contributors
to our absolute growth. Powermarkets receive priority for our top-rated
and high potential people, and like our Powerbrands, we will invest
disproportionately for growth.

KEY PERFORMANCE INDICATORS

Proportion of total Net
Revenue from DvM

30%

2014: 30%
Target to 2020: 40%

PERFORMANCE

Delivered broad-based growth across ENA (+5% like-for-like)

and DvM (+9% like-for-like).

Made further progress towards our target for the percentage of
total Net Revenue from DvM, with good progress from strong,
organic growth offset by unfavourable foreign exchange impacts
from many emerging markets.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBWhy we can deliver

Health

betterfinancials
Powerbrands

KEY PERFORMANCE INDICATORS

Proportion of total Net
Revenue from Health
and Hygiene

74%

2014: 72%
Target to 2020: 80%

PERFORMANCE

Continued to benefit from strategy of focusing on Health
and Hygiene, which delivered like-for-like Net Revenue
growth of 14% and 3% respectively.

High quality, Health and Hygiene led growth of LFL +8%.

Health

Hygiene

OUR POWERBRANDS ARE:

Health

Hygiene

Home

• Durex,

• Cillit Bang,

• Air Wick,

Gaviscon,
Nurofen, Mucinex,
Scholl, Strepsils

Clearasil, Dettol,
Finish, Harpic, Lysol,
Mortein, Veet

Calgon, Vanish,
Woolite

Portfolio
Hygiene
(including Food)
• French’s

Home

Health

Home

33%

of Net Revenue

DESCRIPTION

Health and wellbeing are the key to happiness. Our health brands are
generally sold over the counter and include products targeting everyday
issues such as pain, fever, cold, flu, sore throat or heartburn. Our sexual
wellbeing products, including condoms, lubricants and other aids, promote
safe and pleasurable sex. The Health category also includes footcare, with
products to address hard skin and other foot and nail conditions.

PROGRESS
Total Net Revenue was £2,942 million, with LFL growth +14% (total
+14%) – an exceptional year of growth and outperformance relative
to our markets. Growth was driven by a number of factors:

Strong category growth, towards the high end of the +4-6%
medium-term category growth trends. This is due to a strong
cold and flu season at the beginning of the year.

Innovation within the Scholl franchise, in particular our Velvet

Hygiene

Smooth Express Pedi, a series of insole initiatives, and the
Velvet Smooth Electronic Nail Care System. This has delivered
an outstanding performance throughout many ENA markets
and a number of DvM markets.

A full year of contribution from the successful Amopé franchise

in North America following its initial launch in Q4 2014.

Broad based growth across all of our Health Powerbrands, driven

by innovation (eg; Durex RealFeel, Strefen Direct Spray).

Consumer education programmes (eg; Nurofen Express), improved

go-to-market capabilities (Russia and Turkey) and improved
distribution and in-store execution programmes in pharmacies and
online (Durex China).

VMS performance was mixed, with good growth in Digestive

Advantage and Move Free offset by weakness in Megared and
Airborne.

We believe we are well positioned to outperform long-term category
growth within Consumer Health, driven by our market leading, trusted
brands, strong consumer centric innovation pipeline, and significant
investment behind medical professional and consumer education
programmes. We do not believe, however, that the current level of
growth is sustainable.

Home

RB / Annual Report and Financial Statements 2015Health

Health

Hygiene

41%

of Net Revenue

Case study

Dettol Squeezy

DESCRIPTION

Hygiene

Hygiene is the foundation for healthy living. Our brands promote
personal hygiene for good health and home hygiene, to create a safe
environment for families. Our range includes disinfectant cleaners,
multipurpose and speciality cleaners, lavatory care, automatic dishwashing
detergents, pest control, depilatory products and acne treatments.

PROGRESS
Total Net Revenue was £3,589 million, with LFL growth of +3%. DvM
weighted brands of Dettol and Harpic led the growth in this category
behind both penetration-building programmes and innovations such
as our new Dettol Squeezy hand wash and Harpic bathroom cleaner
in India. Our pest franchise (led by Mortein and SBP) had a mixed
performance, with innovations and strong demand in Brazil and Australia
offset by weakness in India behind competitive activity. Finish also had
a mixed performance with strong growth across emerging market
countries and the UK offset by competitive market conditions in the
US. Finish continues to be heavily weighted to developed markets.
We continue to work on penetration improvement programmes with
dishwasher machine manufacturers in order to drive category growth.

Home

19%

of Net Revenue

DESCRIPTION

Home is the centre of family life. Our brands help create
the right environment for families to enjoy their time together.
Products in this category include air care, water softeners,
garment care and fabric treatment.

PROGRESS
Total Net Revenue was £1,715 million with LFL growth of +2%. Our
largest Powerbrands of Air Wick and Vanish led the growth driven by
fewer but larger innovations (Air Wick Life Scents range and Vanish
Gold range) and scaling of these innovations across many markets. The
roll-out of Air Wick Pure and launch of Wax Melts in the second half of
2015 are also showing strong in-market results. Vanish in Brazil had a
challenging year due to both market conditions and competitive activity.

Portfolio (including food)

of Net Revenue

DESCRIPTION

Portfolio includes the laundry and fabric softener business
as well as Food brands.

PROGRESS
Total Net Revenue was £628 million, with LFL performance of +1%.
The laundry detergents and fabric softener market in Southern Europe
remains weak and competitive. However, the organisational changes
made a year ago have helped stabilise the performance of our brands
in this challenging category.

We all understand the importance of hand washing
in leading a healthier life and preventing dangerous
diseases. However, in developing markets, hand
washing is not yet a regular habit.

Our research shows that consumers know that liquid
hand wash is more hygienic than bar soap, which
turns soggy and germ ridden over time. However,
consumers can struggle to afford liquid hand soaps.
We therefore took up the challenge to produce a
liquid hand soap for the price of a bar of soap.

The result is the innovative delivery mechanism for
new Dettol Squeezy, which comes in a squeezable
bottle and is loved by kids and adults alike. It gives
consumers the same superior Dettol protection and
is proven to kill 100 illness-causing germs. India is
our largest hand wash market and we achieved one
of our most successful launches there, when we
introduced Dettol Squeezy in March 2015.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBWhy we can deliver

betterfinancials
Virtuous earnings model

DESCRIPTION

We focus on higher-margin initiatives and rigorous control
of our costs. Through our virtuous earnings model, this funds
our investment in our brands, capabilities and development,
and enables us to deliver operating margin expansion.

KEY PERFORMANCE INDICATORS

Adjusted Operating Margin

26.8%

2015 target: Moderate to ‘nice’
operating margin expansion

Medium-term target:
Moderate operating margin expansion

We expect this to be supplemented in 2016 by part
of the remaining Project Supercharge efficiencies.

PROGRESS

Our virtuous earnings model continued to deliver in 2015.

Increased gross margin

+140bps

We increased gross margin by 140bps (actual), driven by mix,
commodity costs and cost optimisation.

Reduced fixed costs

-50bps

We reduced fixed costs (excluding exceptional items) by
50bps, largely as a result of accelerated benefits from our
Supercharge programme.

Increased BEI

+£48m

We increased investment behind our brands, increasing BEI by
£48 million (at constant exchange rates), which equated to
12.7% (-20bps) of Net Revenue. The efficiencies we have driven
from our Supercharge programme have been reinvested back
into brand equity building initiatives throughout the year.

Net Revenue growth

+6%

We grew Net Revenue by 6% on a like-for-like basis.

Increased Adjusted Operating Margin

+210bps

The outcome was an increase in the operating margin of
210bps, to 26.8%.

RB / Annual Report and Financial Statements 2015 Gross Margin

Our ethos is that the virtuous earnings model starts at gross margin.
Gross margin creates room in the income statement to fund investment
and deliver operating profit growth. We drive gross margin expansion
through our focus on higher-margin brands, which results in a superior
sales mix, stronger pricing and by continuing to optimise our cost of
goods sold, an ongoing process we call Project Fuel.

Fixed cost

We always invest appropriately behind our people, capabilities and
infrastructure. However, we deliberately keep our organisation lean and
encourage our people to focus and prioritise. We constantly seek to
avoid duplication, inefficiency and waste.

Brand Equity Investment (BEI)

There are many ways to invest behind brands. We focus our
investment on consumer education and penetration-building
activities, to build long-term brand equity. BEI includes our TV
and print media spend, digital and social media investment and
consumer and medical education.

Net Revenue

BEI helps us to drive Net Revenue growth, in particular as we
invest disproportionately behind our Powerbrands and in our
Powermarkets, ensuring we put our investment where it can
have the greatest effect on the top line.

Operating Margin

Our operating margin is already best in class, but we believe
that our virtuous earnings model means our ability to further
expand our margins is far from over.

Gross
Margin

Net
Revenue

UNIQUE
CULTURE

Fixed cost

BEI

Operating
Margin

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bettersociety
Workplace

DESCRIPTION

PROGRESS

Our trademark is to attract great people, give them a career packed
with global challenges and experiences, inspire them with stretching
performance-based rewards, and nurture an achievement-focused
culture where winning is critical. At the same time, we look after our
people and contractors through high standards of health & safety
and adherence to RB’s code of conduct. We expect our suppliers
to take similar care, and our human rights programme includes
a range of measures to facilitate this.

Health & safety
Protecting our people is our priority. During this year a key initiative has
been launched to further increase safety for our commercial offices and
staff; this has included enhancing accountability, staff training and the
release of global minimum safety standards. Research and Development
(R&D) has completed a global risk register highlighting clear functional
risks and mitigation in place; this work has led to the closing of gaps
and will inform priorities for continually improving safety into 2016.

After an initial pilot in 2014, we have expanded our process safety
management programme into Africa, Latin America and India. This
programme considers the risks and controls needed to manage
catastrophic risk at our aerosol and chlorine manufacturing facilities.
We have also reviewed our behavioural safety programme across our
factories, which included us focusing the safety observation
programme to encourage workers to challenge known poor behaviours
and become a key tool leading to a continually enhanced safety culture.

The outcome has been a further reduction in our lost work day
accident rate, which fell by 13.9%, giving us an aggregate reduction
since 2012 of 25.4%.

A diverse and global workforce
We value diverse backgrounds and experiences, which bring different
perspectives and new ideas. Our Executive Committee (EC) is made up
of seven nationalities and its members have had experience in multiple
countries during their RB careers. Our “Top400” executives include 49
nationalities and 69% of our General Manager, marketing and sales
leaders are working outside their country of origin.

International assignments are part of our way of life and range from
the most strategic to the most operational roles. Being immersed in
different cultures and ways of working helps our top people to
challenge conventional thinking. We are confident that those who
consistently succeed at these challenges become global leaders
of distinction.

Diversity of course includes gender and this year we launched Project
DARE, which aims to develop, attract, retain and engage talented
women. Initiatives include more options for flexible working and a
global maternity policy, which sets a minimum standard and makes
us one of only a handful of employers with such a policy.

Gender diversity
The percentages of female members in the Group’s director, senior
manager and all employee populations at 31 December 2015 were
29%, 19% and 42% respectively. The Group has designated the
members of its “Top40” and “Top400” populations as RB’s ‘senior
managers’ for the purposes of the gender split disclosure required by
the Companies Act 2006. Of Board Directors, 10 were male and 4
female, of senior managers, 339 were male and 78 female, and 15,027
of all employees were male and 10,723 female. There is a variance in
total employee numbers from those reported in note 5 on page 111,
in respect of contracted labour for which gender split information is
not available.

KEY PERFORMANCE INDICATORS

Increased supplier audits since 2014

51%

Lost work day accident rate1

0.080

2014: 0.093

Target: continual reduction year-on-year

1. At manufacturing, warehouse and R&D sites.

RB / Annual Report and Financial Statements 2015
We take on around 200 graduates each year, placing them in our larger
markets, where we have the critical mass to develop them. We put
considerable effort into identifying which universities will provide our
next generation of leaders, considering not just their academic prowess
but also their fit with our entrepreneurial culture.

Succession planning is a key focus and we review our plans at each
monthly EC meeting. The EC oversees planning for all “Top40” and
“Top400” roles, while regional leaders plan for middle manager
positions, which are those below our “Top400”. Our aim is to grow
half our middle managers ourselves and to recruit the remainder from
outside, ensuring we bring in people who think differently.

STRETCHING PERFORMANCE-BASED REWARDS

Our reward system is designed to attract and inspire a high-
achievement talent base. We provide competitive base salaries and
significant short and long-term incentives, which are set to deliver
outstanding rewards for outperformance. Measures are simple,
unambiguous and concrete. Average performance results in
average bonuses, while top performance results in excellent rewards.
We believe this unique approach ensures we attract the right people.
Our annual performance reviews assess both what our people have
achieved and how they have done it. The ‘how’ is defined by the
behaviours expected in our culture and our Leadership Charter.

We have a career tool, which helps our people to identify the functional
and leadership development they need. Training follows our 70/20/10
model, with 70% on the job, 20% learning from others and 10%
formal training. On-the-job training mostly consists of stretch
assignments, since we believe people learn best when challenged.

UNDERSTANDING ENGAGEMENT

We use a bespoke survey, which we call our Culture Pulse, to measure
how well our people think we are doing. This measures our
performance against our Culture and our Leadership Charter, which
sets out how we behave and how we deliver. The survey identifies the
areas that are most important to our people and where we are doing
least well, relative to the other areas. We then formulate action plans at
a local level to address these issues. The results show that our people
are highly engaged to work at RB, and that they value both our culture
and our Leadership Charter.

Read more in our Sustainability Report

HUMAN RIGHTS

RB has had a human rights programme in place for some years and in
2015 undertook a review of its approach against industry comparators
and the UN Guiding Principles on Business and Human Rights (UNGPs).
We have established a range of mechanisms that use cross-functional
support to engage on human rights with suppliers and to identify and
address any issues identified. These measures focus on our own
operations and supply chain and include due diligence, self assessments,
audits, internal and external training and other capacity building
initiatives. We acknowledge the growing importance and complexity
of human rights and are committed to continuously improving our
programme of activity in this area.

Case study

Lost Work Day Accident Rate

Our Shangma site in China has led the way in proactively improving
safety and reducing the number of accidents on site. An innovative
and focused approach on legal compliance, worker participation,
procedures, health initiatives and leadership enabled the site to
achieve 5 million hours worked without a lost work day, by the end
of 2015. In November, the site held a safety week to celebrate this
achievement and to look at how it could drive its health & safety
culture forward in 2016 and beyond.

The LWDAR is the number of workplace accidents
(resulting in at least one day of lost time) that
occur per 100,000 hours of work.

1.340

1.5

1.2

0.9

0.815

0.6

0.3

0.0

0.577

0.404

0.324

0.338

0.220

0.182

0.142

0.136

0.127

0.107

0.093

0.080

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBWhy we can deliver

bettersociety
Communities

DESCRIPTION

As a responsible business, we recognise
our larger role in society. Our community
initiatives support our vision of a world
where people are healthier and live better.
We do this by promoting health and
hygiene messages, bringing together the
awareness and education work of our
Dettol, Lysol, Harpic, Mortein and Durex
brands, and through our partnership
with Save the Children, which aims to
eradicate child deaths from diarrhoea.

PROGRESS

Our aim is to reach over 200 million
people by 2020, to help them improve
their health and hygiene. This includes
delivering hygiene, sanitation, sexual health
and mosquito-borne disease prevention
programmes. These programmes support
the UN’s Sustainable Development goals.
Our progress has been rapid and this year
we exceeded our 2020 target, which is
why we have decided to increase the goal
to reach 400 million people by 2020.

Since 2013 we have reached:
• 104 million people through hygiene and

sanitation programmes;

• 115 million people with sexual health

messaging; and

• 20 million people with malaria/dengue
prevention education programmes.

Save a Child Every Minute is our diarrhoea
eradication programme with Save the
Children. In March 2015, we unveiled
two innovative products to support the
programme – a low-cost germ protection
bar and a toilet powder which makes
pit latrines more hygienic. Profits from
these products will be reinvested in the
programme and they will be produced
locally, to encourage entrepreneurship and
reduce their environmental footprint.

In 2015 we committed £6.5 million to
the programme, of this £3.25 million was
raised through RB events worldwide, plus
a corporate donation of £3.25 million.

We have a proactive programme of assessing
the ingredients of our products and have
a restricted substances list, which contains
ingredients we have phased out or are in the
process of phasing out. Towards the end of
the year, we introduced a new policy covering
restricted substances. We provide ingredients
information to consumers on packs, via our
consumer care lines and, in some countries,
through ingredients websites. We continue
to roll-out new websites, so more consumers
can obtain meaningful information.

Products

DESCRIPTION

We are committed to advancing global
health, consumer safety and environmental
protection by continuously optimising
our products and aim to increase the
proportion of our revenue that comes
from products that we’ve made more
sustainable. We are focused on ingredient
innovation and increased transparency
and aspire to provide 100% transparency
about the ingredients in our products.

PROGRESS

The proportion of Net Revenue from more
sustainable products rose to 6%, from 5%
last year. To ensure our products are fit for
the future, our primary focus has been on
improving the sustainability profile of our
innovations. By the end of 2015, almost
70% of our pipeline consisted of more
sustainable products, up from 50% last year.
From 2016, we will also include existing
products where we have made changes that
have a meaningful sustainability impact.

KEY PERFORMANCE INDICATORS

TARGET to 2020
People reached with health
and hygiene messaging1

200m

1. This goal has been increased to 400 million.

PERFORMANCE:2

237m

since 2013

2. Total number of people reached is lower than the
sum of the programmes to account for possible
double counting.

Save a Child Every Minute

TARGET
Remove diarrhoea as one
of the top killers of children
PERFORMANCE: Committed
£6.5 million to the programme
in 2015

KEY PERFORMANCE INDICATORS

TARGET to 2020
Net Revenue from more
sustainable products

1/3

of Net Revenue

PERFORMANCE

6% of Net Revenue

up from 5% of Net Revenue

RB / Annual Report and Financial Statements 2015betterenvironment
Greenhouse gas emissions

DESCRIPTION

PROGRESS

We look to reduce our greenhouse gas (GHG) emissions by
designing more sustainable products and by continually improving
our manufacturing processes. Sustainability is a key element of our
innovation process as we look at the carbon footprint of our products
across their entire lifecycle, from the sourcing of raw materials to the
way they are manufactured, used and disposed of. Our total carbon
footprint per dose has remained broadly unchanged since 2012. While
we are making good progress in the areas within our control, like
manufacturing, we have not seen material reductions from the largest
part of our footprint – those associated with consumers using our
products. We are reducing carbon emissions associated with energy
use by focusing on energy efficiency programmes, investing in on site
renewable technologies and procuring energy from renewable sources.

Our GHG emissions for 2015 were made up of:
1. Combustion of fuel and operation of facilities (Scope 1)

79,502 tCO

e (2014: 86,235).

2. Electricity, heat, steam and cooling purchased for our

own use (Scope 2): 214,586 tCO

e (2014: 219,202).

Our total Scope 1 and Scope 2 emissions in 2015 were therefore
294,087 tCO

e (2014: 305,437).

We calculate our emissions intensity per unit of production. This
equated to 0.0389 tCO

e per unit of production in 2015 (2014: 0.0410).

Footnote
Our GHG data includes all GHG emissions from operations covered by the Group Financial
Statements for which we have operational control. We include emissions for businesses we
acquire in the first full calendar year of our ownership. We calculated CO
e emissions using
internationally recognised methodologies from the WRI/WBCSD Greenhouse Gas Protocol
and International Energy Authority (IEA). Scope 2 GHG emissions reported in 2015 are net
emissions which equals gross emissions from renewable electricity purchased (7,542t).

KEY PERFORMANCE INDICATORS

TARGET to 2020
Carbon footprint per dose of product

1/3

reduction

TARGET to 2020
GHG emissions per unit of production

40%

reduction

Case study

PERFORMANCE
Increase since 2012

PERFORMANCE
Reduction since 2012

14%

Scholl Velvet Smooth Express Pedi’s
reduced packaging

Following the success of the Scholl Velvet Smooth Express Pedi in 2014, we challenged
ourselves to think bigger in a way that would drive even stronger growth. Aligned with our
FUEL programme, we chased product improvements that improved sustainability while
simultaneously delivering cost savings, focused on two areas. Packaging adaptation improved
the product’s visibility at the point of sale while decreasing the amount of materials used.
Product improvements decreased the complexity of the device, while increasing durability.
In total, we made a 26% reduction in material weight per product, saving approximately 300
tonnes of PET and 137 tonnes of paper and board each year. Combined, these changes will
save over £5 million and 3,500 tonnes of CO

per year.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RB
Why we can deliver

betterenvironment
Water

DESCRIPTION

We seek to reduce the water impact of all our
products throughout their lifecycle, from raw
materials sourcing through to the way they are
manufactured, used and disposed of. We also
consider water scarcity in specific locations.

PROGRESS

We continued our ongoing initiatives to
reduce the water impact of our operations,
including identifying sites in areas of water
scarcity, so we can plan ahead. While we are
making good progress in the areas within our
control, the majority of our total water impact
comes from the water used by consumers
for our hygiene products, especially bar
soap in developing markets, which creates a
tension for us as our drive to improve people’s
lives through better hygiene inevitably
results in greater water use for washing.

KEY PERFORMANCE INDICATORS

TARGET to 2020
Water impact per dose of product

PERFORMANCE
Reduction since 2012

1/3

reduction

TARGET to 2020
Water use per unit of production

PERFORMANCE
Reduction since 2012

35%

reduction

30%

Waste

DESCRIPTION

Our aim is for none of our waste to go to
landfill. We also look to reduce the waste
created by our manufacturing processes. We
are creating a culture of zero waste and look
for new revenue streams and disposal options,
for example where other organisations can
use our waste as raw materials.

PROGRESS

We made further good progress, with
our manufacturing sites showing great
motivation to achieve our waste targets.
At some sites, landfill is our only disposal
option but we continue to develop
partnerships with others who can use our
waste, so we do not have to dispose of it.

We are also committed to reducing waste
from our products by using less packaging.

KEY PERFORMANCE INDICATORS

TARGET to 2020
Factories sending zero waste
to landfill

PERFORMANCE
Factories sending zero waste
to landfill

100%

TARGET to 2020
Manufacturing waste per unit
of production1

10%

reduction

Increased 2020 target to 20% reduction over
2012 baseline.

89%

PERFORMANCE
Reduction since 2012

14%

RB / Annual Report and Financial Statements 2015
Sourcing

DESCRIPTION

PROGRESS

We believe in responsibly sourcing all our
natural raw materials. Our policy clearly
defines the minimum standards expected
of our suppliers. We are committed to
zero deforestation, zero development
on peatlands and zero exploitation of
workers or communities, and to being
transparent about our requirements
and our progress. Our responsible
sourcing programmes focus on high-risk
commodities such as palm oil and latex.

We have continued to make good progress
against our responsible palm oil sourcing
targets. Partnering with TFT we have
undertaken a detailed review of our physical
palm oil supply chain, achieving 100%
traceability to refinery in 2014, and 70%
traceability to mill in 2015. Additionally, we
completed on-the-ground risk assessments
for all key suppliers and have Green Palm
Certificates covering all palm oil procured.

During the year, we completed due
diligence including on-the-ground field
assessments of our latex supply chain. The
findings of these assessments confirm that
RB’s latex has been responsibly sourced,
meeting the requirements of our Natural
Raw Material standard. We are now
conducting a scoping exercise to identify
opportunities to work with smallholder
farmers within our latex supply chain.

KEY PERFORMANCE INDICATORS

TARGET to 2020
All natural raw materials to be
responsibly sourced

PERFORMANCE
Palm oil traced to mill1

70%

1. Excluding surfactants.

Case study

Reducing waste to landfill

We have a goal of achieving zero waste to landfill by 2020.
To help us reach this target, we are creating partnerships with local
businesses and the communities in which we operate, to develop
innovative solutions. In our Jammu pest factory, in India, a local brick
manufacturer is now using our briquette ash to make bricks for
boundary wall construction. This has diverted 2,100 tonnes of waste
from landfill annually, reducing waste to landfill in our Asia region
by 92%.

92%

reduction in waste to
landfill in our Asia region

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBHow we can deliver

Our operating model

Our operating model is to use FMCG experience to develop, acquire,
produce, distribute and promote consumer products in growing
Health, Hygiene and Home categories. Our model has three key
elements, which enable us to create value for all our stakeholders,
but primarily for our consumers, our people and our Shareholders.

Capital inputs

Create

Scale

Financial
Shareholders’ equity, debt and
retained profit
+
Intellectual
Proven clinical R&D capabilities,
well-loved brands and an agile
organisation
+
Manufactured
Well-invested manufacturing sites,
R&D laboratories and logistics
centres
+
Human
Highly motivated people
and partners, in a culture of
outperformance
+
Social
Strong, value-creating
relationships with customers,
consumers, suppliers and
communities
+
Natural
Natural raw materials, water
and energy

Create innovative
products that meet
under-served demands

Scale our innovations,
to make them as global
as possible

Innovate
• Consumer insight
• Clinically proven R&D
• Embedded sustainability

Procurement
• Centralised globally
• Sustainably sourced

Manufacturing
• 46 factories
• Quality assurance

Commercial operations
• Power of 1 – One lead market

for each Powerbrand

• 124 logistics centres globally
• Best-in-class supply services

Acquisitions
• Rapid acquisition integration

RB / Annual Report and Financial Statements 2015Activate

Outcomes we deliver

Activate our ideas,
through our customer
relationships and driving
consumer demand

Customer networks
• Sales in most countries

across the globe

• Global sales operations and

strategic partnerships
• Local sales forces with
executional excellence

Consumer education
• Brand equity investment

Employees
Rewarding careers for our people
+

Consumers
Innovative solutions that make a difference
+

Shareholders
Sustainable growth and outperformance
+

Global leader
in health and
hygiene

Customers
Leading brands that drive profitable category
growth and footfall
+

Communities
Healthier and happier communities
through the use of our products

See our operating model in action on page 32

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RB
How we can deliver

Our operating model in action

Our operating model is
to use FMCG experience
to develop, acquire, produce,
distribute and promote
consumer products in growing
Health, Hygiene and Home
categories. Our model has three
key elements, which enable
us to create value for all our
stakeholders, but primarily
for our consumers, our people
and our Shareholders.

Create

Continuous and successful innovation is the key for staying ahead
in our markets. Consumer insights are the starting point for all our
innovations. Through our focus groups and digital channels, we gain
a deep understanding of consumers’ needs, including needs that
consumers are not yet aware of.

Every day, our people generate new ideas for meeting those needs.
We also increasingly partner with third parties who bring us ideas for
great products. To maximise our return on investment, we focus on
under-served needs, where we can create differentiated products
which result in greater consumer loyalty, faster growth and better
margins. We also concentrate our investment on ideas with blockbuster
potential, rather than smaller enhancements to existing products.
Speed is critical, so we focus on advances that come to life in months,
not years.

We then leverage our R&D capabilities to develop clinically proven and
innovative solutions, through R&D hubs in the UK, India and the US
which specialise in particular product categories. The process contains
‘gates’, ensuring we regularly test the idea as development proceeds.
Our spread by geography and product category reduces the risk of any
one innovation failing to deliver. Sustainability considerations are built
into our innovation process, for example as we look to minimise the
carbon emissions and water used to make our products.

In action

Create
Scholl Velvet Smooth Express Pedi

We identified a widespread under-served need for quick and
effective removal of hard skin. Consumers had been using
pumice stones and manual files for hundreds of years, with
few improvements. We test-marketed an electronic foot file
and validated its potential, then improved both the design and
performance to enable a rapid worldwide launch in 2014.

In 2015, we introduced additional versions to create a very
strong second wave of growth. These included further device
designs to target specific consumer types, and different
coarseness levels for the roller-heads, to achieve optimum
performance for different skin types.

RB / Annual Report and Financial Statements 2015Scale

Activate

Centralised procurement leverages our global purchasing power, while
ensuring we source sustainably and responsibly. We then manufacture
our products in 46 factories worldwide, which continually strive to
improve efficiency and reduce their environmental impact. All our
Powerbrands are manufactured in-house, while carefully selected third
parties manufacture some other brands on our behalf.

Quality is essential, so we have a dedicated assurance team. The
stringent quality requirements in healthcare mean that we manage
our consumer health factories globally, to ensure we consistently meet
our standards.

To make our products physically available, we have 124 logistics
centres worldwide, holding finished products for quick and efficient
distribution. Our supply services organisation is customer facing and
aims to achieve best-in-class delivery and customer satisfaction.

To scale our innovation more quickly, we identify a lead market for our
Powerbrands and use our Power of 1 teams to develop a global launch
package that we can then take everywhere, minimising reworking
and inconsistency.

Our strong Balance Sheet and sector-leading cash conversion also allow
us to acquire brands that add value and support our vision. We quickly
integrate acquired brands, so they benefit from our global value
creation model.

Our brands include many category leaders. They drive footfall for
our retail customers, which encourages them to stock our products.
We develop strong relationships with major retailers, so we can work
together to promote our products and drive growth and penetration
of the product category.

To support our efforts, we have over 60 commercial operations
worldwide, with local sales, marketing and doctor/medical detailing
teams. Our global sales operation manages our global retailer
relationships and our relationships with strategic partners such as
Facebook. We use distributors to reach smaller retailers and build
relationships with these distributors that focus on executional excellence.

Ultimately, our business depends on consumer demand for our
products. We invest heavily behind our brands, through targeted
television and print advertising, social and other digital media, and
consumer and medical education. Our virtuous earnings model (see
pages 22 to 23) enables us to fund this investment. This in turn enables
us to grow revenues while increasing our margins, driving returns
for Shareholders.

In action

Scale
Scholl Velvet Smooth Express Pedi

Activate
Scholl Velvet Smooth Express Pedi

We used the lessons from our
test-marketing to optimise our sales
and marketing plans. Combined
with agile centralised production,
this enabled us to launch across 50
markets in 2014 – a record for RB.
In 2015, we further tightened the
process and focus, allowing us to
introduce the additional versions
across these same markets in under
six months.

Our rapid roll-outs and the resulting success enabled us to
define how to achieve executional excellence. By continually
sharing and applying this knowledge, we were able to drive
further success in market. Strong retailer profitability drove
increased collaboration, leading to greater and more visible
physical availability and creating a virtuous cycle.

With these well co-ordinated Create-Scale-Activate activities,
sales of Velvet Smooth Express Pedi doubled in 2015, building
on an already strong 2014 performance.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBWhat we can deliver

Creating stakeholder value

Our business model is
designed to create value
for all our stakeholders.

In the process, it ultimately creates
a sustainable, long-term and growing
business, which adds value for
our Shareholders.

For our People

We provide fascinating and challenging careers for
our people, with the opportunity to work across a growing
group and around the world. We invest in their development,
so they can maximise their potential, recognising that this
benefits them and us. We enable our people to take
responsibility so they can get things done, and provide
excellent rewards for outstanding performance.

For our Shareholders

For our Customers

Our culture and strategy have delivered strong operational
and financial performance, which in turn enable us to grow
our dividend and return funds to Shareholders through
share buybacks.

This success has helped us to generate outstanding
long-term Shareholder returns. If you had invested £100
on 1 January 2000, that investment would have been worth
£1,721 at the end of 2015. That same £100 invested in the
FTSE 100 would be worth £156 over the same period.

With our many market-leading brands, our products
are an important driver of footfall and web traffic for our
traditional and online retail customers, which in turn helps
them to grow their revenue. This is underpinned by our
strong customer relationships and our ability to successfully
activate our products in-store.

Through our innovation and penetration-building activities,
we are able to grow our categories and further increase
revenue for us and our customers.

RB / Annual Report and Financial Statements 2015For our Consumers

Preview of 2016 Initiatives

Consumers benefit from safe, high-quality products that
help them to lead healthier lives and have happier homes.
Our over-the-counter Health brands provide quick and
easily accessible relief for common ailments and support
our consumers’ wellbeing. Hygiene products help to protect
consumers, while our Home products create a pleasant and
comfortable home environment that families love.

Through our relentless focus on innovation, we meet
our consumers’ changing needs and ensure our products
play an important part in maintaining and improving
their lifestyles.

For our Communities

We use our capabilities and the passion of our people
to benefit our communities, by educating and raising
awareness of the benefits of improving health and
hygiene standards.

Through our partnership with Save the Children, we aim
to stop diarrhoea being a major killer of children. Other
products – such as Durex and Mortein – have a key role
to play in preventing sexually transmitted and mosquito-
borne diseases respectively.

RB has announced a number of new
product initiatives for the first half of 2016:

Health
• Nurofen Soft Chews for Children: Effective relief with
just the right strength medicine for kids 7-11. In an
innovative gummy format; they’re easy to chew and no
need for water.

• Scholl Velvet Smooth Wet & Dry: for soft, beautiful feet

effortlessly: on wet and dry skin.

• Scholl Athlete’s Foot Complete Pen & Spray Kit: The first
Athlete’s Foot treatment kit to provide both effective
treatment and prevention from reoccurrence.

• Roll-out of Durex Invisible condom: Durex’s thinnest

condom – offered in a super premium pack, maximising
shelf impact. Offers consumers ultimate sensitivity for an
even closer connection, protected by Durex quality.
• Durex Pleasure Ring: Harder for Longer. Durex’s new

constriction ring helps men maximise hardness for longer
and to intensify the pleasure for them and their partner.

Hygiene
• Dettol Gold: Delivers 100% superior germ killing action

vs. other anti-bacterial soaps in the market.

• Lysol Disinfectant Max Cover Mist: New wide area
disinfectant mist for unbeatable protection and
deodorisation of your large surfaces.

• Harpic/Cillit Bang/Lysol Fresh Power 6: Same amazing

freshness from the first to the last flush.

• Finish Supercharged Powerball: One supercharged

solution for all your dishwashing needs.

Home
• Air Wick Pure: Just fragrance, no wet spray. A water-free

aerosol to enjoy the pleasure of Pure fragrance.

• Air Wick scented Oil Warmer: The ultimate fragrance

control for a superior fragrance experience.

Food
• French’s ‘better for you’ Ketchup and Mustard:

A new range of products under our ‘Promise’ campaign,
which is anchored in three pillars: Real Ingredients, Great
Taste and Commitment to our Communities. In 2015
all French’s formulas were reviewed and all those that
did not comply with our ‘Promise’ principles were
reformulated. We removed high fructose corn syrup
and all artificial flavours, colours and fillers from all
our formulas.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RB

Financial
Review

“In mixed market conditions,
RB delivered an excellent
year of growth and margin
expansion, driven by an
exceptional performance
in our Consumer Health brands.”

Adrian Hennah / Chief Financial Officer

Like-for-like revenue growth

+6%

2015 target: +4%

Adjusted Operating Margin expansion

+210bps

2015 target: Moderate to ‘nice’ expansion

Total full year (FY) Net Revenue was £8,874 million, an increase
of +5% at constant exchange rates, (nil% on a reported basis)
and +6% on a LFL basis. The impact of net M&A was slightly
negative, as a positive impact from our K-Y acquisition was more
than offset by the disposal of our Footwear and Medcom Hospital
businesses. Negative foreign exchange on translation reduced
Net Revenue by 5%. From a geographic perspective growth
was broad based. Our developed market area of ENA delivered
LFL growth of +5%, an excellent performance where markets
are stable. Our emerging market area (DvM) delivered +9% LFL
growth with improving trends in the second half driven by India
and China. Brazil and parts of ASEAN remain challenging.

Health had an exceptional year of +14% LFL growth (nil% on
a reported basis), with a combination of successful innovations
(e.g. Scholl Express Pedi and electronic nail file, and Durex
Invisible), a strong flu season at the beginning of the year, and a
large new brand launch in the US (Amopé). We believe we are
well placed to outperform in Consumer Health, but continue
to emphasise that double digit growth – well above the longer-
term category growth rate of 4-6% – is not sustainable.

Gross Margin increased by +140bps to 59.1%, with contributions
from mix, input costs and cost programmes. Product mix was
favourable as Consumer Health brands grew at a higher rate than
the rest of the business. We also continued to deliver supply chain
savings through our Project Fuel cost optimisation programme. The
impact of commodity driven input costs will vary from year-to-year,
and in 2015 these were a significant tailwind, offset somewhat by
negative transactional foreign exchange (strengthening of the US
dollar versus most currencies). Gross Margin has, and will continue
to, drive our virtuous earnings model, as we focus on favourable
mix, driven by Consumer Health led growth, Project Fuel, pricing
and gross margin enhancing innovations across our Powerbrands.

We increased investment behind our brands (as defined by our BEI
metric), by +£48 million (constant exchange), -20bps to 12.7% of
Net Revenue. The efficiencies we have driven from our Supercharge
programme, (e.g. consolidation of creative agencies and media buying
savings), have been reinvested back into brand equity building initiatives
throughout the year. We continue to expect Project Supercharge to
deliver approximately £150 million in annual cost savings over three
years, and have achieved a significant portion of those savings within
the first year.

Operating profit as reported was £2,241 million, +4% versus FY 2014
(+7% constant), reflecting the impact of an exceptional pre-tax charge
in 2015 of £133 million (2014: £21 million). The exceptional items were
in line with previously announced programmes, principally the disposal
of the Medcom Hospital business and Supercharge. Details of the
exceptional charge are set out in Note 3 on page 110. On an adjusted
basis, operating profit was ahead +9% (+12% constant) to £2,374
million. The Adjusted Operating Margin increased by +210bps to
26.8%, due to the strong gross margin expansion, and approximately
£100 million Project Supercharge led cost efficiencies.

Net income as reported was £1,743 million, an increase of +5% (+8%
constant) versus 2014. On an adjusted basis, net income was £1,871
million +11% (+15% constant). Diluted earnings per share of 240.9
pence was +6% on a reported basis; on an adjusted basis, the growth
was +12% to 258.6 pence.

RB / Annual Report and Financial Statements 2015Balance sheet
At the end of 2015, the Group had total equity of £6,906 million
(2014: £6,834 million), an increase of +1%. Net debt was £1,620 million
(2014: £1,543 million). The Group had non-current assets of £12,386
million (2014: £12,336 million), of which £730 million (2014: £757
million) is property, plant and equipment, the remainder being
goodwill, other intangible assets, deferred tax, retirement benefit
surplus and other receivables. The Group has Net Working Capital of
-£936 million (2014: -£831 million), current provisions of £229 million
(2014: £317 million) and long-term liabilities other than borrowings of
£2,652 million (2014: £2,737 million).

The Group’s financial ratios remain strong. Return on Shareholders’
funds (net income divided by total Shareholders’ funds) was 25.2%
on a reported basis and 27.1% on an adjusted basis (2014: 47.2%
on a reported basis and 28.7% on an adjusted basis).

Dividends
The Board of Directors recommends a final dividend of 88.7
pence (2014: 79 pence), to give a full year dividend of 139 pence
(2014: 139 pence). The dividend, if approved by Shareholders
at the AGM on 5 May 2016, will be paid on 26 May 2016 to
Shareholders on the register at the record date of 15 April 2016.
The ex-dividend date is 14 April 2016 and the last date for election
for the share alternative to the dividend is 5 May 2016. The final
dividend will be accrued once approved by Shareholders.

Capital returns policy
RB has consistently communicated its intention to use its strong
cash flow for the benefit of Shareholders. Our priority remains to
reinvest our financial resources back into the business, including
through value-adding acquisitions. Through continued strong cash
generation the Group has reached a net debt level of approximately
£1.6 billion. It is not possible to be definitive on future needs, but we
consider that this provides the Group with appropriate liquidity. We
intend to continue our current policy of paying an ordinary dividend
equivalent to around 50% of adjusted net income. We also intend to
continue our current share buyback policy which will broadly maintain
our current debt level in 2016, subject to future M&A activity.

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

Net finance expense
Net finance expense was £33 million (2014: £38 million).

Tax
The effective tax rate was 21% (2014: 22%) and the tax rate
excluding exceptionals was 20% (2014: 22%). The UK Chancellor
has enacted future reductions in the UK corporate tax rate in
2017 and 2020. These reductions will have only a small impact on
our ongoing tax rate. They have, however, a larger non-recurring
accounting impact on our reported tax charge during 2015 (the
year of enactment) as we have a significant deferred tax liability in
the UK, the size of which will be reduced by lower future tax rates.
Whilst there is no impact on cash tax payable from this adjustment
to our deferred tax liability, our tax rate has been positively
impacted in the year by 3%. We continue to expect our sustainable,
underlying Group effective tax rate to be in the region of 23%.

Net Working Capital
Inventories decreased to £681 million (2014: £745 million)
in part due to foreign exchange and our sustained focus on
inventory management. Trade and other receivables were broadly
maintained at £1,331 million (2014: £1,307 million). Trade and
other payables increased to £2,948 million (2014: £2,883 million)
in part due to the reclassification of a long-term payable to short-
term payable. Together this has led to a decrease in Net Working
Capital to -£936 million (2014: -£831 million). Net Working
Capital as a percentage of net revenue is -11% (2014: -9%).

Cash flow
Converting our profit into cash is an important part of our culture and
compensation ethos. Cash generated from operations was £2,295
million (2014: £2,324 million). Net cash generated from operating
activities was £1,784 million (2014: £2,099 million) after net interest
payments of £31 million (2014: £32 million) and tax payments of £480
million (2014: £416 million). The decrease largely reflects the demerger
of Indivior plc in the prior year (£223 million) and higher tax payments.

Free cash flow is the amount of cash generated from operating
activities after capital expenditure on property, plant and equipment
and intangible assets and any related disposals. Free cash flow reflects
cash flows that could be used for payment of dividends, repayment of
debt or to fund our strategic objectives. Free cash flow was £1,656
million (2014: £1,934 million, £1,711 million excluding cash flows from
discontinued operations). Free cash flow conversion as a percentage of
continuing net income was 95% (2014: 103% excluding cashflows
from discontinued operations) with the reduction due in part to higher
tax payments.

Net debt
Net debt at the end of the year was £1,620 million (2014: £1,543
million). This reflected strong free cash flow generation, offset by the
payment of dividends totalling £924 million (2014: £988 million) and
net M&A of £10 million (2014: £340 million). The Group regularly
reviews its banking arrangements and has adequate facilities available
to it.

Exceptional Items
A pre-tax exceptional charge of £133 million has been incurred during
the year; £76 million in relation to the ongoing restructuring of the
Group’s organisation and the integration of prior year acquisitions and
a further £57 million loss on the disposal of the Medcom hospital
business. This included a loss of £33 million arising from the recycling,
from equity, of previous exchange losses arising from consolidation of
the legal entity sold.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBFinancial
Review continued

Return on capital employed (ROCE)

25%

20%

E
C
O
R

15%

10%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

As reported
Excluding RB Pharmaceuticals (RBP)

YEAR

RB’s return on capital employed (ROCE), both “as reported” and
adjusted for the demerger of RBP, is set out above. A return-based,
approach is firmly embedded into both organic operational activities
and M&A transactions undertaken by the Group.

Organic activities
Operational activities which utilise capital employed are undertaken
with the same rigorous and returns-based approach, which we adopt
for brand equity investment and other “P&L” based investments:

A transaction may reduce the Group’s ROCE during the years
immediately following the transaction. Of key importance, however,
is the generation of an appropriate cash return on invested capital
within a reasonable time frame. The Group deliberately sets no return
thresholds for an acquisition, as transactions vary in nature, strategic
importance, risk and size. The Group does, however undertake a
significant amount of analysis and due diligence prior to any transaction
to review the return expected to be generated by the end of year three,
compared to the Group’s weighted average cost of capital (WACC).

• Capital expenditure (capex) – all proposed capex must be

supported by a relevant business case. We do not set rigid capex
budgets each year, but allow the organisation to invest where and
when the case is strong. We assign a high priority to projects
addressing safety and quality opportunities. Capex levels are on
average approximately 2% of Net Revenue.

• Net Working Capital (NWC) – tight management of inventories,

payables and receivables is always required. The Leadership in every
market in which RB operates is targeted on NWC performance. It is
typically one of the three multiplicative metrics which determine the
annual bonus. NWC is on average approximately minus 8–9% of
Net Revenue, superior to industry averages.

Inorganic activities
Our principal focus is on organic growth. However, there is an
inorganic element to our strategy focussed around both value accreting
acquisitions, and non-core / tail brand divestures. Decision making
with respect to inorganic opportunities is taken at a Group level. Our
front-line operations play the leadership role in building the case for an
acquisition, the due diligence prior to a transaction and delivering value
once a transaction takes place.

As management are required to hold a significant personal stake of
RB shares, there is strong alignment of interest between management
and shareholders in seeking to ensure that transactions deliver an
appropriate return within an appropriate time frame. Post investment
reviews of all transaction are undertaken on a regular basis and
discussed at a Board level.

Review of RB ROCE
The Group’s ROCE declined immediately following the acquisitions
of BHI (2006), Adams (2008), SSL (2010) and Schiff (2012) and then
improved as good returns were subsequently generated. It was also
negatively impacted in 2013 with the demerger of RBP, as RBP earned
a high return on capital employed (RBP ROCE is removed in reported
data from both 2014 and its comparative year, 2013).

RB performed well in 2014. ROCE performed less well, however, as
reported profit was reduced by significant foreign exchange headwinds
(-10% negative translational impact on Group profits), while capital
employed was less impacted as the majority of the Group’s net assets
(especially intangible assets) are denominated in either sterling or
US dollars – both of which showed meaningful strength versus
other currencies.

In 2015 the Group ROCE increased following a year of excellent organic
growth and a minimal increase in capital employed.

RB / Annual Report and Financial Statements 2015Non GAAP measures

Throughout the Annual Report, the following terms are used to describe RB’s financial performance.

These terms are defined below:
• Like-for-like (LFL) growth on Net Revenue excludes the impact of changes in exchange rates, acquisitions and disposals.
• Continuing growth on Net Revenue excludes the impact of changes in exchange rates and disposals.
• Constant exchange rate adjusts the actual consolidated results such that the foreign currency conversion applied is made using the same

exchange rates as was applied in the prior year.

• Actual exchange rates show the statutory performance and position of the Group, which consolidates the results of foreign currency

transactions at year-end closing rates (Balance Sheet) or annual average rates (Income Statement).

• BEI represents our Brand Equity Investment and is the marketing support designed to capture the voice, mind and heart of our consumers.
• Adjusted results exclude exceptional items, defined as material, non-recurring expenses or income.
• Free cash flow is defined as net cash generated from operating activities less net capital expenditure.
• Return on Capital Employed (ROCE) is defined as Net Adjusted Operating Profit after Tax divided by capital employed, where capital

employed is measured as Total Assets less non-interest bearing Current Liabilities.

Summary of % Net Revenue growth

ENA
DvM
Food

Group

Health
Hygiene
Home
Portfolio

Group

LFL

+5%
+9%
+4%

+6%

Net M&A

-1%
–
–

-1%

LFL

Net M&A

+14%
+3%
+2%
+1%

+6%

+1%
–
–
-9%

-1%

-5%
-6%
+6%

-5%

-5%
-4%
-7%
-2%

-5%

FY 2015

Reported

-1%
+3%
+10%

–

FY 2015

Reported

+9%
-1%
-5%
-10%

–

LFL

+3%
+6%
+3%

+4%

LFL

+8%
+3%
+1%
-5%

+4%

Net M&A

–
+1%
–

–

Net M&A

+2%
–
–
-11%

–

Adjusted Net Income

Net income attributable to owners of the parent from continuing operations
Exceptional items
Tax effect of exceptional items

Adjusted net income attributable to owners of the parent from continuing operations

Free Cash Flow

Cash generated from operations
Plus proceeds from sale of property, plant and equipment
Less net interest paid
Less tax paid
Less purchase of intangible assets
Less purchase of property, plant and equipment

Free cash flow

-7%
-12%
-6%

-9%

-8%
-9%
-10%
-7%

-9%

2015
£m

1,743
133
(5)

1,871

2015
£m

2,295
51
(31)
(480)
(25)
(154)

1,656

FY 2014

Reported

-4%
-5%
-3%

-5%

FY 2014

Reported

+3%
-5%
-8%
-15%

-5%

2014
£m

1,663
21
–

1,684

2014
£m

2,324
19
(32)
(416)
(27)
(157)

1,711

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBStrategic Risks

Our framework
for risk management

The following table provides a
summary review of the principal
strategic risks and uncertainties that
could affect the Group, as identified
by management and the Board.
RB operates a major risk assessment
process to periodically identify,
assess and mitigate those risks
it considers to be most significant
to the successful execution of
our strategy.

The most senior leaders 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 is then synthesised into the
Group’s top risks, with each risk having an Executive Committee
(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 other risks which, while
also actively managed, may still adversely impact the business and its
financials. A more detailed consideration of a broader range of risks
faced by the Group appears on pages 158 to 164 of this report.

Group major risks
1. Non-Compliance

of Licensed Products

2. Supply Business Continuity

Planning

3. Non-Compliance with

Quality Standards
4. ERP/IT Systems Failure

5. Cyber Security and
Data Protection

6. Loss of Key Management
7. Significant Country Under-

performance

8. Legal Non-Compliance
9. Major Tax Disputes
10. ‘Black Swan’ Event

Compared with a year ago, the Cyber Security and Data Protection risk
is now considered sufficiently material to include this for the first time
as a Group major risk, while Activities Upscheduling has been
downgraded and removed from the list, as the materiality of the
exposure has reduced significantly.

Exchange rate risk
A description of the exchange rate risk to the Group, and the means
used to mitigate that risk, appears on page 164 (General Financial Risks
of a Global Company) and on pages 163 to 164 (Currency Exchange).

Viability statement

Management conducted a viability review covering a five-year period.
This period was selected as it is the period covered in the Group’s
long-term forecasting process. This period covers the introduction
to market of the current product pipeline.

The five-year viability review first looks at the Group’s ability to
continue in operation if it performs in line with the Group forecast.
This assumes that normal market conditions continue and current
trends remain. The evaluation takes into account the Group’s cash
flow, historic Group planning accuracy, available banking facilities
and interest cover ratios in connection with financial covenants. The
analysis concluded that if RB performs in line with forecast it would
have sufficient funds to trade, settle its liabilities as they fall due, and
remain compliant with financial covenants.

The analysis goes on to consider the viability of the business should
adverse unexpected events arise. To illustrate this, a sensitised view of
the Group forecast was produced. The adverse assumptions are based
primarily upon the realisation of key Group Strategic risks, which have
the most relevant potential impact on viability (see risks marked “*”
on opposite and following pages).

The sensitivity assigns each adverse assumption an estimated annual
monetary value and estimates the impact on interest cover ratios and
headroom over available borrowing facilities. The analysis concludes
that even with the occurrence of key unexpected scenarios, RB would
still have sufficient funds to trade, settle its liabilities as they fall due,
and remain compliant with financial covenants.

Management has further considered the occurrence of a ‘Black Swan’
Event: an event with sufficient potential impact to risk the future of RB
as a strong and independent business operating in its chosen markets.
The occurrence of a major issue could result in significant reputational
impact, a catastrophic share price fall, significant loss of consumer
confidence and inability to retain and recruit quality people. Such an
event could have an impact on the viability of the business.

As there are a number of mitigating controls in place across the
business, the occurrence of a Black Swan event is considered sufficiently
unlikely that it has not been factored into the sensitivity analysis.

As a result of the Viability Review, the Directors have a reasonable
expectation that the Group will be able to continue in operation and
meet its liabilities as they fall due over the five-year period covered in
the Viability Review.

RB / Annual Report and Financial Statements 2015MAJOR RISK

DESCRIPTION

CONTEXT

MITIGATION

1. Non-Compliance
of Licensed
Products*

betterfinancials

Risk that non-compliance
with regulations (e.g. licences,
manufacturing, products and
laws) results in significant
financial losses arising from
regulator-enforced factory
closures, product recalls, delayed
launches, fines, penalties, etc.
Also, reputational damage with
consumers and regulators.

2. Supply Business
Continuity
Planning

betterfinancials

Risk that our business continuity
plans (BCPs), including mono-
sourcing (materials and
products) do not adequately
address all risks facing the
Group, resulting in unforeseen
business disruption.

Increased

No change

Decreased

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 &
safety. These regulations can
change and may become more
stringent. Additionally we are
required to obtain, maintain
and update licences for such
products. If we are found to be
non-compliant with applicable
laws and regulations, we could
be subject to civil remedies or
regulatory actions, such as fines,
injunctions or product recalls,
and/or criminal sanctions.

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 own standards, which
could require investment and
may take time to resolve.

The Group has quality and
compliance structures in
place with teams focused
on driving adherence to the
business management and
quality systems company wide.
Control programmes in place
to manage compliance risks
include: Regulatory Excellence
(marketing authorisations),
Product Vulnerability
(formulation assessments),
Core Company Data (legislative
requirements), Pharmacovigilance
(adverse events monitoring)
and Consumer Care
(complaints call line).

RB employs senior regulatory
and legal specialists at a Group,
regional and local level who
are responsible for setting
policies and ensuring that all
employees are aware of, and
comply with, both Group policies
and the laws and regulations
relevant to their roles.

A Governance Framework Team
has recently been established
to oversee and coordinate this
broad-based agenda. There has
been no change to the assessed
profile of this risk in the last year.

Suppliers of key raw and
packaging materials, co-
packers of finished product
and the Group’s manufacturing
facilities and key technologies
are risk assessed for their
potential impact on supply
disruption for our products.
Business continuity plans are
in place throughout the Group
and major sites are routinely
and independently assessed
towards achievement of a highly
protected risk (HPR) site status.

Our consumer product recall
process was fully tested and
proven as effective during
an incident in the USA. The
concern level over this risk has
reduced, with no significant
further actions outstanding.

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBStrategic Risks continued

MAJOR RISK

DESCRIPTION

CONTEXT

MITIGATION

3. Non-Compliance
with Quality
Standards*

betterfinancials

Risk of non-compliance
with quality standards, most
notably Good Manufacturing
Practices (GMP), which are
being increasingly audited by
health agencies from multiple
jurisdictions, restricting our
ability to produce or sell key
brands, particularly Healthcare.
The span of this risk covers the
complete product lifecycle:
global regulated process
compliance, R&D, factories,
external manufacturing facilities
(co-packers) and in-market
execution non-compliance.

Various factors may adversely
impact on our reputation,
including product quality
inconsistencies or contamination
resulting in product recalls.
Reputational risks may also arise
from our third parties’ labour
standards, health, safety and
environmental standards, raw
material sourcing and ethical
standards. We could also be the
victim of product tampering or
counterfeiting or grey imports.

4. ERP/IT Systems
Failure

betterfinancials

Risk of IT disruption or
accounting error, due to legacy
Enterprise Resource Planning
(ERP) and IT systems, impacts
business operations in a
number of areas, e.g. through
unavailability of key management
information or disruption to
transactional processing.

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.

The Group has a comprehensive
suite of policies, processes and
systems to drive compliance
with good manufacturing
practice and monitor quality
assurance, together with routine
KPI reporting. An appropriately
resourced global quality audit
team covers factories’ co-
packers, distribution centres
and commercial units. Audits
by regulatory bodies (FDA,
MHRA, Anvisa, etc.) and
notified bodies (SGS, DGM) are
comprehensively prepared for
and promptly responded to.

The manufacturing of Personal
Hygiene products has been
integrated into the Healthcare
cluster this year, driving stronger
regulatory disciplines. The
potential impact of this risk
has been assessed slightly
higher than previously, having
analysed the Mucinex product
recall experience, but its profile
otherwise remains unchanged.

The Group is engaged in a rolling
ERP update programme. Disaster
recovery plans are in place and
are tested periodically. It also
invests in security measures
and anti-virus software to
safeguard against this threat.
Maintenance of current systems
throughout the execution of the
ERP programme implementation
is an ongoing priority.

SAP manufacturing and
commercial templates have
now been successfully put in
place in some locations. This
has resulted in the potential
impact of this risk being assessed
lower than previously, as more
elements of the programme
have been proven to be robust.

RB / Annual Report and Financial Statements 2015
MAJOR RISK

DESCRIPTION

CONTEXT

MITIGATION

5. Cyber Security
and Data
Protection*

betterfinancials

Risk that RB is subject to
increasingly sophisticated
cyber attacks aimed at causing
business disruption, capture of
data for financial gain, general
embarrassment and reputational
damage or that RB’s data
protection is considered by
regulators to be inadequate.

While this risk is not new, the
context for its inclusion is the
increased business appetite
for consumer personal data to
drive sales and growth. The
potential impact of the threat
is also now greater due to
the reliance on an increasing
number of connected systems.

The legislative environment has
also been strengthened with
significant financial penalties
now enforceable to penalise
data protection breaches.

The Group has strengthened
controls and defences around
this area of increasing risk. A data
protection programme has been
established to drive compliance.

An update of systems patching
against cyber threats has been
undertaken and improvements
to approaches to protect
against data loss and manage
privileged access to systems
are currently under way.
Broader awareness training
also continues to be a focus.

This risk has been included
in the Group major risks for
the first time. It has been
assessed as having a potentially
major impact with a medium
possibility of that occurring.

6. Loss of Key
Management

betterfinancials

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

7. Significant
Country Under-
performance

betterfinancials

Risk of material impact on
Group growth and profit
of under-performance or
extreme foreign exchange
volatility in certain markets
e.g. China, Russia and Brazil.

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 management would not be
entitled to their variable pay,
which is a significant element
of total remuneration. This
could operate as a disincentive
for them to continue their
employment with us.

The Group structures its reward
programme to attract and
retain the best people. The
formal succession planning
process continues to evolve
with plans being reviewed and
updated regularly for all key
positions and individuals.

The concern level over this
risk has reduced, due to a
consistently high retention
level for key management.

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.

The Group has developed a
robust strategy to drive margin
expansion and enable continued
investment behind our brands.
Both financial results and
currency volatility are closely
monitored. Partnerships are
strengthened with distributors
to better manage local risks.

This risk is spread over many
varied markets, and is considered
‘business as usual’ as our strategy
gives us increased protection
against market uncertainty.
As such, the potential impact
of this risk has been assessed
as lower than previously.

Increased

No change

Decreased

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBStrategic Risks continued

MAJOR RISK

DESCRIPTION

CONTEXT

MITIGATION

8. Legal
Non-Compliance*

betterfinancials

Risk that we are not fully
compliant with relevant laws
and regulations, including
anti-corruption laws and global
competition laws, resulting
in damage to RB’s reputation
and significant potential
fines and other penalties.

9. Major Tax
Disputes

betterfinancials

Risk of significant unprovisioned
cash outflows as a result
of tax authority challenge
to filed tax positions in
any particular territory.

10. ‘Black Swan’
Event

betterfinancials

An absolute worst-case scenario
with sufficient potential impact
to risk the future of RB as
a strong and independent
business operating in its chosen
markets. This could arise or be
amplified by adverse economic
or social conditions, political
upheavals or natural disasters.

Failure to comply with applicable
anti-trust and competition
laws, rules and regulations
in any jurisdiction may result
in civil and/or criminal legal
proceedings. 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 direct control, such as agents
and joint venture partners,
and also through businesses
we acquire. Any violation of
applicable sanctions, money
laundering or other relevant
laws could also have a negative
impact on our reputation.

The Group is proactive
in addressing legal risks
internally, through mandatory
online training undertaken
by employees and country-
based legal oversight. We
also respond to government
authorities in a forthright
and co-operative manner.

A Legal Academy was launched
this year that will provide
enhanced training on a wide
range of topics, including
compliance. The whistleblowing
hotline was also relaunched and
strengthened from the start of
the year with a new supplier.

There has been no change
to the assessed profile of
this risk in the last year.

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.

The Group has the appropriate
risk framework in place to
monitor, assess and mitigate
operational tax risk.

The Board considers that tax
exposures are adequately
provided for, while recognising
that an element of risk will
always remain.

There has been no significant
change to the assessed profile
of this risk in the last year.

Significant reputational impact as
a result of a major issue resulting
in multiple fatalities, possibly
compounded by apparently
negligent management
behaviour; extreme adverse
press coverage and viral social
media linking the RB name to
consumer brands, leading to
a catastrophic share price fall,
very significant loss of consumer
confidence and inability to retain
and recruit quality people.

A strong governance framework
and operating model are
applied to drive compliance,
transparency and oversight.
Robust Group policies are
maintained and a programme
of rolling independent audits
operated to ensure their proper
application. Comprehensive
crisis management training
programme and support tools are
in place and regularly updated.

RB / Annual Report and Financial Statements 2015DESCRIPTION

CONTEXT

MITIGATION

Routine Risks

betterfinancials

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.

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
provide 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.

By order of the Board

Christine Logan / Company Secretary
22 March 2016

Increased

No change

Decreased

Strategic ReportGovernance ReportFinancial StatementsAnnual Report and Financial Statements 2015 / RBBoard
of Directors

Adrian Bellamy
Chairman

Rakesh Kapoor
Chief Executive Officer

Adrian Hennah
Chief Financial Officer

Jaspal Bindra
Non-Executive Director

Nationality
British

Nationality
Indian/British

Nationality
British

Nationality
Indian

Nationality

British

Nationality

British

Nationality

British

Length of tenure
16 years

Length of tenure
Four years

Length of tenure
Two years

Length of tenure
One year

Length of tenure