Enabling
`healthier lives
`
`The global leader in consumer
`health and hygiene
`
`Reckitt Benckiser Group plc (‘RB’)
`Annual Report and Financial Statements 2013
`
`Page 1
`
`

`

`Contents
`
`Strategic Report
`Chairman’s Statement
`
`Results Highlights
`
`Chief Executive’s Statement
`
`Operational Detail
`
`Governance & Remuneration
`Board of Directors and Executive Committee
`
`Report of the Directors
`
`Chairman’s Statement on Corporate
`Governance
`
`Corporate Governance Report
`
`Statement of Directors’ Responsibilities
`
`Directors’ Remuneration Report
`
`Financial Statements
`Independent Auditors’ Report to the
`Members of Reckitt Benckiser Group plc
`
`Group Income Statement
`
`Group Statement of Comprehensive Income
`
`Group Balance Sheet
`
`Group Statement of Changes in Equity
`
`Group Cash Flow Statement
`
`Notes to the Financial Statements
`
`Five-year Summary
`
`Parent Company Independent Auditors’
`Report to the Members of Reckitt Benckiser
`Group plc
`
`Parent Company Balance Sheet
`
`Notes to the Parent Company Financial
`Statements
`
`Our Relationships and
`Principal Risks
`
`Shareholder Information
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`104
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`RB refers to entities in the Reckitt Benckiser Group plc group of companies.
`
`‘RB – The global leader in consumer health and hygiene’. Global claim based on RB’s definition of combined Consumer Health
`and Hygiene Sales. Data sources: Consumer Health: OTC (Nicholas Hall); Condoms/Devices (ACNielsen); Footcare (ACNielsen –
`select markets only); Hygiene: RB select categories (Euromonitor).
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`Page 2
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`costs from management changes as we address
`the operational issues.
`
`The volatility in several of RUMEA’s markets
`is likely to remain in the near term. However
`we remain confident that the organisational
`and operational changes being put in place,
`together with our focus and strategy to drive
`the penetration of our brands should improve
`performance in the future.
`
`The Group’s two non-core businesses, Food
`and RB Pharmaceuticals, performed as follows:
`
`Food. 2013 net revenue was £325m, a flat
`performance versus the prior year and also
`in the fourth quarter. Macro conditions
`surrounding the food category remain
`unchanged with weaker markets and
`lower inflation.
`
`RB Pharmaceuticals. 2013 net revenue was
`£777m, a decrease of 8%. Our volume market
`share for Film in the US exited the year at
`68%, broadly maintained since the entry of
`generic tablets. The underlying volume growth
`in prescriptions in the US continues to be low
`double digit growth. This growth is offset by
`the loss of our higher margin tablet sales in
`the US following our voluntary withdrawal of
`Suboxone tablets in March and the entry of
`generic tablets now competing with our Film.
`Our non-US business was impacted by
`government imposed price reductions in a
`number of European markets.
`
`Operating profit decreased -21% to £428m.
`The operating margin was down -890 bps to
`55.1%, in line with earlier guidance. The main
`drivers of the margin decline are negative
`leverage from the revenue decline, negative mix
`of the lower margin albeit more sustainable
`Film, and increased R&D investment in our
`clinical pipeline. We expect this increase in R&D
`investment to continue into 2014 and beyond
`as we continue to build a strong, sustainable
`growth business.
`
`There have been no further material
`developments in the three Hatch-Waxman
`challenges to the Film patents in US. We expect
`the litigation to follow the typical timelines
`for Hatch-Waxman litigation, and believe the
`formulation and process patent protection to
`be strong.
`
`RB Pharmaceuticals is a strong, sustainable
`business with good long-term prospects. It
`has a market-leading, physician and patient
`preferred product in the US, with strong patent
`protection up until 2030. The business outside
`of the US has much potential in what are
`
`currently under-treated markets. We also have
`a strong pipeline, as we look to deliver to
`patients the next generation products for
`opioid addiction. These longer-term prospects
`will be tempered with short-term volatility. We
`continue to expect erosion of Film share with
`some more price sensitive patients and payors
`switching to cheaper alternatives. We are
`pleased to announce that we have recently
`appointed a new Chairman, Howard Pien, who
`will play an important part in the next stage of
`RB Pharmaceuticals’ evolution.
`
`The strategic review we announced in October
`of last year is underway. We will provide further
`information on this review during the course
`of 2014.
`
`CATeGORY PeRFORMANCe
`Health
`Net revenue increased to £2,633m with
`like-for-like growth of +10%. It was a very
`strong year for our consumer health category
`which had an excellent start. Innovation-led
`growth was driven by Mucinex, with its further
`expansion beyond cough and congestion into
`sinus and cold & flu, and aided by a long and
`strong season during the first half. These
`successes provide a firm base on which to
`launch a further category extension within the
`Mucinex franchise, with the roll out of Mucinex
`Allergy – 24-hour relief from indoor and
`outdoor allergies, in 2014.
`
`Our consumer health acquisitions are
`performing strongly. In respect of Schiff in the
`US the over achievement of synergies allowed
`for increased reinvestment behind the brands,
`improved shelf presence and distribution. In
`China our Manyanshuning sore throat brand,
`which came with the Guilong acquisition,
`has had a strong year, and we are seeing
`encouraging results from our collaboration
`agreement with BMS in LATAM.
`
`Hygiene
`Net revenue increased to £3,835m, with
`like-for-like growth of +7%. The performance
`was driven by strong growth in the Dettol/Lysol
`franchise across all three of our areas. Our
`‘Healthing’ campaign, combined with the
`continued expansion and success of the Power
`& Free portfolio, drove growth across ENA. In
`emerging market areas we continue to focus
`on driving brand equity building initiatives such
`as our new mums hospital visit, and schools
`programmes. Our successful category extension
`of Dettol Kitchen Gel has driven strong growth
`in India for both Q4 and the full year. Hand
`wash was strong in both developed and
`
`2013 Results excluding RB Pharmaceuticals
`In light of the announcement of generic competition to Suboxone in the US, the Group provides
`the following information relating to the performance of the business in 2013 excluding
`RB Pharmaceuticals.
`
`
`
`
`
`Net revenue
`Adjusted operating profit
`Adjusted operating margin
`
` RB ex RB
`Pharmaceuticals
`£m
`%
`9,266
`+5%*
`2,188
`+7%**
`
`+23.6%
`
` RB
`Pharmaceuticals
`£m
`%
`£m
`777
`-8%* 10,043
`428
`-21%**
`2,616
`
`55.1%
`
`
`Total RB
` %
`+4%*
`+1%**
`+26.0%
`
`* like-for-like at constant exchange rates ** at constant exchange rates
`
`emerging market areas driven by the continued
`success of Lysol/Dettol hand wash foam in the
`US, Germany, Korea and China.
`
`Harpic continued its strong momentum behind
`penetration programmes and the launch of our
`All-in-1 line extension in India.
`
`Home
`Net revenue increased to £1,974m, a like-for-
`like growth rate of +2%. Vanish had a very
`strong final quarter as we refocused the
`strategy on penetration, underpinned by the
`launch of our successful online ‘Vanish Tip
`Exchange’ campaign in Europe and a number
`of our emerging market countries.
`
`Portfolio
`Net revenue decreased to £499m, with a
`like-for-like decline of -12%. This was due
`principally to actions taken in the European
`footwear business and continued weakness
`in laundry detergents and fabric softeners in
`Southern Europe.
`
`FINANCIAL ReVIew
`Basis of Preparation: The financial
`information is prepared in accordance with
`IFRSs as endorsed by the EU and IFRSs as issued
`by the International Accounting Standards
`Board, with applicable parts of the 2006
`Companies Act and with the accounting
`policies set out in note 1 on pages 54 to 57.
`
`Constant exchange: Movements in exchange
`rates relative to Sterling affect actual results as
`reported. The constant exchange rate basis
`adjusts the comparative to exclude such
`movements, to show the underlying growth
`of the Group.
`
`Net Revenue: Net revenue was £10,043m
`(2012: £9,567m), an increase of +5%.
`
`Net Finance expense: Net finance expense
`was £31m (2012: £34m).
`
`Tax: The effective tax rate was 25% (2012:
`24%). This increase was primarily due to the
`non-deductability of the exceptional items.
`The adjusted tax rate was 24%.
`
`Net working Capital: Net working capital
`(inventories, trade and other receivables and
`trade and other payables) was minus £863m
`(2012: minus £700m).
`
`Cash Flow: Cash generated from operations
`was £2,756m (2012: £2,423m) and net cash
`generated from operating activities was
`£2,121m (2012: £1,888m). Net interest paid
`was £24m (2012: £7m) and tax payments were
`£611m (2012: £528m). Capital expenditure
`was higher than the prior year at £225m (2012:
`£177m). Acquisition of businesses of £418m
`related to the acquisition of Guilong and
`collaboration agreement with BMS.
`
`Net Debt: At the end of the year net debt
`was £2,096m (2012: £2,426m). This reflected
`strong free cash flow generation, offset by the
`payment of two dividends totalling £992m
`and the acquisition of businesses for £418m.
`The Group regularly reviews its banking
`arrangements and currently has adequate
`facilities available to it. The Group issued two
`bonds in September 2013.
`
`14
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`Strategic Report Operational Detail
`
`RB Annual Report 2013
`
`Page 3
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`