Reckitt Benckiser Group plc (RB Group plc) is a
multinational, divers company, headquartered in Slough, the United Kingdom. It
was founded in 1823 and formed in 1999 by combining English Reckitt & Colman
plc with the Netherlands Benckiser NV. RB
Group plc, consumer goods Company, specialises in production and distribution
of health, hygiene and home products.
The purposes of this report are to:
Conduct a financial analysis
for Reckitt Benckiser Group plc.Provide a recommendation
for a bank investor.
Methods: Ratio Analysis, Cash Flow Analysis and Financial Statement Analysis.
Additionally to provide financial analysis for RB Group Plc. A Chief Executive
Report as well as a Director’s Report has been used.
Findings and conclusions
Recommendation for investor
A Financial Statement Analysis for RB Group Plc has been created by
utilizing essential techniques of financial analysis. They are as follows:
Ratio Analysis.Cash Flow Analysis.Financial Statement Analysis.
To further assist in the financial analysis process for RB Group Plc, the
Director’s Report has also been utilised.
Ratio Analysis is an analytical tool, which is used to measure a business’s
performance and is highly recommended by business analysts.
However, Ratio Analysis has limitations. The main concern is quality and
accuracy of data included in a financial statement report. This is down to
inadequate disclosure and absence of comparability.
Furthermore, in many cases accountants use their position to manipulate
data by reclassification of items by producing an Asset Replacement Reserve of inconsiderable
numbers. As a result, existing net profit numbers decrease and current
liability increases. Thereby, a business presents itself as inefficient. Additionally
a financial statement report is based on past performance and events, which can
be questionable in a situation where the objective of a company’s analyst is to
evaluate future investment possibility. Moreover, interpretation of Ratio Analysis
in many cases is based on individual’s instinct or knowledge rather than
Cash Flow Analysis it is an essential tool, which provides businesses
with crucial information concerning changing in inflows and outflows of cash in
a period of time.
Even though a Cash Flow Analysis is important, it nevertheless does not
present an actual liquid position of a business, as some payments for purchases
are delayed. Furthermore Cash Flow Analysis
is likely to be precise or truthful as a cash flow statement and is seen as
being distinct from a Founds Flow Statement because both perform differently. In
addition, a cash flow statement is treated separately to a found flow income
statement. An income statement considers cash and non – cash items, thereby net
cash flow is not a net income. Moreover Founds Flow Statement provides complete
information about financial changes rather than just the cash flow statement of
A Financial Statement Analysis is a functional tool, which requires
understanding of a business’s financial situation through examination of its
financial statements. This tool also has limitations. Firstly a Financial Statement
Analysis displays the outcome of value creation (business creates and delivers
value in a way that is efficient to generate profit) rather than process. The number
of profit gained is presented as a final result in a financial statement, and does
not provide users with complete information about company activity. It does not
reflect the tendency from which forthcoming prospect of a business can be identified.
Furthermore in a present day financial statement, revenue and profit
figures mainly report information about tangible and financial assets, while
information about intangible assets are not presented. Consequently, intangible
assets are eliminated from financial statements.
Narrative reporting is widely used by corporation to build trust and a
good reputation of a business among investors or Stakeholders. However, users
as well as people participated with preparation of report are concerned about
usefulness of narrative reports. According to a research report (D. Campbell,
R. Slack) narrative reporting is not relevant source of financial information,
which can be utilised by financial analysts in their forecast predictions about
a business performance. According to finding, the Chairman’s report do not
include essential information about future strategy of a company, which can be vital
for potential investors. Additionally, risk disclosure was presented in a
general context. Furthermore, Social and
Environment report lack of statistics and data, which could have an impact on
Moreover, according to ACCA’s survey report narrative reports often are
costly and time consuming. In addition narrative reports are often too complex
in its context, disclose too many information, which not reflect a real financial
position of a business. Furthermore narrative reports in many cases meet legal
and regulatory requirements rather than the needs of its key audience.
To: CEO Robert Smith – Investment Bank
From: Junior Analyst Minnie Bushell
Date: 14. 12. 2017
Subject: Financial Ratio Analysis for RB
The purpose of this report is to establish performance,
financial position and future potential of Reckitt Benckiser Group plc. To carry
out a financial analysis, I have utilised Group Income
Statement and a Balance Sheet for 2015 and 2016. Ratio analysis calculations
featuring a two year comparison are as well as Ratio Analysis of Unilever one
of the main competitors of RB Group. Ratios Analysis are presented in Appendix
1: Tables 1 – 3; Appendix 2: Tables 4 – 8 and Appendix 3 – 9. To present a full
picture of the company, I have taken into consideration the Chairman’s and
Director’s Reports, which contain their view about RB Group plc’s performance
and future prospects.
Analysis of Reckitt Benckiser Group plc. – two years comparison: 2016 and 2015.
In accordance with
Ratio Analysis, Return on Capital Employed (ROCE) has decreased by 16.59% that
means that the company is not managing its resources efficiently enough, as
illustrated by the sales revenue to capital employed, which has decreased by
10.34%. The sales revenue to non – current assets has increased by 5.56% from
2015. The sales revenue to working capital has decreased by 5.07% in 2016 and
by 4.11% in 2015.
company has invested in non – current assets, which can have also a negative
impact on the result of ROCE. However, in the future this investment can
benefit RB Group as revenue will increase.
According to Annual Report
of the company, decrease in ROCE was due
to “an increase in Pound value of RB Group’s net assets as a result of
noteworthy reduction of value of Pounds in the middle of 2016”.
In regards to sales
revenue to working capital the company has recorded an increase in inventory
days by 5.80%, in trade receivables days by 9.09% and trade payables days by
19.19% from 2015. As a result the working capital shortfall days have decreased
from 25 days in 2015 to 15 days in 2016. This change in shortfall days could be
due to discount offered by suppliers. In order to minimise working capital
shortfall further the company should extend for e.g. payables days but this
could have a negative impact on relationship with suppliers or increase short –
term liabilities (overdraft), but this can result in additional expense for RB
Group as they need to consider an extra interest charges. In order to reduce
inventory days the company should consider reducing its order capacity or
improve its forecast accuracy. A gross margin increased by 3.04%. According to
Chairman’s Report this is due to “positive cost contribution, pricing mix
Project Fuel initiative and supply related Supercharge savings programme”. In
addition, higher gross profit margin could benefit Group over its rivals, by
charging more for their e.g. products or services. The operating profit margin has decreased by
3.49% due to cost inefficiency.
The Chart 1 below,
provides a comparison with changes in profitability ratios of RB Group and Unilever.
Appendix 1 – Table 1: Profitability Ratio of RB Group and Unilever (two years
comparison 2015 and 2016 represented as a change in %). ROCE of RB Group has
decreased by 16.59%, whereas ROCE of Unilever has decreased by 6.61% from
2015.RB Group’s gross margin has increased by 3.04%, whereas Unilever’s gross
profit increase by 1.18% from 2015. Operating profit margin of RB Group has
decreased by 3.49%, whereas operating profit margin of Unilever’s has increased
by 4.96% from 2015.
According to stability ratios: gearing ratio reliance
on borrowed funds has decreased by 14.87%, and the interest cover raised by
0.12% from 2015, which can be a good indicator for shareholders.
The Chart 2 below
provides a comparison with changes in gearing ratio of RB Group and Unilever
Appendix 2 – Table 6: Stability ratio (one year comparison-2016) represented by
gearing ratio of RB Group and Unilever in 2016. Gearing ratio of RB Group –
22.09%, whereas Unilever’s gearing ratio – 49.42%, relatively higher in
comparison to RB Group’s gearing ratio, which means Unilever has taken on
additional risk, borrowing more funds. Therefore Unilever is becoming more
The Chart 3 provides a
comparison with changes in interest cover ratio of RB Group and Unilever for
Appendix 2 – Table 6: Stability ratio
(comparison with one year – 2016) – interest cover of RB Group and Unilever in
2016. Interest cover of RB Group – 41.55, which is favourable for shareholders.
Unilever’s interest cover ratio of 14.15, relatively lower to RB Group’s cover
ratio. That means the additional Unilever’s borrowings has had a direct effect
on the interest cover as this borrowing has increased the interest payable,
putting Unilever at risk.
According to The
Chairman’s Report performance of Reckitt Benckiser Group PLC was affected due
to withdrawal highly toxic Humidifier Disinfectant (HD) from South Korean,
“manufactured and sold by Oxy RB”. Furthermore, relationship with Russian
market was affected too, due to poor sale of Scholl product as well as weakened
connection with Russian customers. In spite mentioned above problems the
company managed to increase its dividend per share to 153.2 pence (interim DPS
– 58.2 pence and final DPS – 95.0 pence). Additionally an increase in dividend
could be as a result of re – purchasing its shares back using its free cash
The Chart 4 below,
provides a comparison with changes in Earnings per Share (EPS) of RB Group and
Appendix 2 – Table 7: Earnings per Share of RB Group and Unilever (two years
comparison 2015 and 2016, presented as a change in %). Earnings per share of RB Group has increased
by 6.46% from 2015, whereas Earnings per Share of Unilever has increased by
5.81% from 2015.It is found that Earnings per Share of RB Group is greater than
EPS of Unilever.
RB Group has recorded decrease in dividend cover by 6.35%
from 2015, which indicates that the company may not sustain the current level
of dividend in case of downward trend of the company profitability in the
future. This can have an impact on the valuation of shares. However, dividend
yield has increased by 0.45%.
The Chart 4 provides a comparison
with changes in dividend cover ratio and dividend yield ratio of RB Group and
4. Appendix 2 – Table 8 Investment ratio – dividend cover and dividend yield of
RB Group and Unilever (presented as two years comparison 2015 and 2016
represented as a change in %). Unilever has not recorded any change in regards
to dividend cover. RB Group dividend cover has decreased by 6.35% from 2015. In regards to dividend yield Unilever has
recorded decrease by 6%, whereas RB Group has recorded an increase by 0.45%
Benckiser Group’s plc Activities
RB Group plc is concern of the future of its employees,
therefore the company contributes to pension scheme – the final salary plan,
which offers an income in retirement. However, the final salary plan does not guarantee
the actual salary that a person earns when retire, therefore exist probability
that RB Group’s pension plan cannot be beneficial in the future. Additionally, obligation from net pension
assets liabilities is £84m for 2016.
Reckitt Benckiser Group plc nearest plan to merge with Mead
Johnson Nutrition. An investment is expected to bring a huge financial and
strategic benefits to the company and help to strengthen its position in the
future. Additionally expected cost of this acquisition is 16.6 billion US
In regards to tax RB Group expects to be within 23%. Additionally, the company has recorded a huge
value tax losses due to Humidifier Sanitisers (HS) issue in South Korea in
2016. Moreover, RB Group is sceptical about recovery of this value tax losses
in the nearest future. The company has recorded an increase in deferred tax
liabilities by 17.19% from 2015.
RB Group plc as a multinational company faces numbers of risk
related to their activities.
The top risks facing
RB Group are: threat that the company not fulfil regulatory requirements
concerning product categorisation, threat of manufacturing of the product and
its distribution as well as failure to comply with anti – corruption and global
competition law. Additionally, the company faces challenges from tax
authorities due to cash outflows, which are not a subject to taxation.
company is concern about product safety and ability of effective assessment of
products, which can have enormous impact on consumer safety as well as the
company reputation. The company is aware
of foreign exchange rate, especially after “BREXIT”.
conclusion, Reckitt Benckiser Group plc
is cash generated company, with revenue of £9.891m recorded in 2016.
Additionally, Earnings per Share has increased by 6.46% from 2015 due to re-
buying back its share. Stability ratios recorded decrease in gearing ratio by
14.87% and increase in interest cover ratio by 0.12%, which can be a good
indicator for potential investors as the company does not depend on borrowings.
Liquidity ratios increased from 2015. Current ratio has recorded increase by
12.30%, which shows that the company can more easily make existing debt
payments while quick ratio has increased by 13.64% that means the company has
got more quick assets than current debts. However, according to profitability
ratios analysis the company has recorded weak financial performance as ROCE
decreased by 16.59% from 2015. Sales revenue to capital employed declined by
10.34%, which indicates that RB Group does not manage its resources
efficiently. Furthermore, the company operates in a volatile market due to
constantly changing economic situation, therefore risks listed above should be
consider. As the company has been involved in South Korea’s event surrounding Humidifier
Sanitisers the company has recorded an increase in exceptional items of £367m
in 2016. As a result of
failure of the product, the long – term incentive plan has been reduced by 50%
as well as no annual bonus requirements for CEO. An increase in deferred tax
can raise concerns as the company is obligated to pay back this liability,
which can resulted in decrease in cash account.