2014 Annual Report

140 Pages·2015·5.77 MB·English

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2014
Reckitt Benckiser Group plc (‘RB’)
Annual Report and Financial Statements
RB is the global leader in
consumer health and hygiene,
with operations in approximately
60 countries and sales in almost 200
Contents
Strategic Report Strategic Report Our vision
RB at a glance
The right markets
The right categories
ENA RUMEA LAPAC HEALTH HYGIENE HOME A world where people are
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RB Annual Report and Financial Statements 2014 04 05 RB Annual Report and Financial Statements 2014
See page 10
RB at a Glance
See page 04
01 Strategic Report Strategic Report Strategic Report Our purpose
30 Corporate Governance 5 ReasonIsnv etstmoen ti Cnasveest in RB Business Model
mGarrogsisn
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Investment case
See page 06
and happier homes.
Feeling well is at the heart of RB’s rapidly
growing consumer health business. Making a
difference to the lives of consumers means we
are expanding our research and innovation
to stay ahead of the game. In fact, we are
changing the game in consumer health. RB
combines a strong commitment to producing
top quality, trusted medicines and medical
devices with a fast-paced, entrepreneurial
and rigorous workplace.
‘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).
RB Annual Report and Financial Statements 2014
Strategic Report
2014 Highlights
Another year of growth
& outperformance
Net Revenue (NR) Gross margin
Total and like-for-like net +100
revenue growth bps
8.8bn

£
to 57.7%
Like-for-like growth

+4 Operating margins
%
up +160 bps
exceeding targets
BEI*
30 24.7
+£ m %
(at constant exchange rates;
-10bps of net revenue)
Emerging markets
Total investment * Brand Equity Investment (RUMEA and
of £1.1 billion LAPAC) growth
Health and Hygiene 7
+ %
74
%
Like-for-like
of core net revenues (2013: 72%) Over
117m
864,000 trees
planted
people reached with health
and hygiene messaging
Products sold annually
Up 14 places
since 2004 in the
>7
bn OTC ranking
Financial performance measures quoted above and
used throughout this Report are defined on page 20. 01 RB Annual Report and Financial Statements 2014
Strategic Report
Chairman’s Statement
A year of progress
introduction
Three years ago the Group set out a clear strategy to focus its brand
portfolio on the faster growth and higher margin consumer health and
hygiene categories, and to redeploy its resources to deliver a more evenly
balanced revenue stream from emerging and developed markets. The
Group’s results for 2014 are a clear testament to the validity of this strategy,
which is working to create significant value for Shareholders.
Like-for-like net revenue growth was up +4%. Reported operating profit
grew +15% on actual currency and +25% on a constant currency basis.
Adjusted operating profit grew +2% on actual currency and +11% on a
constant currency basis. Reported diluted earnings per share were 441.1p,
+85% versus prior year. Total adjusted diluted earnings per share were
268.5p, consistent with 2013.
The Board is confident that the business is in a strong position to deliver
sustainable, profitable growth in 2015 and beyond.
Supercharging our earnings model
It is a testament to the Group’s culture that there is a restlessness and
ongoing ambition to improve both delivery to consumers and customers, as
AdriAn BellAmy / Chairman
well as reigniting the earnings model. I am therefore extremely pleased to
announce Project Supercharge, an initiative which is fully explained on page
17, which I am confident will make RB a more efficient and effective business.
“RB’s purpose driven strategy has
The organisational changes will provide the framework to deliver bigger,
delivered another year of growth better and more scalable innovation, combined with improved in-market
activation at a country level. I am confident that this, combined with the cost
and outperformance in 2014.” savings initiatives, will deliver continued growth and outperformance. This
will provide rewarding returns for you, our Shareholders.

improved focus on our core business
The Group continued to improve its focus on its core business with a
strategic acquisition and further brand rationalisation throughout the year.
Shareholder information
• Investor presentation webcast
• RB.com
• RB Annual Report and Financial Statements 2014
• www.happier-homes.co.uk
• Sustainability Report (available April 2015)
RB Annual Report and Financial Statements 2014 02
Strategic Report
Following the strategic review in October 2013, RB Pharmaceuticals was Case study
demerged on 23 December 2014 and listed on the London Stock Exchange
as Indivior PLC. It was the Board’s view that a stand-alone business will be Dettol India – a nationwide campaign
best placed to create value for Shareholders as it manages the challenges
for a cleaner India (Banega Swachh)
and seizes the opportunities within the field of addiction.
In May 2014 we acquired the K-Y brand from Johnson & Johnson in most Since 2006, Dettol has reached over 6 million children with handwashing
major markets, which will improve our presence in the sexual wellbeing education. In 2014, RB launched a nationwide movement to promote a
category, particularly in the US, Canada and Brazil where we were cleaner, healthier India. The programme aims to improve hand hygiene
underrepresented. and sanitation. Over the next five years, our Swachh Express bus will
reach out to 2,000 villages to co-design and deliver community-based
Board changes and governance hygiene campaigns. On Global Handwashing Day 2014, we set a world
As I shared in my statement last year, during 2014 we have been record with 1.4 million children across India.
particularly focused on strengthening and refreshing the composition
of the Board. In addition to Nicandro Durante, who was appointed as We have partnered with Facebook and one of India’s leading TV stations.
a Non-Executive member of the Board in December 2013, three Non- Our 12 hour nationwide Cleanathon reached over 12 million people
Executive members were appointed in 2014: Jaspal Bindra, Sue Shim and on air and online.
Doug Tough. Three further appointments of Non-Executive members were
effected in February 2015, in Mary Harris, Pam Kirby and Chris Sinclair.
These new members will bring a broad range of skills to the Board, and
I would like to warmly welcome each of these new appointments. The
Board completed its annual assessment of corporate governance, including 12 hour nationwide
Board effectiveness, and took proactive steps to address recommended
Cleanathon reached
improvements. Strong corporate governance is a key element of our
business success and remains at the heart of the Group’s delivery of its
long-term strategy. My full report on Corporate Governance is given on 12m
pages 30 to 63. people
AGm resolutions
The resolutions, which will be voted upon at our Annual General
Meeting (AGM) on 7 May 2015 are fully explained in the Notice of
Meeting. I encourage all our Shareholders to attend our AGM.
On behalf of the Board, I would like to thank Rakesh Kapoor and his
leadership team for their excellent management of the business and
nurturing of an employee culture that continues to drive such excellent
results. Many thanks go to our employees globally for their achievement
in delivering another strong year for RB.
My thanks go also to my Board colleagues for their continued commitment
and guidance. The Board is grateful for the support of our Shareholders
and we thank you for your ongoing commitment to RB. I am confident that
the strategy being followed by the Group is the right one, and our strong
management team is in place to continue to deliver the Group’s stated aims
of growth and outperformance.
AdriAn BellAmy / Chairman
03 RB Annual Report and Financial Statements 2014
Strategic Report
RB at a Glance
The right markets
The right categories
ENA RUMEA LAPAC
2 58 11 15 5 27
+ % % + % % + % %
Like-for-like Core net revenue Like-for-like Core net revenue Like-for-like Core net revenue
North America / Central Europe / Northern Russia & CIS / Middle East, North Africa North Asia / South East Asia /
Europe / Southern Europe / Western Europe & Turkey / Sub-Saharan Africa Australia & New Zealand / Latin America
ENA is the consumer cluster that comprises RUMEA is one of two emerging market LAPAC is the second emerging market
Europe and North America. RB made the Areas and spans both developed markets consumer-centric cluster which features Asia
unconventional step of combining Europe in Russia and the Middle East, as well as and Latin America’s growing economies. A
and North America as one organisation. the emerging economies of sub-saharan rich tapestry of nations, this region witnessed
Across these two markets there are Africa. Brand penetration and capability a slow down in GDP growth in 2014 versus
many similarities in behaviours, in brand strengthening in this Area helped to deliver previous years, and negative currency effects
development and in how the retail trade a strong contribution to total net revenues. which negatively impacted contribution.
is organised. This was the right decision as
we have benefited from faster in-market
execution and growth ahead of the market.
Creating a simple, more agile organisation is one of the The learnings of combining Europe and North America
two objectives of Project Supercharge. Therefore, in 2015 will be applied to the emerging markets which we call
we have announced our intention to reduce the three DVM. The organisational changes will provide the
Areas to two. framework to deliver bigger, better and more scalable
innovation, combined with improved in-market
activation at a country level.
ENA DVM (DEVELOPING MARKETS)
• Europe (including Russia / CIS and Israel) • North Africa, Middle East (excluding Israel), Turkey
• North America • Africa – South Africa, West Africa, Eastern Africa
• Australia / New Zealand • South Asia – India, Bangladesh, Sri Lanka
• North Asia – China, Hong Kong, Taiwan
On this basis, in 2014 ENA had sales of £5,891m representing 67% of • Latin America
Total NR. • ASEAN – Thailand / Philippines, Indonesia,
Malaysia / Singapore, Japan, Korea
On this basis, in 2014 DVM had sales of £2,629m representing 30% of
Total NR.
RB Annual Report and Financial Statements 2014 04
Strategic Report
HEALTH HYGIENE HOME
8 32 3 43 1 21
+ % % + % % + % %
Like-for-like Core net revenue Like-for-like Core net revenue Like-for-like Core net revenue
Generally over-the-counter (OTC) solutions Hygiene brands help to promote both Home care brands help create the right
in this category target relief for common personal hygiene for good health and environment for families to enjoy their time
ailments such as pain, fever, cold, flu, sore home hygiene to create a safe environment together. Products in this category include
throat or heartburn. Living the brand promise for families. Our range of products includes air care and fabric treatment.
is critical in this category as consumers seek disinfectant cleaners, multipurpose and
solutions to every day health and wellbeing speciality cleaners, lavatory care, automatic market Position
issues. Sexual wellbeing products including dishwashing detergents, pest control Vanish is the undisputed world leader
condoms, lubricants and other aids, make up and depilatory products. in fabric treatment and Calgon is the No.1
part of our health portfolio promoting safe in water softeners. Woolite is the No.2 in
and pleasurable sex. Footcare rounds out this market Position garment care and Air Wick is the No.2
category with products to address hard skin Finish is No.1 worldwide in automatic in air care.
and other foot and nail conditions. dishwashing. RB is No.1 globally in
surface care with leading positions across
market Position disinfectant cleaners, multi-purpose cleaners,
Nurofen and Gaviscon are leading lavatory care and specialty cleaners. Lysol is
analgesic and gastro-intestinal brands in the No.1 in North America and Dettol is the
Europe and Australia. Strepsils is No.1 in No.1 brand outside North America.
medicated sore throat globally. Mucinex
is the No.1 cough brand in the US. Scholl has
leading positions in many footcare markets.
Food Portfolio
Food is run as a stand-alone The main component of the Portfolio
business. French’s is the leading Brands category is the laundry and fabric
mustard brand in the US. softener business.
05 RB Annual Report and Financial Statements 2014
Strategic Report
Investment Case
5 Reasons to invest in RB
Right portfolio We focus on underpenetrated, nascent Number of Number of
categories with long-term growth and superior Powerbrands Powermarkets
strategy margin potential. We are not reliant on any
one geography. We do, however, invest
19 16
disproportionately behind our faster growing
1
brands (Powerbrands) and high potential
markets (Powermarkets).
Innovation Innovation is at the heart of everything BEI
we do. We listen to our consumers and
develop products aimed at creating healthier 1.1
2 lives and happier homes. We then invest
£ bn
heavily behind these initiatives with penetration
building activities which we call “brand equity
investment” (BEI).
M&A We are primarily an organic growth
company. However M&A opportunities
play an important part in our consumer health
3 strategy, due to the fragmented nature of
the market. Over the years we have made
a number of important value-accretive
acquisitions, which have provided significant
returns for our Shareholders.
Cash conversion Converting our profit into cash is an important NWC % of Cash conversion %
part of our culture and compensation ethos. total net revenue of net income
All of our operational management teams have
4 net working capital (NWC) objectives built into
9 100
their annual bonus targets. –
% c. %
Shareholder RB has demonstrated outstanding Return from
shareholder return. If you invested £100 £100 invested on RB
returns on 1 January 2000 that investment would
1 January 2000 1,300%
equate to £1,397 by the end of 2014. That
5 same £100 invested in the FTSE 100 would be
worth £158 over the same period of time.
FTSE 100
58%
RB Annual Report and Financial Statements 2014 06
Strategic Report
Business Model
Gross
margin
Unique
Net
Fixed cost
revenue culture
Operating
margin
BEI
Gross margin Net revenue
Our ethos is that the virtuous earnings model starts at gross margin. We focus on underpenetrated, nascent categories with long-term
It is gross margin that creates room in the Income Statement to fund growth and superior margin potential. We have identified 19
investment behind our brands, investment in people and capabilities, Powerbrands which receive additional BEI to help drive growth. We have
and operating profit. We drive gross margin expansion through also identified 16 markets which have the highest potential for growth
superior mix (higher margin brands), pricing and cost optimisation – these are our Powermarkets, and the majority of them are based in
initiatives (Project Fuel), by minimising costs within the supply chain emerging markets. Our overall medium-term KPI is to outperform the
and non-value-add product costs. We achieved 100bps of gross margin markets and categories in which we operate by 200bps.
expansion in 2014.
Fixed cost Operating margin
We will always invest appropriately behind our people, capabilities and Our operating margin is already best in class at 24.7% of net revenue
infrastructure. However, we deliberately like to keep our organisation (on an adjusted basis), having delivered +160bps of margin expansion
lean and encourage our people to focus and prioritise. We constantly in 2014. But we believe our ability to further grow margins is far from
seek to avoid duplication, inefficiency and waste, and have recently over. Our virtuous earnings cycle, focuses on gross margin expansion,
announced our new “Supercharge” project, which should deliver us investment behind the long-term strength of our brands and tight fixed
£100m–£150m annual savings by 2017. cost containment (helped by Project Supercharge), will enable us to
deliver our medium-term KPI of moderate margin expansion.
BEI Unique culture
There are many ways to invest behind your brands. At RB we have a We know that having the right strategy is not enough. Our strategy
very clear intent: we focus our investment on consumer education and becomes real when it is executed with excellence, this is why our culture
penetration-building activities, to build long-term equity behind our is central to our outperformance. We live our values of Achievement,
brands. BEI includes a combination of TV and print media, digital and Ownership, Entrepreneurship and Partnership. We encourage people
social media investment and consumer and medical education. BEI as to take ownership of their businesses and behave like Shareholders.
a percentage of total net revenue in 2014 was 12.9% or £1.1bn Our compensation approach and industry leading share ownership
invested behind the long-term strength of our brands. requirement encourages our people to think, behave and act as
Shareholders and treat the Company as their own.
07 RB Annual Report and Financial Statements 2014
Strategic Report
Strategy
Our strategy for growth
& outperformance
Unique
culture
The four pillars of our strategy
19 16
Organisation Powerbrands Powermarkets Margins
We have organised A substantial focus on A clear focus on our 16 We focus on higher
our business into two1 our 19 Powerbrands in Powermarkets where margin initiatives. This
geographical Areas the Health, Hygiene and we see exceptional funds investments in our
(ENA and DVM), centred Home categories. potential for growth brands, capabilities,
around a number of matched with an ability development and
consumer clusters: Latin to win. A significant moderate margin
America, North Asia, number of these are in expansion.
South Asia, Russia and emerging markets.
CIS, Middle East, North
Africa, Turkey and
Sub-Saharan Africa and
Europe, North America
and ANZ.
• Reorganisation of emerging • 80% of Total NR from • Refining of Powermarkets • Strong (adjusted) operating
markets to benefit from Powerbrands made in 2014 with one margin expansion in 2014
learnings within ENA • Growth lead by consumer emerging market country of +160bps, driven by
• Supercharge programme health at +8% like-for-like added and one developed +100bps in gross margin
initiated to drive a faster • Health and Hygiene now market country removed • Continued heavy
organisation, more responsive 74% of Core NR • Emerging markets areas now investment in BEI;
to consumers and customers. • Continued focus and 42% of Core NR, impacted fixed cost containment, aided
investment prioritised to by devaluation of certain by efficiency programmes
Health and Hygiene. emerging market currencies • Virtuous earnings model
• Continued focus and firmly intact
investment prioritised to • Moderate operating margin
Powermarkets. expansion targeted in the
medium term.
1 Three in 2014.
RB Annual Report and Financial Statements 2014 08