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Reckitt Benckiser 2009 19
Directors’ Remuneration Repo
Remuneration Committee
The Remuneration Committee of the Board (the
“Committee”) is responsible for determining
and reviewing the terms of employment and
remuneration of the Executive Directors and
Senior Executives. The remuneration principles
established for this senior group of employees
provide the framework for the remuneration
packages of all other Executives. The
Committee also has responsibility for
determining the remuneration of the Chairman.
The Committee meets as necessary and in 2009
there were five meetings including two held
by written resolution. The Committee
comprised four members in 2009, of whom
one, Mr Bellamy, is not considered independent
since he has served on the Board for more
than nine years. In accordance with the Code,
the Chairman is permitted to sit on the
Remuneration Committee if he was
independent upon appointment as Chairman,
which was the case with Mr Bellamy.
Judith Sprieser has served as Chairman of the
Committee since June 2004. She joined the
Committee in November 2003. Graham
Mackay has served on the Committee since
February 2005, Adrian Bellamy since 1999,
and Richard Cousins since October 2009.
As well as reviewing Executive Directors’
base salaries and benefits, the Committee
determines the short-term and long-term
incentive arrangements that will apply. It aims
to set challenging and demanding performance
targets and to ensure that annual cash bonus
and long-term incentive awards fully reflect the
Company’s performance. The Committee’s
terms of reference are available on the
Company’s website.
Policy on remuneration
The Committee’s overriding objective is to
ensure that Reckitt Benckiser’s remuneration
policy encourages, reinforces and rewards the
delivery of shareholder value. This approach has
been a key ingredient in Reckitt Benckiser’s
success. The graphs below show that the
CompanyhasoutperformedboththeUKFTSE
100andtheUSremunerationpeergroupin
terms of Total Shareholder Return (TSR) over
the last five years. £100 invested on 31
December 2004 in Reckitt Benckiser would
have resulted in a shareholding worth £239 on
31 December 2009, compared to £135 and
£133 if invested in the FTSE 100 and peer
group respectively.
Reckitt Benckiser is a global Company
operating a global remuneration policy, and the
core principles on which that policy is based are
as follows: first, in order to attract and retain
the best available people, the Committee has
– and will continue to adopt – a policy of
executive remuneration based on competitive
practice. Reckitt Benckiser competes for
management skills and talent in the same
international market place as its main
competitors, the vast majority of which are
basedintheUS.Inaccordancewiththispolicy
principle, total remuneration for Executive
Directors and other Senior Executives will be
benchmarked against the upper quartile of a
peer group comprising Reckitt Benckiser’s main
competitors, together with a range of
comparablecompaniesintheUSconsumer
goods industry.
The second principle is to align the interests
of Executive Directors and Senior Executives
with those of shareholders through a variable
performance based compensation policy with
a significant proportion of the total package
delivered in Company shares, and the
Company’s share ownership policy.
In this context, variable pay is, and will continue
to be, the major element of our current
Executive Directors’ and Senior Executives’
total compensation package. Accordingly, the
Executive Directors’ compensation package
comprises, in addition to base salary, an annual
cash bonus and share based incentives. Highly
leveraged annual cash bonuses, linked to the
achievement of key business measures within
the year, are designed to stimulate the
achievement of outstanding annual results.
To balance the management’s orientation
between the achievement of short and
long-term business measures, the Committee
believes that longer-term share based incentives
are also appropriate. In broad terms, if the
Group achieves its target levels of performance,
the variable elements will amount to over 80%
of Executive Directors’ total remuneration. If
performance is unsatisfactory, then no cash
bonuses will be paid and long-term incentives
will not vest.
The Company believes that the remuneration
package in place, and the mix of fixed and
variable pay within that package, meets these
core principles. The Committee’s market-driven
approach to remuneration requires that it
regularly reviews its policies and will discuss
changes with shareholders as appropriate.
Base salaries
Base salaries are normally reviewed annually
with effect from 1 January. Increases are
determined by reference to competitive practice
in our remuneration peer group, individual
performance and in the context of salary
increases across the Company as a whole.
The policy is that salaries for Executive Directors
and other Executive Committee members
should typically be around the median of
competitor market practice.
The approach to reviewing the base salaries
of Executive Directors is the same as that for
other employees. Base pay increases for
Executive Directors from 1 January 2009
were 4% in line with typical base pay
increases for Executives in Reckitt Benckiser.
The base pay increase for Executive Directors
Historical TSR performance
Growth in the value of a hypothetical £100
holding over five years. FTSE 100 comparison
based on spot values.
Reckitt Benckiser
Notes
The graph above shows the performance
of Reckitt Benckiser in terms of TSR
performanceagainsttheUKFTSE100index
over a five-year period and conforms to the
Directors’ Remuneration Report Regulations
2002. The index was selected on the basis of
companies of a comparable size in the
absence of an appropriate industry peer
groupintheUK.
Historical TSR performance
Growth in the value of a hypothetical £100
holding over five years. Peer group comparison
based on spot values
Reckitt Benckiser
Notes
The graph above shows the performance
of Reckitt Benckiser in terms of TSR
performanceagainstourcurrentUS
remuneration peer group over a five year
period. These companies include Church &
Dwight, Clorox, Colgate-Palmolive, Johnson
& Johnson, Procter & Gamble and Sara Lee.
75
100
125
225
250
275
£
75
100
125
225
250
275
£
Reckitt Benckiser 200920
Directors’ Remuneration Repo continued
If the performance condition is met, then the
option term is ten years from the date of grant.
Awards under the long-term incentive plans are
not pensionable.
Share ownership policy
Executive Directors and other Senior Executives
are subject to a compulsory share ownership
policy. The objective of this policy is to
emphasise the alignment of Senior Executives
to the Company and its business targets.
In order to fulfil the share ownership policy,
Executive Directors and other Senior Executives
must own the following number of shares:
Individual/Group Ownership requirement
CEO (1) 600,000 shares
CFO/EVPs (5) 200,000 shares
Other senior executives (30) 30-50,000 shares
The total number of ordinary shares held by
Mr Becht at 31 December 2009 is 4,954,243 of
which 3,610,422 are beneficial and 1,343,821
are non-beneficial. The total number of
ordinary shares held by Mr Day at 31 December
2009 is 424,129.
As these shareholding requirements (which
equate to around 7 times base salary up to
around 20 times in the case of the CEO) are
significantly more stringent than market
practice, Executives, including those newly-
recruited or promoted into Senior Executive
positions, are allowed eight years to reach
these targets.
If the Executive does not meet these
requirements within the required time period,
the Committee will not make any further
option grants or awards of performance shares
to the Executive until the targets have been
met. Further, if, in the Committee’s opinion, an
Executive is not making sufficient progress
towards satisfying the requirement, then it will
reduce the level of grants and awards to that
Executive until improvement is demonstrated.
Long term incentive awards and options that
were outstanding at the end of the year are
disclosed in Table 2.
Pensions
In line with the Committee’s emphasis on the
importance of only rewarding the Executive
Directors for creating shareholder value, Reckitt
Benckiser operates a defined contribution
pension plan, the Reckitt Benckiser Executive
Pension Plan. Mr Becht and Mr Day are both
members of this plan.
Mr Becht’s Company pension contribution was
30% of pensionable pay during 2009. Mr Day’s
Company pension contribution was 25% of
pensionable pay in 2009.
In 2009 only Mr Becht continues to be affected
by the new Annual Allowance brought about
bytheUKtaxchangeseffectivefromApril
2006. In 2006 the Committee decided the most
cost-effective approach was to maintain his
current pension commitment, and to make
pension contributions in excess of the lifetime
allowance into a funded and unapproved
defined contribution pension arrangement.
The Committee will continue to review the
award levels and market data on an annual
basis, and make appropriate adjustments when
required. The number of share options and
performance shares awarded to Mr Becht and
Mr Day was reduced by 25% in 2008, and the
Committee is comfortable their total target
remuneration remains appropriately positioned.
While the use of performance conditions
attached to the vesting of long-term incentive
awards is still a minority practice among
Reckitt Benckiser’s peer group, the Committee
believes that the vesting of the Company’s
options and performance share awards should
be subject to the satisfaction of appropriate
performance conditions.
As such, long-term incentives only vest subject
to the achievement of earnings per share (EPS)
growth targets that exceed industry
benchmarks. EPS has been selected as the
performance condition for three reasons:
• ItfocusesExecutivesonrealprotgrowth;
• Itprovidesthemostappropriate
measure of the Company’s underlying
financial performance;
• Itisameasurethattheperformanceofthe
Executive Directors can directly impact.
EPS is measured on an adjusted diluted
basis as shown in the Company’s reported
accounts as this provides an independently
verifiable measure.
The vesting schedule for the options and
performance shares rewards superior
performance. For 2010, the Committee has set
the same targets and levels of awards as in the
previous year, having regard to: the industry
context in which the Company operates,
sensible expectations of what will constitute
performance at the top of the peer group, and
factors specific to the Company.
For the full vesting of options and performance
shares, the Committee has set an exceptional
performance target of an average EPS growth
of 9% per year. This is equivalent to almost
30% over a three-year period. The threshold
when options and shares start to vest is when
EPS grows by an average of 6% per year. This is
equivalent to 19% over a three-year period,
which the Committee considers, based on past
and future expected performance, exceeds the
industry growth average.
Average EPS EPS growth over % of options
growth per year three years and shares
(%) (%) vesting
9 29.5 100
8 26.0 80
7 22.5 60
6 19.1 40
The Committee decided that the performance
target attached to the vesting of awards to
Executive Directors, EVPs and other Senior
Executives will not be subject to re-testing.
As a result, if any target has not been met three
years after the date of grant, any remaining
shares which have not vested will lapse.
Annual cash bonus
The annual cash bonus is closely linked to
the achievement of demanding pre-determined
targets geared to above-industry performance.
The current performance measures are net
revenue and net income growth. The
Remuneration Committee each year sets
performance standards with reference to
prevailing growth rates in the Company’s
peer group and across the consumer goods
industry more broadly. Target bonus will only
be earned where the Company’s performance
is above the industry median. Still more
stretching percentage growth rates have
been set above target, and the achievement
of these delivers higher bonus payments for
superior performance.
The Company has reported strong financial
performance in 2009, which is consistent with
the longer-term trend for the business. The
Committee is comfortable that this represents
superior performance when judged against the
industry and the targets that were established
at the start of the financial year, and is
consistent with the decision to make annual
bonus awards at maximum levels for 2009.
For 2010, as in 2009 the Executive Directors
will participate in the annual cash bonus
scheme under which they may receive 100%
(CEO) and 75% (CFO) of base salary for
achieving target performance. For the
achievement of outstanding performance,
which the Board sets at a level approximately
double the industry median, the bonus
potential is 357% (CEO) and 268% (CFO)
of base salary.
Similar incentive arrangements are used for
other Executives worldwide. Annual bonuses
are not pensionable. The Committee also
reserves the right, in exceptional circumstances,
to make individual cash awards.
Long-term incentives
The Committee believes that a significant
element of share based remuneration ensures
close alignment of the financial interests of the
Executive Directors and other key Executives
with those of shareholders. This is underpinned
by a significant share ownership requirement
on Senior Executives, with penalties for
non-compliance, which are described in more
detail below.
Long-term incentives comprise a mix of share
options and performance shares. Both the
levels and combination of share options and
performance shares are reviewed on an annual
basis with reference to competitive market data
and the associated cost of share provision.
The Committee benchmarks total
remuneration for Executives against the upper
quartile of its peer group. This is then delivered
through a combination of base salary, annual
cash bonus and long-term incentives. In
carrying out the benchmarking exercise, the
Company’s long-term incentives and those of
the peer group are valued using an expected
value valuation methodology (Black-Scholes)
which is widely accepted and enables
“like for like” comparisons.
Reckitt Benckiser 2009 21
The process of the Committee
The Committee has formally appointed
Deloitte LLP as its external and independent
adviser and, during the year, they have
provided advice to the Board on Executive
compensation levels, structure and design.
Deloitte also provided the Group with
international transfer tax compliance and global
mobility services and ad-hoc advice on
employment/share schemes matters during
2009. These services are provided under
separate engagement terms and the
Committee is satisfied that the provision of
these services does not impair Deloitte’s ability
to advise the Committee independently.
Internal advisors include the CEO, Mr Becht
and the SVP Human Resources, Mr Nash.
No individual is present when their own
remuneration is being discussed.
The Committee has the discretion to consider
corporate performance on environmental,
social and governance (ESG) issues when
setting remuneration of Executive Directors;
and, has oversight that the incentive structure
for senior management does not raise ESG risks
by inadvertently motivating irresponsible
behaviour. Throughout 2009, the Company
complied with the relevant sections of the
Combined Code.
The Directors’ Remuneration Report has been
prepared in accordance with the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 and
meets the relevant requirements of the
Financial Services Authority’s Listing Rules.
Approved by the Board on 15 March 2010 and
signed on its behalf by:
Judith Sprieser
Chairman of the Remuneration Committee
membership fee on top of the basic fee, plus
Mr Mackay received a further £7,000 as Senior
Independent Director. The Non-Executive
Directors must use £13,500 of their total fee to
acquire shares in the Company, with exception
of Mr Harf who must use £14,500 of his total
fee to acquire shares in the Company.
It is the policy of the Board – which the Board
has no plans to change – that Non-Executive
Directors are not eligible for pension fund
membership and will not participate in any
of the Company’s bonus, share option or
long-term incentive schemes.
Fee levels are reviewed every two years,
with the Board taking external advice on
best practice and competitive levels, taking
into account the responsibilities and time
commitment of each Non-Executive Director.
The next scheduled review will be in 2010
with any changes to be effective from
1 January 2011.
External appointments
Mr Day is a Non-Executive Director of WPP
Group plc and in 2008, it was agreed subject to
certain specific conditions, that he be allowed
to join the Board of Cadbury plc, which he did
on 1 December 2008. This is non-compliant
with Combined Code Provision A.4.5 which
requires that no full time Executive Director
should hold more than one Non-Executive
Directorship in a FTSE 100 company. Both WPP
Group plc and Cadbury plc are FTSE 100
companies. This exception has been made
because the Board believes that experience as
the Chairman of the Cadbury plc Audit
Committee will be useful in Mr Day’s role as
Chief Financial Officer of Reckitt Benckiser.
Mr Day’s gross annual fees for his appointment
with WPP Group plc was £65,000 for his
services in 2009. His gross annual fee with
Cadbury was £73,639. The Company allows
Mr Day to retain the fees paid for these
external appointments.
Service agreements
Service contracts for future Executive Directors
will be rolling and terminable on six months’
notice. Termination payments may include
payment in lieu of notice, and contracts will
provide liquidated damages of six months’ base
salary plus twelve months’ bonus calculated as
the average of the annual bonus paid (if any) in
the two years up to the termination. Any bonus
earned will be included in the termination
payment on the basis that a high proportion of
pay is related to performance and that in the
event of termination for poor performance it is
unlikely that any bonus will have been paid.
The service contracts for current Executive
Directors are detailed on Table 3 of the
Directors’ Remuneration Report.
Non-Executive Directors do not have service
agreements, but are subject to re-election by
shareholders every three years.
Remuneration policy for the Chairman and
Non-Executive Directors
The Board, in the light of recommendations
from the CEO, Mr Becht and the CFO, Mr Day
determines the remuneration of the Non-
Executive Directors.
Adrian Bellamy’s annual fee as Chairman in
2009 was £345,000, and the net proceeds
from £62,000 of this fee were used to acquire
shares in the Company which he is obliged to
retain until he steps down from the Board.
Non-Executive Directors’ remuneration consists
of fees for their services in connection with
Board and Board committee meetings.
Mr Harf’s annual fee as Deputy Chairman in
2009 was £80,000, and the fees of the other
Non-Executive Directors were £75,000. The
Chairmen of the Remuneration Committee and
Audit Committee received an additional
£15,000 per annum on top of the basic fee.
The other Non-Executive Directors received an
additional £10,000 per annum Committee
Reckitt Benckiser 200922
Directors’ Remuneration Repo continued
The information on pages 22 to 24 (except where labelled) comprises the auditable disclosures of the Directors’ Remuneration Report.
Remuneration disclosures
Table 1
Pension
Base salary Benefits Other contri- 2009 2008
and fees Bonus in kind payments butions Total Total
Notes £000 £000 £000 £000 £000 £000 £000
Chairman
Adrian Bellamy 1 345 345 300
Richard Cousins (appointed 1 October 2009) 3 21 21 n/a
Peter Harf 3 90 90 70
Kenneth Hydon 3 90 90 80
André Lacroix (appointed 1 October 2008) 3 85 85 18
Graham Mackay 3 92 92 70
Gerard Murphy (resigned 17 July 2008) 3 n/a n/a 46
Judith Sprieser 3 90 90 80
Notes
1. Mr Bellamy’s fees as Chairman for 2009 were £345,000. These fees include £62,000 (gross), the net amount of which was applied to buy ordinary
shares in the Company. These shares must be retained by Mr Bellamy while in office.
2. The remuneration reported under “Other payments” in respect of Mr Becht relates to other international transfer related benefits (2008: £48,000)
3. Non-Executive Director fees include £13,500 (gross) and £14,500 (gross) in the case of Mr Harf, the net amount of which was applied to buy ordinary
shares in the Company. These shares must be retained by the Director while in office.
4. The total emoluments of the Directors of Reckitt Benckiser Group plc as defined by s 412 the Companies Act were £7,082,000 (2008: £6,775,000).
5. The aggregate gross gains made by the Directors on the exercise of share options and vesting of restricted shares during the year were £94,226,539
(2008: £36,298,064 ). The gains are calculated based on the market price at the date of exercise for share options and vesting of restricted shares,
although the shares may have been retained and no gain realised.
6. The total emoluments of the highest paid Director (excluding pension contributions) were £4,593,000 (2008: £4,470,000)
The 2009 remuneration package for Executive Directors comprised base salary, annual cash incentive bonus, long-term incentives in the form of share
options and performance shares, pension contributions (or a non-pensionable cash supplement in lieu of pension), fully expensed company car (or cash
equivalent) and health insurance, and school fees and preparation of tax returns in the case of the Chief Executive Officer.
Pensions
Mr Becht and Mr Day are both members of the Reckitt Benckiser Executive Pension Plan, a defined contribution plan, with a standard company
contribution rate of 30% of pensionable pay for Mr Becht (2008: 30%), and 25% for Mr Day (2008: 25%).
Reckitt Benckiser 2009 23
Table 2 – Directors’ options and restricted share awards
Table 2 sets out each Director’s options over or rights to ordinary shares of the Company under the Company’s various long-term incentive plans.
The middle market price of the ordinary shares at the year end was £33.56 and the range during the year was £24.54 to £33.56.
Market Market
Exercised/ price at price at
Granted vested date of date of
At during during At Option award exercise/ Exercise/
Long-term incentives Notes Grant date 01.01.09 the year the year 31.12.09 price (£) (£) vesting (£) vesting period
Bart Becht
Options 1 17.12.01 715,834 715,834 – 9.504 31.11-31.47 May 05-Dec 11
1 8.12.08 600,000 600,000 27.290 May 12-Dec 18
1 7.12.09 600,000 600,000 31.650 May 13-Dec 19
Performance-based
restricted shares 1 22.12.99 80,000 80,000 – 5.810 30.65 May 03-Dec 09
1 5.12.05 400,000 400,000 – 18.160 26.46 May 2009
1 8.12.06 400,000 400,000 23.000 March 2010
1 11.12.07 300,000 300,000 29.720 May 2011
1 8.12.08 300,000 300,000 27.800 May 2012
1 7.12.09 300,000 300,000 31.800 May 2013
Colin Day
Options 1 6.12.04 160,000 160,000 – 15.470 28.01 May 08-Dec 14
Performance-based
restricted shares 1 5.12.05 80,000 80,000 – 18.160 26.46 May 2009
1 8.12.06 80,000 80,000 23.000 March 2010
1 11.12.07 60,000 60,000 29.720 May 2011
1 8.12.08 60,000 60,000 27.800 May 2012
1 7.12.09 60,000 60,000 31.800 May 2013
Notes
1. Vesting of long-term incentives is subject to the achievement of the following compound average annual growth (CAAG) in earnings per share over a
three year period.
Proportion of
grant vesting
(%)
40 60 80 100
2. The grant made in December 2005 vested in full following the Company’s Annual General Meeting in May 2009. The Company exceeded its target
compound average actual growth (CAAG) in earnings per share over a three year period (2006-2008) of 9%.
Reckitt Benckiser 200924
Directors’ Remuneration Repo continued
Table 3 – Service contracts for Executive Directors
Dateoforiginal Dateof Unexpired Notice Compensationfor
service contract amendment term period early termination
Bart Becht 3 December 1999 19 November 2003 n/a 6 months 0.5 x base salary,
Table 4 – Shares placed under option in all schemes in the last ten years, less lapsed (not auditable)
In 2009, members of the Executive Committee (8) received around 38%, Senior Executives (next 27) around 17% and other Executives (next 414)
around 45% of the total awards made under the long-term incentive plans. The total grants have resulted in 0.8% (based on the current issued share
capital) being used for discretionary long-term incentive plans in 2009 and 7.9% over a rolling ten-year period from 2000 to 2009. See table below.
Total (millions)
Discretionary Plans
Reckitt Benckiser Executive Plans 56.4
Share Ownership Policy Plan 0.4
Employee
Reckitt Benckiser 2009 25
Independent auditors’ repo to the members of Recki Benckiser Group plc
UndertheListingRuleswearerequired
to review:
• TheDirectors’statement,setoutonpages
16 and 17, in relation to going concern; and
• ThepartoftheCorporategovernance
statement relating to the Company’s
compliance with the nine provisions of
the June 2008 Combined Code specified for
our review.
Other matter
We have reported separately on the parent
company financial statements of Reckitt
Benckiser Group plc for the year ended
31 December 2009 and on the information in
the Directors’ Remuneration Report that is
described as having been audited.
Ian Chambers (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
15 March 2010
Notes:
• ThemaintenanceandintegrityoftheReckitt
Benckiser Group plc website is the
responsibility of the Directors; the work
carried out by the auditors does not involve
consideration of these matters and,
accordingly, the auditors accept no
responsibility for any changes that may have
occurred to the financial statements since
they were initially presented on the website.
• LegislationintheUnitedKingdomgoverning
the preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Opinion on financial statements
In our opinion the Group financial statements:
• Giveatrueandfairviewofthestateofthe
Group’s affairs as at 31 December 2009
and of its profit and cash flows for the year
then ended;
• Havebeenproperlypreparedinaccordance
with IFRSs as adopted by the European
Union;and
• Havebeenpreparedinaccordancewiththe
requirements of the Companies Act 2006
and Article 4 of the lAS Regulation.
Separate opinion in relation to IFRSs as
issued by the IASB
As explained in note 1 to the Group financial
statements, the Group in addition to complying
with its legal obligation to apply IFRSs as
adoptedbytheEuropeanUnion,hasalso
applied IFRSs as issued by the International
Accounting Standards Board (IASB).
In our opinion the Group financial statements
comply with IFRSs as issued by the IASB.
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion the information given in the
Report of the Directors for the financial year
for which the Group financial statements
are prepared is consistent with the Group
financial statements.
Matters on which we are required to
report by exception
We have nothing to report in respect of
the following:
UndertheCompaniesAct2006weare
required to report to you if, in our opinion:
• CertaindisclosuresofDirectors’remuneration
specified by law are not made; or
• Wehavenotreceivedalltheinformationand
explanations we require for our audit.
We have audited the Group financial
statements of Reckitt Benckiser Group plc for
the year ended 31 December 2009 which
comprise the Group income statement, the
Group statement of comprehensive income,
the Group balance sheet, the Group statement
of changes in equity, the Group cash flow
statement and the related notes. The financial
reporting framework that has been applied in
their preparation is applicable law and
International Financial Reporting Standards
(IFRSs)asadoptedbytheEuropeanUnion.
Respective responsibilities of Directors
and auditors
As explained more fully in the Statement of
Directors’ responsibilities set out on page 16,
the Directors are responsible for the preparation
of the Group financial statements and for being
satisfied that they give a true and fair view. Our
responsibility is to audit the Group financial
statements in accordance with applicable law
andInternationalStandardsonAuditing(UK
and Ireland). Those standards require us to
comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
This report, including the opinions, has been
prepared for and only for the Company’s
members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and
for no other purpose. We do not, in giving
these opinions, accept or assume responsibility
for any other purpose or to any other person to
whom this report is shown or into whose hands
it may come save where expressly agreed by
our prior consent in writing.
Scope of the audit of the financial
statements
An audit involves obtaining evidence about the
amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are free
from material misstatement, whether caused by
fraud or error. This includes an assessment of:
whether the accounting policies are appropriate
to the Group’s circumstances and have been
consistently applied and adequately disclosed;
the reasonableness of significant accounting
estimates made by the Directors; and the
overall presentation of the financial statements.
Reckitt Benckiser 200926
Group income statement
2009 2008
For the year ended 31 December Notes £m £m
Net revenues 2 7,753 6,563
Cost of sales 3 (3,089) (2,673)
Gross profit 4,664 3,890
Net operating expenses 3 (2,773) (2,385)
Operating profit 2 1,891 1,505
Operating profit before exceptional items 1,891 1,535
Exceptional items 3 - (30)
Profit on ordinary activities before taxation 1,892 1,474
Tax on profit on ordinary activities 7 (474) (354)
Net income 1,418 1,120
Attributable to equity minority interests – –
Attributable to ordinary equity holders of the parent 1,418 1,120
Net income 1,418 1,120
Group statement of comprehensive income
2009 2008
For the year ended 31 December Notes £m £m
Net income 1,418 1,120
Other comprehensive income
Net exchange adjustments on foreign currency translation, net of tax 7 (191) 479
Actuarial gains and losses, net of tax 7 (68) (74)
Available for sale reserve, net of tax 7 8 (8)
Reckitt Benckiser 2009 27
Group balance sheet
2009 2008
As at 31 December Notes £m £m
ASSETS
Non-current assets
Goodwill and other intangible assets 10 6,090 6,454
Available for sale financial assets 14 16 25
Other receivables 25 19
6,891 7,228
Current assets
Inventories 12 486 556
Trade and other receivables 13 928 906
Derivative financial instruments 24 1 69
Available for sale financial assets 14 4 6
Cash and cash equivalents 15 351 417
1,770 1,954
Total assets 8,661 9,182
LIABILITIES
Current liabilities
Borrowings 16 (132) (1,571)
Provisions for liabilities and charges 17 (88) (73)
Trade and other payables 18 (2,286) (2,189)
Tax liabilities (385) (383)
(2,891) (4,216)
Non-current liabilities
(1,756) (1,672)
Total liabilities (4,647) (5,888)
Net assets 4,014 3,294
EQUITY
Capital and reserves
Share capital 21 72 72
Merger reserve 22 (14,229) (14,229)
Hedging reserve 22 (2) 13
Available for sale reserve 22 – (8)
Foreign currency translation reserve 22 229 420
Adrian Bellamy Bart Becht
Director Director
Reckitt Benckiser 200928
Foreign Total
currency attributable
Share Merger Hedging Available for translation Retained to equity Minority
For the year ended 31 December capital reserve reserve sale reserve reserve earnings shareholders interest Total
Balance at 1 January 2008 72 (14,229) (6) – (59) 16,605 2,383 2 2,385
Comprehensive income
Net income 1,120 1,120 1,120
Total comprehensive income – – 19 (8) 479 1,046 1,536 – 1,536
Transactions with owners
Share based payments 59 59 59
Deferred tax on share awards (23) (23) (23)
Current tax on share awards 15 15 15
Shares re-purchased and held in Treasury (300) (300) (300)
Treasury shares re-issued 63 63 63
Dividends (441) (441) (441)
Total transactions with owners – – – – – (627) (627) – (627)
Balance at 31 December 2008 72 (14,229) 13 (8) 420 17,024 3,292 2 3,294
Comprehensive income
Net income 1,418 1,418 1,418
Other comprehensive income
Available for sale assets, net of tax 8 8 8
Actuarial losses, net of tax (68) (68) (68)
Losses on cash flow hedges, net of tax (15) (15) (15)
Current tax on share awards 29 29 29
Treasury shares re-issued 131 131 131
Dividends (648) (648) (648)
Total transactions with owners – – – – – (432) (432) – (432)
Balance at 31 December 2009 72 (14,229) (2) – 229 17,942 4,012 2 4,014
Group statement of changes in equity
Reckitt Benckiser 2009 29
2009 2008
For the year ended 31 December £m £m
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations
Operating profit 1,891 1,505
Depreciation of property, plant and equipment, amortisation and impairment of intangible assets 139 107
Fair value gains (15) –
Gains on sale of property, plant and equipment and intangible assets – 5
Other non-cash movements 2 –
Decrease / (increase) in inventories 39 (65)
(Increase) in trade and other receivables (12) (32)
Increase in payables and provisions 220 61
Net cash generated from operating activities 1,948 1,333
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment and intangible assets (158) (216)
Disposal of property, plant and equipment 11 9
Acquisition of businesses, net of cash acquired – (1,081)
Maturity of short-term investments 1 34
Maturity of long-term investments 18 -
Net cash used in investing activities (128) (1,254)
Net cash used in financing activities (1,876) (38)
Net (decrease) / increase in cash and cash equivalents (56) 41
Cash and cash equivalents at beginning of period 398 311
Exchange (losses) / gains (8) 46
Cash and cash equivalents at end of year 334 398
Cash and cash equivalents comprise
Cash and cash equivalents 351 417
Overdrafts (17) (19)
334 398
Management uses net cash flow from operations as a performance measure.
Group cash ow statement
Reckitt Benckiser 200930
improvements 2009 project, mainly effective for
the financial year beginning 1 January 2010.
These had no material impact on the Group.
Basis of consolidation
The consolidated financial statements include
the results of Reckitt Benckiser Group plc
and all its subsidiary undertakings made
up to the same accounting date. In the case
of acquisitions and disposals of businesses,
the results of trading are consolidated from
or to the date upon which control passes.
Inter-company transactions, balances and
unrealised gains on transactions between
Group companies have been eliminated on
consolidation. Unrealised losses have also been
eliminated to the extent that they do not
represent an impairment of a transferred asset.
Subsidiaries’ accounting policies have been
changed where necessary to ensure consistency
with the policies adopted by the Group.The
results and net assets of the Group’s subsidiary
in Zimbabwe have been excluded from the
consolidated Group results. This is on the basis
that the Group does not consider the
Zimbabwean business to be a subsidiary due to
the loss of power to govern the financial and
operating policies of the Zimbabwean business
due to the restrictions on remitting funds out of
the country. Results for 2008 and 2009, and its
balance sheets as at 31 December 2008 and
31 December 2009, were insignificant.
Operating segments
Operating segments are reported in a manner
consistent with the internal reporting provided
to the chief operating decision-maker. The chief
operating decision-maker, who is responsible
for allocating resources and assessing
performance of the operating segments, has
been identified as the Executive Committee.
Foreign currency translation
Items included in the financial statements
of each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates
(the “functional currency”). The consolidated
financial statements are presented in sterling,
which is the Group’s presentation currency.
financial instruments and obligations arising
on liquidation.
• IAS23(amendment),“Borrowingcosts”.
• IAS27,“ConsolidatedandSeparate
Financial Statements”.
• IFRIC9,“Re-assessmentofembedded
derivatives” and IAS39 “Financial
Instruments: Recognition and Measurement”
amendment on embedded derivatives.
• IFRIC13,“Customerloyaltyprogrammes”.
• IFRIC14,“IAS19–Thelimitonadened
benefit asset, minimum funding
requirements and their interaction”.
• IFRIC15,“Agreementsfortheconstruction
of real estate”.
• IFRIC16,“Hedgesofanetinvestmentina
foreign operation”.
There are also a number of changes to
standards as a result of the annual
improvements May 2008 project, mainly
effective for the financial year beginning
1 January 2009. These had no material
impact on the Group.
The following new standards, amendments
to standards and interpretations have been
issued, but are effective from 1 January 2010
onwards and have not been early adopted and
are not expected to have a material impact to
the Group:
• IFRS1(amendment),“Firsttimeadoption
of IFRS”, and IAS 27 “Consolidated and
separate financial statements”, effective
from 1 January 2010.
• IFRS2,“Sharebasedpayments–Group
cash-settled share based payments
transactions”, effective 1 January 2010.
• IFRS3(revised),“Businesscombinations”,
effective from 1 July 2009.
• IFRS9,“FinancialInstruments”.
• IAS24(amendment),“Relatedparty
disclosures”, effective from 1 January 2011.
• IAS32(amendment),“FinancialInstruments:
Presentation on classification or rights
issues”, effective from 1 February 2010.
• IAS39(amendment),“Eligiblehedged
items”, effective from 1 July 2009.
• IAS27(revised),“Consolidatedand
separate financial statements”, effective
from 1 July 2009.
• IFRIC14(amendment),“Prepaymentsofa
minimum funding requirement”, effective
from 1 January 2011.
• IFRIC17,“Distributionsofnon-cashassets
to owners”, effective from 1 July 2009.
• IFRIC18,“Transfersofassetsfrom
customers”, effective from 31 October 2009.
• IFRIC19,“Extinguishingnancialliabilities
with equity instruments”, effective from
July 2010.
There are also a number of changes to
standards as a result of the annual
1 ACCOUNTING POLICIES
The principal accounting policies adopted in
the preparation of these financial statements
are set out below. Unless otherwise stated,
these policies have been consistently applied
to all the years presented.
Basis of preparation
These financial statements have been prepared
in accordance with EU endorsed International
Financial Reporting Standards (IFRSs) and
International Financial Reporting Interpretations
Committee (IFRIC) interpretations, and with
those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
The financial statements are also in compliance
with IFRS as issued by the International
Accounting Standards Board. These financial
statements have been prepared under the
historical cost convention, as modified by the
revaluation of certain financial assets and
liabilities at fair value through the Group
income statement. A summary of the Group’s
more important accounting policies is set
out below.
The preparation of financial statements that
conform to IFRS requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities at the
balance sheet date and revenue and expenses
during the reporting period. Although these
estimates are based on management’s best
knowledge at the time, actual amounts may
ultimately differ from those estimates.
The following standards, amendments and
interpretations became effective for accounting
periods beginning on or after 1 January 2009:
• IAS1(revised),“Presentationofnancial
statements”. The financial statements have
been prepared under the revised disclosure
requirements, presenting two performance
statements; an income statement and a
statement of comprehensive income. The
statement of changes in equity is now
presented as a primary statement.
• IFRS2(amendment),“Sharebased
payments: Vesting conditions and
cancellations”. The Group has considered
the amendment which only impacts the
Save As You Earn schemes. The impact was
not material.
• IFRS7(amendment),“FinancialInstruments:
Disclosures” which sets out additional
disclosure requirements set out in note 24.
• IFRS8,“Operatingsegments”.IFRS8
replaces IAS 14, “Segment reporting”.
The Group early adopted the standard for
the year ended 31 December 2008.
The following standards, amendments and
interpretations became effective for the
first time for the financial year beginning
1 January 2009 but either have no material
impact or are not relevant to the Group:
• IFRS1,“FirsttimeadoptionofIFRS”.
• IAS1(amendment),“Presentationof
financial statements” and IAS 32
(amendment) “Financial instruments:
Presentation”, amendments on puttable
Notes to the accounts
Reckitt Benckiser 2009 31
Payments made in respect of product
registration and distribution rights are
capitalised where the rights comply with the
above requirements for recognition of acquired
brands. If the registration or distribution rights
are for a defined time period, the intangible
asset is amortised over that period. If no time
period is defined the intangible asset is treated
in the same way as acquired brands.
Acquired computer software licences are
capitalised at cost. These costs are amortised
over a period of five years or less.
Research and development
Research expenditure is written off in the year
in which it is incurred.
Development expenditure is written off in the
year in which it is incurred, unless it meets the
requirements of IAS 38 to be capitalised and
then amortised over the useful life of the
developed product.
Exceptional items
Where material, non-recurring expenses or
income are incurred during a period these items
are disclosed as exceptional items in the income
statement. Examples of such items are:
• Expensesrelatingtotheintegrationofan
acquired business and related expenses for
reconfiguration of the Group’s activities.
• Impairmentsofcurrentand
non-current assets.
• Gains/lossesondisposalofbusinesses.
The Group also presents an alternative,
adjusted basis, earnings per share calculation,
to exclude the impact of the exceptional items.
Management believes that the use of adjusted
measures such as adjusted operating profit,
adjusted net income and adjusted earnings per
share provide additional useful information on
underlying trends to shareholders.
Impairment of assets
Assets that have indefinite lives are tested
annually for impairment. All assets are tested
for impairment if there is an event or
circumstance that indicates that their carrying
value may not be recoverable. If an asset’s
carrying value exceeds its recoverable amount
an impairment loss is recognised in the income
statement. The recoverable amount is the
higher of the asset’s fair value less costs to sell
and its value in use.
Value in use is calculated with reference to
the future cash flows expected to be generated
by an asset (or group of assets where cash
flows are not identifiable to specific assets).
The discount rate used in brand impairment
reviews is based on the Group’s weighted
average cost of capital including, where
appropriate, an adjustment for the specific
risks associated with the relevant asset.
Gains and losses on the disposal of property,
plant and equipment are determined by
comparing the asset’s carrying value with
any sale proceeds, and are included in the
income statement.
Business combinations
The purchase method is used to account for the
acquisition of subsidiaries. Identifiable net
assets acquired (including intangibles) in a
business combination are measured initially
at their fair values at the acquisition date.
The excess of the cost of the acquisition
over the fair value of the identifiable assets,
liabilities and contingent liabilities acquired
(including intangibles) is recorded as goodwill.
The cost of an acquisition is measured as the fair
value of the assets given, equity instruments
issued (if any), and liabilities assumed or incurred
at the date of acquisition, plus costs directly
attributable to the acquisition.
The results of the subsidiaries acquired are
included in the Group financial statements from
the acquisition date.
Goodwill and intangible fixed assets
Goodwill represents the excess of the cost of
an acquisition over the fair value of the Group’s
share of the net identifiable assets of the
acquired subsidiary at the date of acquisition.
Goodwill on acquisitions of subsidiaries since
4 January 1998 is included in intangible assets.
Goodwill written off to reserves prior to this
date has not been reinstated. Goodwill is
allocated to the cash generating units to which
it relates and is tested annually for impairment.
Goodwill is carried at cost less accumulated
impairment losses.
Separately acquired brands are shown at
historical cost. Brands acquired as part of a
business combination are recognised at fair
value at the acquisition date, where they are
separately identifiable and their fair value can
be reliably measured. Brands are amortised over
their useful economic life, except when their
life is determined as being indefinite.
Applying indefinite lives to certain acquired
brands is appropriate due to the stable
long-term nature of the business and the
enduring nature of the brands. A core element
of the Group’s strategy is to invest in building
its brands through an ongoing programme of
product innovation and sustained and rising
marketing (particularly media) investment.
Within Reckitt Benckiser, a brand typically
comprises an assortment of base products and
more innovative products. Both contribute to
the enduring nature of the brand. The base
products establish the long-term positioning
of the brand while a succession of innovations
attracts ongoing consumer interest and
attention. Indefinite life brands are allocated
to the cash generating units to which they
relate and are tested annually for impairment.
The Directors also review the useful economic
life of brands annually, to ensure that their
economic lives are still appropriate. If a brand
is considered to have a finite life, its carrying
value is amortised over that period.
1 ACCOUNTING POLICIES (CONTINUED)
Foreign currency transactions are translated
into the functional currency using exchange
rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting
from the settlement of foreign currency
transactions and from the translation at period
end exchange rates of monetary assets and
liabilities denominated in foreign currencies
are recognised in the income statement,
except where hedge accounting is applied.
The accounts of overseas subsidiary
undertakings are translated into sterling
on the following basis:
• Assetsandliabilitiesattherateofexchange
ruling at the year end date.
• Protandlossaccountitemsattheaverage
rate of exchange for the period.
Exchange differences arising from the
translation of the net investment in foreign
entities, and of borrowings and other currency
instruments designated as hedges of such
investments, are taken to shareholders’ equity
on consolidation.
The currencies that most influence these
translations and the relevant exchange
rates were:
2009 2008
full year full year
Average rates:
£/Euro 1.1233 1.2575
£/US dollar 1.5670 1.8524
Closing rates:
£/Euro 1.1275 1.0445
£/US dollar 1.6170 1.4593
Property, plant and equipment
Property, plant and equipment are stated
at cost less accumulated depreciation and
impairment, with the exception of freehold
land, which is shown at cost less impairment.
Cost includes expenditure that is directly
attributable to the acquisition of the asset.
Except for freehold land, the cost of property,
plant and equipment is written off on a straight
line basis over the period of the expected useful
life of the asset. For this purpose, expected lives
are determined within the following limits:
Freehold buildings: not more than 50 years;
Leasehold land and buildings: the lesser
of 50 years or the life of the lease; and
Owned plant and equipment: not more than
15 years (except for environmental assets which
are not more than 20 years). In general,
production plant and equipment and office
equipment are written off over ten years or
less; motor vehicles and computer equipment
over five years or less.
Assets’ residual values and useful lives are
reviewed, and adjusted if necessary, at each
balance sheet date. Property, plant and
equipment are reviewed for impairment if
events or changes in circumstances indicate
that the carrying amount may not be
appropriate. Freehold land is reviewed for
impairment on an annual basis.
Reckitt Benckiser 200932
Employee share schemes
Incentives in the form of shares are provided
to employees under share option and restricted
share schemes. Any shortfall between the cost
to the employee and the fair market value of
the awards at date of grant is charged to the
income statement over the period to which the
performance criteria relate, with the credit
taken directly to the retained earnings reserve.
Additional employer costs in respect of options
and awards are charged to the income
statement over the same period with the credit
included in payables. Where awards are
contingent upon non-market performance
conditions an assessment of the likelihood of
these conditions being achieved is made at the
end of each reporting period and reflected in
the accounting entries made.
The proceeds received net of any directly
attributable transaction costs are credited to
share capital and share premium when the
options are exercised.
Provisions
Provisions are recognised when the Group has
a present legal or constructive obligation as a
result of past events, it is more likely than not
that there will be an outflow of resources to
settle that obligation and the amount can be
reliably estimated. Provisions are valued at the
present value of the Directors’ best estimate of
the expenditure required to settle the obligation
at the balance sheet date.
Financial instruments
Financial instruments held for trading are
classified as current assets and current liabilities,
and are stated at fair value, with any gain
or loss resulting from changes in fair value
recognised in the income statement.
The fair value of financial assets classified
as held for trading is their quoted bid price
at the balance sheet date.
Financial instruments classified as held for
trading are recognised/de-recognised by the
Group on the date it commits to purchase/sell
the instrument.
Derivative financial instruments and
hedging activity
The Group may use derivatives to manage its
exposures to fluctuating interest and foreign
exchange rates. These instruments are initially
recognised at fair value on the date the
contract is entered into and are subsequently
remeasured at their fair value. The method of
recognising the resulting gain or loss depends
on whether the derivative is designated as a
hedging instrument and if so, the nature of the
item being hedged. Derivatives that qualify for
hedge accounting are treated as either a hedge
of a highly probable forecast transaction (cash
flow hedge) or a hedge of net investment in
foreign operations (net investment hedge).
Current tax is the expected tax payable on
the taxable income for the year, using tax rates
enacted, or substantively enacted, at the
balance sheet date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided in full, using the
liability method, on temporary differences
arising between the tax bases of assets and
liabilities and their carrying amounts in the
consolidated financial statements. The deferred
income tax is not accounted for if it arises from
the initial recognition of an asset or liability in a
transaction (other than a business combination)
that affects neither accounting nor taxable
profit or loss at that time. Deferred income tax
is determined using tax rates (and laws) that
have been enacted or substantively enacted by
the balance sheet date and are expected to
apply when the deferred tax asset or liability is
settled. Deferred tax assets are recognised to
the extent that it is probable that future taxable
profit will be available against which the
temporary differences can be utilised.
Deferred income tax is provided on temporary
differences arising on investments in
subsidiaries except where it is probable that
the temporary difference will not reverse in
the foreseeable future.
Pension commitments
Group companies operate defined contribution
and (funded and unfunded) defined benefit
pension schemes.
The cost of providing pensions to employees
who are members of defined contribution
schemes is charged to the income statement
as contributions are made. The Group has
no further payment obligations once the
contributions have been paid.
The liability recognised in the balance sheet in
respect of defined benefit pension plans is the
present value of the defined benefit obligation
at the balance sheet date, less the fair value of
the plan assets. The defined benefit obligation
is calculated annually by independent actuaries
using the projected unit credit method. The
present value of the defined benefit obligation
is determined by discounting the estimated
future cash flows by the yield on high-quality
corporate bonds denominated in the currency
in which the benefits will be paid, and that
have a maturity approximating to the terms of
the pension obligations. The costs of providing
these defined benefit schemes are accrued over
the period of employment. Actuarial gains and
losses are recognised immediately in other
comprehensive income.
Post-retirement benefits other
than pensions
Some Group companies provide post-
retirement medical care to their retirees. The
costs of providing these benefits are accrued
over the period of employment and the liability
recognised in the balance sheet is calculated
using the projected unit credit method and
is discounted to its present value and the fair
value of any related asset is deducted.
Notes to the accounts continued
1 ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories are stated at the lower of cost or
net realisable value. Cost comprises materials,
direct labour and an appropriate portion of
overhead expenses (based on normal operating
capacity). Net realisable value is the estimated
selling price less applicable selling expenses.
Trade receivables
Trade receivables are initially recognised at fair
value. If there is objective evidence that the
Group will not be able to collect the full
amount of the receivable an impairment is
recognised through the income statement.
Significant financial difficulties of the debtor,
probability that a debtor will enter bankruptcy
or financial reorganisation, and default or
delinquency in payments are considered
indicators that the trade receivable is impaired.
The impairment is calculated as the difference
between the carrying value of the receivable
and the present value of the related estimated
future cash flows, discounted at the original
interest rate. The amount of any impairment
is recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash
balances and other deposits with a maturity
of less than three months when deposited.
For the purpose of the cash flow statement,
bank overdrafts that form an integral part
of the Group’s cash management and are
repayable on demand, are included as a
component of cash and cash equivalents.
Available for sale financial assets
Available for sale financial assets are non-
derivatives that are either designated in this
category or not classified in any of the other
categories. They are classified in current assets
unless management expects to dispose of
them more than 12 months after the balance
sheet date. Available for sale financial assets
are stated at fair value, with any gain or loss
resulting from changes in fair value
recognised in other comprehensive income.
When the asset is sold or impaired the
accumulated gains or losses are moved
from other comprehensive income to the
income statement.
Borrowings
Interest-bearing borrowings are recognised
initially at fair value less attributable transaction
costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at
amortised cost with any difference between
cost and redemption value being recognised in
the income statement over the period of the
borrowings on an effective interest basis.
Income tax
Income tax on the profit for the year comprises
current and deferred tax. Income tax is
recognised in the income statement except
to the extent that it relates to items recognised
in other comprehensive income or directly in
equity. In this case the tax is also recognised
in other comprehensive income or directly
in equity, respectively.
Reckitt Benckiser 2009 33
• Assumptionsaremadeastothe
recoverability of tax assets especially as to
whether there will be sufficient future
taxable profits in the same jurisdictions to
fully utilise losses in future years (note 20);
• Assumptionsaremadeinrelationtoshare
awards, both in the Black-Scholes model
used to calculate the charge and in terms
of the recoverability of the deferred tax asset
related to the share award reserve (note 5);
• Theactualtaxpaidonprotsisdetermined
based on tax laws and regulations that differ
across the numerous jurisdictions in which
the Group operates. Assumptions are made
in applying these laws to the taxable profits
in any given period in order to calculate
the tax charge for that period. Where the
eventual tax paid or reclaimed is different
to the amounts originally estimated, the
difference will be charged or credited to
the income statement in the period in which
it is determined (note 7).
Leases
Leases of property, plant and equipment where
the Group has substantially all the risks and
rewards of ownership are classified as finance
leases. Assets held under finance leases are
capitalised at lease inception at the lower of the
asset’s fair value and the present value of the
minimum lease payments. Obligations related
to finance leases, net of finance charges in
respect of future periods, are included as
appropriate within borrowings. The interest
element of the finance cost is charged to the
income statement over the life of the lease so
as to produce a constant periodic rate of
interest on the remaining balance of the liability
for each period. The plant, property and
equipment is depreciated on the same basis as
owned plant and equipment or over the life of
the lease, if shorter.
Leases where the lessor retains substantially all
the risks and rewards of ownership are
classified as operating leases. Operating lease
rentals (net of any related lease incentives) are
charged against profit on a straight line basis
over the period of the lease.
Capital transactions
When the Group repurchases equity share
capital, the amount of the consideration paid,
including directly attributable costs, is
recognised as a change in equity. Repurchased
shares are either held in Treasury, in order to
satisfy employee options, or cancelled and, in
order to maintain capital, an equivalent amount
to the nominal value of the shares cancelled is
transferred from Retained Earnings to the
Capital Redemption Reserve.
Accounting estimates and judgements
The Directors make a number of estimates and
assumptions regarding the future, and make
some significant judgements in applying the
Group’s accounting policies. These include:
• Estimatesoffuturebusinessperformance
and cash generation supporting the net book
value of intangible assets at the balance
sheet date (note 10);
• Thedeterminationofthecarryingvalueof
property, plant and equipment and related
depreciation, and the estimation of useful
economic life of these assets (note 11);
• Thecontinuingenduringnatureofthe
Group’s brands supporting the assumed
indefinite useful lives of these assets
(note 10);
• Long-termratesofreturn,inationrates
and discount rates have been assumed in
calculating the pension and other employee
post-retirement benefits. If the real rates
are significantly different over time to those
assumed, the amounts recognised in the
income statement and in the balance sheet
will be impacted (note 5);
1 ACCOUNTING POLICIES (CONTINUED)
At inception the relationship between the
hedging instrument and the hedged item
is documented, as is an assessment of the
effectiveness of the derivative instrument used
in the hedging transaction in offsetting changes
in the cash flow of the hedged item. This
effectiveness assessment is repeated on an
ongoing basis during the life of the hedging
instrument to ensure that the instrument
remains an effective hedge of the transaction.
1 Derivatives classified as cash flow hedges:
the effective portion of changes in the
fair value is recognised in other
comprehensive income. Any gain
or loss relating to the ineffective portion
is recognised immediately in the
income statement.
Amounts recognised in other comprehensive
income are recycled to the income statement
in the period when the hedged item will
affect profit or loss. If the hedging
instrument expires or is sold, or no longer
meets the criteria for hedge accounting, any
cumulative gain or loss existing in other
comprehensive income at that time remains
in other comprehensive income, and is
recognised when the forecast transaction is
ultimately recognised in the income
statement. If the forecast transaction is no
longer expected to occur, the cumulative
gain or loss in other comprehensive
income is immediately transferred to the
income statement.
2 Derivatives classified as net investment
hedges: the effective portion of any
changes in fair value is recognised in
other comprehensive income. Any gain
or loss relating to the ineffective portion
is recognised immediately in the
income statement.
Gains or losses accumulated in other
comprehensive income are included in the
income statement when the foreign
operation is disposed.
3 Derivatives that do not qualify for hedge
accounting: these are classified at fair value
through profit or loss. All changes in fair
value of derivative instruments that do not
qualify for hedge accounting are recognised
immediately in the income statement.
Net revenues
Net revenues are defined as the amount
invoiced to external customers during the
year, that is gross sales net of trade discounts,
customer allowances for credit notes and
returns and consumer coupons, and exclusive
of VAT and other sales-related taxes. Net
revenues are recognised at the time that the
risks and rewards of ownership of the products
are substantially transferred to the customer.
Reckitt Benckiser 200934
2 OPERATING SEGMENTS
Management has determined the operating segments based on the reports reviewed by the Executive Committee that are used to make strategic
decisions. The Committee considers the business principally from a geographical perspective, but with the Pharmaceuticals business (RBP) being
managed separately given the significantly different nature of the business and the different risks and rewards associated with it. The geographical
segments, being Europe, NAA and Developing Markets, derive their revenue primarily from the manufacture and sale of branded products in household
cleaning and health & personal care, whilst RBP derives its revenue exclusively from the sales of buprenorphine-based prescription drugs used to treat
opiate dependence.
The Executive Committee assesses the performance of the operating segments based on net revenue and adjusted operating profit. This measurement
basis excludes the effects of exceptional items.
Inter-segment revenues are charged according to internally agreed pricing terms that are designed to be equivalent to an arm’s length basis, and have
been consistently applied throughout 2008 and 2009.
Reportable Segments
The segment information provided to the Executive Committee for the reportable segments for the year ended 31 December 2009 is as follows:
Developing
Europe NAA Markets RBP Elimination Total
2009 £m £m £m £m £m £m
Total gross segment net revenues 3,622 2,160 1,499 588 (116) 7,753
Exceptional items – – – – – –
Operating profit 804 500 216 371 – 1,891
Net finance income 1
Profit before tax 1,892
Exceptional items – 30 – – – 30
Operating profit 782 367 163 193 – 1,505
Net finance expense (31)
Profit before tax 1,474
*Adjusted to exclude the impact of exceptional items. The profits arising on inter-segment sales are insignificant.
There are no reconciling items between net revenues and operating profit shown above and those shown in the income statement.
The split of assets and liabilities by segment provided to the Executive Committee is as follows:
Developing
Europe NAA Markets RBP Total
Europe NAA Markets RBP Total
2008 £m £m £m £m £m
Inventories 294 148 122 35 599
Notes to the accounts continued
Reckitt Benckiser 2009 35
2 OPERATING SEGMENTS (CONTINUED)
The assets and liabilities are allocated based upon the operations of the segment and the physical location of the asset or liability. There are
a number of unallocated assets and liabilities that comprise corporate items that are not specifically attributable to one segment. Reconciliation
of these assets and liabilities to total assets or liabilities in the balance sheet is shown below:
2009 2008
£m £m
Inventories for reportable segments 541 599
Unallocated:
Elimination of profit on inter-company inventory (55) (43)
Total inventories per the balance sheet 486 556
Trade and other receivables for reportable segments 949 949
Unallocated:
Corporate items (21) (43)
Total trade and other receivables per the balance sheet 928 906
Total inventories and trade and other receivables per the balance sheet 1,414 1,462
Other unallocated assets 7,247 7,720
Unallocated assets include goodwill and intangible assets, property plant and equipment and cash and cash equivalents, while unallocated liabilities
include borrowings and deferred tax liabilities.
Analysis of product groups
The Group analyses its revenue by the following product groups: Fabric Care, Surface Care, Dishwashing, Home Care, Health & Personal Care, making
up core business, together with Other Household, Pharmaceuticals and Food.
Net revenues
2009 2008
£m £m
Fabric Care 1,578 1,473
Surface Care 1,290 1,112
Dishwashing 843 754
Home Care 1,036 908
Health & Personal Care 2,078 1,682
Total 7,753 6,563
The majority of the categories above are split across the three geographical segments being Europe, NAA and Developing Markets. The notable
exceptions to this are: Food, which is sold exclusively in NAA and Pharmaceuticals which is within its own reportable segment.
Reckitt Benckiser 200936
Notes to the accounts continued
2 OPERATING SEGMENTS (CONTINUED)
The entity is domiciled in the UK. The split of revenue from external customers and non-current assets (other than financial instruments, deferred tax
assets and post-employment benefit assets) between the UK, the US (being the single biggest country outside the Country of Domicile) and that from
all other countries is:
All other
UK US countries Total
2009 £m £m £m £m
The other receivables of £4m are included, along with the post-employment benefit asset of £22m, within the other receivables of £25m in the
balance sheet.
All other
UK US countries Total
2008 £m £m £m £m
The other receivables of £4m are included, along with the post-employment benefit asset of £15m within the other receivables of £19m in the
balance sheet.
The net revenue from external customers reported on a geographical basis above is measured in a manner consistent with that in the reportable segments.
Major customers are typically large grocery chains, mass market and multiple retailers. The Company’s customer base is diverse with no single external
customer accounting for more than 10% of net revenues, and the top ten customers only accounting for between a quarter and a third of total
net revenues.
3 ANALYSIS OF COST OF SALES AND NET OPERATING EXPENSES
2009 2008
£m £m
Administrative expenses:
Research and development (126) (109)
Other (546) (412)
All results relate to continuing operations.
Included within cost of sales is a fair value loss of £3m (2008: £5m loss) transferred from the hedging reserve. Included within administrative expenses
are re-organisation costs of £50m. Total foreign exchange gains of less than £1m (2008: gains of £1m) have been recognised through the income
statement. These amounts exclude financial instruments fair valued through the income statement and amounts recognised directly in the foreign
currency translation reserve.
2009 2008
Depreciation charges by income statement line £m £m
Amortisation and impairment charge by income statement line
Amortisation charges (note 10) of £8m in 2009 (2008: £8m) are included within Administrative expenses: Other in the income statement. Impairment
charges of £13m (2008: £2m) are included within Administrative expenses: Other in the income statement.
Reckitt Benckiser 2009 37
3 ANALYSIS OF COST OF SALES AND NET OPERATING EXPENSES (CONTINUED)
2009 2008
Exceptional items £m £m
Restructuring – (30)
Total exceptional items – (30)
No restructuring charges have been recognised as exceptional items in 2009. In 2008 the Group incurred restructuring charges of £30m as a result of
the acquisition and integration of the Adams business, plus some further restructuring in the enlarged Group.
2009 2008
Pension costs by income statement line £m £m
Within:
Cost of sales 10 9
Distribution costs 9 8
Total net pensions costs are the total amounts in respect of all the Group’s defined contribution and defined benefit pension and other post-retirement
schemes charged to the income statement, and exclude the actuarial gains and losses that have been recognised in other comprehensive income.
4 AUDITORS’ REMUNERATION
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor and network firms.
2009 2008
£m £m
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 1.1 0.8
Fees payable to the Group’s auditor and network firms for other services:
In addition, the Group’s auditor and its associates have provided services in relation to the audit of accounts of associated pension schemes of the
Group at a cost of £0.2m (2008: £0.2m).
5 EMPLOYEES
2009 2008
(a) Staff costs £m £m
The total employment costs, including Directors, were:
Wages and salaries 749 650
Social security costs 141 121
Net pension costs 52 34
Share based payments 59 59
1,001 864
Details of Directors’ emoluments are included in the Directors’ Remuneration Report on pages 19 to 24, which forms part of the financial statements.
Compensation awarded to key management (the Executive Committee):
2009 2008
£m £m
Salaries and short-term employee benefits 14 14
Post-employment benefits 1 1
Share based payments 23 20
38 35
There were no other long-term benefits (2008: £nil) or termination benefits (2008: £nil) paid to key management in 2009.
Reckitt Benckiser 200938
Notes to the accounts continued
5 EMPLOYEES (CONTINUED)
(b) Staff numbers
The average number of people employed by the Group, including Directors, during the year was:
2009 2008
000s 000s
Europe* 11.7 11.5
*Included in Europe are 2,500 (2008: 2,400) UK employees.
(c) Share based remuneration
All outstanding share awards as at 31 December 2009 and 31 December 2008 are included in the tables below which analyse the charge for 2009 and
2008. The Group has used the Black-Scholes pricing model to calculate the fair value of one award on the date of the grant of the award.
Table 1: Fair value
Black-Scholes model assumptions
Exercise Share price on Dividend Risk free Fair value of
price Performance grant date Volatility yield Life interest rate one award
Award Grant date £ period £ % % years % £
Share Options
2002 17 December 2001 9.50 2002-04 9.70 25 2.7 4 4.50 1.95
2003 22 November 2002 11.19 2003-05 10.96 25 2.7 4 4.50 2.05
2004 08 December 2003 12.76 2004-06 12.80 24 2.6 4 4.50 2.46
2009 08 December 2008 27.29 2009-11 27.80 25 3.1 4 2.78 4.69
2010 07 December 2009 31.65 2010-12 31.80 26 3.5 4 1.69 4.70
Restricted Shares
2006 05 December 2005 – 2006-08 18.16 22 2.4 4 4.69 16.38
2007 08 December 2006 – 2007-09 23.00 20 2.2 4 4.65 21.01
2008 11 December 2007 – 2008-10 29.72 20 1.8 4 5.53 27.55
2009 08 December 2008 – 2009-11 27.80 25 3.1 4 2.78 24.31
2010 07 December 2009 – 2010-12 31.80 26 3.5 4 1.69 27.23
Table 2: Share awards expense 2009
Movement in number of options
Total fair
Options Options value of
Fair value outstanding outstanding grant as at
of one at 1 Jan Granted/ at 31 Dec 31 Dec Charge
award 2009 adjustments Lapsed Exercised 2009 2009 for 2009
Award Grant date £ number number number number number £m £m
Share Options
2002 17 December 2001 1.95 816,821 – – (771,078) 45,743 0.1 –
2003 22 November 2002 2.05 1,489,394 – – (1,172,264) 317,130 0.7 –
2004 08 December 2003 2.46 1,814,800 – – (1,231,682) 583,118 1.4 –
2005 06 December 2004 2.99 2,596,472 – – (1,786,841) 809,631 2.4 –
2006 05 December 2005 3.33 3,945,000 2,000 – (2,550,514) 1,396,486 4.7 –
Restricted Shares
2006 05 December 2005 16.38 1,758,945 650 (2,050) (1,757,545) – – –
2007 08 December 2006 21.02 1,848,480 – (126,002) (45,037) 1,677,441 35.3 10.3
2008 11 December 2007 27.56 1,790,906 – (179,097) (5,781) 1,606,028 44.3 13.2
2009 08 December 2008 24.31 1,988,200 – (461,679) – 1,526,521 37.1 12.4
Total 59.1
