4 Apr 2016 09:20
4 April 2016
RECKITT BENCKISER GROUP PLC
2015 Annual Report, 2015 Sustainability Report
and Notice of the 2016 Annual General Meeting
Reckitt Benckiser Group plc ("RB" or the "Company") released its preliminary announcement of annual results ("Preliminary Announcement") for the year ended 31 December 2015 on 15 February 2016. Further to the Preliminary Announcement, RB confirms that it has today published its Annual Report and Financial Statements 2015 ("2015 Annual Report") and Notice of the Annual General Meeting 2016 ("2016 AGM Notice").
Copies of both documents have today been posted or otherwise made available to shareholders, and are available on the Company's website at www.rb.com.
The Company's 2016 Annual General Meeting will be held at 11.15 a.m. on Thursday 5 May 2016 at No.11 Cavendish Square, London W1G 0AN.
RB's 2015 Sustainability Report has also been published today and is available on www.rb.com.
This year, RB has taken a more integrated approach to the reporting of corporate and sustainability information. The changes reflect RB's betterbusiness strategy, in particular the recognition that positive social impact and effective environmental responsibility contribute strongly to RB's successful financial performance.
In compliance with LR 9.6.3, the following documents have also been submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/nsm
· 2015 Annual Report
· 2016 AGM Notice
· Form of Proxy for the 2016 Annual General Meeting
A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in the Preliminary Announcement. That information, together with the information set out in the Appendix below, which is extracted from the 2015 Annual Report, constitutes the material required for the purposes of compliance with DTR 6.3.5R. This announcement is not a substitute for reading the full 2015 Annual Report. Page numbers in the extracted information below refer to page numbers in the 2015 Annual Report.
Enquiries: Tel: +44 (0)1753 217800
Investors/Analysts:
Christine Logan, Company Secretary
Richard Joyce, SVP, Investor Relations, Communications & External Affairs
Media:
Patty O'Hayer, Director, External Relations and Government Affairs
About RB:
RB* is the world's leading consumer health and hygiene company. The company has operations in over 60 countries, with headquarters in London, Dubai and Amsterdam, and sales in most countries across the globe. The company employs approximately c. 37,000 people worldwide.
Inspired by a purpose to deliver innovative solutions for healthier lives and happier homes, RB is in the top 20 companies listed on the London Stock Exchange. It is the global No 1or No 2 in the majority of its fast-growing categories, driven by an exceptional focus on innovation. RB's health, hygiene and home portfolio is led by its global Powerbrands including Nurofen, Strepsils, Gaviscon, Mucinex, Durex, Scholl, Clearasil, Lysol, Dettol, Veet, Harpic, Cillit Bang, Mortein, Finish, Vanish, Calgon, Air Wick, Woolite and French's. Powerbrands represent 80% of net revenue.
RB is redefining the world of consumer health and hygiene. Its people and unique culture are at the heart of its success. It has a drive for achievement and a passion to outperform wherever it focuses, including sustainability where it is targeting a 1/3 reduction in water impact, a 1/3 reduction in carbon and 1/3 of net revenue from more sustainable products. RB is proud to be Save the Children's largest global partner, with a new vision to radically reduce one the world's largest killer of under 5s, diarrhoea.
For more information visit www.rb.com
*RB is the trading name of the Reckitt Benckiser group of companies
Cautionary note concerning forward looking statements
This announcement and the 2015 Annual Report Statements contain statements with respect to the financial condition, results of operations and business of the Reckitt Benckiser group of companies (the "Group") and certain of the plans and objectives of the Group that are forward-looking statements. Words such as ''intends', 'targets', or the negative of these terms and other similar expressions of future performance or results, and their negatives, are intended to identify such forward-looking statements. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including targets for net revenue, operating margin and cost efficiency, are forward-looking statements. Such statements are not historical facts, nor are they guarantees of future performance.
By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including many factors outside the Group's control. Among other risks and uncertainties, the material or principal factors which could cause actual results to differ materially are: the general economic, business, political and social conditions in the key markets in which the Group operates; the ability of the Group to manage regulatory, tax and legal matters, including changes thereto; the reliability of the Group's technological infrastructure or that of third parties on which the Group relies; interruptions in the Group's supply chain and disruptions to its production facilities; the reputation of the Group's global brands; and the recruitment and retention of key management.
These forward-looking statements speak only as of the date of this announcement. Except as required by any applicable law or regulation, RB expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Any information contained in the 2015 Annual Report 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.
APPENDIX
The primary purpose of this announcement is to inform the market about the publication of RB's 2015 Annual Report, 2015 Sustainability Report and 2016 AGM Notice.
The information below, which is extracted from the 2015 Annual Report, is included solely for the purpose of complying with DTR 6.3.5R and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Preliminary Announcement. Together these constitute the material required by DTR 6.3.5R to be communicated in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2015 Annual Report.
Page and note references in the text below relate to pages and notes in the 2015 Annual Report.
(i) STRATEGIC RISKS (pages 40 to 45)
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 Underperformance
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).
Major Risk | Description | Context | Mitigation |
1 Non-Compliance of Licensed Products | 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. | 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. | 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. |
2 Supply Business Continuity Planning | 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. | 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. | 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. |
3 Non-Compliance with Quality Standards | 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. | 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. |
4 ERP/IT Systems Failure | 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 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. |
5 Cyber Security and Data Protection | 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 | 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. | 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. |
7 Significant Country Underperformance | 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. | 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. |
8 Legal Non-Compliance | 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. | 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. |
9 Major Tax Disputes | Risk of significant unprovisioned cash outflows as a result of tax authority challenge to filed tax positions in any particular territory. | 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. |
10 'Black Swan' Event | 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. | 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. |
Routine Risks | 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. |
(ii) RELATED PARTY TRANSACTIONS (pages 135 and 147)
[NOTE] 26 RELATED PARTY TRANSACTIONS
Related to the forward contract to acquire the share capital held by the non-controlling Shareholders of RB & Manon Business Co. Ltd ('Manon'), an additional settlement of £12 million was agreed during the 2015 calendar year which was conditional on completion of the new arrangements. Of this amount, £8 million was included within profit and loss in 2015, with the remainder deferred until 2016. See Note 30 for further details.
Subsequent to the demerger of RB Pharmaceuticals on 23 December 2014, the Group continues to lease a building, and provide operational services to Indivior PLC. The transitional services between the Group and Indivior PLC are on an arm's length basis. The amount included in other operating income in respect of these services is £8 million (2014: £nil). Adrian Hennah, the Reckitt Benckiser Group plc CFO, also sits on the Board of Directors of Indivior PLC. It was announced on 11 March 2016 that he would step down from the Indivior Board with effect from 11 May 2016.
Key management compensation is disclosed in Note 5. There are no further related party transactions.
[PARENT COMPANY NOTE] 11 RELATED PARTY TRANSACTIONS
Adrian Hennah, the Reckitt Benckiser Group plc CFO, also sits on the Board of Directors of Indivior PLC. It was announced on 11 March 2016 that he would step down from the Indivior Board with effect from 11 May 2016.
There were no transactions with related parties other than wholly owned companies within the Group.
The Company has taken advantage of the requirements in Section 33, 'Related Party Disclosures' to not disclose key management personnel compensation.
(iii) DIRECTORS' STATEMENT OF RESPONSIBILITIES
The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed on pages 46 to 49 confirms that, to the best of his/her knowledge:
• the Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU and IFRSs as issued by the IASB, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Name Function
Adrian Bellamy Chairman and Non-Executive Director
Rakesh Kapoor Chief Executive Officer
Adrian Hennah Chief Financial Officer
Jaspal Bindra Non-Executive Director
Nicandro Durante Non-Executive Director
Mary Harris Non-Executive Director
Kenneth Hydon Non-Executive Director
Pamela Kirby Non-Executive Director
André Lacroix Senior Independent Director
Sue Shim Non-Executive Director
Christopher Sinclair Non-Executive Director
Judith Sprieser Non-Executive Director
Douglas Tough Non-Executive Director
Warren Tucker Non-Executive Director
___________________________________