Reckitt Benckiser Group PLC

LSE:RKT

Earnings Call Transcript 2018-Q1

[Operator]

Good day, and welcome to the Q1 2018 trading update conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Richard Joyce. Please go ahead, sir.

[Richard Joyce, Senior Vice President of Investor Relations]

Good morning, and welcome to RB's Q1 trading update. I hope you've all read the brief presentation we'll be talking through this morning. It's on the website and has been e-mailed to our investor and analyst distribution list.Before we start, I just want to quickly draw your attention to the usual disclaimers regarding forward-looking statements, which is here on Slide 2.And without further ado, I'll hand over to Rakesh Kapoor, our CEO.

[Rakesh Kapoor, CEO & Director]

Thank you, Richard, good morning. I will take you through a summary of today's announcement, and then Adrian Hennah, our CFO, and I will be pleased to take your questions.Let me remind you that this is a trading update only rather than a full set of results.So let me start with the 3 key messages for you today. The first one, we made a solid start to the year in Q1, now operating under our new organizational structure, RB 2.0. As I said in February, we got RB 2.0 off the ground in January 2018 to ensure we minimize transition risk. I'm pleased to say that the new teams are embedding well, and we expect to see benefits to materialize over time.Second, our Q1 performance saw some parts of the business exceeding ongoing expectations and some parts not. In true RB fashion, I will first take what is not meeting expectations.The Health business is very attractive and with strong secular growth rates, but the Q1 performance was mixed. Whilst we grew 3% on a pro forma basis in both this quarter and Q4 last year, Scholl continues to be a drag. We are working hard to address our problems in Scholl, which I will come back to later. On the rest, we have made strong progress.It has been only 3 quarters since we acquired Mead Johnson and the first as an integrated part of RB. I'm really pleased that we are starting to see further improvements in this business, and Hygiene Home also made a strong start to the year.The third message is we remain well on track to achieve our full year net revenue targets.Now a bit more detail on each of these 3 messages. You would have seen from our Q1 trading update that we made a solid start to the year overall, at 3% pro forma growth and 2% like-for-like. As I've said, Health had a more mixed performance with 3% growth in pro forma and 1% in like-for-like. IFCN delivered strong pro forma growth of plus 6%, demonstrating that Mead Johnson is progressing well. This is a great business, and I remain excited about the future growth opportunities.Hygiene Home made a strong start to the year with 4% like-for-like growth. This is of course the first quarter in which we are reporting under our new, more focused, and agile structure, RB 2.0. But for reference, in Q4 2017, we delivered 3% pro forma and like-for-like growth in Health and flat in Hygiene Home.Let me give you some additional color around our performance, and let me start by reminding you of our portfolio architecture.We have a very coherent portfolio under the umbrella of Health, Hygiene and Home. Under RB 2.0, we have clumped our Health Relief, Health Wellness, Health Hygiene and Infant and Child Nutrition brands under one combined RB Health BU. The Hygiene Home and Home Care brands form the new RB Hygiene Home BU.As a reminder, again, RB Health is around 60% of the business, with the base Health comprising 40% and IFCN about 20%. The remaining 40% is Hygiene Home. Let me talk you through how each of these parts have performed in Q1 2018, and let me start with base RB Health, excluding IFCN, which comprises of Health Relief, Health Wellness and Health Hygiene.Now the next slide shows the performance trends over 3 periods: half 1 2017, half 2 2017 and Q1 2018. As you can see from the right-hand side of the chart, the performance trends over these 3 periods for RB base Health have been broadly similar. Growth has been flat in half 1 2017 and 1% in the aggregated periods thereafter.On the extreme left of the chart, the core Relief portfolio, which represents about 15% of the total business, has been performing well overall this period with around mid-single-digit growth rate.And lastly, the Health Wellness and Hygiene part in the middle of this chart. This represents about 25% of the total business, and this has been more challenging. Now let me describe this in some detail and take each of these parts in turn.So in the next chart, you will see the Health Relief, which includes brands like Mucinex, Strepsils, Nurofen, Gaviscon, and they have been strong. Mucinex certainly benefited from a very strong start to the season, although the return of private label meant its growth rates have come down materially from the double-digit levels of last year. We expect this private-label reentry to continue to impact Mucinex this year. Private-label competition is a reality across the industry, and we have dealt with this successfully with one key weapon: innovation. We've always had a very strong pipeline of innovation on Mucinex, and we expect to launch more in half 2 2018, in time for the next season.Now turning to Health Wellness and Hygiene. First with Wellness, which has brands such as Durex, Scholl and VMS. Health Wellness -- well, firstly, Durex and our VMS brands were again in growth, with Airborne brand particularly strong, benefiting from a good season. The issue here again was Scholl, which suffered a significant decline. As we said in the February call, we are not fully out of the gadget decline and some of our displaced base losses are impacting the brand. I'm very unhappy with this performance, and let me tell you some data points and some color on the corrective actions we are taking with Scholl.In the next slide, you see that over the 3 quarters -- last 3 quarters, we have seen a relatively stable level of absolute sales. You can see from the slide that Q3 2017, Q4 2017, Q1 2018 are in about the same territory. At a stable rate, Q2 will still be negative versus Q2 2017. But thereafter, we should see our comps ease. Gadgets, which was almost 3/4 of the total Scholl sales at their peak, are now down to 1/4 of the total category. Given that these gadgets are high-priced items, the gap fill from normal-price innovations we have launched has not been enough to fully stem this impact. We are working very hard to reinvigorate our performance, and many of the steps include accelerating our pipeline.We have 3 innovations coming down the track, spread across the portfolio, from insoles to foot-aid treatments and other treatment products. We're also streamlining our range to make it stronger, to make it more appealing and to enhance our on-pack claims and education.So to summarize on Scholl, I would say we would see weakness in the near term, but sales in absolute terms have been stable for the last 3 quarters. And therefore, we would expect to see materially less of an impact from Q3 this year.As I said, I am very unhappy with our past 2 years of Scholl performance, but I also am reminded that in the long run, this is a category with strong potential. The category itself is important and underpenetrated. We spent 60% of our waiting time on our feet, and we walk 3 times around the world in a lifetime. Good foot health is an enabler of our overall health through movement, quickness, general well-being. And yet today, over 80% of the people suffer from some foot condition at some stage, and less than 20% of these people treat. So let's not forget also that we have doubled this business since the acquisition, but there is much more to go for in the medium term.So let's now turn to Health Hygiene. Health Hygiene includes our brands of Dettol, [ Veet ] and Clearasil. And Dettol is, by far, the largest brand here and has been a very successful brand.We had a weak quarter in this segment, particularly driven by macro weakness in Dettol. We have seen some share improvement in the quarter as we continue with our penetration programs, particularly in emerging markets, but we also continue to see very challenging market conditions in parts of Middle East.Dettol growth is down significantly in this region versus a year ago, but I expect the performance to improve in the second half of the year.Now let me come to some positives, starting with IFCN. As you can see here, the progression over the last 15 months shows that we are turning this business around. The business was in decline in half 1 2017 with key challenges in China, in U.S. and a number of other markets. In Q1 2018, which has been the first quarter under our integrated RB Health BU, we have made a strong start with a 6% pro forma growth.In China, we are strengthening our presence in the e-commerce channel, which now represents already about 1/4 of our Greater China business and an increase of 50% from a year ago.In the mom and baby store channel, we still have work to do, but the trends are promising and improving here, too. We are also working very hard to accelerate the innovation pipeline.In the U.S, the launch of Neuropro innovation more than offset the tailwinds from WIC contract losses, although all this was also sell-in. Next, although we have seen good early success, I want to temper this with the fact that the market growth in China is currently very strong, and we are benefiting from this buoyancy.We have much more to do, but this is a very nice start. And I remain excited about what it can do and bring to RB and our shareholders.Now last, and certainly not bad, is Hygiene Home. Hygiene Home delivered a strong performance, and this is a business where 3/4 of the turnover is in developed markets.You may have seen from public market data that we have seen some decent share improvements in a number of our categories, which is encouraging, and are now seeing the renewed energy and focus this business is getting, driven by the strong seasonal trends on Lysol, [indiscernible] in the results, [indiscernible] innovation launches such as the Lysol daily cleanser and the daily cleansing wipes. But Harpic grew well behind the early success of our Colour Power 6 innovation? Finish had a good quarter following the sell-in of our new Quantum Ultimate innovation. While there is a stocking benefit to this launch, the product has been well-received by consumers and customers.Air Wick had a good quarter in the U.S. and Western European markets behind the Essential Mist innovation. And Vanish, while weak, also saw improving trends aided by some innovations that we've launched, including the latest and most innovation -- efficient formula behind both Vanish White and the Pink range.Overall and notwithstanding the seasonal tailwinds and innovation launches, Hygiene Home had a strong performance in the quarter, beating expectations and giving us real confidence that 2.0 has given the business the new buzz it needed.So let me come to the final message for this call, our targets for 2018. As you know, our priority remains organic growth under our new focused organization structure, RB 2.0. And as I said, I'm very pleased to see such energy, focus and a strong start by the teams across the BUs.It is also good to see that our turnaround of Mead Johnson is progressing well. I'm very happy with the Mead people we have retained, and I'm delighted at how quickly they have embraced the RB culture and our way of working. We see a lot of value-creation opportunities here, and we are only still at the very beginning of this journey.On RB 2.0, it is early days, but we worked very hard at the back end of last year to enable our people to have a clean start in 2018 in their new roles. We've only been living it for a quarter, but already, we feel established, energized and focused. Whilst we still have a significant amount of work to do, I believe this is the right platform for RB to deliver long-term growth and out-performance.So to conclude, I would say it has been a solid start to the year, a lot of moving parts and more work to do. But we are firmly on track to deliver our full year targets of 13% to 14% growth at constant rates, implying a 2% to 3% like-for-like growth, and remain very focused on our priorities of improving our organic growth rate.With that, Adrian and I will be pleased to take your questions. Can we have the first one, please?

[Operator]

[Operator Instructions] The first question comes from Iain Simpson from Societe Generale.

[Iain Simpson, Equity Analyst]

I just wondered if I could dig into the Health performance a bit because that seems to be causing some concern this morning. You call out Health Relief as having grown mid-single digits. Health Wellness ex Scholl looks to be growing mid-single digits. But Health -- base Health as a whole ex Scholl is only growing 3%. So I'm guessing the swing factor there is Health Hygiene, which previously wasn't part of the Health division. So are you able to give us any color at all as to what the mix headwind for you now, including Dettol and the rest of Health Hygiene, within Health is? And then, secondly, looking at Scholl, you've called it out as having been flat for 3 consecutive quarters sequentially now. Presumably, if that continues, Scholl ceases to be a like-for-like headwind in the third quarter '18, just checking if I've got that right.

[Rakesh Kapoor, CEO & Director]

Iain, I think you are right on both counts, that when you take out -- when you look at the old reporting structure of RB Health, the impact of the -- we would have reported, I think, 3% growth versus the 1% we reported, and the impact has been from the Hygiene Home side. And this has been a problem that we called out from Middle East headwinds, actually we have talked about Middle East. So that is the impact. On Scholl, again, you're right, we have had stable sales from the last 3 quarters, as we've shown today. And if these trends were to continue, we do expect to have some drag in Q2. But thereafter, they should be materially less of a drag for the overall company results.

[Richard Joyce, Senior Vice President of Investor Relations]

Thanks. So next on the line, we've got James Edwardes Jones from Royal Bank of Canada. Go ahead, James.

[James Edwardes Jones, Managing Director and Analyst]

Two questions, please. First, on Scholl. I have to say, at the time, I had no idea that Scholl's sales was so heavily weighted towards gadgets. Are there any other brands where the shape of the business has moved materially away from Reckitt's traditional high-volume, low-ticket offering? And secondly, on the negative price mix, others have seen a big slowdown in pricing, most recently, Nestlé and Unilever, yesterday. But your 1% is quite a lot lower than they're talking about. So why is Reckitt being disproportionately affected here?

[Rakesh Kapoor, CEO & Director]

I think the first -- answer to the first question is I think the weight of gadgets at Scholl is by far, of the recent launches we've had, the most. But I want to remind you that our Air Wick business had, for the last 15 years, a number of gadgets. We have electrical gadgets which have refills, we have Freshmatic gadgets, we have aerosol refills, and that has been a constant feature. The big difference, actually, between our gadget launches of the past and this one has been the refill stream has been a material part of the previous gadget launches. So if we launched a gadget -- and most of the gadget launches were in less than the GBP 10, $10, EUR 10 range. So the gadgets were less than EUR 10 and the refills were, let's call it, half of that price. And then, over a number of years, you would have refill sales being far more than the gadget sales. In this particular case, the gadget price have been materially higher, $40, EUR 40, GBP 40, and the refill prices -- the refill uptake also, the amount of refill you need to make these gadgets work has been also [ a very low ] material part of this business. So I think, it is -- we've had gadgets in the past. We've been very successful with gadgets. They form a very strong and stable part of our Air Wick business. I think the Scholl one has been a unique example, and I would -- that is why we are calling it out the way it is and explaining how it is impacted. It was nearly 3/4 of our business for Scholl, at its very peak. And now it's like 1/4, so that's where it is. On the other side, I think you asked a question on pricing, why is the pricing as low as 1% or something in our like-for-like number.

[James Edwardes Jones, Managing Director and Analyst]

I think you said price -- well, maybe I inferred it. But I think price mix was minus 1% in the quarter. And others talking about kind of low, but positive pricing. I was just wondering why Reckitt seems to be being more affected.

[Adrian Nevil Hennah, CFO & Director]

Well, they're not more affected, James. We can only to talk more about ourselves. I think it's whether more or less, you have to make your own judgments depending on what other people have called out. But let's, yes, let's just spend a minute on the pricing environment that we're seeing. First of all, no significant change from what we experienced in the second half of last year. So we have called out for the group as a whole that the pro forma 3% growth was 3% volume and flat price. And the 2% like-for-like was 3% volume and therefore minus 1% price, which -- and that minus 1% is of course exactly the same level that we called out in Q4 last year and Q3 last year. We've also given a little bit more color in the release, as you'll have seen, as to how that price movement has impacted between the 2 BUs. And in particular, as we've been saying for some time, the price pressure has been felt more heavily within the HyHo or household business as well as being more heavily within the developed markets, Europe in particular. So this time we said that within the 3% pro forma Health growth, about 1/3 volume and 2/3 positive price mix; whereas, conversely, within the 4% growth in the HyHo business unit, we've seen strong volume growth and negative price mix. So I think there hopefully is nothing surprising there compared to what we've been talking about over, certainly, the second half of 2017, either in terms of the magnitude on the group as a whole, James, nor as between the split between the 2 parts of the portfolio.

[Richard Joyce, Senior Vice President of Investor Relations]

Thanks, James. Next on the line, we've got Martin Deboo from Jefferies. Go ahead, Martin.

[Martin John Deboo, Equity Analyst]

Two questions, just again on Health and Health Relief. You called out Gaviscon and Strepsils positively. Just given the importance of those brands and the fact they seem to keep managing to grow, I'd just value some color on where the growth is coming from. Is it geographic rollout? Is it SKU extension? Just color there will be helpful. And second question on foot care, just coming out of the conversation you had with James just now. Rakesh, you said you've learned many lessons from foot care, and I wonder given what you said about the balance of gadget versus refill, is there an argument going forward on gadgets that you go to a licensing model rather than take the total revenue risk on these products? Or do you think that foot care is just a one-off and lessons are being learned and you're comfortable with the gadget and refill model? Just interested on your thoughts on that.

[Rakesh Kapoor, CEO & Director]

Yes. Thank you, Martin. Listen, the first thing that I would -- our Health portfolio -- or Relief portfolio has been performing steadily since as long as I can remember. So I don't think this is a specific reason to call out one brand or the other. Now, clearly, when you have a portfolio of, let's say, 7, 8 brands in Health Relief, it's obvious and normal that in some periods one will do a bit better than the other, and that can be a combination of innovation, some tailwinds like seasonality, but also rollout. But I would say our Health Relief portfolio has been a strong, stable, steady part of our portfolio, and it continues to be so. And in some years, Mucinex has done fantastically well. I mean, last year was one of them. We had double-digit growth rates on Mucinex. And in some years, like this one, we might have some headwinds from private label, which we will deal with, obviously, very strongly, and I hope well. But it has been -- I mean, I don't want to call out one brand, Strepsils or Gaviscon. We have -- you asked me a question on whitespace. We have rolled out Gaviscon. I think, in previous calls, we've talked about rollout of Gaviscon into parts of Asia, in the Middle East. And over a period of time, when we start, we start sometimes with, I'm calling them behind the counter. So not necessarily only the prescription, but pharmacy recommendations are required and only pharmacies can sort of give them away. And over a period of time, as they settle in a market, when the regulators are happy with their efficacy and safety profile, we get, let's call it, over-the-counter status, which is you can advertise them and so on and so forth. So, for example, right now, Gaviscon has earned the over-the-counter status in Thailand, as we speak. And as soon as that happens, that market does materially better, because suddenly we start advertising and so on. But I don't want to call out one market like Thailand or a whitespace launch, which is a normal [indiscernible]. Whitespace launches normally do not add materially on 1 year. But over a number of years, they can be a part of the growth model of a portfolio, and it has been. So net-net, I would just say that Health Relief portfolio have been generally very steady and very stable and very good in all the years that we've had them, with some years being better for one brand or the other. So that's the first thing. On gadgets, I would say we have been badly burned. I would be open about this. It's like it's been a terrible, terrible part of RB. I mean, I have to say that we -- it's -- if you think about how small Scholl is to the whole company and the amount of time we've all spent talking about Scholl as if it's the one thing that matters, which it has, of course, because it has been a huge success for a number of years, and we have done very well. I mean, I wish I could take away the gadgets from the last 6 years or 7 years and show you that we've still grown the underlying brand, like I've told you from the time of the acquisition, which was basically from 2011. We have doubled this brand still. So I think it has been a terrible part of our discussion. But I think one of the key lessons here is when -- we have a portfolio of products, which are generally in the 5% to 10% range, some are even lower also in different parts of the world, but in that kind of thing. And I'm taking infant nutrition out of it because infant nutrition, obviously, are high-ticket items, too. But when you think about normal innovations, if you have a $40, GBP 40 innovation, which from the time of launch, with the sell-in that happens, with the consumer uptake that happens, the penetration we can drive, does so well, and the refill sales don't follow, they can create these peaks and troughs. And I think the #1 lesson here is the significant delta between the price of the gadget and the repeat rate of the refills and how frequently those -- frequency of repeat rate. So I can tell you, we have -- we've learned a very, very tough but -- lesson that we are not going to forget. And I'm now double skeptical about gadget launches. I've said no to many of these, obviously, because I'm not confident that we have fully understood the gadget refill model. And the next time we do it, we probably will have to test our way before we roll those out. But to walk away completely is also not the right thing. But to keep our messages intact and lessons intact and use those every time we look at these is what we are going to do. So that's how I will summarize it. A painful lesson, one we will not forget. But equally, these are -- as we've shown in [ air care ], over 10 years, 15 years, they have been a fantastic part of our business. And by the way, as we all know, refills are very margin accretive. They have stable sales, very margin accretive, and they can be a very good model for the future. But not the one that Scholl has demonstrated, definitely not.

[Richard Joyce, Senior Vice President of Investor Relations]

Okay, thank you, Martin. Let's move on to Marion at Raymond James. Go ahead, Marion.

[Marion Boucheron, Financial Analyst]

I was wondering if you could give us some colors on what you're expecting in the upcoming quarters in emerging markets, whether you see some improvements there, be it Russia, or what's your outlook for the Middle East. And then, also on innovation, it seems like it boosted Hygiene Home in Q1. So what would have been an underlying growth rate, maybe excluding the sell-in, I mean, sell-in of the innovation? Or are you even confident you could sustain such rates in the full year?

[Adrian Nevil Hennah, CFO & Director]

We'll take the second one first, Marion, in terms of can we quantify the effect of the stocking behind the new launches in Air Wick and Finish. They're material enough to us to want to call them out, so you get a sense of what's going on behind that 4%, but they're not so material that they're distorting the trend greatly here, and certainly not something we're going to quantify. And in fact, it's something that's quite hard to quantify exactly. So it's big enough for us to want to call them out in understanding not just the 4% growth in HyHo, but actually the 6% growth in the U.S. And therefore, also, by the way, the Neuropro launch in Health, but not so as material as to be distorting trends. On the first one, you're asking Russia, Middle East, what's the prognosis. Well, I'm not sure we are that qualified to give views on what's going to happen in Russia and Middle East more broadly. But in terms of stuff that's directly affected us, they are slightly different. The impact in Russia is more specific to the company, and indeed, it's more specific to the Health side of the company. And it's connected to the very extensive pharmacy channel we have in Russia. And basically, as we went through towards the end of 2017 in making calls about what the strength of the season was going to be in Russia, we, because of our very close relationship with most individual pharmacies in Russia, we made sure that there was plenty of stock in, and that plenty of stock turned out to be a bit too much. So as happens from time to time, we had it coming out or running down in Q1. So that was a more company-specific thing, which will pass. The Middle East is clearly an effect of all the stuff going on, very much for us economically centered Saudi Arabia because of the size of the country and the size of our business in that country, where there are obviously some very profound things going on. But your knowledge of the place, I suspect, is at least as good as ours in terms of giving a prognosis for the Middle East.

[Richard Joyce, Senior Vice President of Investor Relations]

Okay. Thanks, Marion. Let's move on, and we've now got Bob Waldschmidt from Liberum on the line. Go ahead, Bob.

[Robert Russell Waldschmidt, Consumer Goods Analyst]

Just 2 questions, if I can. With respect to Mucinex, I mean, clearly, private label is a reality in the market. I was just wondering if you could illustrate for us how much of the portfolio of Mucinex in the U.S. is now covered by private-label entry? And potentially, therefore, how much is potentially still at risk of further entries? And then, secondly, you mentioned lower display slots for Scholl's, which would point to something a little bit different than just the gadget. Can you give some more color on what that is about? How long that might persist?

[Rakesh Kapoor, CEO & Director]

Yes. Listen, Bob, on Mucinex, I think by and large -- just to remind you, the -- Mucinex has 2 parts in the portfolio. One is the 12-hour range, which is one we have patent protection on, and the other one is the normal 4-hour range, what we call the Fast Max range, which never had the same level of patent protection and always had private labels. So the first thing is -- to call out is Mucinex has 2 big ranges, the 4-hour ranges, what we call Fast Max, and the 12-hour range. So the 12-hour range is one that has been subject to private-label reentry. Private label has been in and out of the 12-hour range. So if you go -- I mean, you would have heard private-label launch a few years ago, too. And what has happened is 12 hours has been a notoriously difficult product to make, very unstable because when you combine the various ingredients, I don't want to get into the technical details, not so easy to make. That's why it had trouble and that's why it never had a secure supply chain. But now, after so many years, they have managed to secure that supply chain. It seems to be a case where they now have launched it with full flow. So I do expect the very bulk of the impact to happen in 2018, the very bulk of the impact, provided they continue to obviously have the same supply chain that they've shown in the first quarter. Okay, yes, sorry. So, yes, you had a question on the slot. Actually, you've seen that reflected somewhat in the last 3 quarters of our sales. So you can see already that sales are down, and what we are trying to tell you is that this is a gadget impact, definitely. But clearly, the gadget impact was positive for a number of years in getting the whole range and the whole display space. And now it is a bit of a negative, not just -- or it's a bit of a negative on the range, but gadgets still form quite a large part. Now clearly, as I've said, it's something that we are very aware of, and we have been working to counteract that. It's just that when we launch several innovations, the mathematical impact of those innovation launches, given the lower ticket size, is not enough to offset what we have to gap-fill. We have seen more coming over the next periods. And hopefully, after getting a stable base of Scholl sales, we can find a positive way of talking about Scholl in the future, and I hope to do that.

[Richard Joyce, Senior Vice President of Investor Relations]

Good. Let's move on, right. So we've now got Jeremy Fialko on the line. Go ahead, Jeremy.

[Jeremy Fialko, Partner of Food Manufacturing & HPC Research]

Jeremy Fialko at Redburn here. So 2 questions from me. The first one is I know that this is, a, just a quarterly revenue call. You don't normally comment on these things, but just if you have -- how the shares moved today, is there any way you can give us some confidence in terms of the full year margins and your happiness or otherwise with where the consensus is on that? And then the second thing is, I guess, you've gone through a collection of issues, which perhaps helped your growth in Q1, but maybe greater drag in Q2 in terms of kind of stocking, maybe greater impacts from Mucinex in subsequent quarters. Besides the cyber attack, are there any things where you think there's a decent chance to see kind of improvement in that, so the ongoing run rate of the business, as we go through the remainder of the year?

[Adrian Nevil Hennah, CFO & Director]

The -- so on your first question, Jeremy, on margins. Yes, this is a trading update, so we're not talking about margins, we don't feel any need to talk about margins. We didn't give, obviously, quantified guidance in the full year numbers, but we did talk about the various drivers of margin, and we do feel the markets understood what we were trying to say there. And because this is a trading update, we don't feel the need to say anything. We're quite happy with the dialogue and how it was received. In terms of the sort of ups and downs in the rest of the year, unsurprisingly, we're not going to go into quarterly guidance and so on, Jeremy. But I think you're right to point out, there is clearly a cyber positive in Q2 and Q3. And clearly, there are a couple other things which we've called attention to, and you summarized, back in the Mucinex private label, in particular, and a little bit of a watch-out from the new product launches and some channel building behind them, which we've also called out. But that's in the nature of it. In fact, we're giving full year guidance here or maintaining full year guidance here. We're not giving quarterly-by-quarterly guidance. There will be ups and downs, and we remain very comfortable with the full year guidance for revenue, Jeremy, and insofar as it was for margin.

[Richard Joyce, Senior Vice President of Investor Relations]

Okay. Thanks, Jeremy. Right, we've now got Guillaume Delmas from Bank of America Merrill Lynch.

[Guillaume Gerard Vincent Delmas, Director]

A couple of questions for me, too. Firstly, on Mead Johnson. You said last year that Mead margins were actually lower than you initially anticipated, with its strong like-for-like development in China, in particular in Q1, likely to continue into actually the second quarter. Dairy prices also have eased versus last year's peak. So on a pre-synergy basis, are you not seeing a nice recovery in Mead Johnson margins in Q1, which would imply a less dilutive impact from the first-time consolidation of Mead in your first half results? And then my second question is actually on your full year '17 results because, in the presentation, I can see in the appendix you provide the margins for RB Health and RB HyHo. And I'm surprised to see a 30 basis points decline only for RB Health last year despite the dilutive impact from Mead Johnson and also the lack of organic sales growth, in part due to the cyber attack. So what was driving this nice underlying margin development in RB Health last year?

[Adrian Nevil Hennah, CFO & Director]

Okay. Yes, eagle eyes, Guillaume. The -- so first of all, on Mead Johnson margins. Well, listen, yes, you're right. Clearly, when the top line grows well, it's much -- life is easier further down the P&L. Yes, you're right, we see the same data on dairy prices that you see, and there was a peaking in the full-fat milk cost in around the middle of last year. And as I think we said before, there's sort of a 6- to 9-month lag between spot prices of milk and it appearing in our P&L, so that is sort of broadly coming in now. So those are both positive things. But we're not changing our view on the sort of economic model around infant nutrition that we had in our acquisition case. We've been clear that, notwithstanding the fact we inherited this business with a lower margin than we expected in the middle of last year, we still do expect to get back up to the margins we have been anticipating in the financial case. And both cost synergies and these other developments all help do that. The -- in terms of the second part, yes, we have included indeed as an appendix in this presentation and on the website, as we said we would, the 2017 and 2016 operating profit and margin analysis for the 2 new business units, ahead of when we'll of course give that. And that does show the movements, therefore, between the 2 business units. And you're right, so that we're seeing -- we see a [ forward ] in both business units' profitability. But of course, within the Health one, there is the arithmetical combination of Mead Johnson. But what is also going on there is both gross margin development, but also the movements in BEI. And I hate to mention the Scholl word again. But of course, you would've seen the movement in support from Scholl in one of those years. But as that product was not succeeding, clearly, we saw a movement away from that, and it went not just out of Health products, but also to HyHo products. So you see both of those effects in there as explanations of the movements in the relative margins, Jeremy -- Guillaume.

[Richard Joyce, Senior Vice President of Investor Relations]

Yes. Right now, we've got Pinar from UBS. Go ahead, Pinar.

[Pinar Ergun]

I have 2 questions. One is, could you please give us an update on where you are with Mead Johnson's rollout to the higher-growth e-commerce and mom-and-baby stores in China? What is the share of Mead Johnson Chinese sales coming from various channels, for example? You mentioned that the Hong Kong business is still declining, could you please give us an indication of the rate of decline there? And the second one, when you think about the share price performance, what do you think the market's missing? And not sure if you can even comment on this, but I'll have a go anyway. Are you ready to [indiscernible] Reckitt stock here as part of your long-term compensation plan?

[Rakesh Kapoor, CEO & Director]

So I think you asked a number of detailed questions, Pinar, about the data on various sales by channel, et cetera. Clearly, you can understand we're not going to give you all those pieces of information. All I would say is that China has been a focus for RB because, clearly, it has been a significant -- it is a significant part of Mead Johnson, a significant underperforming part of Mead Johnson, which impacted -- and I'm talking about Greater China, both Hong Kong as well as Mainland China. And we've put in a lot of effort [indiscernible] at what have been on dialing up materially the e-commerce platform, which was -- we were underweight there. Dialing also the mom-and-baby stores, which is a significant -- more than 50% of the business now, of categories trading in mom-and-baby stores. And again, we were underweight there. And the third part, of course, was the Hong Kong cross-border aspect. Now, in all these 3 things, I would see progress. On e-commerce, as I've already said in the call, our growth rate on e-commerce in Q1 versus the same period last year is 50%, and e-commerce is now, in Greater China, a significant part of our growth business. So that part is doing well. On mom-and-baby stores, the real challenge is to penetrate the tier C, D and E cities, going down the city levels. And what we are trying to do is to figure out a really fast-track model of capturing of these new cities that we believe that are important for growth and important for reaching consumers. And without disclosing very much on what our plans are, but we have a very innovative strategy using, basically, a new approach to fast track our city launches. And I would say, in Q1, we have reached a significant -- I'm not going to give you details. It is competitively sensitive -- a significantly more number of cities in the lowest-tier cities that I was just talking about, with plans to accelerate during the course of the year. So I think, mom-and-baby stores, the progress, like I said in the call, early signs, but very promising and encouraging work already. On cross-border Hong Kong, this has become a very small part of the whole story, actually. It was a big part of the story. It is becoming a very small part of the story. And I would say Hong Kong is now not a big topic for discussion here. And we're doing okay in Hong Kong in terms of our business with some interesting plans, obviously. I think, beyond China and Hong Kong, you've already seen from the U.S., we are working hard on the innovation pipeline because innovation is the way through which we are going to make sure that we can bring long-term traction in the category. And we believe we can apply RB innovation skill sets to infant nutrition. Now some of it will be fast, and you will see this in the next periods, and some of it will take time. But actually, the energy going behind innovation is incredible. And I think I also see some very promising signs that we can actually bring innovations to market and make this good. So net-net, I mean, I think Q1 -- if you asked me 9 months ago, do you -- would you take 6% growth? I think all of you would have taken a 6% growth in Q1 this year. And I know it was a soft quarter for Mead Johnson last year, but it should not also take away the good work that we've been able to do over the last 3 quarters of our ownership. And then I think you asked some question on the share price. I think I've been -- I'm on the call, I don't know what the share price is. But clearly, I fully and I'm firmly of the belief that RB is a fantastic company with a fantastic opportunity to outperform in this market. We clearly have been weighed down by Scholl and one-off factors, this is clear. But if somebody can see beyond that, you will see a fantastic company, which is still running in an incredible way.

[Richard Joyce, Senior Vice President of Investor Relations]

Okay. Thank you, Pinar. Let's move on. So we've now got Rosie Edwards from Berenberg. Go ahead, Rosie.

[Rosie Edwards, Analyst]

Just one question, just on price mix. Are you able to say whether it was positive in Health excluding infant nutrition? Or give me some sort of color as to whether it was positive, negative or the like.

[Adrian Nevil Hennah, CFO & Director]

Yes, we can. And as what you've seen for Health, overall, well, the answer, bottom line, is slightly positive, rather than my formulating a coded way of saying it.

[Richard Joyce, Senior Vice President of Investor Relations]

Thanks, Rosie. Right, now [indiscernible] on the line, [ but right now ] it's Richard Taylor from Morgan Stanley. Go ahead, Richard.

[Richard Taylor, Equity Analyst]

Richard Taylor here from Morgan Stanley. Thanks for the color on Scholl, but I do want to press you further for more specifics on this. It's obviously dragged on the business now for 8 quarters, and it's pretty tough from the outside to understand exactly what's going on. So on our estimates, we think devices is now below $100 million of sales. And last year, like-for-like for the devices part fell 60% with the broader Scholl business falling 30% like-for-like. So I want to understand more on that like-for-like performance. Are we right in terms of the shape? And also, the leg down you show in your slides in terms of absolute sales, what exactly drove that? So that's just on Scholl. And then the second part of my question is on Mead. Obviously, a very strong performance in China. Can you give us a bit more color on how well Enfinitas is going there? And secondly, outside China, you've obviously launched Neuropro into the U.S. Maybe you can give us some more color on your pipeline of innovation there.

[Adrian Nevil Hennah, CFO & Director]

So listen, let's just -- there was a blurb of numbers you just threw out there, Richard, on Scholl, but just let me recap the ones we're trying to do. So you've obviously seen we're trying give a high degree of transparency on Scholl, because it is obviously such a difficult issue. So the Scholl brand in Q1, roughly -- Scholl brand in its entirety in Q1, roughly, roughly 2% of group net revenue. So let me get this in perspective. Within that, as Rakesh called out, the gadgets were about 25% of total Scholl, so 0.5% of group revenue, you can see. The -- we also called out -- Rakesh also called out that at peak, which was in late 2015, gadgets were over the 70%, I think Rakesh said 75%, of Scholl revenue. And just for completeness so you can get a sense of the Q2 impact, because you've seen that graph of stability from Q3 onwards last year in absolute sales. But in Q2 last year, we're talking about a revenue, which was sort of roughly 2.5x the gadget revenue in Q1 this year. So roughly GBP 40 million to GBP 50 million. So that will give you, I think, all you need to know around the headwind we face in Q2 and what should then pass. In terms of Mead Johnson, you want to do that? So in terms of China Mead Johnson, Enfinitas is a very significant part of the growth and is going well. Not going to break down numbers for you, obviously, precisely, Richard, but it is an important part of the group in China. It was in line with the plan we talked about that was -- that we inherited from Mead Johnson when we acquired it. It is going well, it continues to go very well. In the rest of the world, the -- I mean, just to remind us all, there's sort of 4 bits of geographies that are in Mead Johnson. There's Greater China; there's North America, overwhelmingly, the U.S.; Latin America; and ASEAN. In the U.S., things continue to progress well. I mean, the market is obviously much more mature and stable than it is in China. So we're never going to see the big deltas of the sort you see in China, and the sort of gestation period, if you'll pardon the slight pun, on changes you make because of the business model take a bit of time. But we're very, very happy with the way the operational improvements that have been made progressively with our Mead Johnson colleagues since we acquired the business are playing through. We track, in particular, the market share of the non-WIC, because that has a slightly different dynamic from the WIC, and we can see that progressing incrementally in the direction we expect it to be. So not dramatic movements in the U.S., but movements that are consistently in the right direction. And then, of course, we're very excited that the Neuropro is now just reaching consumers, having reached the retail shelves during Q1. So very pleased with that. Canada, by the way, continues to be an exemplary market with some excellent communication with consumers going on in Canada. And very much an example for not just the rest of the Mead Johnson part of our business, but actually, lots of other parts of our business. The other 2 geographies, Latin America and ASEAN, do remain more volatile. There's several countries in those 2 markets and there's ups and downs within them. And we are getting progressively to grips at a deeper operational sense of those things. But I wouldn't say, by any means, that we've got our arms fully around every part of the improvement we need to in those 2 bits of business, but that -- they will come. There's no doubt in our minds about that.

[Richard Joyce, Senior Vice President of Investor Relations]

Thanks, Richard. We've got another 10 minutes. We've got 6 questions. So now we've got [ Faheem ] from Credit Suisse.

[Unknown Analyst]

Can I come back to Hygiene and Home? The reason being because, last year, you recorded minus 2% and this time, in Q1, 4%. What are the moving parts? Is 4% a good growth number just for it to continue for the rest of the year? And secondly, can I come to India? How is Dettol progressing in India? Because it used to be a strong driver for RB. Has growth stabilized there? Just those 2.

[Rakesh Kapoor, CEO & Director]

Yes, okay. Thanks. So first of all, Hygiene Home, as I've said, the market basically -- overall market, is we expect the medium-term growth rates on this market to be in the 2% to 3% growth rate, and we have said that we were -- obviously, you saw from the results last year, we were not performing in line with the market. And clearly, when you see a 4% growth, we are definitely outperforming this market from a growth point of view. And when we see the trends on our business performance from the second half of last year to now, we see an improving trend. So we see an improving trend from the innovation we launched last year, but also the innovation we're launching this year, both in terms of in-market result and our performance in share terms, but also in terms of growth. So we can see that happen. But 4% is not an extrapolation we would like you to carry, obviously, because the market is not in that range. 4% also has a very nice impact from Lysol, both from season as well as from innovation. So I think there are a number of moving parts on 4%, but the key message here is that we were not performing in line with the market growth rate. And we see improvement in -- or progressive improvement, not a sudden improvement, progressive improvement to the market performance and a bit of market outperformance level. And we hope we can continue that in-market result and in-market performance even if the 4% top line growth rate is obviously well ahead of where the market is. On Dettol, I think Dettol has been very a good -- India, it is a very fantastic brand, one of the most structured brand in India, and we always managed to outperform the market with Dettol and we continue to do so. So the Dettol brand is outperforming the market. The growth has been very good, clearly. From one period to the next, a number of things have happened in India: demonetization, GST and all of these changes. So to just look at the sales delta in one quarter and compare it with the other, we'd never be in India given the volatility of what is happening in India, be the right way of looking at it, but the brand is performing well. We are doing well there.

[Richard Joyce, Senior Vice President of Investor Relations]

Right. Thanks, [ Faheem ]. Right, let's move on, Alex Smith from Barclays. Go ahead, Alex.

[Alexander Piers Smith, Research Analyst]

A question on your organization or corporate structure, please. I guess, you've had a bit of time now to work under the 2 new business units. But I'm just wondering how you feel about running North America and Europe still effectively as one market under ENA. Can this work, I guess, in this sort of more decentralized consumer environment where you're trying to get some more bespoke innovation? So that's one question. And then secondly, on Hygiene and Home, just wondering how you feel about the opportunity for geographic whitespace rollout under this new organization. My impression was, under the old Reckitt structure, the household business was more about growing within your geographic strongholds, so just wondering if there's been a change of mindset there about geographic expansion.

[Rakesh Kapoor, CEO & Director]

I think in the new RB 2.0, we're managing the business by business unit, actually. So I think the business unit in Hygiene Home has North America, Europe and developing markets. Within developing markets, also, there are some -- a number of regions reporting directly to the BU president, and the same goes in Health. We run North America, Europe and several developing markets reporting directly to the BU president. So I think the material difference, actually, if you think about it, is that we are now running the company through the lens of the BU and not the geographic lens. And the geographic lens plays a role in the organization structure, clearly, because you need to have the organization in every key market. So I think that is the material change that you will see.

[Richard Joyce, Senior Vice President of Investor Relations]

Whitespace.

[Rakesh Kapoor, CEO & Director]

The whitespace on Hygiene Home. I think, first of all, I think the Hygiene Home brands are actually, if I may say so, the legacy RB brands. What I mean, legacy, don't [ drive ] more, say, positively. Let's call it iconic RB brands. There have been brands, like Air Wick and Vanish and Finish and Harpic, have been in the RB portfolio for a very long period of time. And unlike the Health brands, some of them have been acquired over the last 7, 8, 10 years. So I think they are far more naturally geographically present. Having said that, clearly, there will be whitespace opportunity. But if you ask me the big opportunity in Hygiene Home is to apply that passion and focus and bring innovations, like we are launching or have been launching over the last 6 to 12 months, to a much higher level than we have. And I think you will see the energy and the passion that, that brings into our business to be the most material difference. As I've said, whitespace launches are important. But in one year to the next, they don't create the massive growth delta that you think they do. Over a period of time, they can be very important. And that is the case for Hygiene Home, too. But Hygiene Home brands, generally speaking, have a very good spread. Having said that, there are opportunities, and I would call out Finish in China. Finish in China is still a very, very underpenetrated brand, and we are working extraordinarily hard to make it the big brand that it is in many parts of the world.

[Richard Joyce, Senior Vice President of Investor Relations]

Right. Thank you. Let's move on. Eddy Hargreaves from Investec. Go ahead, Eddy.

[Edward John Hargreaves, Analyst]

I wondered, just quickly, if you could speak further into the developing market growth, which was 5% in the quarter. Within that, you've said that Greater China infant nutrition was double digit, Brazil and India were growth accretive. We understand that Middle East was weak for the reasons that you alluded to. But it means that some other areas within developing markets must have had quite seriously negative performance. I wonder whether you could just highlight what's going on under that plus 5% number, given the growth in Brazil, India and China.

[Adrian Nevil Hennah, CFO & Director]

Well, not really. I mean, the mathematics add up. We know we've highlighted the ones doing well, particularly China, particularly India. And we've highlighted the ones not doing so well, which is particularly the Middle East, which -- so I'm not sure -- I'm honestly not sure what we can say to that. Those are the numbers, they add up to the number you've got published here. I'm not sure what more color we can give to that, to be honest.

[Edward John Hargreaves, Analyst]

Well, how sizeable is...

[Richard Joyce, Senior Vice President of Investor Relations]

[indiscernible]

[Adrian Nevil Hennah, CFO & Director]

Sorry, go ahead?

[Edward John Hargreaves, Analyst]

Yes, how sizeable the Middle East within your developed markets then?

[Adrian Nevil Hennah, CFO & Director]

Middle East is a chunky business. I mean, we've been clear on that all along. But it's also -- you can see its materiality in these quarters, but also the effect it has on Dettol growth because it's a big brand in Dettol -- big part of the Dettol brand. So yes, the Middle East, in aggregate, is a reasonably chunky part of our business.

[Richard Joyce, Senior Vice President of Investor Relations]

Okay, let's move on. Thank you, Eddy. Now we've got Toby from Macquarie Bank.

[Toby John McCullagh, European Consumer Analyst]

I guess, let's say, a couple of clarifications. Firstly, apologies if I've missed the numbers. You've quantified the scale of Relief or Health Relief within the Health business, but wellness and hygiene looks to have just been lumped together. I wonder if you could quantify or give us the split in Health between wellness and hygiene, just so we can sort of do some math around those moving parts. And then secondly, just a clarification around your commentary on margins for the year. You said that the market has understood what you were saying about margins in 2018. I mean, can we infer from that -- do you -- are you -- does that mean that you're happy with where consensus is at?

[Adrian Nevil Hennah, CFO & Director]

Look, on the first one, yes, we are obviously trying to give a better sense of the balance of the portfolio within Health and even in the group as a whole. But we're not going to go giving you precise percentage of each bit. So, sorry, I can't give you the -- we can't give you the split between wellness and hygiene that you're looking for. And on margins, yes, I'll just repeat, we didn't quantify guidance at the full year. We did talk about moving parts. We do think the markets understood what we were trying to say, and we're happy with that, yes.

[Richard Joyce, Senior Vice President of Investor Relations]

Okay. Thanks, Toby. Right, second to last question. Jeff Stent at Exane.

[Jeffrey Patrick Stent, Research Analyst]

I sat down this morning with the release, and I started to highlight all the sort of one-off comments, and now my page is kind of covered in yellow. So with that in mind, I was wondering, could you sort of quantify what your assessment of the underlying growth of the business was in the quarter?

[Adrian Nevil Hennah, CFO & Director]

Listen, let's just go back to the sort of market references. So we've said that within the Health business, the pro forma Health business, in the medium term, we look at 3% to 5%. We said the market is between -- is in the middle of that range, and it's clear that we are underperforming that. You've seen that the biggest reason for the underperformance is Scholl. But frankly, we are also underperforming the market slightly in infant nutrition, still. We're closing in on the market -- on the market growth as the market growth goes up, having inherited a position which is quite weak, as you know. But then -- so it's still a little bit behind, although it's closing fast. The -- and on the higher side, I think Rakesh has already answered the question. We see a medium-term market growth of 2% to 3%, but we're currently at the -- we think the market is currently at the bottom end of that, i.e., around 2%. And we are -- we have, over the -- progressively over the last 6 to 9 months, been improving our market share performance to the point where we see slight gains. So I think that's the sort of best measure I can give you of the underlying dynamic of the business.

[Jeffrey Patrick Stent, Research Analyst]

So is it fair to assume it's less than the 2%?

[Adrian Nevil Hennah, CFO & Director]

Well, I think you should just replay what I just said in terms of HyHo and Health, separately.

[Rakesh Kapoor, CEO & Director]

Let me step in. Why did you come to the conclusion that it's less than 2%?

[Jeffrey Patrick Stent, Research Analyst]

Well, I'm confused between Health and -- yes?

[Rakesh Kapoor, CEO & Director]

Everything we've said is quite clear, I think, here. The performance is exactly what you read. There is nothing -- what we have -- I don't think there is anything hidden under the performance. I mean, it's as transparent as we can make it in a trading update like this. The performance is what you read. There is no -- I don't think you should take out any underlying, underlying here. This is actually -- if there was any underlying, underlying, we would have also called it out.

[Richard Joyce, Senior Vice President of Investor Relations]

Thanks, Jeff. Okay, and finally, we've got Celine Pannuti from JPMorgan.

[Celine A.H. Pannuti]

It feels like it has been a long call, but I just have one last question on your Slide 18. By the way, I wanted to thank you for the additional granularity and disclosure you have given in terms of the moving parts in your release. But on Slide 18, so you called out the difference Scholl in margin performance in H2 between Health and Home Hygiene, if I understood clearly, as a rebalance of BEI between Health and Home Hygiene, fine. Just wanted to understand whether you also had a higher price mix hit or negative pricing in the second half of last year, higher raw mat, whether something that as well have been an issue for the second half. I'm just trying to figure it out whether that's something I should take into account as I look into H1.

[Adrian Nevil Hennah, CFO & Director]

No, Celine, no. The -- when we look at the incidence of price mix developments in between the 2 business units, they have consistently been higher in HyHo than in Health. So you've seen that in the current quarter, and that was the case as we look back through last year. And it's also the case that, in the second half of last year, '17, as you saw from our aggregate good group numbers, price pressure in aggregate got bigger. That, too, was disproportionately in HyHo. So what you're seeing now in HyHo was also the case as you look back into the comparative data here. That answer your question?

[Celine A.H. Pannuti]

Not really. So the 190-basis-point decline in H2 in HyHo was also led by lower price mix, right? And hence my question is whether we should carry this forward in the first half.

[Adrian Nevil Hennah, CFO & Director]

Oh, okay, but now you're saying, looking forward, what do we see as the dynamics of price mix looking forward. Well I think we'd repeat, we are still, on that perspective, sort of where we were with our full year numbers in the sense that we do not view this as being a long-term trend, but actually calling the moment when this price mix is going to change. And obviously, this has been a subject of a lot of discussions with other companies, too. It's very difficult. So embedded in our guidance for the full year, as we said when we gave the full year numbers for '17 a couple of months ago, is an assumption that the price environment being broadly what it is now. Not that we think that will last forever, but that is the thought we have, essentially, within our top line guidance.

[Celine A.H. Pannuti]

Okay. Sorry to insist. Last one, I'll try it another way. So HyHo margin was down [ 14 ] H1 last year and down close to 200 in H2. How much of that was due for BEI [indiscernible] change, if you can answer that?

[Adrian Nevil Hennah, CFO & Director]

No, I'm not going to quantify that precisely. But what you saw in the half 2, the minus 190, if we're looking at the same chart, has clearly got a significant element of the price mix in it, as well as the BEI, which we've already mentioned. Yes, exactly, exactly. I mean, I'm conscious that we put these 2 slides out in the back, and people would not have had much of a chance to look at them. The -- obviously, we can't give any selective disclosures, but anybody that does want a bit more technical explanation of that in there, you know where Richard Joyce is.

[Richard Joyce, Senior Vice President of Investor Relations]

Right, well thank you. On that note, thank you, Celine, and thanks, everyone, for joining the call. Goodbye.

[Operator]

That will conclude today's call. Thank you for participating, ladies and gentlemen. You may now disconnect.