Rejuvenating RB Reckitt Benckiser Group plc Annual Report and FinancialStatements 2019 Reckitt Benckiser Group plc Annual Report and Financial Statements 20192018 INTRODUCTION CONTENTS Strategic Report Welcome 01 Financial highlights 02 Health and Hygiene Home – at a glance 04 Chairman’s statement 06 Chief Executive’s statement 10 Our business model Our purpose 12 How purpose drives our performance We exist to protect, heal and nurture in the relentless pursuit of a cleaner 14 Mapping what matters to our stakeholders and healthier world. 18 KPIs 20 Consumers Our fight 24 Customers We have a fight on our hands. A fight to make access to the highest quality 28 People hygiene, wellness and nourishment a right and not a privilege. 32 Partners 36 Communities 40 Environment 46 s172 statement 48 Health operating review 52 Hygiene Home operating review 56 Non-financial information statement 58 Financial review 64 Risk management Health 77 Viability statement Governance 78 Board of Directors 84 Executive Committee 86 Corporate Governance – Chairman’s statement 88 Corporate Governance statement 97 Nomination Committee Report 103 Audit Committee Report 111 CRSEC Committee Report 117 Directors’ Remuneration Report 138 Report of the Directors Page 48 141 Statement of Directors’ Responsibilities Financial Statements 143 Independent Auditors Report Chief Executive’s Statement 152 Financial Statements 223 Shareholder Information Hygiene Home Page 06 Page 52 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS Net Revenue Health Hygiene Home £12.8bn 61% 39% +0.8% LFL growth4 of RB Total Net Revenue of RB Total Net Revenue Reported growth +2% Adjusted Operating Margin4 Operating Margin 26.2% (15.2%) -50bps n/m3 Adjusted Earnings Per Share (diluted)4 Reported Loss Per Share (diluted) Total dividend for the year 349.0p (519.7p) 174.6p +3% -271% +2% SOCIETY Net Revenue from more sustainable Number of people informed through FTSE4Good Index membership products1, 2 health and hygiene messaging and campaigns since 2013 24.6% 16 956m consecutive years, including meeting 20 additional Breast-Milk-Substitute (BMS) criteria since 2018 ENVIRONMENT Greenhouse gas emissions per unit Water use per unit of production1 of production1 1 Excluding our Infant and Child Nutrition (IFCN) business – see RB insights (www.rb.com/responsibility/ % % policies-and-reports) for details. 42 37 2 Calculated for 12 months ending 30 September 2019. reduction since 2012 reduction since 2012 3 Not meaningful. 4 Non GAAP measures are defined on page 62. Reckitt Benckiser Group plc (RB) Annual Report and Financial Statements 2019 01 AT A GLANCE Health Net Revenue Health 2019 £7, 815 m 2018 £7,762m LFL Growth1 Actual Growth Our Health portfolio is unique and compelling, with products that provide pain relief, protection, (1.0%) +0.7% hygiene, wellness and nutrition, 1 1 spanning the whole of life’s journey. Adjusted Operating Profit Adjusted Operating Margin £2,088m +26.7% GEOGRAPHIC PROFILE Developed markets 50% Developing markets 50% CATEGORY PROFILE Infant nutrition 38% Over the counter (OTC) 25% Wellness, health hygiene and VMS 1. Non GAAP measures are defined on page 62. 37% KEY HEALTH & NUTRITION BRANDS From 2020, Nutrition will operate as a separate global business unit, focused on bringing innovative solutions to nourish the body at all stages of life 02 Reckitt Benckiser Group plc (RB) Annual Report and Financial Statements 2019 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Hygiene Home Net Revenue Hygiene 2019 £5,031m Home 2018 £4,835m LFL Growth1 Actual Growth Our Hygiene Home portfolio brings innovative solutions to households across the world. They eliminate +3.6% +4.1% dirt, germs, pests and odours that Adjusted Operating Profit1 Adjusted Operating Margin1 impact health and happiness. Good hygiene is the foundation of health. £1,279m +25.4% GEOGRAPHIC PROFILE Developed markets 75% Developing markets 25% 1. Non GAAP measures are defined on page 62. KEY HYGIENE BRANDS From 2020, Hygiene Home will be known simply as Hygiene – still providing the same range of trusted products that consumers use to enhance their daily lives across the globe Reckitt Benckiser Group plc (RB) Annual Report and Financial Statements 2019 03 CHAIRMAN’S STATEMENT Our culture is one of RB’s most precious assets. Another is the power of our brands. RB’s market-leading brands are BUILDING in structurally attractive markets across the globe. Frequently they hold the number one or number two position in many geographies and are loved by their FOUNDATIONS consumers. But we also know that, especially in Health, our performance recently has CHRIS SINCLAIR not matched up to our expectations. As we indicated earlier in the year, reinvigorating performance is our immediate and top priority. Over the longer term, restoring and maintaining the outperformance and growth for which RB has been known, calls for an evolution in strategy. RB has negotiated a complex year with resilience and We need to revise our approach, based on tenacity, while making decisive choices about our future. a clear understanding of our strengths and weaknesses and the willingness to address In a year that brought self-reflection, a series of operational those areas where we have fallen short. challenges and new leadership, the people at RB have I am pleased to report that our new demonstrated the enormous value of this Company’s CEO, Laxman Narasimhan, has wasted no time in getting to grips with this task. unique, can-do culture. The Board is strongly supportive of his strategic vision, set out in his statement in the following pages, which seeks to create and sustain long-term shareholder returns while building a responsible company guided by a strong sense of purpose. Business performance RB has faced a series of challenges over the past three years, which have impacted performance and hampered growth. While macroeconomic issues have played a part in this, we must also acknowledge that some of our recent problems have been self-inflicted. Total full-year (FY) net revenue was £12,846 million, with growth of +0.8% on a like-for-like (LFL) basis. On an adjusted basis, operating profit was marginally lower and equivalent to an adjusted operating margin of 26.2% (-50 bps versus 2018). This reflected solid performance in Hygiene Home offset by weakness in Health, in particular, declining volumes. The relative weakness of Sterling during the majority of the year resulted in +1.2% increase in net revenue. Total growth at actual rates was therefore +2.0%. The integration of the Mead Johnson business has proved more challenging than anticipated. In addition, the business has been negatively impacted by macro-economic forces, particularly in China, where birth rates have fallen progressively since acquisition. This has led to the recognition of a £5,037 million impairment loss. The Company has also taken a one-off charge of £898 million in connection with the settlement with the US Department of Justice on Indivior matters. 04 Reckitt Benckiser Group plc (RB) Annual Report and Financial Statements 2019 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The Board’s continuing priority is to CEO succession Governance use RB’s strong operating cash flow Building up our talent bench was a key Laxman’s strategic vision of RB as a generation to reinvest in the long-term priority for the Board during 2019. This was more rounded, purpose-led business, health of the business and to provide led by the search for a successor to Rakesh delivering sustainable long-term returns strong returns to Shareholders. Kapoor following the announcement of his to Shareholders while engaging with the We have maintained our existing decision to retire as Chief Executive Officer. needs of wider society places responsibility policy on dividend payments and are again On behalf of the Board, I would like to take at the heart of our business strategy. distributing around 50 percent of total this opportunity to thank Rakesh for his many Long-term success requires good adjusted net income to Shareholders. The contributions over more than three decades. stewardship of our business and fulfilment Directors have proposed a final dividend of His vision and drive have helped to position of our obligations to society. The Board is 101.6 pence per share, which when added RB as a global leader in consumer healthcare. committed to strengthening governance and to the interim dividend of 73 pence, gives a Laxman Narasimhan’s appointment extending our risk management capabilities. full-year dividend of 174.6 pence per share, an followed an exhaustive and rigorous I’m pleased to report excellent progress increase of 2 percent. Subject to Shareholder search process. In a field of highly talented in this area. The Corporate Responsibility, approval at the AGM in May 2020, this will individuals, the Board was unanimous that Sustainability, Ethics and Compliance (CRSEC) be paid on 28 May 2020 to Shareholders who he was the outstanding candidate. He Committee is gaining real traction across the were on the register on 17 April 2020, all in joined RB in July as CEO-designate before Group as it seeks to move from a risk and the commitment on sustaining the dividend. stepping into the role in September 2019. safety-led approach to a more holistic stance Laxman is an exceptional leader that aligns environment and sustainability Coronavirus (COVID-19) Pandemic with a proven track record of developing issues with performance and purpose. The COVID-19 health crisis is unprecedented purpose-led brands and driving digital RB’s retention of its FTSE4Good listing and in living memory. Our priority is the safety of innovation in the consumer goods industry. readmission to the Dow Jones Sustainability our employees and the continued supply of He has led complex operational businesses Index provide external validation of the work products that are important to combating the and inspired teams to achieve market-leading we have been doing and the improvements spread of infection.