Reckitt Benckiser (LON:RB.)

Reckitt Benckiser (LON:RB.)


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Reckitt Benckiser RNS Release

Annual Financial Report


RNS Number : 9001U
Reckitt Benckiser Group PLC
02 April 2019
 

2 April 2019

 

 

RECKITT BENCKISER GROUP PLC

("RB" or the "Company")

 

2018 Annual Report and Notice of the 2019 Annual General Meeting

 

 

RB confirms that the following documents are today published and are available on its website, www.rb.com:

 

·    Annual Report and Financial Statements for the year ended 31 December 2018 ("2018 Annual Report")

 

·     Notice of the Annual General Meeting 2019 to be held on 9 May 2019 ("2019 AGM Notice")

 

In compliance with LR 9.6.1, 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:

 

·     2018 Annual Report

·     2019 AGM Notice

·     Form of Proxy for the 2019 Annual General Meeting

 

In compliance with rule 6.3.5 of the Disclosure Guidance and Transparency Rules the documents can also be downloaded in pdf format from the Company's website at www.rb.com, and will be posted to shareholders on 2 April 2019. The Company's 2019 Annual General Meeting will be held at 11.15 a.m. on Thursday 9 May 2019 at the London Heathrow Marriott Hotel, Bath Road, Hayes, Middlesex, UB3 5AN.

 

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 RB's preliminary announcement of annual results released on 18 February 2019. That information, together with the information set out in the Appendix below, which is extracted from the 2018 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 2018 Annual Report. Page numbers in the extracted information below refer to page numbers in the 2018 Annual Report.

 

For further Information:
Rupert Bondy

Company Secretary

Tel +44 (0) 1753 217 800

 

Richard Joyce

SVP, Investor Relations

Tel. +44 (0)1753 217 800

 

Reckitt Benckiser Group plc's LEI code is 5493003JFSMOJG48V108

 

 

About RB:

RB* is the global leading consumer health, hygiene and home company. Driven by a purpose of providing innovative solutions for healthier lives and happier homes, RB has operations in over 60 countries.  From the foundations of wellness and infant nutrition, to the fundamentals of a hygienic home, its global brands help people live healthier, happier lives.

RB has world leading Powerbrands which include household names such as Enfamil, Nutramigen, Nurofen, Strepsils, Gaviscon, Mucinex, Durex, Scholl, Clearasil, Lysol, Dettol, Veet, Harpic, Cillit Bang, Mortein, Finish, Vanish, Calgon, Woolite and Air Wick.

RB's unique culture is at the heart of its success.  Its drive to achieve, passion to outperform and commitment to quality and scientific excellence is manifested in the work of over 40,000 employees worldwide. 

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 Annual Report and Financial Statements contains statements with respect to the financial condition, results of operations and business of RB (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 2018 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.

 

 

 

 

 

 

APPENDIX

The primary purpose of this announcement is to inform the market about the publication of RB's 2018 Annual Report and 2019 AGM Notice.

The information below, which is extracted from the 2018 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 released on 18 February 2019. 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 2018 Annual Report.

Page and note references in the text below relate to pages and notes in the 2018 Annual Report.

 

(i)   OUR FRAMEWORK FOR RISK MANAGEMENT (pages 40 to 57)

Risk management occurs at different levels in RB with identification and assessment performed at the functional, business unit, corporate and Group levels to provide both a 'top-down' and 'bottom-up' three-dimensional view of risk and is implemented as follows:

 

Functional risk assessments

Business unit/corporate risk assessments

Group principal and emerging risk assessment

Board oversight

Annual Report

Consolidation and critical challenge by Internal Audit

Reviewed by business unit/corporate function leadership teams

Principal and emerging risks identified through the Group Risk Assessment are disclosed in RB's Annual Report

What

• Identifies and monitors risks impacting the operation of each function or functional area

• Controls are mapped to the three lines of defence

• Detailed management action plans are developed to address control gaps

• Identifies and monitors risks with the potential to impact each business unit and the corporate centre

• High-level control strategies and action plans are documented for each risk. Supporting functional risks are referenced

• Identifies the most significant principal and emerging risks with potential to impact the Group

• Principal and emerging risks are disclosed in the Annual Report

• Oversight across each principal risk provided by a nominated Board Committee

When

• Completed annually,

reviewed quarterly with updates provided to the Audit Committee

• Completed annually

in advance of the business unit strategic planning process

• Completed annually

in advance of the business unit strategic planning process

• Periodic reporting and risk deep dives occur with input from the risk owner

How

• Risks identified through a series of 1:1 interviews with management

• Workshops build out

and stress test input from interviews

• Formal sign-off by functional Head with Group CFO

• Risks identified and

assessed through a series of 1:1 meetings with business unit leadership

• For corporate functions, the functional risk assessments are reviewed and challenged

• 1:1 meetings are held with all Executive Committee (EC) members, Group functional and assurance heads, external advisors and Non-Executive Directors (NEDs)

• Synthesized output formally reviewed and signed off by the EC and thereafter by the Board

 

Who

• Initial exercise facilitated by Internal Audit

• Risk assessment owned by functional leadership team

• Functional risk owners assigned to each specific risk, controls and action plans

• Business unit/corporate management teams led

• Internal Audit led

• Executive owners assigned with principal and emerging risks circulated to the Board for final review and sign-off

• Executive member

             

 

 

The Group principal and emerging risk assessment is an integral part of the integrated risk management framework above, identifying the principal and emerging risks with the greatest potential to impact the Group. The assessment is completed annually in advance of the business unit and corporate strategic planning process as follows:

 

Identification of risks

Control strategy

Assessment of net risk and prioritisation

Management action

How comfortable are we with the level of risk?

What more do we need to do?

• What could impact RB and the achievement of its objectives?

• Identifies the most significant principal and emerging risks with potential to impact the Group

• 1:1 meetings are held with all EC members, Group functional and assurance heads, external advisors and Non-Executive Directors

• Functional, business unit and corporate risk assessments feed into this process

• Identifies sources of risk, key drivers and areas of impact

• Completed annually in advance of the business unit strategic planning process

• What are we doing to manage the risk?

• Control strategy is appropriate and reviewed to establish if it is operating as intended

• Where we identify control gaps, what more do we need to do?

• Considering the controls we have in place to manage each risk:

- What is the probability that the risk will materialise?

- If it did, what would the likely impact be?

- How comfortable are we with how the risk is being managed?

• Assessment identifies those risks and controls where management should focus its effort

• The decision to act will be based on which risks are no longer acceptable

• Having identified areas of highest risk that require attention, action plans are developed by management to:

- address any control gaps identified

- improve the effectiveness of existing controls, thereby reducing the probability and impact to an acceptable level

• Executive owners assigned, with principal and emerging risks circulated to the Board for final review, sign-off and ongoing monitoring

• Principal and emerging risks are disclosed in the Annual Report

 

 

The implementation of an effective risk management framework within an organisation remains a cornerstone of the corporate governance expectations contained within the 2018 revisions to the UK Corporate Governance Code. A new requirement (for accounting periods starting 1 January 2019 or later) is described in Provision 28 as follows: for management to carry out a robust assessment of emerging risks as well as principal risks and explain in the annual report what procedures are in place to identify emerging risks, including how these risks are being managed or mitigated.

 

Emerging risks:

 

·     Sustainability - We fail to adapt to sustainability opportunities and challenges such as transparency and traceability of sourcing, supply chain performance and environmental impacts (water, climate change, waste), alongside changing stakeholder expectations, including the use of packaging (plastics, paper and board), etc.

·     Regulatory - Changes in the regulatory landscape in key countries adversely impact our operations there.

·     Tariffs and trade sanctions - increasing global political instability may result in a structural change to tariffs and trade agreements adversely impacting our supply chain.

 

Current Group Principal risks

 

1.   RB 2.0 delivery

2.   Innovation

3.   Disruption

4.   Product safety

5.   Supply continuity

6.   Cyber-security

7.   Fatality/major employee safety incident

8.   Talent

9.   Tax disruption

10.  Regulatory environment

11.  Legal non-compliance

12.  Department of Justice (DoJ)

13.  South Korea Humidifier Sanitizer (HS)

 

BS  'Black Swan' event

 

 

1. RB 2.0 delivery*

Risk movement:

decreasing

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

The RB 2.0 reorganisation does not deliver the anticipated improvement to business performance and instead causes significant unforeseen disruption to the Group operations.

RB 2.0 undermines operating performance across the business, particularly in the context of integration of multiple systems across both business units. The heavy change agenda required to successfully implement RB 2.0 leads to change fatigue and breakdown of key controls.

 

IFCN integration takes longer than expected and/or distracts attention from business delivery, and does not deliver the projected benefits within expected time frames.

Detailed Gemini change programme execution plan prepared and ongoing governance model

implemented alongside.

Specifically, legal entity restructuring

completed in our key markets, including

seamless customer go-live for the new entities. Progress to plan on each of the workstreams, including IFCN integration.

Gemini streams and ERP deployments are sponsored and owned by specific

senior leadership team members. Strong governance and change management controls in place to ensure there

is regular focus on understanding

progress, removal of any roadblocks, to drive delivery and ensure the

effectiveness of key controls.

 

Personal leadership of the Group CEO and Group CFO. Specifically, the

Programme Review Board (PRB) is chaired by the Group CFO and meets

monthly to review progress. The Audit Committee reviews progress of Gemini at every meeting, including rolling

deep dives into each workstream.

Executive ownership resides directly at corporate with the Group CEO and CFO, with both business units responsible

for their respective deliverables.

 

Board oversight is provided by the main Board, with the Audit Committee overseeing the programme

management of the supporting

Gemini major change programme.

Execution to plan of the Gemini

major change programme with

each of its multiple workstreams,

including legal entity restructuring,

operating model, enhanced financial reporting, ERP migration, business shared services and product life cycle

management. A tail of activities is expected to continue until

completion, around mid-2020.

 

Target rating from current Amber to Green by the end of 2019.

2. Innovation*

Risk movement:

new

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

That the current innovation pipeline is not sufficient to meet our growth ambitions, with the recent focus on fewer, bigger, better leaving us vulnerable to innovation failures.

Inability to effectively innovate results in failure to achieve the necessary innovation rate hurdles (in terms of growth contribution and GM accretion) to organically drive top-line growth.

 

Inability to compete with the new competitor, often smaller entrepreneurial companies leveraging new channels and digital media.

R&D organisation split between

dedicated innovation teams focused on NPD delivery for key global brands and operations team focused on local brands. Front-line organisation has been strengthened through category development team being

relocated into the markets. Resource

dedicated to deliver on e-commerce first focused innovations.

 

External partnership capabilities

strengthened to co-create innovations.

Consumer data and insights team focused on insight generation and idea validation through new digital tools for faster and more accurate innovation modelling.

Base business innovation is driven through a three-year pipeline and

resource allocation, with quarterly

monitoring against targets.

 

Investment in cross-functional teams to assess and participate in new growth platforms and whitespace,

partnership with manufacturers

to fast track innovation in new

segments and consumer data insights capability to identify emerging trends, themes and products.

Executive ownership resides directly with the heads of the two business units - Health and Hygiene Home.

 

Board oversight is provided by the main Board.

Ongoing activity to embed and strengthen organisation as well as enabling the core capabilities to optimise its effectiveness.

 

Target rating from current Amber to remain Amber at the end of 2019. This is a multi-year deliverable to build and embed the significant actions required.

3. Disruption*

Risk movement:

new

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Inability to respond, adapt and evolve to changing consumer needs

and behaviours with appropriate

innovation and agility to service.

Share loss to insurgent brands that are nimbler in proactively understanding evolving consumer needs and leveraging 21st century marketing/

technology, as well as exploiting rapidly emerging channels like e-commerce and 'Mom and Baby' Stores, could significantly reduce top-line growth.

End-to-end structures and

accountabilities being put in place to drive disproportionate growth in key opportunity markets and categories. E-commerce strategy, resourcing and technology being

rolled out to lead markets.

Broader strategy under development but

Examples include category management

within RB 2.0 reorganisation to provide the right mix between product life cycle and national brand support in store.

Executive ownership resides directly with the heads of the two business

units - Health and Hygiene Home.

 

Board oversight is provided by the main Board.

E-commerce strategy, strengthened resourcing and technology, and new success models will be rolled out to

markets.

 

Target rating from current Amber to remain Amber at end 2019. This is a multi-year deliverable to build and embed the significant actions required.

4. Product safety

Risk movement:

no change

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Risk of robust process for the

assessment of product safety not being in place or operating effectively, leading to safety risk to consumers.

Consumer safety issues lead to reputational damage with consumers, customers or regulators. Significant

financial losses could arise from supply disruption, product recalls, delayed launches, penalties, etc., as well as possible criminal liability for senior management. Also, gaps in the completion of our safety assessments and a lack of anticipation of new safety concerns could

exacerbate any potential impact.

Completion of several product

safety programmes and piloting of a product lifecycle management

system to improve compliance and

reduce manual intervention.

 

Roll-out of base training to all

employees, as well as specific training for relevant employees to understand their role in ensuring safety, quality and regulatory compliance for RB products.

A robust quality management system is underpinned with clear policies and supporting systems, which are subjected

to comprehensive and independent

regular audit review. A consumer safety and vigilance team monitors and reports on adverse events.

 

Safety and vigilance is part of the SQRC (safety, quality and regulatory

compliance) team which reports directly to the CEO and is accountable

to the Compliance Management

Committee (CMC) and thereafter

to the CRSEC Committee.

Executive ownership resides directly

with the Group Chief SQRC Officer, who drives activity through each of the business unit executive leadership teams.

 

Board oversight is provided by

the CRSEC Committee.

Key activities for 2019 are the first phase of an upgraded product lifecycle management system to better enable compliance management throughout the life cycle.

 

Target rating from current Amber to remain Amber at end 2019. This is a multi-year deliverable to replace current systems.

5. Supply continuity*

Risk movement:

increasing

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Risk of disruption to the continuity of supply as a result of reliance on single factories that supply key markets without actively qualified alternative

manufacturing sites in place.

Such disruption could result in supply shortages and importation barrier issues, leading to loss of sales and market share. Also, potential loss of competitiveness and profitability from service level deterioration arising from factory capacity constraints, warehouse or transport set-up charges or insufficient change capability in factory and/or supply services, including forecasting accuracy and capabilities.

Increased investment in manufacturing

facilities to enhance reliability and

continuity of supply. Highly Protected Risk (HPR) certification achieved for all

but one key ex-MJN manufacturing

locations. Business Continuity Plans

(BCPs) reviewed and strengthened

to ensure that business continuity arrangements remain appropriate.

Procurement, manufacturing and supply services have defined manufacturing

and quality control processes to ensure products are safe and meet all regulatory and legal requirements. Continuous

review of new and alternative suppliers of key ingredients. Factories are

assessed and those considered key or strategic have the required investment to attain HPR status by our insurers.

Also, annual review of business interruption insurance policies to ensure adequate cover is in place.

Executive ownership resides directly

with the Group Chief Supply Officer, with both business units responsible for their respective deliverables.

 

Board oversight is provided by the main Board.

Further develop specific BCPs. For specific brands and markets, identify a second manufacturing source and execute formula/equipment qualification trials to provide an active BCP.

 

Target rating from current Red to Amber by the end of 2019.

6. Cyber security*

Risk movement:

decreasing

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

RB is susceptible to increasingly

sophisticated cyber-attacks aimed at causing harm to our information

assets by circumventing confidentiality

(via unauthorised access and/or

disclosure), integrity (via modification

of data) or availability (via

destruction or denial-of-service).

Significant business disruption, data theft, regulatory non-compliance, reputational damage and financial loss through fines or inability to operate the business normally.

 

This risk is heightened by increasing volume and types of sensitive personal data held, a strengthened regulatory environment including significant financial penalties for non-compliance, increased likelihood and overall impact

of cyber-security risks due to the growing number of connected systems including third parties and a continuing rise in sophistication, complexity, volume and speed of cyber-attacks.

Assessment of enterprise cyber-security

risk to determine downstream risks, document and prioritise, implementation

of first phase of cyber defence

monitoring partnership (including

end-to-end execution to detect and

respond in a highly proactive and controlled way) and deployment

of external digital threat and risk monitoring and alerting capability.

Cyber-security risk working group established to govern, track and report on risk management activities and

oversee control design effectiveness

and operational effectiveness testing. Ongoing investment in the Cyber Transform Programme (CTP) to 'buy' risk down by implementing relevant controls

to achieve a good cyber-security control baseline through approved scope.

 

Continued implementation,

operationalisation and sophistication

of the cyber-security operating model, organisational structure and programme to provide ongoing security controls and continuous improvement.

Executive ownership resides directly with the Group Chief Information Officer.

 

Board oversight is provided by the main Board.

Deployment of agents to all RB systems to ensure continuous monitoring of

vulnerabilities and implementation of

an advanced remediation management

service to continuously track and drive remediation of discovered

system vulnerabilities. Also, further

strengthening of automated tooling into digital/agile processes to reduce the risk associated with introduction

of vulnerabilities into RB environments.

 

Target rating from current Red to Amber by the end of 2019, as a number of significant ongoing actions

are completed and align to provide enhanced mitigation, although further

significant actions are foreseen to

remain current as the threat evolves.

7. Fatality/major employee safety incident

Risk movement:

No change

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Work accidents leading to death, injury or illness on RB premises or premises under RB supervision, in

case of outsourced operations.

Impacts are wide ranging and variable in materiality; they may include loss of life, damage to brand/employer

reputation, reduced operational efficiency from factory closure or significant supply disruption, impaired financial performance from lost sales, fines or remediation cost and possible criminal liability for senior management.

Extensive programme to embed heightened employee health and safety (EH&S) culture across the enlarged Group, through rigorous auditing, culture surveys and training initiatives.

 

Driver Safety Standard Programme

deployed.

Policy and enhanced employee EH&S

standards in place, audit compliance

programme ongoing (including self-assessment, site visits, assurance of improvement actions and culture surveys) and ongoing EH&S training

including commercial offices.

 

Oversight from Supply and R&D

leadership teams as well as the Group CMC and CRSEC Committee.

Executive ownership resides directly

with the heads of the two business units - Health and Hygiene Home.

 

Board oversight is provided by the CRSEC Committee.

 

The EH&S standards are set and audited against by a second line of defence compliance team within SQRC, accountable to the CRSEC Committee.

Refreshing of Group minimum

standards into Highly Protected Manual format, completion of Group 18001

Certification across all RB sites by end of year. Also, continued programme of culture surveys and local safety days.

 

Target rating from current Amber to remain Amber at the end of 2019.

8. Talent*

Risk movement:

Increasing

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Post completion of the RB 2.0

reorganisation, there is a risk that RB cannot implement its strategies and meet objectives as a result of

management leaving the business who

cannot be readily replaced by equally high-calibre experienced candidates.

Disruption to business performance.

The implementation of the RB 2.0

reorganisation presented the opportunity to optimise talent across the Group and succession planning has benefited from the infusion of MJN talent.

Succession plans for key management

positions are in place. Retention risk analysis is undertaken regularly, including review of turnover rates. Continuous

review of competitiveness of the total compensation programmes and

Employee Value Proposition (EVP) set by management with focus groups

undertaken at each business unit level.

 

DARE programme (to Develop, Attract, Retain and Engage talented

women) launched in May 2015 with the aim of increasing the retention rate of females from manager to senior management positions.

Executive ownership resides directly

with the Group Chief HR Officer, with both business units responsible

for their respective deliverables.

 

Board oversight is provided by the

Remuneration Committee.

The current reward structure is kept under review to ensure it remains fit for purpose and appropriate targets are set for both external and internal stakeholders. Strategic workforce planning is in progress to understand the shape of the workforce and how it will change over the next three years to facilitate proactive intervention.

 

Target rating from current Amber to Green by the end of 2019.

9. Tax disputes

Risk movement:

No change

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Risk of significant unprovisioned

cash outflows as a result of

tax authority challenge to filed tax positions in territories.

The tax environment remains uncertain:

EC investigations into potential state aid continue to be a risk. Also the

adoption in countries of the Base Erosion

and Profit Shifting (BEPS) initiative creates the potential for uncertainties, as does tax reform (e.g. the US).

If our operating model is not considered in any country to be BEPS compliant or the necessary behavioural change

is not sufficiently communicated or

implemented and embedded, both

internally and externally, tax authorities may successfully challenge the tax results of the operating model with a potentially

significant financial impact on the Group.

Ongoing timely and robust responses to progress outstanding disputes

and continual monitoring of

progression in relation to Advanced

Pricing Agreements and subsequent

operating model tax audits.

Detailed and thorough documentation

and technical support from advisors.

Ongoing review by RB Tax, country FDs and external advisors with central provisioning for anticipated

exposures. Continuous monitoring

of information on EC State Aid

investigations and possible application to RB. Monitor impact of the BEPS initiative and other law changes to

identify possible adverse impacts and put in place remedial strategies.

Proactive engagement with both business

units on RB 2.0 programme activities.

Executive ownership resides at corporate directly with the Group CFO.

Board oversight is provided by the Audit Committee.

Timely and robust responses to

progress outstanding disputes, continual monitoring of progression

in relation to APAs and subsequent

operating model tax audits and

increased prioritisation of projects and senior management overview.

Target rating to remain Green at the end of 2019.

10. Regulatory environment*

Risk movement:

decreasing

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Risk of non-compliance with regulations

of relevant product classifications

(e.g. medicinal products, medical

devices, dietary supplements,

food, cosmetics, general products, etc.) and applicable regulations,

guidelines, internal standards and/or

registrations across the supply chain

and throughout the product life cycle.

Significant financial losses arising from supply disruption, product recalls, delayed launches, penalties, etc. or even possible criminal liability for senior management.

A detailed review of the portfolio is

ongoing with progress exceeding 2018

targets. The programme reviews critical

compliance elements of the portfolio and covers both business units. The schedule follows a risk-based approach.

Also, an upgraded product lifecycle

management system is being developed and piloted to replace ageing systems as well as integrate RB and MJN.

Multiple control programmes in place to manage regulatory compliance risks, including: regulatory excellence

(compliance of RB's medicine

marketing authorisations), product vulnerability (review of ingredients,

formulations, stability data, etc. in Health portfolio) and product integrity

(compliance with registration and/

or regulatory requirements).

Also, the CMC structure ensures KPIs are reported from the top to all levels in the

organisation. There is an appropriately

resourced single system for consumer complaints in place and specialist audit

teams providing independent assurance.

Executive ownership resides directly

with the Group Chief SQRC Officer, who drives activity through the Health business unit executive leadership team.

Board oversight is provided by the CRSEC Committee.

Key activities for 2019 are the first

phase of an upgraded product lifecycle

management system to better enable compliance management throughout the life cycle.

Target rating from current Amber to remain Amber at end 2019. This is a multi-year deliverable to replace current systems.

11. Legal non-compliance*

Risk movement:

No change

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Risk that we are not fully compliant with

relevant laws and regulations, including

anti-corruption laws, data privacy laws and global competition laws.

Damage to RB's reputation, significant potential fines and possible criminal liability for RB senior management.

The acquisition and integration of MJN have increased our exposure with regard to anti-corruption laws, specifically Health Care Professional

(HCP) interactions. Data privacy risk has also increased with new regulation (e.g. GDPR) and as companies hold

growing amounts of personal data.

Ongoing proactive management of

current and potential litigation. Project

developed for monitoring and preventing any potential abuse of market position.

Development and rollout of updated

online training for the enlarged RB Group fully incorporating the acquired MJN business, including HCP interactions.

Progression of GDPR readiness

project post-May 2018, including

the formation of RB Privacy Office and the definition of broader privacy objectives to ensure that privacy by design is embedded across the Group.

Group compliance programme with

dedicated compliance personnel in each business unit supported by

internal compliance liaisons and external local legal experts as and when required. Interaction with HCPs policy

strengthened and extended to cover the full portfolio of the Health business unit. Global compliance online training

modules completed by all employees, with refresher deployment each

year; core modules include code of conduct, anti-bribery, antitrust, data privacy and separately product safety.

Group-wide whistleblower hotline operational, widely communicated and reinforced through robust independent

investigation and follow-up.

Executive ownership resides directly

with the Group SVP General Counsel and Company Secretary, with

both business units responsible for their respective deliverables.

Board oversight is provided by

a combination of the Audit and

CRSEC Committees to ensure full and appropriate coverage of the compliance programme.

Continued embedding of this function will continue with key activities including competition law targeted risk assessments and e-learning module; delivery of core GDPR requirements; and rationalisation of RB and IFCN due diligence processes.

 

Target rating from current Amber to remain Amber at the end of 2019. This is an ongoing and dynamic

programme for which significant

new actions are expected as we

respond to new situations and

evolving legal requirements.

12. Department of Justice (DoJ)

Risk movement:

No change

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Risks deriving from ongoing DoJ investigation and related antitrust litigation relating to legacy pharmaceutical business.

Potential criminal indictment of the Group or employees, with reputational impact, distraction and potential debarment which could theoretically extend to IFCN business. Significant financial liability for the Group from settlement or adverse court decisions in criminal or civil matters.

Efforts to reach civil resolution of the investigation.

Ongoing preparation of defences to any criminal indictment.

Ongoing close oversight by Group SVP General Counsel and Company

Secretary, top management and Board, with advice from external counsel.

Executive ownership resides directly

with the Group SVP General Counsel and Company Secretary.

Board oversight is provided by the main Board.

RB will continue to respond appropriately to any new enquiries or requirements from DoJ if and

when they are received.

Target rating from current Amber to remain Amber by the end of 2019, as there is nothing further to be done to mitigate the risk at the present time.

13. South Korea Humidifier Sanitizer (HS)

Risk movement:

No change

The risk

Potential impact

Mitigation progress in 2018

Current control strategy

Oversight accountability

Activity impact for 2019

Significant financial and reputational risk as a result of the health issues caused by consumers inhaling Oxy Sac Sac (a humidifier sanitizer acquired from Oxy in 2001).

While a provision was made in 2016 to cover the initial rounds and certain other costs, the risk of additional exposure remains. There is still some uncertainty around the outstanding claimants from the final round, as well as from potential associated injuries, as designated by the local fact-finding commission.

RB South Korea has continued to work closely with the government,

lawyers and other businesses to

progress and close settlement with claimants as well as to establish a viable ongoing model for the business.

Full public apology formally and repeatedly made by RB South Korea

to affected parties. Regular review meetings continue with the Group, to oversee and guide settlement progress and other issues as they arise.

Modelling continuously updated to quantify and monitor evolving risk and ensure adequacy of

provisioning for financial exposure.

Executive ownership resides directly

with the Group CEO.

Board oversight is provided by the main Board.

Continue to work closely with the

government, lawyers and other

businesses to progress and close settlement with claimants as well as to establish a viable ongoing model for the business.

Target rating from current Amber to Green by the end of 2019.

 

 

Viability Statement

 

The Board 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, which covers the introduction to market of the current new 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, historical 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 forecasts 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 principal risks, which have the most relevant potential impact on viability (see risks marked '*' on pages 44 to 57 of the 2018 Annual Report).

 

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.

 

The Board 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 the 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 Board has 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.

 

 

(ii)  RELATED PARTY TRANSACTIONS (pages 191 and 201)

 

[NOTE] 26 RELATED PARTY TRANSACTIONS

RB & Manon Business Co. Ltd, RB & Manon Business Limited and RB (China Trading) Limited (together "the Manon entities")

As part of the arrangements with the non-controlling shareholders of the Manon entities, the parties are subject to symmetrical put and call options over the non-controlling shareholdings. In 2018, the parties agreed to extend the initial term period of the options to 31 December 2023. In the event that the options are not exercised in accordance with the agreement, they are automatically extended for a further six twelve-month terms. The present value of the put option liability at year end was £148 million (2017: £105 million).

 

Other

The Group has related party relationships with its Directors and key management personnel (Note 5) and pension schemes (Note 22).

 

André Lacroix stepped down as a Non-Executive Director of the Company on 31 December 2018, and is the current Chief Executive Officer of Intertek Group plc. During the year, payments made by the Company to Intertek Group plc, for product testing and assurance services, were £0.4m (2017: £0.2m).

 

[PARENT COMPANY NOTE] 9 RELATED PARTY TRANSACTIONS

Reckitt Benckiser Group plc has related party relationships with its pension schemes as disclosed in Note 26 of the Group Financial Statements.

 

There were no other transactions with related parties other than wholly owned companies within the Group.

 

 

(iii) STATEMENT OF DIRECTORS' RESPONSIBILITIES (page 123)

The Directors are responsible for preparing the Annual Report and the Group and parent Company Financial Statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare Group and parent Company Financial Statements for each financial year. Under that law they are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company Financial Statements in accordance with UK accounting standards, including FRS 102, 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'.

 

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company Financial Statements, the Directors are required to:

  • select suitable accounting policies and then apply them consistently; 
  • make judgements and estimates that are reasonable, relevant, reliable and prudent;
  • for the Group Financial Statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
  • for the parent Company Financial Statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent Company Financial Statements;
  • assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
  • use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

 

Responsibility statement of the Directors in respect of the annual financial report

 

We confirm that to the best of our knowledge:

  • the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and 
  • the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

We consider 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 Group's position and performance, business model and strategy.

 

Name                           Function

Chris Sinclair                Chairman and Non-Executive Director

Rakesh Kapoor            Chief Executive Officer

Adrian Hennah             Chief Financial Officer

Nicandro Durante        Senior Independent Director

Mary Harris                  Non-Executive Director

Pam Kirby                    Non-Executive Director

Warren Tucker             Non-Executive Director

Andrew Bonfield          Non-Executive Director

Mehmood Khan           Non-Executive Director

Elane Stock                 Non-Executive Director

 

___________________________________


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END
 
 
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