TIDMRB.
RNS Number : 2044F
Reckitt Benckiser Group PLC
19 February 2018
19 February 2018
A SOLID FINISH. MJN INTEGRATION ON TRACK & ADDITIONAL
SYNERGIES EXPECTED
Results at a glance Q4 % change % change FY % change % change
(unaudited) GBPm actual constant GBPm actual constant
exchange exchange exchange exchange
Continuing operations*
Net Revenue 3,289 +25% +29% 11,512 +21% +15%
- Like-for-like
growth** +2% 0%
Operating profit
- reported 2,737 +21% +14%
Operating profit
- adjusted*** 3,122 +18% +12%
Net income - reported 3,376 +95% +88%
Net income - adjusted*** 2,253 +10% +4%
EPS (diluted)
- reported 474.7 +96%
EPS (diluted)
- adjusted*** 316.9 +10%
Total operations (including discontinued operations)
Net income - reported 6,172 +237% +230%
Net income - adjusted**** 2,308 +7% +1%
EPS (diluted)
- reported 867.9 +238%
EPS (diluted)
- adjusted**** 324.6 +7%
--------------------------- ------ ---------- ---------- ------- ---------- ----------
Notes:
* Continuing operations attributable to owners of the parent,
which includes Mead Johnson Nutrition ("MJN") since its acquisition
on 15 June 2017 and excludes RB Food and charges related to the
previously demerged RB Pharmaceuticals business that became
Indivior PLC. Both RB Food and charges related to the previously
demerged RB Pharmaceuticals business are presented as discontinued
operations. Net income from discontinued operations is presented as
a single line item in the Group Income Statement. Comparative
figures have been restated to exclude discontinued operations.
** Like-for-like ("LFL") growth excludes the impact of changes
in exchange rates, acquisitions, disposals and discontinued
operations.
*** Continuing adjusted results excludes adjusting items of
GBP385m (expense) in operating profit, GBP65m (expense) in net
finance expenses, and GBP1,573m (income) in income taxes (refer to
Note 3).
**** Total adjusted results exclude adjusting items for both
continuing and discontinued businesses of GBP3,864m (2016:
GBP325m). Refer to the reconciliation of total reported results to
adjusted results in Note 3.
Highlights:
-- Base business delivered a solid end to the year with +2%
like-for-like net revenue growth in Q4, driven by +5% growth in
Health. MJN acquisition means more than 50% of revenue comes from
higher margin consumer health brands.
-- MJN integration is firmly on track. Growth has returned after
nine quarters without growth, $25m of synergies have been delivered
earlier than planned, and today we are raising our synergy
expectations to around $300m, up from $250m announced at the time
of the acquisition.
-- RB has created two business units to drive long term growth
-Health and Hygiene Home. New structure in place from January
2018.
Operational
-- Flat LFL Net Revenue in line with guidance, and a return to
volume-led growth in Q4 (+2% LFL). Total Net Revenue growth (at
actual rates) of +21% reflecting the net positive impact of
translational FX and M&A.
-- MJN Net Revenue growth of -1% (pro-forma, constant). Q4
(+3%), led by double digit Net Revenue growth in greater China.
Refer to page 9 and 10 for further detail.
-- Total Group adjusted operating margin of -70bps to 27.1%.
Base business (defined on page 3) +30bps to 28.1%. MJN pro-forma
adjusted operating margin -390bps (H2: -270bps) - improvement vs H1
due to achievement of cost synergies.
-- Continuing adjusted net income growth of +10% (+4% constant);
adjusted diluted EPS of 316.9p (+10%).
-- Operating profit adjusting items of GBP385m, principally in
respect of the MJN acquisition. The gain on disposal of RB Food and
provisions taken on discontinued operations are detailed in Note
12.
-- Total reported net income increased by +237% (+230%
constant); reported diluted EPS of 867.9p (+238%), significantly
impacted by a net tax credit of GBP1,421m following US Tax Reform,
and the profit on sale of the RB Food business (Note 12).
-- Strong free cash flow generation of GBP2,129m. The Board
recommends a final dividend of 97.7p per share (2016: 95.0p). Total
dividend for 2017 164.3p (2016: 153.2p), an increase of +7%.
Commenting on these results, Rakesh Kapoor, Chief Executive
Officer, said:
"2017 was a significant year in RB's journey to become a global
leader in consumer health. We returned to growth after a solid
finish to the year, our acquisition of MJN is firmly on track and
the creation of two business units - RB Health and RB Hygiene Home
- will drive long-term growth.
For 2018 we are targeting +13-14% total revenue growth(1)
(implying +2-3% LFL revenue growth). Whilst 2018 will see some
specific factors impacting margin, we reiterate our medium-term
target of moderate operating margin(2) expansion."
The acquisition of MJN means more that 50% of revenue now comes
from higher margin consumer healthcare brands. We have returned the
business to growth, and are making strong progress in addressing
the operating margin decline. We fully expect to achieve the
margins targeted in our business case through additional
improvements throughout the earnings model, including incremental
synergies which we now expect to be in the region of $300m
(previously $250m), over the next three years.
Our base business ended the year in line with our expectations,
in what was a challenging, volatile environment. Our Q4 growth rate
reflects an important step in our targeted return to outperformance
with a volume-led +2% like-for-like increase in revenue in Q4. This
was underpinned by broad-based growth of +5% in consumer health and
+2% in hygiene, aided by a strong start to the flu season. The
combination of our strong cash generation and proceeds from the
sale of the RB Food have enabled us to reduce debt by GBP4.0bn in
the second half of the year.
Innovation continues to be central to our DNA and we saw some
strong performances from a number of our recently launched
innovations, including our thinnest ever condom, Durex Invisible,
Dettol Siti air pollution masks as well as our Finish dishwashing
range (particularly in China and the US).
The creation of RB 2.0 - two focused and agile Business Units -
RB Health and RB Hygiene Home - also provides the dedicated
leadership and investment to leverage the structural shift we are
seeing in retail channels and consumers' shopping behaviours. We
firmly believe we are building the right platform to unlock long
term growth and value creation. The new structure, people and
operating model are already in place since January 2018, and the
speed of executing change is once again a testament to RB's culture
and people.
(1) At constant rates.
(2) Excluding the impact of adjusting items.
Basis of Presentation and Non-GAAP measures
Throughout the report, certain measures are used to describe
RB's financial performance which are not recognised under IFRS. The
Executive Committee of the Group assesses the performance of the
operating segments based on Net Revenue and Adjusted Operating
Profit, which excludes the effect of adjusting 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 about underlying trends
to Shareholders. References to the "base business" pertain to
continuing Group results (as reported) excluding MJN results since
acquisition date.
Non-GAAP measures:
Like-for-Like ("LFL") growth on Net Revenue excludes the impact
of changes in exchange rates, acquisitions, disposals and
discontinued operations. A reconciliation of LFL to reported Net
Revenue growth by operating segment is shown on page 6 and by
category on page 10.
Constant exchange rate adjusts the actual consolidated results
such that the foreign currency conversion applies the same exchange
rates as was applied in the prior year.
As described in Note 3, the Group has made two refinements to
its accounting policy in respect of its adjusted earnings measures.
Firstly, as a consequence of the acquisition of MJN, adjusting
items now include the amortisation of acquired, finite-life
intangible assets ("other adjusting items"). Secondly, adjusting
items now include a reclassification of finance expenses on tax
balances into income tax expense.
All 'adjusted' measures exclude the impact of adjusting
items.
The table below provides a reconciliation of the Group's
reported statutory earnings measures to its adjusted measures for
the year ended 31 December 2017. Descriptions of the adjusting
items are included in Note 3.
In addition to the breakdown of adjusting items detailed in Note
3, a reconciliation of Adjusted Net Income is given in Note 5,
which is used in the calculation of Adjusted EPS.
Adjusted Earnings per share is defined as Adjusted Net Income
attributable to owners of the parent divided by weighted average of
ordinary shares (refer to Note 5).
The adjusted tax rate is defined as the adjusted continuing
income tax expense as a percentage of adjusted profit before
tax.
The Group's principal measure of cash flow is Free Cash Flow,
which is defined as net cash generated from operating activities
less net capital expenditure. A reconciliation of cash generated
from operations to Free Cash Flow is shown on page 16.
Adjusting: Adjusting: Adjusting: Adjusted
Exceptional Other Finance
Year ended 31 December items items expense
2017 Reported reclassification
GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ------------- ----------- ------------------ ---------
Operating profit 2,737 342 43 - 3,122
Net finance expense (238) 35 - 30 (173)
-------------------------- --------- ------------- ----------- ------------------ ---------
Profit before income
tax 2,499 377 43 30 2,949
Income tax expense 894 (1,527) (16) (30) (679)
-------------------------- --------- ------------- ----------- ------------------ ---------
Net income for the
year from continuing
operations 3,393 (1,150) 27 - 2,270
Less: Attributable
to non-controlling
interests (17) - - - (17)
-------------------------- --------- ------------- ----------- ------------------ ---------
Net income for the
year attributable to
owners of the parent
(continuing) 3,376 (1,150) 27 - 2,253
Net income for the
year from discontinued
operations 2,796 (2,741) - - 55
-------------------------- --------- ------------- ----------- ------------------ ---------
Total net income for
the year attributable
to owners of the parent 6,172 (3,891) 27 - 2,308
========================== ========= ============= =========== ================== =========
Other measures and terms:
Actual exchange rates show the statutory performance and
position of the Group, which consolidates the results of foreign
currency transactions at period end closing rates (Balance Sheet)
or average rates (Income Statement).
BEI represents our Brand Equity Investment and is the marketing
support designed to capture the voice, mind and heart of our
consumers.
Project Fuel is our ongoing cost optimisation programme within
cost of goods sold ("COGS").
Detailed Operating Review: Total Group
Full Year 2017
Total full year ("FY") Net Revenue was GBP11,512m. This was a
flat result on a LFL basis, and was positively impacted by a weaker
sterling and net M&A, resulting in total reported growth at
actual rates of +21%. The devaluation of sterling following the UK
referendum in June 2016 had a significant positive impact on
reported results, particularly in H1, as the majority of the
Group's revenue and profits are earned outside of the UK. The
positive foreign exchange on translation increased Net Revenue by
+6%. The acquisition of MJN on 15 June 2017 and disposal of the RB
Food business on 17 August 2017 had a net positive impact on
reported results, increasing Net Revenue by approximately +15%.
The base business had a flat year on a LFL basis, negatively
impacted by a number of known issues during the first three
quarters of 2017, detailed in previous announcements. Growth
returned in Q4 with our performance for the base business
approximately in-line with underlying market growth of around +2%.
MJN had a stronger finish to the year, delivering a relatively flat
revenue growth performance for the year (pro-forma), and +2%
constant rate growth under the ownership of RB.
From a geographic growth perspective, our developed market area
of ENA delivered a LFL decline for the year of -2% with North
America delivering a flat performance and the rest of ENA -3%,
driven to a material extent by both pricing pressure and declines
in Scholl / Amopé across many markets. Our emerging market area
(DvM) delivered +3% LFL growth in mixed market conditions. India
and China continue to be strong, offset by challenging market
conditions in the Middle East and Brazil.
On a category basis, consumer health was flat on an LFL basis.
Broad-based growth across the majority of our Powerbrands was
offset by a significant decline in Scholl / Amopé due to our Wet
& Dry express pedi innovation, which failed to deliver against
our expectations. Excluding Scholl / Amopé, the underlying growth
in consumer health for the year was in the middle of long term
category growth rates of +4-6%. Hygiene brands grew by +1% LFL for
the year with good growth in Finish, Harpic and Lysol impacted by a
slowdown in a number of Dettol's major markets like India (GST /
cyber impact) and the Middle East (geopolitical issues). Home care
was weak, although Air Wick had a strong finish to the year, driven
by the launch of our new Essential Mist innovation, and early
success of our recently launched ViPoo product.
Adjusted Gross Margin declined by 10bps to 61.1%, with the base
business declining by 20bps. The consolidation of MJN for half a
year contributed a slightly positive mix effect. The base business
margin decline was driven by the combination of a tougher pricing
environment in developed markets, and input cost headwinds (both of
which we expect to continue in the near term). MJN Adjusted Gross
Margin declined by -210bps on a pro-forma basis for FY17. This was
driven by a combination of channel and product mix in Greater
China, and higher input and logistics costs. We continue to focus
on the drivers of gross margin expansion, such as positive mix from
stronger consumer health growth, gross margin accretive
innovations, and our cost optimisation programme (Project Fuel). We
expect gross margin accretion to be a key driver of our medium
term, moderate operating margin expansion target.
Investment behind our brands (as defined by our BEI metric), was
14.0% of Net Revenue, a +40bps increase on a Group basis, and
-20bps decline for the base business. Investment increased across
the majority of our brands, with this increase offset by reduced
investment behind the Scholl / Amopé Wet & Dry pedi. MJN BEI
increased by approximately +50bps for the year, driven by higher
investments in key markets.
Our fixed cost base was relatively stable, as we continue with
fixed cost efficiencies. On a Group basis, costs were up by +10bps,
impacted by a mix effect from the consolidation of MJN. We have
made good progress on MJN cost synergies. Synergies achieved in
2017 were approximately $25m and we are now expecting to achieve in
the region of $300m in annual cost savings by the end of the third
full year of ownership, an increase over our original target of
$250m (GBP200m). For 2018 we expect MJN cost synergies to slightly
exceed the additional infrastructure costs associated with our new
BUs.
Operating profit as reported was GBP2,737m, +21% versus FY 2016
(+14% constant), reflecting the margin accretion on the base
business, the acquisition of MJN and a positive translational FX
impact. Operating profit adjusting items were a pre-tax charge of
GBP385m (2016: GBP367m). These items relate mainly to the
acquisition of MJN. Further details of adjusting items are set out
in Note 3. On an adjusted basis, operating profit was ahead +18%
(+12% constant) to GBP3,122m. The Adjusted Operating Margin for the
Group declined -70bps to 27.1%, due to margin expansion on the base
business of +30bps, more than offset by a negative mix impact from
the acquisition of MJN (-100bps). MJN adjusted operating margin
declined on a pro-forma basis by -390bps to 20.7%, driven by
declining gross margin from mix and input costs, increased BEI, and
higher fixed costs. The margin decline in H2 was -270bps (versus
-500bps in H1) as progress was made on cost synergies, operational
improvements, and the lapping of reinvestment in the business in H2
2016.
Net finance expense was GBP238m (2016: GBP16m) reflecting
principally the cost of increased net debt required to finance the
acquisition of MJN.
The adjusted tax rate was 23% and in line with our guidance. We
continue to expect our adjusted tax rate to be in the region of
23%. GBP30m of payments to tax authorities that would previously
have been included within the tax charge was included within net
finance expense following an IFRIC statement in 2017. We have
included this within adjusted income tax and the adjusted tax
rate.
Continuing net income attributable to owners of the parent as
reported was GBP3,376m, an increase of +95% (+88% constant) versus
2016. On an adjusted basis, net income was GBP2,253m +10% (+4%
constant). Diluted earnings per share from continuing operations of
474.7 pence was +96% on a reported basis; on an adjusted basis, the
growth was +10% to 316.9 pence.
Total reported net income attributable to owners of the parent
was GBP6,172m, an increase of +237% (+230% constant) versus 2016.
This included exceptional items in relation to the profit on sale
of the RB Food business of GBP3,024m, a tax credit relating to the
effect of US Tax Reform of GBP1,421m, and a charge of GBP296m in
respect of ongoing investigations by the US Department of Justice
("DoJ"). On an adjusted basis, total net income was GBP2,308m, +7%
(+1% constant) versus 2016.
Fourth Quarter 2017
Q4 Net Revenue was GBP3,289m, an increase of +2% on a LFL basis
and +25% on a total basis, reflecting the positive net benefit from
M&A (acquisition of MJN / sale of Food) and negative
translational FX due to a recent strengthening of sterling versus
the US dollar and a number of emerging market currencies. On a
geographic basis ENA had a solid quarter (+1% LFL), underpinned by
a strong performance in North America. The rest of ENA was stable,
with Russia benefitting from a strong seasonal sell-in. DvM growth
was +3% LFL, with strong, double digit growth in India and China
offset by weakness in the Middle East and Brazil.
Health had a stronger finish to the year with +5% LFL growth in
the quarter. Growth was broad-based with strong performances from
Mucinex and Strepsils, Durex and Nurofen. Hygiene grew by +2% with
strong growth in Finish, Harpic and Lysol impacted by declining
sales of Dettol in the Middle East and weakness in Brazil (Vanish,
Veja and Pest brands). Home saw growth in Air Wick behind the
launch of ViPoo offset by weakness in Vanish and other smaller
brands.
FY 2017 Business Review
Summary: % Net Revenue growth (continuing)
Q4 FY17
---------- ------------------------------------- -------------------------------------
LFL GST* Net FX Reported LFL GST* Net FX Reported
M&A** M&A**
---------- ---- ----- ------- ---- --------- ---- ----- ------- ---- ---------
North
America +2% - - -4% -2% - - - +5% +5%
---------- ---- ----- ------- ---- --------- ---- ----- ------- ---- ---------
Rest of
ENA +1% - - +1% +2% -3% - - +7% +4%
---------- ---- ----- ------- ---- --------- ---- ----- ------- ---- ---------
ENA +1% - - -1% - -2% - - +6% +4%
---------- ---- ----- ------- ---- --------- ---- ----- ------- ---- ---------
DvM +3% -2% - -8% -6% +3% -1% +1% +4% +6%
---------- ---- ----- ------- ---- --------- ---- ----- ------- ---- ---------
IFCN*** N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
---------- ---- ----- ------- ---- --------- ---- ----- ------- ---- ---------
Group +2% - +28% -4% +25% - - +16% +6% +21%
---------- ---- ----- ------- ---- --------- ---- ----- ------- ---- ---------
* Impact of the Goods and Service Tax ("GST") implemented by the
Indian Government from 1 July 2017.
** Reflects the impact of acquisitions and disposals within continuing operations.
*** IFCN is the Infant Formula and Child Nutrition operating
segment (the acquired MJN business).
Note: due to rounding, this table will not always cast
Analyses by operating segment of Net Revenue and Adjusted
Operating Profit, and of Net Revenue by product group are set out
below. The Executive Committee of the Group assesses the
performance of the operating segments based on Net Revenue and
adjusted operating profit. This measurement basis excludes the
effect of adjusting items.
Review by Operating Segment
Quarter ended Full Year ended
31 Dec 31 Dec
2016** % change 2016** % change
2017 (restated) exch. Rates 2017 (restated) exch. Rates
GBPm GBPm actual const. GBPm GBPm Actual const.
Total Net Revenue
738 753 -2 +2 North America 2,588 2,460 +5 -
1,071 1,050 +2 +1 Rest of ENA 4,103 3,950 +4 -3
------- --------------------- ----------- ------- -------------------------- ------- ----------- ------- -------
1,809 1,803 - +1 ENA 6,691 6,410 +4 -2
771 824 -6 +1 DvM 3,266 3,070 +6 +2
709 - IFCN* 1,555 -
3,289 2,627 +25 +29 Total 11,512 9,480 +21 +15
------- --------------------- ----------- ------- -------------------------- ------- ----------- ------- -------
Operating profit
ENA 2,040 1,962 +4 -2
DvM 753 674 +12 +6
IFCN* 329 -
Operating profit -
adjusted*** 3,122 2,636 +18 +12
Adjusting items (385) (367)
Total Operating profit 2,737 2,269 +21 +14
----------- ---- --------------- ---------------- -------------------------- ------- ----------- ------- -------
Operating margin - % %
adjusted***
ENA 30.5 30.6 -10bp
DvM 23.1 22.0 +110bp
IFCN* 21.2
Total 27.1 27.8 -70bp
--------- --- ---------------- ------------------ -------------------------- ------- ----------- ------- -------
* IFCN is the Infant and Child Nutrition operating segment
(comprising solely of the entire MJN business).
** Restated to exclude discontinued operations.
*** Adjusted to exclude the impact of adjusting items.
In the following Business Review growth rates are given on a
like-for-like basis, unless otherwise stated. Margins are at actual
rates.
ENA 58% of Net Revenue
FY 2017 total Net Revenue was GBP6,691m, with LFL decline of
-2%. North America had a flat LFL performance. Mucinex delivered a
strong performance driven by recent innovations of Fastmax Clear
and Cool and targeted consumer education surrounding the benefits
of 12 hour relief. Lysol saw robust growth, following a very strong
Q4, driven by the launch of our new laundry sanitiser and Wave ITB
innovations. Finish also had a strong year, aided by the launch of
our latest generation Finish Quantum tablets. Air Wick was
negatively impacted by both challenging category growth and
competitive market conditions. Amopé was also weak due to the Wet
& Dry pedi innovation.
Russia had a strong finish to the year with double digit LFL
growth. Durex delivered an excellent performance following improved
distribution and launch of our new Emoji campaign, aimed at turning
the awkward moment of introducing condoms to fun. Nurofen and
Strepsils had strong performance, and Finish benefitted from
penetration improvement programmes. Russia remains a volatile
market and current growth rates may not be sustainable.
The rest of ENA had a tough year with a LFL decline of -3%,
impacted by the combination of weakness in Scholl, supply
challenges associated with the cyber-attack in June and pricing
pressures. Despite these issues, a number of brands displayed good,
innovation-led, growth - including Strepsils, Veet (with the new
precision trimmer), Finish, and Air Wick (with the launch of
ViPoo).
FY Adjusted Operating Profit was GBP2,040m, a decline of -2%
(constant), and in line with the decline in Net Revenue; the
adjusted operating margin decreased -10bps to 30.5%, due to pricing
pressures, negative product mix and unfavourable operational
leverage.
Q4 total Net Revenue was GBP1,809m, a LFL increase of +1%.
Within North America (+2% LFL) Mucinex and Lysol delivered a strong
performance, as did Finish behind the launch of the new generation
of Quantum tablets. Russia was very strong, both lapping a weak
comparative and delivering a strong in-market performance, helping
the rest of ENA return to growth.
DvM 28% of Net Revenue
FY17 total Net Revenue was GBP3,266m, with LFL growth of +3%.
This was a soft result, well below our medium-term expectations of
these markets as a whole which exhibit rising middle class incomes
and the increasing ability of consumers to afford products in the
categories in which we operate. Growth was negatively impacted in
the first half by known issues in Korea and had an annual impact on
the area's growth rate of around -1.5%. In addition, geopolitical
issues in the Middle East saw this region decline substantially
during the year, and particularly in H2. Brazil experienced
challenging market conditions.
There were also successes. China delivered strong double-digit
growth. This was led by our Powerbrand, Durex, and supported well
by Dettol, Veet, Move Free and the recent launch of our new Finish
dishwashing tablets, specifically designed for compact (table-top)
dishwashers. Online sales in China now represent 50% of total
turnover. India saw a strong underlying performance, having been
disrupted during the year by the introduction of GST, exacerbated
by cyber-attack issues. These disruptions are now behind us and the
Q4 growth rate - both in terms of Net Revenue growth and underlying
in-market sales was strong. South Africa and Turkey also had strong
performances in 2017.
FY Adjusted Operating Profit was GBP753m, an increase of +6%
constant. The adjusted operating margin was +110bps higher at
23.1%, with some gross margin decline more than offset by
reductions in SG&A costs.
Q4 total Net Revenue was GBP771m, with LFL growth of +3%. Trends
seen throughout the year continued in the final quarter. Strong
growth in India and China was offset by weakness in the Middle East
and Brazil.
IFCN 14% of Net Revenue
Reported Net Revenue was GBP1,555m, relating to the period from
acquisition date of 15 June 2017 through to year end. In Q4,
reported Net revenue was GBP709m.
Adjusted Gross Margin for the period, which excludes the cost of
sales adjusting item per Note 3, was GBP959m.
Adjusted Operating Profit for the period was GBP329m, resulting
in a reported adjusted operating margin of 21.2%.
A review of IFCN results on a pro-forma basis (assuming
ownership since 1 January 2016) is set out on the following
page.
Acquisition and Performance of Mead Johnson Nutrition
("MJN")
On 15 June 2017, RB completed the acquisition of Mead Johnson
Nutrition ("MJN") and it has been consolidated into RB's group
results since that date. In order to facilitate an understanding of
the trends in the MJN business, we have included Net Revenue and
adjusted operating profit of MJN on a pro-forma basis (see basis of
preparation below), consistent with the presentation of the Group's
other operating segments.
Quarter ended Full Year ended
31 December 31 December
2017 2016 % change 2017 2016 % change
(pro-forma) (pro-forma) exch. Rates (pro-forma) (pro-forma) exch. rates
GBPm GBPm Actual const.* GBPm GBPm actual const.*
Total Net Revenue
351 354 -1 +5 Asia 1,416 1,371 +3 -
North America / Europe
232 246 -6 -1 (ENA) 941 916 +3 -3
126 125 +1 +6 Latin America 500 475 +5 +2
------------ ------------ ------- -------- ----------------------- ------------ ------------ -------- --------
709 725 -2 +3 Total 2,857 2,762 +3 -1
Operating profit -
adjusted 591 679 -13 -16
Operating margin -
adjusted 20.7% 24.6% -390bps
------------ ------------ ------- -------- ----------------------- ------------ ------------ -------- --------
* Constant growth has been calculated in accordance with the
methodology used for the rest of the Group, as defined on page
3.
Review of MJN's pro-forma results (at constant rates unless
otherwise noted):
MJN Net Revenue declined by -1% in 2017, with a weak start to
the year more than offsetting the return to growth in H2 (+2%) and
a strong finish to the year (Q4: +3%).
Asia saw Net Revenue growth in H2 at +4% with a strong
performance in Greater China, offset by declines in South Asian
markets. The macro trends in China, which we saw during H1,
continue as expected. Specialist retail and e-commerce channels saw
strong growth, together with premiumisation into imported brands.
Offline cross-border sales between Hong Kong and China declined, as
did locally manufactured products within the Enfa range. Market
growth in China is buoyant, benefitting from both premiumisation
and modest volume growth from relaxation of the one child
policy.
ENA, which is predominantly the US, declined by -3% in 2017. We
have taken steps to address share loss, through improved focus on
innovation, on consumer education and strengthening the new mums
programme. We see early progress with a flat share performance,
sequentially, over the last three months.
LATAM grew +2% for the year, including a stronger finish to the
year with +6% in Q4. Growth was led by Mexico following the launch
of new Enfamil containing DHA and MFGM.
Adjusted operating profit margin for MJN (at actual rates) fell
by -390bps to 20.7% (H1: -500bps, H2: -270bps). The decline was
driven by a decrease in adjusted gross margin due to increased
commodity input costs, especially for full fat milk powder, pricing
corrections taken in a number of markets and adverse mix.
Advertising and promotion costs increased due to additional
investment behind brands, especially in China and the US. Fixed
costs also increased as a proportion of Net Revenue, largely as a
result of negative operational leverage. Cost synergies of $25m
were achieved in H2, helping to drive the improving trend in
operating margin.
Basis of Preparation of MJN's pro-forma results
The summary pro-forma financial information for MJN is
presented, using RB Group accounting policies, to show the Net
Revenue and adjusted operating profit as if the acquisition had
completed on 1 January 2016. This allows a comparison between the
full year 2016 and 2017 results. Constant exchange rates are
calculated and presented in accordance with the methodology used
for the rest of the Group, as described on page 3.
FY 2017 Category Review
Summary: % Net Revenue growth by Category (continuing)
Q4 FY17
----------- -------------------------------------- -------------------------------------
LFL GST* Net FX Reported LFL GST* Net FX Reported
M&A** M&A**
----------- ----- ----- ------- ---- --------- ---- ----- ------- ---- ---------
Health +5% - +76% -5% +77% - - +46% +7% +53%
----------- ----- ----- ------- ---- --------- ---- ----- ------- ---- ---------
Hygiene +2% -1% - -4% -3% +1% -1% - +5% +6%
----------- ----- ----- ------- ---- --------- ---- ----- ------- ---- ---------
Home -3% - - -4% -7% -3% - - +5% +2%
----------- ----- ----- ------- ---- --------- ---- ----- ------- ---- ---------
Portfolio -15% - - +1% -14% -9% - - +7% -2%
----------- ----- ----- ------- ---- --------- ---- ----- ------- ---- ---------
Group +2% - +28% -4% +25% - - +16% +6% +21%
----------- ----- ----- ------- ---- --------- ---- ----- ------- ---- ---------
* Impact of the Goods and Service Tax (GST) implemented by the
Indian Government from 1 July 2017.
** Reflects the impact of acquisitions and disposals within continuing operations.
Note: due to rounding, this table will not always cast.
Quarter ended Year ended
31 December 31 December
2017 2016 % change 2017 2016 % change
GBPm (restated) exch. Rates GBPm (restated) exch. Rates
GBPm actual const. GBPm Actual const.
Net Revenue by category
1,704 965 +77 +82 Health 5,090 3,332 +53 +46
1,054 1,086 -3 +1 Hygiene 4,313 4,066 +6 +1
466 500 -7 -3 Home 1,860 1,828 +2 -3
65 76 -14 -15 Portfolio Brands 249 254 -2 -9
3,289 2,627 +25 +29 Total 11,512 9,480 +21 +15
------ ----------- ------- ------- ------------------------ ------- ----------- ------- --------
In the following Category Review, growth rates are given on a
like-for-like basis, unless otherwise stated.
Health 44% of Net Revenue
FY 2017 total Net Revenue was GBP5,090m, with a flat LFL
performance for the year. The performance of this category was
significantly impacted in 2017 by both the failure of the Scholl /
Amopé Wet & Dry pedi innovation following an extremely
successful initial product offering (the Velvet Smooth express
pedi), and the cyber-attack in June. The underlying Health
performance however was robust with growth, excluding Scholl /
Amopé in the middle of the +4-6% long term category growth
rates.
Growth was broad-based across the portfolio with Mucinex and
Durex as the top performers, driven by successful innovations of
Durex Air and Mucinex clear and cool. In addition, the local sexual
wellbeing brands acquired in Brazil of Jontex, Olla and Lovetex
benefited from improved in-market execution. Our first full year of
ownership of the acquired Bristol Myers Squibb ("BMS") brands in
Latin America enabled us to leverage the innovation pipeline of our
global Nurofen brand, with the launch of TempraFen (equivalent to
Nurofen for Children) and Tempra Forte in Mexico during the
year.
Q4 total Net Revenue was GBP1,704m, with LFL growth of +5%. We
saw strong innovation-led growth in Durex, Nurofen, Mucinex and
Strepsils. Scholl / Amopé remained weak.
We believe we are well positioned to outperform long-term
category growth within Consumer Health, led by our market leading,
trusted brands, strong consumer centric innovation pipeline and
significant investment behind medical professional and consumer
education programmes. The acquisition of MJN during 2017 has
enabled us to enter a new category of Infant Formula and Child
Nutrition ("IFCN") giving us critical mass in Consumer Health. The
creation of a new "RB Health" business unit from Q1 2018 will
enable even greater focus as we continue our journey as a global
leader in consumer health.
A review of IFCN results on a pro-forma basis (assuming
ownership since 1 January 2016) is set out on page 9.
Hygiene 38% of Net Revenue
FY 2017 total Net Revenue was GBP4,313m, with LFL growth of +1%.
Growth was broad-based although at more subdued rates in 2017.
Dettol growth was negatively impacted by the slowdown in the Middle
East, and disruption in India during the year. We saw strong growth
in a number of other emerging markets as we continue to innovate
(for example, the launch of Siti - powered by Dettol - a protective
ecosystem against pollution) and undertake penetration building
initiatives. Finish had a strong year, particularly in the US
(launch of latest generation Quantum tablets) and China (launch of
All-in-1 compact tablets, specifically designed for table-top
dishwashers in China). Harpic performed well as we continue to
innovate and build penetration in emerging markets, and Veet saw
continued success with its precision trimmer rolling out in more
markets. Our pest care brands had a weak year, including Brazil
with tough, Zika related comparatives.
Q4 delivered a slight improvement in growth with +2% LFL. Strong
performances from Lysol (launch of our best ever disinfecting
wipes), Finish and Harpic were offset by weakness in pest and a
slowdown in Veet as we lap the successful launch of the precision
trimmer.
Home 16% of Net Revenue
FY 2017 total Net Revenue was GBP1,860m with a LFL decline of
-3%. Air Wick remained challenging primarily in the US where we
continued to see increased competitive pressure. Our Essential Mist
test launch in France has proven successful and we are now rolling
this out to all markets in Q1 2018. ViPoo is doing well across
several markets and in the US retailers are now expanding
distribution after the early success. Vanish had a tough year,
partially impacted by retailer de-listings in Korea, impacting H1.
We saw increased competitive pressure in Brazil.
Q4 saw a decline of -3% on a LFL basis. Air Wick delivered
strong growth in the UK and a number of European markets behind the
rollout of Essential Mist and ViPoo following a successful test
launch in Belgium. Vanish remained challenging, particularly in
Brazil.
Portfolio 2% of Net Revenue
FY 2017 total Net Revenue was GBP249m, with a LFL decline of -9%
versus the prior year. Performance was negatively impacted by Korea
earlier in the year. With the disposal of the Food business,
portfolio brands is a small part of our business (< 2% on a
pro-forma basis) and consists mainly of laundry detergents, fabric
softeners and ironing aids.
Q4 declined by 15% in Q4, with a stable performance from laundry
detergents but weakness in fabric softeners and ironing aids.
New Product Initiatives: H1 2018
RB announces a number of new product initiatives for the first
half of 2018:
Hygiene Home:
-- Finish: Quantum - new three chamber tab that scrubs, degreases and shines.
-- Lysol: New daily cleanser and daily cleansing wipes - trusted
germ killer with no harsh chemical residue.
-- Lysol / Harpic: Power 6 - Cleaning Wave for a visibly hygienic and fresh toilet.
-- Vanish: New news on Pink - removes over 100 stains, even body marks.
-- Air Wick Essential Mist: Transforms natural essential oils into mist.
Health:
-- Enfamil NeuroPro - A fat-protein blend of MFGM and DHA -
previously only found in breast milk
-- Scholl: Electronic Foot Care System - Improved Electronic
Foot Care System - plus now also with Dry Skin Exfoliation
-- Durex "Say it with an Emoji" - Durex Condom range and
digital-lead campaign. Turn the awkward moments of introducing
condoms, into fun, with Durex.
-- Move Free Ultra 2in1 - Faster Comfort than Glucosamine
Chondroitin. Plus Comfort gets Better over Time
-- Digestive Advantage Prebiotic + Probiotic - Probiotics add
good bacteria to your body and prebiotics feed the good bacteria
that's already there.
-- Nurofen Medicated Plaster - 24hour relief in a single patch -
fits and sticks to the body all day long
Reorganising for Growth
We have made significant progress during the past five years on
portfolio transformation, in particular more recently with the
acquisition of MJN and the sale of RB Food. Consumer health now
represents, on a pro-forma basis, more than 50% of our total
business.
At our Q3 trading update we announced our plan to combine the
IFCN division with the health and some hygiene brands, to form the
RB Health Business Unit ("BU"), and the home and other hygiene
brands to form the RB Hygiene Home BU.
We have made excellent progress in establishing the BUs, each
focused on and fully end-to-end accountable for its business - from
innovation through brand development and supply to the customer.
The BUs were effective from 1 January 2018, and most people are now
operating in their new roles. It is a testament to the RB culture
and mindset that we have been able to execute this important
organisational move so quickly.
Key phases to the reorganisation
The expected timings for the key phases of the new organisation
are as follows:
Time frame Activity
------------------------- ----------------------------------------------------
Effective 1 January 2018
* Organisation structure in place
* People moved and operating in new roles
------------------------- ----------------------------------------------------
During H1 2018
* Customer management changes
* New operating model in place
------------------------- ----------------------------------------------------
2018 - 2020
* Completion of infrastructure
------------------------- ----------------------------------------------------
Key financials associated with the reorganisation and
integration of MJN
Synergies achieved in 2017 were approximately $25m (GBP20m) and
we now expect to achieve in the region of $300m in annual cost
savings by the end of the third full year of ownership, an increase
over our original target of $250m (GBP200m). Through increased
synergies and other improvements in the earnings model, we expect
to achieve margins in line with those in our acquisition model,
notwithstanding the lower than expected margins on closing.
For 2018 we expect cost synergies to slightly exceed the
additional infrastructure costs associated with our new BUs.
Non-recurring costs associated with the new organisation will be
included within the GBP450m integration cost budget announced with
the acquisition of MJN.
Details of the new structure
Health
- Rakesh Kapoor is President of the RB Health Business Unit, in
addition to his role as CEO of RB Group.
- RB Health will represent approximately 60% of Group Net
Revenue and include Enfamil, Nutramigen, Nurofen, Strepsils,
Gaviscon, Dettol, Mucinex, Durex, Veet, Scholl, MegaRed, Airborne,
Move Free, Digestive Advantage and Clearasil.
Hygiene Home
- Rob de Groot is President of the RB Hygiene Home Business
Unit, reporting to Rakesh Kapoor, and will continue to sit on the
Group Executive Committee. Until 1 January 2018, Rob was Executive
Vice President for RB Europe and North American ("ENA").
- RB Hygiene Home will represent approximately 40% of Group Net
Revenue and include Air Wick, Finish, Calgon, Cillit Bang, Harpic,
Lysol, Mortein, Vanish and Woolite.
The two Business Units together form one RB - a single company
devoted to delivering on our mission of creating healthier lives
and happier homes.
The Humidifier Sanitiser ("HS") Issue in South Korea
The HS issue in South Korea is a tragic event. We continue to
make both public and personal apologies to victims. Since our Q3
trading update, the following updates have occurred:
- The Government has assessed a further tranche of Round 3
applicants (round 3.5) and two further tranches of Round 4
applicants (rounds 4.2 and 4.3). Details are set out in the table
below.
- Round 4 remains open and the applicant numbers are reported on
the Korea Environmental Industry & Technology Institute
("KEITI") website. The number of applicants reported as at 2
February 2018 was 4,701.
- An HS Damage Relief committee set up by the Ministry of
Environment ("MoE") announced a recognition standard for asthma
caused by HS, based on the increased incidence of asthma in HS
users. No detailed underlying data has yet been made available,
although six victims have been announced by the MOE, of which one
was an existing lung injury victim.
- A Special Act on fact finding of social tragedies and
establishment of a safe society was enacted in December 2017. The
purpose of this act is to ascertain the facts and responsible
parties in respect of certain social tragedies, including the HS
issue.
The status of the four rounds of applications established to
date is as follows:
Round Total Applicants Category Cat I&II RB Oxy Assessment
applicants Assessed I & percentage users completion
II - Category (expected)
I & II**
------ ------------ ----------- --------- ------------ ------------ ------------
1 361 361 172 48% 139 Completed
------ ------------ ----------- --------- ------------ ------------ ------------
2 169 169 51 30% 44 Completed
------ ------------ ----------- --------- ------------ ------------ ------------
March
3 752 669 80 12% 72 18
------ ------------ ----------- --------- ------------ ------------ ------------
3.1 165 38 23% 35
------ ------------ ----------- --------- ------------ ------------ ------------
3.2 188 21 11% 20
------ ------------ ----------- --------- ------------ ------------ ------------
3.3 99 3 3% 2
------ ------------ ----------- --------- ------------ ------------ ------------
3.4 205 18 9% 15
------ ------------ ----------- --------- ------------ ------------ ------------
3.5 12 0 0% 0
------ ------------ ----------- --------- ------------ ------------ ------------
4 4,701* 1,884 94 5% 87 June 18
------ ------------ ----------- --------- ------------ ------------ ------------
4.1 1,009 79 8% 73
------ ------------ ----------- --------- ------------ ------------ ------------
4.2 339 7 2% 7
------ ------------ ----------- --------- ------------ ------------ ------------
4.3 536 8 1% 7
------ ------------ ----------- --------- ------------ ------------ ------------
* Round 4 remains open to applicants. The number of applicants
shown in the table are the applicants set out on the KEITI website
as at 2 February 2018.
** Both sole Oxy RB users and users of multiple manufacturers'
products, including Oxy RB.
In 2016, a provision was made for certain costs arising as a
result of the HS issue, including costs arising from compensating
Oxy HS category I and II victims classified within Rounds 1, 2 and
3 of the Korean Centre for Disease Control ("KCDC") classification
process.
In addition, there are a number of further costs / income
relating to the HS issue that are either not able to be estimated
or quantified or are considered not probable at the current time,
including those relating to Round 4 applicants, potential
recognition of victims of HS related asthma injuries, and costs
associated with the wider HS issue. Oxy RB continues to work hard
to engage other stakeholders, including the Korean government, and
other manufacturers and ingredient suppliers, to try and find a
long-term and sustainable industry-wide solution for all Category
I&II victims in the fourth round of the categorisation process.
Resolving this issue is a matter of urgency, and requires everyone
to participate and learn from their mistakes.
Further details of these contingent liabilities are set out in
Note 10 to our interim statement.
US Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act ("the Act") in the US was enacted on
22 December 2017. Our analysis of the Act is ongoing. We have
estimated the economic impact of this recently enacted legislation
to be broadly as follows:
"One-off" impacts:
-- A non-cash credit of GBP1,595m, principally relating to a
reduction in deferred tax liabilities in respect of US held
intangible assets.
-- A transitional tax charge, mainly in respect of Mead Johnson
undistributed overseas earnings, of GBP174m, payable over eight
years.
The net positive impact of these one-off items due to the change
in US tax legislation has been reflected in our Q4 numbers as
exceptional and excluded from our adjusted performance
measures.
"Ongoing" impacts:
The Group will benefit from the reduction the US federal
corporate tax rate under the Act. It will also be impacted by other
provisions eliminating or reducing some tax deductions currently
available to the Group. We are currently working through the detail
of these. We are also seeing a number of other changes in tax
regulations and practice across the countries in which we operate.
We currently continue to expect an ongoing adjusted tax rate of
around 23%.
Financial Review
Net finance expense. Net finance expense was GBP238m (2016:
GBP16m) reflecting the cost of debt undertaken to finance the
acquisition of MJN. This includes adjusting items of GBP65m
comprising the accelerated write-off of certain facility fees
(GBP35m) and an adjustment to reclassify finance expense on tax
balances into income tax expense (GBP30m). Refer to Note 3 for
further details of adjusting items.
Tax. The adjusted tax rate, which excludes the effect of
adjusting items, was 23% (2016: 21%). We expect the ongoing
adjusted tax rate to remain approximately 23%.
Adjusting items. In 2017, adjusting items comprised of GBP385m
of expenses recorded in operating profit (2016: GBP367m), GBP65m of
expenses recorded in net finance expense (2016: nil), GBP1,573m of
income recorded in income tax expense (2016: GBP42m income), and
GBP2,741m of income recorded as discontinued operations (2016:
nil). Further details of these items can be found in Note 3.
Discontinued operations: The results of the RB Food business are
reported as a discontinued operation. RB Food net income was GBP55m
(2016: GBP103m) and the after-tax gain on disposal was GBP3,037m
(2016: nil). The adjusting item in respect of Indivior PLC of
GBP296m (2016: nil) is also reported within discontinued operations
(refer to Note 12).
Net working capital. During the year, inventories increased to
GBP1,201m (2016: GBP770m), trade and other receivables increased to
GBP2,004m (2016: GBP1,623m), and trade and other payables increased
to GBP4,629m (2016: GBP3,495m). These increases were principally
driven by the acquisition of MJN. There was an improvement in net
working capital to minus GBP1,424m (2016: minus GBP1,102m). Net
working capital as a percentage of Net Revenue is -12% (2016: -12%,
restated to exclude RB Food). On a pro-forma basis (including 12
months of Net Revenue for MJN) 2017 NWC as a percentage of Net
Revenue would be -11%.
Cash flow. Cash generated from continuing operations was
GBP3,153m (2016: GBP2,808m, restated to exclude RB Food). Net cash
generated from operating activities was GBP2,491m (2016: GBP2,422m,
restated to exclude RB Food) after net interest payments of GBP167m
(2016: GBP16m) and tax payments of GBP543m (2016: GBP490m, restated
to exclude RB Food).
Free cash flow is the amount of cash generated from operating
activities after capital expenditure on property, plant and
equipment and intangible assets and any related disposals. Free
cash flow reflects cash flows that could be used for payment of
dividends, repayment of debt or to fund acquisitions or other
strategic objectives. Free cash flow as a percentage of continuing
adjusted net income was 94% (2016: 93%, restated for disposal of RB
Food).
31 December 31 December
2017 2016 (restated)(1)
GBPm GBPm
------------------------------------------- ------------ --------------------
Cash generated from continuing
operations 3,153 2,808
Less: net interest paid (167) (16)
Less: tax paid (543) (490)
Less: purchase of property, plant
& equipment (286) (176)
Less: purchase of intangible assets (63) (214)
Plus: proceeds from the sale of property,
plant & equipment 35 7
-------------------------------------------- ------------ --------------------
Free cash flow 2,129 1,919
-------------------------------------------- ------------ --------------------
1. Restated for the impact of discontinued operations. Refer to Note 12 for further details.
Net debt at the end of the year was GBP10,746m (2016:
GBP1,391m). This reflected strong free cash flow generation and
cash inflow from the disposal of RB Food, offset by the payment of
dividends totalling GBP1,145m (2016: GBP1,036m), net share
purchases of nil (2016: GBP723m), net M&A of GBP11,817m (2016:
GBP158m) and debt acquired of GBP2,525m (2016: nil). The Group
regularly reviews its banking arrangements and currently has
adequate facilities available to it.
Balance sheet. At the end of 2017, the Group had total equity of
GBP13,573m (2016: GBP8,426m), an increase of 61%. Net debt was
GBP10,746m (2016: GBP1,391m).
This finances non-current assets of GBP31,589m (2016:
GBP14,569m), of which GBP1,754m (2016: GBP878m) is property, plant
and equipment, the remainder being goodwill, other intangible
assets, deferred tax, retirement benefit surplus, available for
sale assets and other receivables. The Group has net working
capital of minus GBP1,424m (2016: minus GBP1,102m), current
provisions of GBP517m (2016: GBP251m) and long-term liabilities
other than borrowings of GBP5,349m (2016: GBP3,388m).
The Group continues to focus on employing capital appropriately,
to drive long term value creation for its shareholders. We continue
to seek to optimise our brand portfolio and in 2017 sold our
Frenchs Food business and, in June, acquired MJN. As a result,
Group ROCE as at 31 December 2017 was 8% using year end capital
employed (10% on average capital employed). The acquisition of MJN
is on track to exceed our weighted average cost of capital (WACC)
by the end of the fifth year of ownership, as targeted in our
acquisition model and communicated to shareholders.
The Group's financial ratios remain strong. Return on
Shareholders' funds (total net income attributable to owners of the
parent divided by total Shareholders' funds) was 45.5% on a
reported basis and 17.0% on an adjusted basis (2016: 21.7% on a
reported basis and 25.6% on an adjusted basis).
Dividends. The Board of Directors recommends a final dividend of
97.7 pence (2016: 95.0 pence), to give a full year dividend of
164.3 pence (2016: 153.2 pence). The dividend, if approved by
shareholders at the AGM on 3 May 2018, will be paid on 24 May 2018
to shareholders on the register at the record date of 13 April
2018. The ex-dividend date is 12 April 2018. The final dividend
will be accrued once approved by Shareholders.
Capital returns policy. RB has consistently communicated its
intention to use its strong cash flow for the benefit of
Shareholders. Our priority remains to reinvest our financial
resources back into the business, including through value-adding
acquisitions. The Group has net debt of approximately GBP10,746m.
It is not possible to be definitive on future needs, but we
consider that this provides the Group with appropriate
liquidity.
We intend to continue our current policy of paying an ordinary
dividend equivalent to around 50% of total adjusted net income.
Legal provisions. The Group is involved in litigation, disputes
and investigations in multiple jurisdictions around the world. It
has made provisions for such matters, where appropriate. Where it
is too early to determine the likely outcome of these matters, or
to make a reliable estimate, the Directors have made no provision
for such potential liabilities. Further details can be found in
Note 8.
Contingent liabilities. The Group is involved in a number of
civil and/or criminal investigations by Government authorities as
well as litigation proceedings and has made provisions for such
matters where appropriate. Where it is too early to determine the
likely outcome of these matters, or to make a reliable estimate,
the Directors have made no provision for such potential
liabilities. Further details can be found in Note 10.
Targets
For 2018 we are targeting +13%-14% total revenue growth at
constant rates (which implies a LFL growth in the range of
+2-3%).
For operating margin(1) , we reiterate our medium-term target of
moderate margin expansion. 2018 will see a number of specific
factors, including the arithmetic impact of a full year of MJN
consolidation, the operating costs of the new organisation, and
increased synergies relating to the integration of MJN.
(1) Adjusted to exclude the impact of exceptional items.
For further information, please contact:
RB
Richard Joyce
SVP, Investor Relations
Patty O'Hayer
Director, External Relations
and Government Affairs +44 (0)1753 217800
Finsbury (Financial PR) +44 (0) 20 7251
Adam Atashzai 3801
Notice to shareholders
Cautionary note concerning forward-looking statements
This presentation 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, the Group 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.
Group Income Statement
For the 12 months ended 31 December 2017 (unaudited)
Unaudited Unaudited 2016
2017 (restated)(1)
For the year ended 31 December Note GBPm GBPm
------------------------------------------ ---- --------- --------------
CONTINUING OPERATIONS
Net Revenue 2 11,512 9,480
Cost of sales (4,642) (3,679)
------------------------------------------ ---- --------- --------------
Gross profit 6,870 5,801
Net operating expenses (4,133) (3,532)
------------------------------------------ ---- --------- --------------
Operating profit 2 2,737 2,269
------------------------------------------ ---- --------- --------------
Adjusted operating profit 3,122 2,636
Adjusting items 3 (385) (367)
------------------------------------------ ---- --------- --------------
Operating profit 2,737 2,269
------------------------------------------ ---- --------- --------------
Finance income 60 42
Finance expense (298) (58)
------------------------------------------ ---- --------- --------------
Net finance expense (238) (16)
------------------------------------------ ---- --------- --------------
Profit before income tax 2,499 2,253
Income tax benefit/(expense) 4 894 (520)
------------------------------------------ ---- --------- --------------
Net income from continuing operations 3,393 1,733
------------------------------------------ ---- --------- --------------
Net income from discontinued operations 12 2,796 103
Net income 6,189 1,836
------------------------------------------ ---- --------- --------------
Attributable to non-controlling interests 17 4
Attributable to owners of the parent 6,172 1,832
------------------------------------------ ---- --------- --------------
Net income 6,189 1,836
------------------------------------------ ---- --------- --------------
Basic earnings per ordinary share
From continuing operations (pence) 5 480.6 245.6
From discontinued operations (pence) 5 398.1 14.6
------------------------------------------ ---- --------- --------------
From total operations (pence) 5 878.7 260.2
------------------------------------------ ---- --------- --------------
Diluted earnings per ordinary share
From continuing operations (pence) 5 474.7 242.1
From discontinued operations (pence) 5 393.2 14.4
------------------------------------------ ---- --------- --------------
From total operations (pence) 5 867.9 256.5
------------------------------------------ ---- --------- --------------
1. Restated for the impact of discontinued operations. Refer to Note 12 for details.
Group Statement of Comprehensive Income
For the 12 months ended 31 December 2017 (unaudited)
Unaudited
Unaudited 2016
2017 (restated)(1)
For the year ended 31 December GBPm GBPm
---------------------------------------- --------- --------------
Net income 6,189 1,836
Other comprehensive (expense)/income
Items that may be reclassified
to profit or loss in subsequent
years
Net exchange (losses)/gains on
foreign currency translation, net
of tax (310) 1,618
Gains/(losses) on net investment
hedges, net of tax 44 (128)
Gains/(losses) on cash flow hedges,
net of tax 3 (22)
Revaluation of available for sale
financial assets 6 (2)
Reclassification of foreign currency
translation reserves on disposal
of foreign operations, net of tax 145 -
---------------------------------------- --------- --------------
(112) 1,466
---------------------------------------- --------- --------------
Items that will not be reclassified
to profit or loss in subsequent
years
Remeasurements of defined benefit
pension plans, net of tax 12 (138)
---------------------------------------- --------- --------------
12 (138)
---------------------------------------- --------- --------------
Other comprehensive (expense)/income,
net of tax (100) 1,328
---------------------------------------- --------- --------------
Total comprehensive income 6,089 3,164
---------------------------------------- --------- --------------
Attributable to non-controlling
interests 15 4
Attributable to owners of the parent 6,074 3,160
---------------------------------------- --------- --------------
Total comprehensive income 6,089 3,164
---------------------------------------- --------- --------------
Total comprehensive income attributable
to owners of the parent arising
from:
Continuing operations 3,133 3,052
Discontinued operations 2,941 108
---------------------------------------- --------- --------------
6,074 3,160
---------------------------------------- --------- --------------
1. Restated for the impact of discontinued operations. Refer to Note 12 for details.
Group Balance Sheet
As at 31 December 2017 (unaudited)
Unaudited Audited
2017 2016
As at 31 December Note GBPm GBPm
------------------------------------- ------ --------- --------
ASSETS
Non-current assets
Goodwill and other intangible assets 29,487 13,454
Property, plant and equipment 1,754 878
Available for sale financial assets 41 39
Deferred tax assets 6 118 81
Retirement benefit surplus 90 36
Other non-current receivables 99 81
------------------------------------- ------ --------- --------
31,589 14,569
------------------------------------- ------ --------- --------
Current assets
Inventories 1,201 770
Trade and other receivables 2,004 1,623
Derivative financial instruments 18 158
Current tax recoverable 58 14
Short-term investments - 3
Cash and cash equivalents 2,125 882
------------------------------------- ------ --------- --------
5,406 3,450
Assets classified as held for sale 18 -
------------------------------------- ------ --------- --------
5,424 3,450
------------------------------------- ------ --------- --------
Total assets 37,013 18,019
------------------------------------- ------ --------- --------
LIABILITIES
Current liabilities
Short-term borrowings (1,346) (1,585)
Provisions for liabilities and
charges 8 (517) (251)
Trade and other payables (4,629) (3,495)
Derivative financial instruments (19) (58)
Current tax liabilities (65) (12)
------------------------------------- ------ --------- --------
(6,576) (5,401)
------------------------------------- ------ --------- --------
Non-current liabilities
Long-term borrowings (11,515) (804)
Deferred tax liabilities 6 (3,443) (1,983)
Retirement benefit obligations (393) (361)
Provisions for liabilities and
charges 8 (81) (174)
Derivative financial instruments (12) -
Non-current tax liabilities (1,012) (740)
Other non-current liabilities (408) (130)
------------------------------------- ------ --------- --------
(16,864) (4,192)
------------------------------------- ------ --------- --------
Total liabilities (23,440) (9,593)
------------------------------------- ------ --------- --------
Net assets 13,573 8,426
------------------------------------- ------ --------- --------
EQUITY
Capital and reserves
Share capital 74 74
Share premium 243 243
Merger reserve (14,229) (14,229)
Hedging reserve (1) (4)
Foreign currency translation reserve 407 526
Retained earnings 27,039 21,811
------------------------------------- ------ --------- --------
Attributable to owners of the parent 13,533 8,421
Attributable to non-controlling
interests 40 5
------------------------------------- ------ --------- --------
Total equity 13,573 8,426
------------------------------------- ------ --------- --------
Group Statement of Changes in Equity
For the 12 months ended 31 December 2017 (unaudited)
Total
attributable
to owners Non-
Share Share Merger Other Retained of the controlling Total
capital premium reserves reserves earnings parent interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Balance at 1
January
2016 74 243 (14,229) (946) 21,762 6,904 2 6,906
Comprehensive
income
Net income - - - - 1,832 1,832 4 1,836
Other
comprehensive
income/(expense) - - - 1,468 (140) 1,328 - 1,328
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Total
comprehensive
income - - - 1,468 1,692 3,160 4 3,164
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Transactions with
owners
Treasury shares
re-issued - - - - 79 79 - 79
Share-based
payments - - - - 66 66 - 66
Current tax on
share
awards - - - - 14 14 - 14
Deferred tax on
share
awards - - - - (4) (4) - (4)
Shares
repurchased
and held in
Treasury - - - - (702) (702) - (702)
Cash dividends 9 - - - - (1,035) (1,035) (1) (1,036)
Transactions with
non-controlling
interests - - - - (61) (61) - (61)
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Total
transactions
with owners - - - - (1,643) (1,643) (1) (1,644)
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Balance at 31
December
2016 74 243 (14,229) 522 21,811 8,421 5 8,426
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Comprehensive
income
Net income - - - - 6,172 6,172 17 6,189
Other
comprehensive
(expense)/income - - - (116) 18 (98) (2) (100)
Total
comprehensive
(expense)/income - - - (116) 6,190 6,074 15 6,089
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Transactions with
owners
Treasury shares
re-issued - - - - 94 94 - 94
Share-based
payments - - - - 72 72 - 72
Current tax on
share
awards - - - - 20 20 - 20
Deferred tax on
share
awards - - - - (14) (14) - (14)
Cash dividends 9 - - - - (1,134) (1,134) (11) (1,145)
Arising on
business
combination 11 - - - - - - 31 31
Total
transactions
with owners - - - - (962) (962) 20 (942)
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Balance at 31
December
2017 74 243 (14,229) 406 27,039 13,533 40 13,573
----------------- ------- -------- --------- --------- --------- --------- ------------ ------------ --------
Group Cash Flow Statement
For the 12 months ended 31 December 2017 (unaudited)
Unaudited
2016
Unaudited 2017 (restated)(1)
For the year ended 31 December Note GBPm GBPm
-------------------------------------------------------- ----- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit from continuing operations 2,737 2,269
Depreciation, amortisation and impairment 223 177
(Increase)/decrease in inventories (108) 12
Increase in trade and other receivables (210) (25)
Increase/(decrease) in payables and provisions 192 (9)
Non-cash adjusting items 247 318
Share-based payments 72 66
-------------------------------------------------------- ----- -------------- --------------
Cash generated from continuing operations 3,153 2,808
Interest paid (226) (56)
Interest received 59 40
Tax paid (543) (490)
Net cash flows attributable to discontinued operations 12 48 120
-------------------------------------------------------- ----- -------------- --------------
Net cash generated from operating activities 2,491 2,422
-------------------------------------------------------- ----- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (286) (176)
Purchase of intangible assets (63) (214)
Proceeds from the sale of property, plant and equipment 35 7
Acquisition of businesses, net of cash acquired 11 (11,817) (158)
Purchase of available for sale financial assets - (36)
Reduction in/(purchase of) short-term investments 3 (3)
Net cash flows attributable to discontinued operations 12 3,232 (3)
-------------------------------------------------------- ----- -------------- --------------
Net cash used in investing activities (8,896) (583)
-------------------------------------------------------- ----- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Shares repurchased and held in Treasury - (802)
Treasury shares re-issued 94 79
Proceeds from borrowings 19,523 469
Repayment of borrowings (10,723) (695)
Dividends paid to owners of the parent 9 (1,134) (1,035)
Dividends paid to non-controlling interests (11) (1)
Other financing activities (12) 219
-------------------------------------------------------- ----- -------------- --------------
Net cash generated from/(used in) financing activities 7,737 (1,766)
-------------------------------------------------------- ----- -------------- --------------
Net increase in cash and cash equivalents 1,332 73
Cash and cash equivalents at beginning of the year 873 737
Exchange (losses)/gains (88) 63
-------------------------------------------------------- ----- -------------- --------------
Cash and cash equivalents at end of the year 2,117 873
-------------------------------------------------------- ----- -------------- --------------
Cash and cash equivalents comprise:
Cash and cash equivalents 2,125 882
Overdrafts (8) (9)
-------------------------------------------------------- ----- -------------- --------------
2,117 873
-------------------------------------------------------- ----- -------------- --------------
1. Restated for the impact of discontinued operations. Refer to Note 12 for further details.
1 ACCOUNTING POLICIES
General
Reckitt Benckiser Group plc is a public limited company listed
on the London Stock Exchange and incorporated and domiciled in
England. The address of its registered office is 103-105 Bath Road,
Slough, Berkshire, SL1 3UH.
These condensed Financial Statements have not been audited.
Basis of Preparation
These condensed Financial Statements for the year ended 31
December 2017 have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority.
They have been prepared in accordance with EU endorsed
International Financial Reporting Standards ("IFRSs") but do not
comply with the full disclosure requirements of these standards.
The condensed Financial Statements are also in compliance with IFRS
as issued by the IASB but do not comply with full disclosure
requirements.
These condensed Financial Statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act
2006. Statutory accounts for the year to 31 December 2016 have been
delivered to the Registrar of Companies. The audit report for those
accounts was unqualified and did not contain statements under 498
(2) or (3) of the Companies Act 2006 and did not contain any
emphasis of matter.
The Group has considerable financial resources together with a
diverse customer and supplier base across different geographical
areas and categories. As a consequence, the Directors believe that
the Group is well placed to manage its business risks successfully
despite the current uncertain economic outlook. The Directors have
a reasonable expectation that the Group has adequate resources to
continue in operational existence. The Group therefore continues to
adopt the going concern basis of accounting in preparing these
condensed Financial Statements.
Accounting Policies and Estimates
In September 2017, the IFRS Interpretations Committee clarified
that finance expenses on income tax balances should be reported
within interest expense and certain penalties arising on
settlements with tax authorities within administrative expenses.
The Group had previously reported finance expenses and penalties on
income tax balances as part of income tax expense. With effect from
2017, the Group has updated its treatment of these balances in
accordance with this new guidance. The impact of this change on the
opening Balance Sheet is not material and a restatement to the
carrying values at 31 December 2016 has not been made. The impact
on the Balance Sheet at 31 December 2017 inclusive of those tax
liabilities assumed on the acquisition of Mead Johnson Nutrition
("MJN") is a reclassification of GBP189 million from tax
liabilities to other liabilities.
With the exception of the update above, and the revision for
adjusting items described in Note 3, the accounting policies
adopted in the preparation of the condensed Financial Statements
are consistent with those described on pages 110-114 of the Annual
Report and Financial Statements for the year ended 31 December
2016.
The Group has applied amendments to IAS 7: Statement of Cash
Flows. The impact has been to revise the disclosure of Net Debt to
separately identify cash flows relating to Financing Liabilities
(refer to Note 7).
In these Financial Statements, the Group has not applied the
following new and revised IFRSs that have been issued but are not
yet effective:
IFRS 15: Revenue from Contracts with Customers will be effective
for annual periods beginning on or after 1 January 2018. The
standard deals with revenue recognition and establishes principles
for reporting useful information about the nature, amount, timing
and uncertainty of revenues and cash flows arising from the Group's
contracts with its customers. The standard provides clarification
about when control of goods is passed to customers and contains
more guidance about the measurement of revenue contracts which have
discounts, rebates and other payments to customers. During 2017,
the Group completed a detailed review of the requirements of IFRS
15 against current accounting policies. The areas the Group
considered included payments to customers, the timing of revenue
recognition based on control of goods, principal and agent
relationships and consignment inventories. The Group has concluded
that there will be no material impact of adopting IFRS 15. Taken
together, the items above would have reduced reported 2017 Net
Revenue by less than 1%, most of which is a reclassification of
payments to customers recorded elsewhere in the Income Statement.
The impact on profit would not have been material.
-- IFRS 9: Financial Instruments will be effective for annual
periods beginning on or after 1 January 2018. The standard includes
requirements for classification and measurement, impairment and
hedge accounting. The Group has evaluated the impact of IFRS 9 and
concluded that it does not expect a material impact on the
recognition and measurement of income and costs in the income
statement or of assets and liabilities in the balance sheet. The
Group has assessed the classification and measurement of certain
financial assets on the balance sheet and concluded that that
whilst there will be changes in classification, such as money
market funds there is no expected material impact on results.
Further, the nature of the Group's current hedging activities and
the quantum of its bad debt risk means that the impact of IFRS 9
will be immaterial in respect of these items. IFRS 9 mandates
certain additional disclosures, which the Group will make in the
future.
-- IFRS 16: Leases will be effective for annual periods
beginning on or after 1 January 2019. The standard changes the
principles for the recognition, measurement, presentation and
disclosure of leases. It eliminates the classification of leases as
either operating leases or finance leases and introduces a single
lessee accounting model where the lessee is required to recognise
lease liabilities and 'right of use' assets on the Balance Sheet,
with exemptions for low value and short-term leases. The Group is
in the process of evaluating the impact of IFRS 16 on its current
lease arrangements, which mainly consists of office and warehouse
properties.
A number of other new standards, amendments and interpretations
are effective for annual periods beginning on or after 1 January
2018 and have not yet been applied in preparing these Financial
Statements. None of these are expected to have a significant effect
on the Financial Statements of the Group.
In preparing these condensed Financial Statements, the
significant estimates and judgements made by management in applying
the Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the Group
Financial Statements for the year ended 31 December 2016. However,
the acquisition of MJN has significantly increased the carrying
value of goodwill and other intangible assets, for which the
measurement at initial recognition on 15 June 2017 is subject to
estimation uncertainty and subsequent impairment review.
2 OPERATING SEGMENTS
The Executive Committee is the Group's Chief Operating
Decision-Maker ("CODM"). The Group's operating segments are
reported based on the segmental information reviewed by the
Executive Committee for the purposes of making strategic decisions
and assessing performance. As a result of the acquisition of MJN,
the Group has created a new operating segment, Infant Formula and
Child Nutrition ("IFCN"). In addition, because of its
classification as a discontinued operation, the previously reported
operating segment for RB Food is no longer presented and the
comparatives have been restated.
The Group's geographical segments comprise ENA and DvM. ENA
comprises Europe, Russia/CIS, Israel, North America, Australia and
New Zealand. DvM principally comprises North Africa, Middle East
(excluding Israel) and Turkey, Africa, South Asia, North Asia,
Latin America, Japan, South Korea and ASEAN.
ENA and DvM derive their revenue primarily from the sale of
branded products in the Health, Hygiene and Home categories. IFCN
forms part of the Health category.
The Executive Committee assesses the performance of the
operating segments based on Net Revenue from external customers and
Adjusted Operating Profit. Intercompany transactions between
operating segments are eliminated. Finance income and expense are
not allocated to segments, as they are managed on a central Group
basis.
The segment information provided to the Executive Committee for
the operating segments for the year ended 31 December is as
follows:
ENA DvM IFCN Total
Year ended 31 December 2017 GBPm GBPm GBPm GBPm
------------------------------------------ ----- ----- ----- ------
Net Revenue 6,691 3,266 1,555 11,512
Depreciation, amortisation and impairment 109 63 51 223
------------------------------------------ ----- ----- ----- ------
Adjusted operating profit 2,040 753 329 3,122
Adjusting items (385)
------------------------------------------ ----- ----- ----- ------
Operating profit 2,737
Net finance expense (238)
------------------------------------------ ----- ----- ----- ------
Profit before income tax 2,499
------------------------------------------ ----- ----- ----- ------
ENA DvM IFCN Total
Year ended 31 December 2016(1.) GBPm GBPm GBPm GBPm
------------------------------------------ ----- ----- ----- ------
Net Revenue 6,410 3,070 - 9,480
Depreciation, amortisation and impairment 117 60 - 177
------------------------------------------ ----- ----- ----- ------
Adjusted operating profit 1,978 681 - 2,659
Reallocation of central costs (16) (7) - (23)
------------------------------------------ ----- ----- ----- ------
Adjusted operating profit (restated)(1) 1,962 674 - 2,636
Adjusting items (367)
------------------------------------------ ----- ----- ----- ------
Operating profit 2,269
Net finance expense (16)
------------------------------------------ ----- ----- ----- ------
Profit before income tax 2,253
------------------------------------------ ----- ----- ----- ------
1. Restated for reallocation of centrally incurred costs following the disposal of RB Food.
Analysis of Categories
The primary analysis within the information provided to the
Executive Committee is based on the geographical areas above. An
analysis of Net Revenue by Category is given below.
Net Revenue
----------------- ---------------------
2016
2017 (restated)(1)
GBPm GBPm
----------------- ------ -------------
Health 5,090 3,332
Hygiene 4,313 4,066
Home 1,860 1,828
Portfolio Brands 249 254
----------------- ------ -------------
11,512 9,480
----------------- ------ -------------
1. Portfolio Brands is restated following the disposal of RB Food.
3 ADJUSTING ITEMS
The Group uses certain adjusted earnings measures, including
Adjusted Operating Profit and Adjusted Net Income, to provide
additional clarity about the underlying performance of the
business.
The Group has refined its accounting policy to make reference to
adjusting items in presenting the Group's principal adjusted
earnings measures. Adjusting items are significant items included
in operating profit, net finance expense or income tax expense,
which are relevant to an understanding of the underlying
performance of the business. These comprise exceptional items,
other adjusting items, and the reclassification of finance expenses
on tax balances:
-- Exceptional items, which remain as previously defined, are
material, non-recurring items of expense or income incurred during
a year.
-- Other adjusting items comprise the amortisation of certain
fair value adjustments recorded in respect of finite-life
intangible assets recognised in the provisional purchase price
allocation for the acquisition of MJN (refer to Note 11). These are
not classified as exceptional items because of their recurring
nature.
-- As explained in Note 1, the Group has changed its treatment
of finance expenses on income tax balances. These were previously
treated as income tax but are now presented as finance expenses.
There was no material impact resulting from the change in
accounting for penalties. Adjusting items now include a
reclassification of finance expenses on tax balances into income
tax, to align with previous guidance that focused on the
pre-exceptional tax rate, and with the way the expenses are managed
by the Group. Therefore, these expenses are presented as part of
income tax in the adjusted profit before income tax measure.
The table below provides a reconciliation of the Group's
reported statutory earnings measures to its adjusted measures for
the year ended 31 December 2017:
Adjusting: Adjusting: Adjusting: Adjusted
Exceptional Other Finance
Year ended 31 December items items expense
2017 Reported reclassification
GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ------------- ---- ----------- ---- ------------------ ---- ---------
Operating profit 2,737 342 (1) 43 (5) - 3,122
Net finance expense (238) 35 (2) - 30 (6) (173)
-------------------------- --------- ------------- ---- ----------- ---- ------------------ ---- ---------
Profit before income
tax 2,499 377 43 30 2,949
Income tax expense 894 (1,527) (3) (16) (5) (30) (6) (679)
-------------------------- --------- ------------- ---- ----------- ---- ------------------ ---- ---------
Net income for the
year from continuing
operations 3,393 (1,150) 27 - 2,270
Less: Attributable
to non-controlling
interests (17) - - - (17)
-------------------------- --------- ------------- ---- ----------- ---- ------------------ ---- ---------
Net income for the
year attributable to
owners of the parent
(continuing) 3,376 (1,150) 27 - 2,253
Net income for the
year from discontinued
operations 2,796 (2,741) (4) - - 55
-------------------------- --------- ------------- ---- ----------- ---- ------------------ ---- ---------
Total net income for
the year attributable
to owners of the parent 6,172 (3,891) 27 - 2,308
========================== ========= ============= ==== =========== ==== ================== ==== =========
1. Exceptional items within operating profit of GBP342 million
include GBP219 million relating to the acquisition of MJN, which
comprise the following:
-- transaction fees of GBP60 million
-- unwinding of fair value adjustment made to inventories
recorded on the purchase price allocation of GBP159 million,
recorded in cost of sales in the Group Income Statement.
The remaining exceptional costs within operating profit relate
to previously announced restructuring projects, including:
-- MJN integration/RB 2.0 of GBP90 million
-- Supercharge and other projects of GBP33 million.
2. Exceptional costs included within net finance expense
comprises GBP23 million for the accelerated write-off of facility
fees as a result of the acquisition of MJN in June 2017, when
short-term bridge facilities were replaced with the issuance of
$7,750 million of fixed and floating rate loan notes, and GBP12
million for the accelerated write-off of facility fees as a result
of the early repayment of certain term loans using the proceeds
from the disposal of RB Food.
3. Included within income tax credit is a GBP1,421 million tax
credit resulting from the US Tax Reform (Note 4) and GBP106
million, representing the tax credit for the exceptional costs
noted above.
4. Adjusting items included in discontinued operations comprise
the gain on the disposal of RB Food of GBP3,024 million, a tax
credit of GBP13 million on this gain, and a charge of GBP296
million in respect of provision for settlement of the ongoing
investigations by the US Department of Justice ("DoJ") arising from
certain matters relating to the RB Pharmaceuticals business prior
to its demerger in December 2014.
5. Other adjusting items of GBP43 million relate to the
amortisation of certain intangible assets recognised as a result of
the acquisition of MJN, charged over the period since the
acquisition up to 31 December 2017. In addition, there is a GBP16
million income tax credit in respect of these costs.
6. Adjusting items of GBP30 million relate to the
reclassification of interest on income tax balances from finance
expense to income tax in the adjusting measure (Note 1).
The table below provides a reconciliation of the Group's
reported statutory earnings measures to its adjusted measures for
the year ended 31 December 2016:
Adjusting: Adjusted
Year ended 31 December Exceptional
2016 Reported items
GBPm GBPm GBPm
-------------------------- --------- ---------------------------- ---- ---------
Operating profit 2,269 367 (1) 2,636
Net finance expense (16) - (16)
-------------------------- --------- ---------------------------- ---- ---------
Profit before income
tax 2,253 367 2,620
Income tax expense (520) (42) (2) (562)
-------------------------- --------- ---------------------------- ---- ---------
Net income for the
year from continuing
operations 1,733 325 2,058
Less: Attributable
to non-controlling
interests (4) - (4)
-------------------------- --------- ---------------------------- ---- ---------
Net income for the
year attributable to
owners of the parent
(continuing) 1,729 325 2,054
Net income for the
year from discontinued
operations 103 - 103
-------------------------- --------- ---------------------------- ---- ---------
Total net income for
the year attributable
to owners of the parent 1,832 325 2,157
========================== ========= ============================ ==== =========
1. Exceptional items in the year ended 31 December 2016
comprised GBP300 million of costs related to the HS issue in South
Korea (primarily compensation for Rounds 1, 2 and 3, commitments to
the Humanitarian Fund, and legal costs directly linked to the
issue) and GBP67 million related to restructuring and integration
costs.
2. Included within income tax expense is a GBP42 million tax credit on the exceptional items.
4 INCOME TAXES
2016
2017 (restated)(1)
GBPm GBPm
-------------------------------------------------- ------- --------------
Current tax 760 492
Adjustment in respect of prior periods (52) 16
-------------------------------------------------- ------- --------------
Total current tax 708 508
-------------------------------------------------- ------- --------------
Origination and reversal of temporary differences (38) 48
Impact of changes in tax rates (1,564) (36)
-------------------------------------------------- --------------
Total deferred tax (1,602) 12
-------------------------------------------------- --------------
Income tax (benefit)/expense (894) 520
-------------------------------------------------- ------- --------------
1. Restated for the impact of discontinued operations. Refer to Note 12 for further details.
The table above includes an exceptional tax credit relating to
the effect of US Tax Reform of GBP1,421 million.
The reported tax rate was -36% (2016: 23%). The adjusted tax
rate on ordinary activities, which excludes the impact of adjusting
items, was 23% (2016: 21%, restated to exclude RB Food), as per
Note 3.
5 EARNINGS PER SHARE
2016
2017 (restated)(1)
pence pence
------------------------------------------ ------ --------------
Basic earnings per share
From continuing operations 480.6 245.6
From discontinued operations 398.1 14.6
------------------------------------------ ------ --------------
Total basic earnings per share 878.7 260.2
Diluted earnings per share
From continuing operations 474.7 242.1
From discontinued operations 393.2 14.4
------------------------------------------ ------ --------------
Total diluted earnings per share 867.9 256.5
Adjusted basic earnings per share
From continuing operations 320.8 291.7
From discontinued operations 7.8 14.6
------------------------------------------ ------ --------------
Total adjusted basic earnings per share 328.6 306.3
Adjusted diluted earnings per share
From continuing operations 316.9 287.6
From discontinued operations 7.7 14.4
------------------------------------------ ------ --------------
Total adjusted diluted earnings per share 324.6 302.0
------------------------------------------ ------ --------------
1. Restated for the impact of discontinued operations.
Basic
Basic earnings per share is calculated by dividing the net
income attributable to owners of the parent from continuing
operations (2017: GBP3,376 million; 2016: GBP1,729 million) and
discontinued operations (2017: GBP2,796 million; 2016: GBP103
million) by the weighted average number of ordinary shares in issue
during the year (2017: 702,379,197; 2016: 704,164,106).
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of shares outstanding to assume conversion
of all potentially dilutive ordinary shares. The Company has the
following categories of potentially dilutive ordinary shares:
Executive Share Awards (including Executive Share Options and
Executive Restricted Share Scheme Awards) and Employee Sharesave
Scheme Options. The options only dilute earnings when they result
in the issue of shares at a value below the market price of the
share and when all performance criteria (if applicable) have been
met. As at 31 December 2017 there were 69,200 (2016: nil) Executive
Share Awards excluded from the dilution because the exercise price
for the options was greater than the average share price for the
year.
2017 2016
Average Average
number of number of
shares shares
----------------------------------------------------------- ----------- -----------
On a basic basis 702,379,197 704,164,106
Dilution for Executive Share Awards 8,054,213 9,405,777
Dilution for Employee Sharesave Scheme Options outstanding 691,174 730,750
----------------------------------------------------------- ----------- -----------
On a diluted basis 711,124,584 714,300,633
----------------------------------------------------------- ----------- -----------
Adjusted earnings
Details of the adjusted net income attributable to owners of the
parent are as follows:
2016
2017 (restated)(1)
Continuing operations GBPm GBPm
--------------------------------------------------------------------------------------------- ------- --------------
Net income attributable to owners of the parent 3,376 1,729
Exceptional items, net of tax (Note 3) (1,150) 325
Other Adjusting items, net of tax (Note 3) 27 -
Adjusted net income attributable to owners of the parent 2,253 2,054
--------------------------------------------------------------------------------------------- ------- --------------
1. Restated for the impact of discontinued operations. Refer to Note 12 for further details.
2017 2016
Discontinued operations GBPm GBPm
--------------------------------------------------------------------------------------------- ------- --------------
Net income attributable to owners of the parent 2,796 103
Exceptional items, net of tax (Note 3) (2,741) -
Adjusted net income attributable to owners of the parent 55 103
--------------------------------------------------------------------------------------------- ------- --------------
6 DEFERRED TAX
Accelerated Short-term Retirement
capital Intangible temporary benefit
allowances assets differences Tax losses obligations Total
Deferred tax assets GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ----------- ------------ ------------ ------------ ------------ -------
At 1 January 2017 9 (32) 88 - 16 81
(Charged)/credited to the Income
Statement (2) 6 (7) (2) - (5)
Credited/(charged) to other
comprehensive income 1 (1) (5) - - (5)
Arising on business combinations 3 2 37 7 4 53
Exchange differences (1) 1 (5) (1) - (6)
----------------------------------------
At 31 December 2017 10 (24) 108 4 20 118
---------------------------------------- ----------- ------------ ------------ ------------ ------------ -------
Accelerated Short-term Retirement
capital Intangible temporary benefit
allowances assets differences Tax losses obligations Total
Deferred tax liabilities GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------------ ----------- ------------ ------------ ---------- ------------ -------
At 1 January 2017 14 2,303 (261) (8) (65) 1,983
(Credited)/charged to the Income Statement (15) (1,670) 68 2 13 (1,602)
Charged to other comprehensive income - - - - 26 26
Charged directly to equity - - 14 - - 14
Arising on business combinations 48 3,399 (175) (2) (23) 3,247
Divestment of discontinued operations (3) (17) - - 6 (14)
Exchange differences (5) (228) 16 1 5 (211)
------------------------------------------
At 31 December 2017 39 3,787 (338) (7) (38) 3,443
------------------------------------------ ----------- ------------ ------------ ---------- ------------ -------
Deferred tax assets and liabilities have been offset where they
relate to income taxes levied by the same taxation authority.
Certain deferred tax assets in respect of corporation tax losses
and other temporary differences of GBP363 million (2016: GBP326
million) have not been recognised at 31 December 2017 as the
likelihood of future economic benefit is not sufficiently assured.
These assets will be recognised if utilisation of the losses and
other temporary differences becomes sufficiently probable.
7 NET DEBT
2017 2016
Analysis of net debt GBPm GBPm
---------------------------------------- -------- -------
Cash and cash equivalents 2,125 882
Overdrafts (8) (9)
---------------------------------------- -------- -------
Cash and cash equivalents 2,117 873
---------------------------------------- -------- -------
Borrowings (excluding overdrafts) (12,853) (2,380)
Derivative financial instruments (debt) (10) 113
---------------------------------------- -------- -------
Financing liabilities (12,863) (2,267)
---------------------------------------- -------- -------
Short-term investments - 3
Net debt at end of year (10,746) (1,391)
---------------------------------------- -------- -------
The Group uses derivative financial instruments to hedge certain
elements of interest rate and exchange risk on its net debt. The
split between these items and other derivatives on the Balance
Sheet is shown below:
Assets Liabilities
-------------------------------------------- -------------------- --------------------
Current Non-Current Current Non-Current
-------------------------------------------- ------- ----------- ------- -----------
Derivative financial instruments (debt) 5 - (3) (12)
Derivative financial instruments (non-debt) 13 2 (16) -
At 31 December 2017 18 2 (19) (12)
--------------------------------------------- ------- ----------- ------- -----------
Note that non-current derivative assets are presented within
other non-current other receivables on the Balance Sheet.
Cash and cash 2017 2016(1)
equivalents Financing liabilities Short term investments Net Debt Net Debt
GBPm GBPm GBPm GBPm GBPm
----------------------- ----------------------- --------------------- ---------------------- --------- ----------
At 1 January 873 (2,267) 3 (1,391) (1,620)
Net increase in cash
and cash equivalents 1,332 - - 1,332 73
Proceeds from
borrowings - (19,523) - (19,523) (469)
Repayment of borrowings - 10,723 - 10,723 695
Arising on business
combinations - (2,525) - (2,525) -
Other financing cash
flows - (12) - (12) 219
Reduction in/(purchase
of) short-term
investments - - (3) (3) 3
Exchange, fair value
and other movements (88) 741 - 653 (292)
----------------------- ----------------------- --------------------- ---------------------- --------- ----------
At 31 December 2,117 (12,863) - (10,746) (1,391)
----------------------- ----------------------- --------------------- ---------------------- --------- ----------
1. 2016 net debt is presented in line with the new requirements of IAS 7 (Note 1).
8 PROVISIONS FOR LIABILITIES AND CHARGES
Legal Restructuring Other Total
provisions provisions provisions provisions
GBPm GBPm GBPm GBPm
--------------------------------- ----------- ------------- ----------- -----------
At 1 January 2016 141 33 170 344
Charged to the Income Statement 264 23 12 299
Charged to equity - - 702 702
Utilised during the year (90) (33) (806) (929)
Released to the Income Statement - (2) (8) (10)
Exchange adjustments 14 1 4 19
--------------------------------- ----------- ------------- ----------- -----------
At 31 December 2016 329 22 74 425
Charged to the Income Statement 352 17 15 384
Arising on business combinations - 7 - 7
Utilised during the year (142) (20) (9) (171)
Released to the Income Statement (44) - (9) (53)
Exchange adjustments 6 - - 6
--------------------------------- ----------- ------------- ----------- -----------
At 31 December 2017 501 26 71 598
--------------------------------- ----------- ------------- ----------- -----------
Provisions have been analysed between current and non-current as
follows:
2017 2016
GBPm GBPm
------------ ----- -----
Current 517 251
Non-current 81 174
------------ ----- -----
598 425
------------ ----- -----
Provisions are recognised when the Group has a present 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.
Legal provisions of GBP501 million (2016: GBP329 million)
include exceptional legal provisions of GBP465 million (2016:
GBP277 million) in relation to a number of historic regulatory
matters in a number of markets, predominantly the HS issue in South
Korea and the "DoJ" investigation referenced in Note 10. During the
year, a number of payments were made to claimants in respect of
Rounds 1, 2 and 3 of the HS issue in South Korea, partially
utilising the provision held for this matter.
The restructuring provision relates principally to business
integration costs associated with the acquisition of MJN and
subsequent RB 2.0 reorganisation, the majority of which is expected
to be utilised within one year.
Other provisions include environmental and other obligations
throughout the Group, the majority of which are expected to be used
within five years.
9 DIVIDS
Cash dividend distributions
2017 2016
GBPm GBPm
--------------------------------------------------------- ----- -----
Cash dividends on equity ordinary shares:
2016 Final paid: 95.0p (2015: Final 88.7p) per share 666 625
2017 Interim paid: 66.6p (2016: Interim 58.2p) per share 468 410
--------------------------------------------------------- ----- -----
Total dividends for the year 1,134 1,035
--------------------------------------------------------- ----- -----
The Directors are proposing a final dividend in respect of the
financial year ended 31 December 2017 of 97.7p per share which will
absorb an estimated GBP688 million of Shareholders' funds. If
approved by Shareholders it will be paid on 24 May 2018 to
Shareholders who are on the register on 13 April 2018, with an
ex-dividend date of 12 April 2018.
10 CONTINGENT LIABILITIES And Assets
As noted in Note 3, the Group remains involved in ongoing
investigations by the US Department of Justice ("DoJ") and the US
Federal Trade commission and related litigation proceedings in the
US arising from certain matters relating to the RB Pharmaceuticals
("RBP") business prior to its demerger in December 2014 to form
Indivior PLC, and may incur liabilities in relation to such
matters. On 4 September 2017, the Group received notice of a
further investigation by the State of California Department of
Insurance in relation to similar matters.
These investigations and related proceedings are continuing and
we have been in discussions with the DoJ. As a consequence of these
discussions the Group recorded a charge of GBP296 million at 31
December 2017 within our discontinued operations line.
The Group remains committed to ensuring these issues are
concluded or resolved satisfactorily but we cannot predict with any
certainty whether we will be able to reach any agreement with the
DoJ or other parties who are involved in any other investigation or
related proceedings. The final cost for the Group may be materially
higher than this reserve.
HS South Korea
There are a number of further expected costs and income relating
to the Humidifier Sanitiser ("HS") issue that either cannot be
reliably estimated or which are not considered probable at the
current time. In particular:
1. Round 4 lung injury, asthma related injury and other
potential lung or non-lung injuries: The South Korean government
opened Round 4 to new applicants on 22 April 2016 for an indefinite
period. It has received 4,701 applications to participate in Round
4 as at 2 February 2018 and continues to receive applications.
Additionally, a damage relief committee set up by the Ministry of
Environment ("MOE") announced a recognition standard for asthma
caused by HS, based on the increased incidence of asthma in HS
users. The Group is currently unable to reliably determine how many
applicants may be eligible for compensation in respect of these
items because:
a. The total number of applicants, and therefore total number of
potential victims has not been assessed for Round 4 lung injuries,
potential asthma injuries for all rounds or for any other injuries
that the MOE may decide to recognise.
b. No detailed underlying data has yet been made available in
respect of general causation of asthma injuries by HS, although six
victims have been announced by the MOE as at 28 December 2017.
2. The Group continues to assess and, where appropriate, pursue
rights which Oxy RB may have to recover sums from other involved
parties.
3. On 9 August 2017, the Humidifier Sanitiser Injury Special
Relief Act became effective. Further, amendments to that Act were
introduced in October 2017 and are currently being considered by
the Korean government. Given the high profile and complex nature of
this issue, the amendments to this Act, the rules and regulations
issued pursuant to this Act and other legal or governmental
proposals or developments in South Korea may give rise to further
financial liability for RB.
11 ACQUISITIONS
On 15 June 2017, the Group acquired 100% of the issued share
capital of Mead Johnson Nutrition for cash consideration of
GBP13,044 million ($16,642 million).
MJN is a leader in global infant formula and children's
nutrition. The acquisition of MJN is aligned with the Group's
well-established strategic focus on growing in consumer health and
on investing in Powerbrands with attractive growth prospects.
Provisional goodwill of GBP8,023 million arises on the acquisition,
of which GBP3,194 million is a consequence of the requirement to
record deferred tax liabilities for certain acquired assets.
Goodwill represents the potential for further synergies arising
from combining the acquired business with the Group's existing
businesses, together with the value of the workforce acquired. None
of the goodwill is expected to be deductible for income tax
purposes.
The following table summarises the consideration paid and the
fair values of assets acquired and liabilities assumed. The amount
of consideration transferred in excess of the value of total
identifiable net assets is recorded as goodwill.
Recognised amounts of identifiable assets acquired and liabilities assumed
GBPm
---------------------------------------------------------------------------- --------
Intangible assets 9,169
Property, plant and equipment 921
Inventories 547
Trade and other receivables 354
Cash and cash equivalents 1,224
Borrowings (2,525)
Retirement benefit obligations (77)
Deferred tax liabilities, net (3,194)
Trade and other payables (1,018)
Provisions (7)
Current tax liabilities (342)
---------------------------------------------------------------------------- --------
Total identifiable net assets 5,052
Non-controlling interest (31)
Goodwill 8,023
---------------------------------------------------------------------------- --------
Total 13,044
---------------------------------------------------------------------------- --------
Cash consideration 13,044
---------------------------------------------------------------------------- --------
Total consideration transferred 13,044
---------------------------------------------------------------------------- --------
Acquisition-related transaction costs of GBP60 million have been
included in net operating expenses and disclosed as exceptional
items in the Group Income Statement (Note 3).
Included within intangible assets are brands of GBP9,169
million, substantially comprising Enfamil (GBP6,328 million) and
Nutramigen (GBP1,718 million). The fair values of current tax
liabilities and provisions are stated at provisional amounts which
will be finalised within the twelve-month measurement period
following the acquisition.
From the date of acquisition to 31 December 2017, the
acquisition contributed GBP1,555 million to Net Revenue and GBP329
million to adjusted operating profit. Had the acquisition taken
place at 1 January 2017, the enlarged Group consolidated Net
Revenue would have been GBP12,814 million and adjusted operating
profit would have been GBP3,384 million.
The provisional fair values relating to the acquisition of
Nances Holdings S.A. in 2016 were revised during 2017, following a
GBP3 million refund of the cash consideration. This reduced
Goodwill by GBP3 million.
12 DISCONTINUED OPERATIONS
On 17 August 2017, the Group sold the RB Food business to
McCormick & Company, Inc. for $4.2 billion (GBP3.2 billion) in
cash. This transaction disposed of current assets of GBP99 million,
non-current assets of GBP66 million, current liabilities of GBP65
million and non-current liabilities of GBP34 million. RB Food was a
major line of business and therefore meets the definition of a
discontinued operation.
In addition, and as described in Note 3, the Group has recorded
an exceptional charge of GBP296 million in respect of its legacy RB
Pharmaceuticals business ("RBP"), which was demerged to form
Indivior PLC in 2014.
Financial information relating to the operations of RB Food and
RB Pharmaceuticals for the year is set out below. The Group Income
Statement and Group Cash Flow Statement distinguish discontinued
operations from continued operations. Comparative figures have been
restated.
2017 2017 2017
RB Food RBP Total 2016
-------------------------------------------------
For the year ended 31 December GBPm GBPm GBPm GBPm
------------------------------------------------- -------- ----- ------ -----
Revenue 249 - 249 411
Expenses (175) (296) (471) (270)
------------------------------------------------- -------- ----- ------ -----
Profit before tax of discontinued operations 74 (296) (222) 141
Tax (19) - (19) (38)
------------------------------------------------- -------- ----- ------ -----
Profit after tax of discontinued operations 55 (296) (241) 103
Pre-tax gain recognised on disposal of RB Food 3,024 - 3,024 -
Tax credit 13 - 13 -
------------------------------------------------- -------- ----- ------ -----
Profit for the year from discontinued operations 3,092 (296) 2,796 103
------------------------------------------------- -------- ----- ------ -----
The major classes of cash flows related to RB Food are as
follows:
2017 2016
-----------------------------------------------------------------------
For the year ended 31 December GBPm GBPm
----------------------------------------------------------------------- ----- ----
Cash flows from operating activities 48 120
Cash flows from investing activities 3,232 (3)
Cash flows from financing activities - -
----------------------------------------------------------------------- ----- ----
Net increase in cash and cash equivalents from discontinued operations 3,280 117
----------------------------------------------------------------------- ----- ----
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFIESAFASEDE
(END) Dow Jones Newswires
February 19, 2018 02:00 ET (07:00 GMT)
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