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24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

Effective 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value,

this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

1) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

2) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly

(that is, derived from prices) (level 2). If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

3) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2009:

Total assets 4 16 20

Derivative financial instruments – FX forward exchange contracts 5 – 5

Total liabilities 5 – 5

Specific valuation techniques used to value financial instruments include:

1) The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value

discounted back to present value.

2) Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

As the value of the level 3 instruments at 31 December 2009 is not material, no further level 3 disclosures have been made.

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24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

Financial risk management

The Group’s multi-national operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchange rates,

consistent with underlying business risks. The GTC manages only those risks and flows generated by the underlying commercial operations and

speculative transactions are not undertaken.

The Board of Directors reviews and agrees policies, guidelines and authority levels for all areas of treasury activity and individually approves significant

activities. The GTC operates under close control of the Chief Financial Officer and is subject to periodic independent reviews and audits, both internal

and external.

1. Market risk

(a) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. Foreign exchange risk arises from

future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

The Group’s policy is to align interest costs and operating profit of its major currencies in order to provide some protection against the translation

exposure on foreign currency profits after tax. The Group may undertake borrowings and other hedging methods in the currencies of the countries

£829m payable).

Hedge of net investment in foreign entity

The Group had US dollar-denominated borrowings which it has designated as a hedge of net investment in its subsidiaries in the USA. The carrying

value of the dollar borrowings at 31 December 2009 was £104m (2008: £1,245m). A foreign exchange gain of £78m (2008: loss of £378m) on

translation of the borrowings into sterling has been recognised in the foreign currency translation reserve. There was no ineffectiveness to be recorded

from net investment in foreign entity hedges. At 31 December 2009, if the US dollar had strengthened by 5% against sterling, with all other variables

held constant, the foreign exchange loss recognised in the foreign currency translation reserve would have been £5m higher.

Cash flow hedge profile

As at 31 December 2009, the Group had no material individual financial instruments classified as cash flow hedges. The same was true as at

31 December 2008.

281 158

These forward foreign exchange contracts are expected to mature evenly over the period January 2010 to January 2011 (2008: January 2009 to

March 2010).

The ineffective portion recognised in the income statement that arises from cash flow hedges amounts to £nil (2008: £nil).

Gains and losses recognised in the hedging reserve in other comprehensive income on forward exchange contracts in 2009 of £15m loss (2008: £19m

Reckitt Benckiser 2009 57

24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

In the case of cash flow hedges, these are denominated in a diverse range of currencies, where a fluctuation in one individual currency relationship

with all others held constant does not have a significant effect on the income statement or shareholders’ equity. A fluctuation analysis has been

£2m (2008: 15%: £8m) lower/higher.

the functional currency or are transferred to the functional currency through the use of derivatives. As at 31 December 2009 if all other currencies had

strengthened/weakened by 5% against sterling with all other variables held constant, this would have had an insignificant effect on the income

The gains and losses from fair value movements on financing derivatives recognised in finance income and expense were £1m gain.

The Group is not exposed to equity securities price risk. Due to the nature of its business the Group is exposed to commodity price risk related to the

production or packaging of finished goods using oil related and a diverse range of other raw materials. This risk is, however, managed primarily through

medium-term contracts with certain key suppliers and is not therefore viewed as being a material risk.

(c) Cash flow and fair value interest rate risk

The Group has both interest-bearing and non interest-bearing liabilities. The Group manages its interest expense rate exposure using a mixture of fixed rate

and floating rate debt. The Group manages its interest income rate exposure on its gross financial assets by using a combination of fixed rate term deposits.

The Group analyses its interest rate exposure on a regular basis. Various scenarios are simulated taking into consideration refinancing, renewal of

respectively for the liabilities covered. The simulation is done on a periodic basis to verify that the maximum loss potential is within the limit given

by management.

2. Credit risk

The Group has no significant concentrations of credit risk. Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits

with banks and financial institutions, as well as credit exposures to customers. The credit quality of trade and other receivables is detailed in note 13.

Financial institution counterparties are subject to approval under the Group’s counterparty risk policy and such approval is limited to financial institutions

with a BBB rating or above. The amount of exposure to any individual counterparty is subject to a limit defined within the counterparty risk policy,

which is reassessed annually by the Board. Derivative financial instruments are only traded with counterparties approved in accordance with the Board

S&P Limit Exposure S&P Limit Exposure

Counterparty rating £m £m rating £m £m

Bank A A 100 57 A 125 104

Bank B AAA 300 50 AAA 300 50

Bank C A 125 50 A 125 22

Bank D AA 200 41 AA 200 41

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24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

3. Liquidity risk

Cash flow forecasting is performed by the local business units and aggregated by the GTC. The GTC monitors rolling forecasts of the Group’s liquidity

The Group uses the remittances to settle obligations, repay borrowings, or, in the event of a surplus, invest in short-term instruments issued by

institutions with a BBB rating or better.

Borrowing facilities

The Group has various borrowing facilities available to it. The Group has bilateral credit facilities with high-quality international banks. All of these

the Group’s projected cash requirements.

2009 2008

£m £m

Undrawn committed borrowing facilities

Expiring within one year 25 –

Expiring between one and two years 900 25

All borrowing facilities are at floating rates of interest.

The facilities have been arranged to cover general corporate purposes including support for commercial paper issuance. All facilities incur commitment

fees at market rates.

values 1 year and 2 years and 5 years 5 years

At 31 December 2009 £m £m £m £m £m

Commercial paper (104) (104) – – –

Other borrowings (32) (28) (3) (1) –

Less than Between 1 Between 2 Over

1 year and 2 years and 5 years 5 years

At 31 December 2009 £m £m £m £m

Forward exchange contracts

Outflow (1,607) (3) – –

Inflow 1,601 3 – –

Reckitt Benckiser 2009 59

Reckitt Benckiser 200960

Reckitt Benckiser 2009 61

occurred to the financial statements since

they were initially presented on the website.

•฀ ฀Legislation฀in฀the฀United฀Kingdom฀governing฀

applied in their preparation is applicable law

and United Kingdom Accounting Standards

(United Kingdom Generally Accepted

Accounting Practice).

As explained more fully in the Statement of

Directors’ responsibilities set out on page 16,

the Directors are responsible for the preparation

of the parent company financial statements and

for being satisfied that they give a true and fair

view. Our responsibility is to audit the parent

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

caused by fraud or error. This includes an

assessment of: whether the accounting policies

are appropriate to the parent company’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 200962

Investments 2 14,542 14,499

Capital and reserves

Share capital 6 72 72

Profit and loss reserve 7 13,184 13,657

Total equity 13,256 13,729

Approved by the Board on 15 March 2010.

Adrian Bellamy Bart Becht

Director Director

Reckitt Benckiser 2009 63

1 PARENT COMPANY ACCOUNTING POLICIES

Accounting convention

The financial statements are prepared under the historical cost convention as modified by the revaluation of financial instruments and share based

remuneration and in accordance with the Companies Act 2006 and applicable United Kingdom accounting standards. As permitted by s.408 of the

Companies Act 2006, no profit and loss account is presented for Reckitt Benckiser Group plc.

Fixed assets

Fixed asset investments are valued at cost less impairment.

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 account over the same period with the credit included in equity. Where awards are contingent upon future events 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.

Where the Company grants rights to its equity instruments to employees of the Group, and such share based compensation is accounted for as

equity-settled in the consolidated financial statements of the Group, UITF 44 requires the subsidiaries to record an expense for such compensation in

Debtors are initially recognised at fair value and subsequently at amortised cost using the effective interest method less provision for impairment.

Creditors

Creditors are initially recognised at fair value and subsequently at amortised cost using the effective interest method.

Capital transactions

When the Company repurchases equity share capital, the amount of the consideration paid, including directly attributable costs, is recognised as a

charge to 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.

Cash and cash equivalents

Reckitt Benckiser Group plc

103-105 Bath Road

Slough, Berkshire SL1 3UH