Reckitt Benckiser Group plc

Rakesh Kapoor - Chief Executive Officer, Executive Director and Member of Nomination Committee Adrian N. Hennah - Chief Financial Officer and Executive Director

Iain Galloway Simpson - Barclays Capital, Research Division Erik Sjogren - Morgan Stanley, Research Division Harold Thompson - Deutsche Bank AG, Research Division Rosie Edwards - Goldman Sachs Group Inc., Research Division Christopher Wickham - Oriel Securities Ltd., Research Division Guillaume Delmas - Nomura Securities Co. Ltd., Research Division Charles Manso de Zuniga - Societe Generale Cross Asset Research Martin John Deboo - Investec Securities (UK), Research Division Alicia Forry - Canaccord Genuity, Research Division

Good morning, and welcome to RB's Half Year Investor Presentation. As a business, we have been at the forefront of engaging with consumers digitally.

So it's time to engage with you all digitally, too. And if this works as well as our digital brand building efforts, we will do this again.

With me today is Adrian Hennah, our CFO. Our 3 key messages for you today: Our focus on Health and Hygiene Powerbrands is working.

And our improved growth rates over the past 18 months confirm that we are making the right strategic choices. Our focus on 16 Powermarkets, such as China, and the organizational changes we put in place is yet another important element of our growth strategy and is enabling us to sustainably outperform our markets.

We continue to invest in our brands and our capabilities virtuously. We've invested an incremental GBP 170 million in BEI over the past 18 months and still grown operating margin over this period.

In summary, we are delivering strong results by executing our business strategies. But clearly, we have much more to do.

Let's talk about our half year results. We've made a strong start to the year with like-for-like growth, excluding RBP, of plus 6% in both Q1 and Q2.

Health and Hygiene brands grew at a combined rate of plus 9% in the half. We invested an additional GBP 70 million in the first 6 months of 2013 behind great innovations, such as Mucinex Sinus-Max and the Lysol Power & Free.

In fact, we once again increased investment in all 3 areas. We had good gross margin expansion in the half, driven partly by the structural benefits of exiting our private label business.

But we also drove gross margin expansion through improved mix, pricing benefits and our ongoing cost saving programs. Our improvement in gross margin has funded increased BEI and investment behind capability building, particularly in emerging market areas and Health.

Adrian will cover this in more detail shortly. You will also see that our net working capital and cash conversion has improved, and we are paying an interim dividend of 60p per share, an increase of 7% over the same period last year.

So here is our 5-year trend. You can see a good growth performance in the first 6 months of 2013, with total growth at constant rates of 6%, with FX adding another 1% to these results.

Adjusted net income was up by plus 5% at constant, to which exchange added plus 1% to give a growth rate of 6%. Let's now turn to our strategic acquisitions that we made recently.

Starting with Schiff, I'm really pleased with our first 6 months. On the integration side, we've been as sharp as ever and have already achieved harmonization of trading terms with customers, implementing our HR and operational plans.

And we made good progress on both cost and net working capital synergies. Improved in-store execution and increased BEI is driving like-for-like growth well above that of the market.

Our other acquisitions are also progressing well, with good growth in China behind our new Myanshuning sore throat brand. On VMS in Latin America, we received regulatory approval in May, and integration is now fully on track.

With that overview of our core business performance, I now hand you over to our CFO, Adrian Hennah, to take you through the group financials and also an update on RBP. Adrian, over to you.

Thank you, Rakesh, and good morning, ladies and gentlemen. Turning firstly to Slide 8, the income statement.

As Rakesh mentioned, revenue for quarter 2 was GBP 2.48 billion, representing a like-for-like growth of plus 4% for the group as a whole and 6% for the base business excluding RBP after adjusting for movements in exchange rates and for the effective acquisitions and disposals. Revenue for the half 1 was GBP 4.99 billion, representing a like-for-like growth of plus 5% for the group as a whole and plus 6% for the base business.

The net impact of acquisitions added to the growth rate by less than 100 basis points we have guided to for the full year. We expect a bigger impact in half 2.

Movements in foreign exchange rates added 2% to the quarter 2 reported growth rate. Gross margin in half 1 increased by 230 basis points for the group as a whole.

There were a number of drivers of the gross margin increase, and we will turn to these in a later slide. Adjusted operating profit before exceptional costs in the half was GBP 1.163 billion.

The adjusted operating profit margin was 23.3%, 80 basis points lower than half 1 last year. The operating profit margin of the base business was 20.4%, 10 basis points lower than half 1 last year.

Why, with the strong increase in gross margin, was there a small reduction in operating margin? Well, firstly, we increased investment in brand equity, or BEI as we call it, by 80 basis points on top of last year's increase.

There was also continued investment in capabilities, in particular in building out the new area teams focused on emerging markets, in Healthcare R&D and also in IT. And in half 1 last year, we benefited from GBP 30 million of corporate income.

It was no equivalent this year with a consequent 60 basis points reduction in the operating margin. We are on track for our guidance of a maintained operating margin in the base business for the full year.

Exceptional cost charge in the half were GBP 249 million. We have set out an analysis of these costs in an appendix, GBP 24 million derived from programs already announced, mainly the cost of integrating the Schiff acquisition and VMS collaboration.

We have also made a provision of GBP 225 million in respect to a number of regulatory, principally competition or investigations by various government authorities in a number of countries. This reached a point in the half when it has been possible to determine a reliable estimate of the probable liability.

You will appreciate we cannot go into detail on these items. I expect that some of you may be wondering, "Will this provision might be the result of a new CFO being overzealous?"

Others may be wondering whether these issues should have been provided for earlier and that there might be more to come. In my view, neither is the case.

The greatest part of the provision relates to cases covering alleged actions in respect to which inquiries have been progressing for a number of years with very unclear outcomes. These have been disclosed as the contingent liabilities in the company's reports for a number of years.

The competition or inquiries involved a significant number of other companies. And while all large multinational companies are involved in disputes of various kinds all the time, there is nothing else that is material at present the board is aware of.

Lastly on this slide, you will note that the 2012 numbers are described as having been restated. This relates to the new version of IAS 19.

The changes to the 2012 numbers are those we flagged with our 2012 full year numbers in February. They involve an increase in the financing cost arising from the use of a standardized yield for the return on assets and the defined-benefit fund and the movement of this cost from operating profit to financing cost.

We show the numbers in an appendix to this presentation. The changes of increased operating profit in half 1 2012 are GBP 4 million and decreased net income by GBP 4 million.

Moving then to Slide 9 and moving further down the income statement. Other net finance costs were GBP 10 million, a small increase on half 1 2012, reflecting a somewhat higher total borrowings following the Schiff acquisition and VMS collaboration and the current, still very low cost of borrowing.

The tax rate for half 1 was 26%. This is higher than the 25% rate we guided to for the group as a whole for the full year.

This is for 2 reasons: Firstly, a further reduction in the U.K. corporate tax rate was, in IFRS speak, substantively enacted in July, i.e.

after the end of half 1. This will benefit the half 2 and the full year numbers.

Secondly, we did not expect the exceptional cost to be fully tax-deductible. A tax rate and adjusted net income, i.e.

excluding exceptionals, in half 1 was 25%. We expect the tax rate for the full year to be in line with guidance for reported net income at 25%, and we expect the tax rate in adjusted net income to be lower at around 24%.

Adjusted diluted earnings per share in half 1 was 118.3p, an increase of 7% on last year. This is above the 2% growth in constant rate operating profit due to the reduction of tax rate and adjusted net income on half 1 last year, the weakness in sterling, a smaller reduction in the noncontrolling interest in net income and the share buybacks over the last year.

Turning then to Slide 10, an analysis of revenue growth segments by business segment by quarter. Rakesh has described the main drivers of our revenue progression.

I will add only a few more detail points on the reported growth rates by segment on this slide and by category on the next slide. Firstly, on price and volume changes across the geographies we operate in.

The 6% growth in the base business in half 1 and in Q2 was split broadly evenly between volume on the one side and mix and price on the other. With respect to ENA sales, as Rakesh has highlighted, the group maintained in quarter 2 the increase rate of growth achieved in quarter 1.

As in quarter 1, revenue was assisted by a stronger and longer than normal flu season. Turning to RUMEA.

As we signaled in October and in February, growth in RUMEA continued to be held back by the up scheduling of some presentations of Nurofen in Russia in quarter 2 2012, by continuing competitive intensity in Turkey and socioeconomic and operational challenges in parts of Africa. We continue to expect some of these headwinds to persist through much of 2013.

In LAPAC, we saw further strong performances in India, China, Brazil and a number of other emerging markets, offset by slower growth in the developed markets of Japan, ANZ and Korea. In RBP, the minus 12% revenue decline in quarter 2 was determined by a combination of continuing strong market growth, most notably continuing low double-digit growth in Suboxone prescriptions in the United States by a complete end to RBP tablet sales, which accounted for high teens of sales volume in the U.S.A.

at the start of the year and has effectively all gone to generic competitors, and the lower price of film compared to tablets. We have again included as an appendix a reconciliation of the reported to the like-for-like numbers in this slide.

Turning then to Slide 11, an analysis of revenue growth rates by the principal categories set out in our strategy in February last year. Firstly, Health.

The progress in the growth trend is clear and is further evidence that the focus the group is putting on its category choices is delivering results. As mentioned in connection with the ENA growth trends on the previous slide, however, the quarter 2 growth rate benefited from the longer than normal flu season in, especially, the United States.

We should therefore not expect this level of growth to continue. Portfolio brands were down 5% in quarter 2.

The decline in footwear sales, which impacted quarter 1 strongly, had a smaller effect in quarter 2 given the somewhat lumpy nature of shoe sales. Beyond footwear, the market in laundry detergents and fabric softeners in Southern Europe, which form a material part of the portfolio brands, continues to be volatile.

Within Food, the weaker growth in quarter 2 was driven mainly by a weaker market in the United States and by competitive pressure. Turning then to Slide 12, an analysis of gross margin and brand equity investment.

In respect to gross margin, as mentioned earlier, the group continued the strong performance in half 2 last year into the first half of this year. The growth has been driven by a number of factors: Firstly, the disposal of Propack, the private label business, added about 100 basis points.

Secondly, the strong growth in the Health category helped gross margin mix and offset the slightly negative gross margin effect of the higher growth in emerging markets. Thirdly, half 1 saw a slight improvement in net prices realized.

Fourthly, we continue to see a more stable commodity and input cost environment. And lastly, the group benefited from the Project Fuel cost savings program, which was targeting GBP 50 million per annum and of which a substantial part was delivered during half 2 last year.

On BEI, on brand equity investment, you can see the 80 basis points increase in the level of spend in half 1 in the base business on top of the 60 basis points increase in the level of spend in 2012. We signaled in February that our BEI spend increase will be weighted to the first half this year.

Turning nextly to Slide 13. This shows an analysis of operating profit before exceptional costs by business segment for half 1 and half 2.

The group delivered a 10 basis points reduction in adjusted operating margin in the base business in half 1 and an 80 basis points reduction for the whole business including RBP. You can see the significant reduction in the RBP operating margin, 660 basis points.

This is the result of, firstly, the lower margins on film than on tablets; secondly, as signaled previously, some increase in the investment behind the pipeline; and then thirdly, as with most specialty pharmaceutical businesses, the relatively low level of variable cost in the business compared to net revenue. Accordingly, the 12% reduction in net revenue has impacted quite significantly on the margin.

With regard to ENA, the mix benefit from strong growth in Health sales and the early and strong delivery of cost savings in half 2 2012 drove the strong margin delivery. With regard to RUMEA, as signaled with the full year results, the margin was held back by continued important investment in BEI and the establishment of a new area.

We expect this to continue through 2013. Turning to the next slide, Slide 14, and a summary of the group's net working capital position.

You can see that the overall -- strong overall position continues with only small movements at each of the components of working capital, and the group's keen focus on this area will continue. Turning therefore to Slide 15, the cash flow statement.

As you can see, the group had another good half of cash generation. Free cash flow generated in half 1 was GBP 893 million.

This again exceeded 100% of net income even adjusting for the effect of the exceptional charge. Working capital and capital expenditure deployment remain disciplined.

The group had net debt of GBP 2.8 billion at the end of the year. This was up from GBP 2.4 billion at the end of 2012 due principally to the upfront payment on the VMS collaboration and GBP 279 million spent on share repurchases.

Okay. So turning now, if we can, from the numbers for the group as a whole to an update on our RBP business.

This is on Slide 16. You will be aware that generic tablets from 2 manufacturers were approved by the FDA in February, with product coming on to the market effectively in March.

You will also be aware that RBP continued shipment of its tablets in March -- excuse me, discontinued shipment of its tablets in March in line with a previously announced schedule. Since March, generics have gained around 13% volume share of buprenorphine market in the United States, effectively taking the remaining share held by our tablets.

We explained earlier how this loss of the tablet sales in the U.S.A. drove the 12% revenue reduction in quarter 2 and the 660 basis points margin reduction in half 1.

We cannot give you guidance on specifics looking forward. However, you should bear in mind that quarter 2 was effectively a transitional period for these drivers.

Accordingly, you should expect the revenue decline in quarter 3 to be in the high teens even if the film would have sustained its current market share. Turning in to longer term, you will also be aware that Orexo have received FDA approval for their tablet.

Indeed, over time, it will be normal to see further branded competitor entries, such as Orexo. On the one hand, this will add to competitive pressure.

On the other, remember that this is an underserved market that is growing very strongly, with tremendous potential in the United States, currently by some margin in the largest part of the world market and beyond. And remember that we are, by far, the largest player in the market with a deep operational infrastructure developed over many years that gives very high levels of service and support to customers.

Turning in to the next slide and Slide 17. This shows our film volume market share in the United States over the last year.

You can see that film share climbed steadily until February this year when generic tablets launched and has been essentially flat at 68% to 69% since then. We continue to believe that we will not be able to maintain this share of the current level in the face of competition from generic tablets.

It has been our consistent view that, over time, a proportion of, especially, the more cost-oriented pharmacy plans will seek to have patient prescriptions switch from film to tablet, notwithstanding the clinical and patient preference advantages of the film. The recent decision by CVS to delist our film from the proportion of their managed pharmacy plans is an example of the mechanisms by which we expect this tension between price and clinical preference to play out.

However, we are very pleased with the performance of the film to date and believe that we continue to be improving the long-term future of the business. Let us remind you of the clinical value underpinning some of the current preference for film.

So turning to the next slide, Slide 18. This is indeed a brief reminder of the advantages of film over the generic tablets: Firstly, patients stay in treatment longer.

Secondly, it is less subject to diversion. And thirdly, it has child-resistant packaging.

With regard to the first advantage, remember, opioid dependence is a chronic relapsing disease and retention in treatment is an important indicator for successful clinical outcomes. Staying in treatment longer can improve patient outcomes.

And this, in turn, typically, leads to less use of health care resources and the resulting cost saving to payers. For example, the cost of treating an overdose in an emergency setting can typically be in excess of $2,000.

For a health plan, improved patient outcomes from Suboxone treatment is a significant financial benefit. Secondly, there is continuing evidence that diversion and abuse rates of buprenorphine tablet formulations with and without Naloxone consistently exceed the rates for buprenorphine/naloxone combination film.

Recent analysis has found that Suboxone tablets were 12x as likely to be diverted and twice as likely to be abused as Suboxone sublingual film. Diversion and misuse are costly and damaging public health issues, and they are high priority for payers.

Thirdly, the unit dose in child-resistant packaging of film helps to avoid unintended pediatric exposures. We continue, of course, to collect and to deploy with physicians and payers additional data demonstrating the advantages of the Suboxone film over other options.

Turning then to the next slide, Slide 19, and a few comments on recent news flow and on our RBP pipeline. As you are probably aware, a generic manufacturer has filed an abbreviated new drug application, ANDA, with the FDA.

As many of you know, this type of action is common in the pharmaceuticals industry when the exclusivity period comes to an end. The exclusivity period for the film ends in August.

There is, in this situation, a fairly standard procedure to be followed. Under the Hatch-Waxman Act, we have 45 days to launch patent infringement lawsuit proceedings against the company, which we will.

By virtue of filing this patent infringement lawsuit, the FDA cannot approve the generic entrant until the earlier of 30 months or the end of the patent infringement proceedings. There are a number of formulation and process patents surrounding a film.

The most recent of these is a formulation patent, Orange Book listed, in RBP's name, which extends our IP cover until 2030. We are very confident about the strength of the patents, and we will vigorously defend them against any potential infringements.

Our confidence in the future of the RBP business is also based on our clinical pipeline. As previously mentioned, we have increased pipeline investment -- increased investment in the pipeline.

This reflects progress on, in particular, the depot injectable product for opioid addiction, which is in Phase II trials. We have been in constructive discussion with the FDA on this product and expect to enter Phase III trials in quarter 1 of next year.

The increased spend also reflects good progress on 2 other products in Phase II trials. We will brief you on progress with these products during 2014.

Finally, RBP is continuing, despite the distractions of some recent news flow, to focus very successfully on what it has always done, bringing pioneering, life-transforming treatments to addicted patients. And with that, I will hand back to Rakesh.

Thank you, Adrian. Let me now take you through a selection of our new initiatives we expect to support strongly in half 2 and beyond.

Let's start first with Health and first with Mucinex. Just a few years ago, Mucinex was only a cough and congestion brand, albeit one which enjoyed trust and loyalty of its consumers.

Now we took that equity and extended it to mainstream cold and flu with the launch of Fast-Max first in liquids and then in caplets. We are now launching a powerful product for nighttime cold and flu relief in both liquids and tablet form.

Now just for perspective, nighttime is a 600 million market in the U.S. Mucinex Fast-Max is stronger than any other OTC nighttime product available to U.S.

consumers because it contains an active for nasal congestion, which competition does not have. Moving to the next one, which is Move Free One.

It is a very nice and exciting initiative from the Schiff acquisition. Move Free Ultra is our most effective joint care formula.

It delivers 2x better joint comfort for total joint health, as proven in clinical trials versus an existing product which has glucosamine and chondroitin combination. And with just one small softgel, it is easy to swallow versus the usual 2 tabs.

Now moving to Durex. Our global sex survey tells us that 4 in 5 people have tried something to improve their sex lives, with 32% of the people claiming to have used gels.

Now we are rolling out our new Durex Embrace pleasure gels in 25-plus countries in a breakthrough and disruptive packaging. But beyond disruptive packaging, this innovation consists of 2 gels, one warm, one tingling, one for each of you, which combine for a fantastic sensation.

Turning to Hygiene. Let's talk about the Lysol Dettol Power & Free launches we made in 2012 and 2013 and which have enjoyed great success.

We initially launched in service triggers and toilet bowl cleaners. And now building on their in-market success, we are extending into new segments.

For the first time ever, the Power & Free benefit is now available in both a dilutable cleaner, as well as a white. And just for reminder, the Power & Free products contain hydrogen peroxide, which kills 99% germs and -- 99.9%, in fact, germs and cleans better without the harshness of a chlorine bleach.

So we are very excited about this. Moving to Finish.

You might remember 6 months ago, I talked about the launch of Finish Power Gels into 2 of our largest markets. Since then, it's proven to be a great success, thanks to its superiority on shine versus competition, also winning the Product of the Year in the U.S.

So as a result of it, it's now being rolled out into another 35 countries in 2013. Turning to Veet.

Well, for Veet, we have an exciting initiative being rolled out now as we speak. We are extending this brand into facial depilatories, which is now 20% of the total depilatory market.

Now as you can see, facial depilatories is a year-round consumer need with a high degree of relevance of the face who is always on show. It's a facial pen and a soothing cream in one product.

So turning to pest. As you know, Mortein is our global Powerbrand in pest control.

In Brazil, we own the market-leading brand called SBP. And we are launching an incredible electric mosquito repellent with a hidden refill for safety but also an auto-off benefit.

So it only works when you need it, another example I would say of an innovation for driving our emerging market growth rates. Now turning to innovation in Home Care.

Let's start with Air Wick. And I've talked in the past quite a lot about Air Wick and also our candles business.

And we are continuing to build on the success of our growing candle range, which helped grow Air Wick candle net revenue actually by 6x in the past 4 years. And now we are launching an innovative gel candle.

This contains pearls infused in essential oils that release a burst of fragrance just they melt. This way, people get an additional burst of fragrance from both -- from each pearl, so the experience never fades.

Moving to Vanish. And we're launching a Vanish Super Bar, which I believe is an exciting and great initiative specifically targeting emerging markets.

We want to step change category brand penetration in emerging markets by making Vanish much more affordable for those people where price remains a barrier to trial and people where -- still wash their clothes by hand. And the Vanish Super Bar is a stain remover and delivers a superior performance versus existing laundry bars.

So we are excited about this pipeline. And now let me just summarize where all this leads us.

So overall at RBP, we are very pleased with the performance and remain confident that this business is sustainable, with its patients and doctor preferring film and a promising pipeline of innovation. For the business excluding RBP, at the beginning of the year, we set some targets: total net revenue growth of plus 5% to 6% constant and including a net impact of M&A; and also to maintain our operating margins.

As highlighted, we continue to face challenging market conditions, which we see continuing in the second half. Despite this, we have been very encouraged by both the performance of the core business and of our recent acquisitions.

With this and combined with our sustained investment behind the equity of our brands, I do believe that we can achieve full year total net revenue growth at the upper end of the 5% to 6% range, excluding RBP, while still maintaining operating margins. Our midterm targets remain.

So thank you very much for listening. And now Adrian and I will be happy to take your questions, if any.

Just a quick -- couple of quick questions from me if I can. You talked about the flu season going on a bit longer this year in the U.S.

Are you able to give us any sort of indication as to how we should think about the benefit you've got from that in the second quarter? Was it roughly comparable to the benefit that you've got in the first quarter?

That would be extremely helpful. And then secondly, you carried out some sort of smaller acquisitions other than Schiff in recent months.

Any sort of update on how those are going would be very welcome.

Thank you, Iain. Let me start with the first question.

We clearly did have a longer than normal flu season particularly in the U.S., but let me put the context. All our health care brands are performing well, and a lot of them are also nonseasonal in nature, brands like Durex, like Scholl Footcare, like Gaviscon and so on, so forth.

So I would say that we did have an impact of the flu season in the second quarter as normal -- more than normal and the longer flu season. But our health care brands continued to outperform in these strong conditions.

It's very difficult to quantify the exact value associated with an extra flu season. All I would say is that you should certainly not expect the kind of growth rates we achieved in the first half on health care to continue in the second half for 2 major reasons.

Of course, there has been some tailwind from a good season. But also, our comparators in the first half versus the last year first half and also the comparators on the second half are quite different.

On your second question, how are we doing on other acquisitions? First of all, the 2 other acquisitions were collaboration agreement.

One is in China. I already said that we are very happy about our acquisition in China.

It's got off to a good start. We have achieved all the milestones that we expected to achieve at this point in time in terms of integration, in terms of synergy, in terms of working capital, but more importantly, in terms of brand quality and in-market performance.

So I believe that it's going to be a very nice acquisition for us in the future, not just, I would say, for establishing a health care business from the sore throat brand that we acquired but, hopefully over a period of time, also to form an important platform for health -- consumer health in China. And on the last one on VMS, we've just completed the regulatory transition in May.

So it's really early days. But again, our first instinct on VMS in Latin America is that we've acquired a very high-quality portfolio -- or acquired -- rather collaborated on a very high-quality portfolio brands in both Mexico and in Brazil.

And we remain very excited about the opportunity there.

It's Erik Sjogren at Morgan Stanley. I have 2 questions from me, please.

First, can you talk a little bit about the competitive environment, of how you see the promotional levels kicks in the household business in Europe and North America? And then secondly was the -- on RB pharm and the margin development here, you're -- the investments you're making in the business in terms of the pipeline, et cetera, will they remain pretty constant during the second half of the year?

Or is this more faith in anyway?

Right. Erik, I'm going to take the first question and I'm going to defer to the CFO to answer the second one.

On the first one, the competitive environment to my mind remains as it has been for some time already, very tough, very challenging, no better, no worse.

And equally short and sharp on the second question, pipeline investment fluctuates. It has to fluctuate because it's determined by the pipeline.

That said, we expect it to be somewhat higher than as in the past, but not hugely variable.

Two questions from me. The first one is on your health care business.

I think Iain tried to, I guess, get a number from what the flu benefit is, and I guess we won't get that. So maybe in a slightly different way of asking the same question, how broad-based do you see the success of your health care divisions, whether it's in terms of expanding current brands into new segments, a bit like you're doing on the Mucinex going into the night market?

Or how global is the portfolio today? Or how more -- maybe more relevantly, how is progress being made in terms of rolling out on the global way your portfolio trends in terms of Health, all of that to try to see what the sustainable growth rate of that Health franchise is?

My second question is on RBP. Adrian, you said that the mathematics of shifting from tab to film, wherein we'll see a high teens decline of that.

Is that in reference to the U.S. business or specifically?

Or is that number equated in the totality of the RBP business?

Right. Again, Harold, I'm going to take the first one and get Adrian to answer the second one.

So I think when you have a tremendous growth rate like we've enjoyed in the first half of the year, it can't be pinned to one factor. We had clearly a very good season this year in the first 6 months against a very modest one in the previous year.

So the comparators are very different. We've had strong innovations going through the marketplace.

We've got not just on Mucinex, the examples that I've given in both the January presentation but also in this one. We've constantly innovated behind Mucinex.

What this brand used to be just 2 to 3 years ago to where we've taken it is just an amazing sort of example of how you can take Powerbrands and make them relevant in new interesting segments. And we've done that also for Nurofen, for example.

Nurofen -- we've launched into Nurofen teens in a number of markets. We've launched Nurofen patches.

So geographic and segment expansion is the core driver of our health care business and will remain so as we go forward. Now clearly, as you know, in Health, you don't switch on and switch off so easily.

So you have to wait for regulatory approvals. You've got to make sure that you've got the right conditions for entry.

But we are not focused on just one element of health care. We are focused on a number of elements of health care.

But in terms of growth rates, I mean, I think the only sensible answer I can give you in terms of what kind of growth rates you should expect for health care, you should expect, on a medium-term basis, health care to be growth accretive to Reckitt Benckiser. That's why we've said that Health and Hygiene in combination form the core focus in terms of growth into the future.

But I don't think we are ready to tell you exactly what kind of growth rates you can expect except to think that we are focused on a number of levers on Health, growing our core brands, expanding them into new geographies, making them relevant in the new segments and supporting them with fantastic innovations and backing them with BEI investments, but also building capabilities in R&D, in regulatory, in clinical and so on, so forth. So it's got quite a lot of work which is being done and will be done to make this business growth accretive to Reckitt Benckiser.

And Harold, on the RBP question, yes, the indication we gave of high teens decline in quarter 3 and quarter 4 if share remains constant was for the total business. And that need arise from the fact that U.S.

has a such a very large proportion of the total business. And I would just take you to the point, that one other thing.

And that is in the first half, you will have seen that the margin decline of 660 basis points was for the half as a whole, but the revenue decline was very much confined to quarter 2. So you should bear that in mind when you think about the margin implications in half 2 of the high teens decline in the top line.

Two questions from me. Firstly, on RUMEA, the sequential slowing was a slight surprise, and it seemed like the incremental issue there was in parts of Africa.

Could you give a bit more detail in terms of kind of which countries and where you think the biggest driver for that slowdown? And secondly, in LAPAC, obviously, margins maintain there.

I'm assuming that is -- was BEI have also been increased as well. And what is the main driver of setting that increased BEI investment?

Right. Let me just point out to RUMEA first.

We always flagged that conditions in RUMEA for our business have a number of different kind of challenges. There's not one thing I could point out.

But on the other side, I also think RUMEA is a very exciting area for us. So let's point out to some of the near-term issues that we've seen.

One is that we do see some socioeconomic issues. Some of them grabbed the headlines that you know in North Africa, for example, but also in other parts of Africa, but not everywhere.

So Africa, there are some challenges in socioeconomic terms. But also, we have some operational challenges to take care of in Africa.

It's not all outside. I think we are working through some of our own operational challenges in Africa.

In Turkey -- we have a fantastic business in Turkey. We've always had a great business in Turkey.

We have just, at this point in time, a competitive intensity in Turkey, which has been quite different from what has been before. And we will navigate through that competitive intensity as we always do.

So it's a question of going through our competitive challenge. And it will even out, and then we will see those business turn into the kind of growth business or high-growth business that we've always seen it to be.

And then the third, business in Russia, our business in Russia is very big. It's very strong.

It's -- we like it a lot. But one of the big brands in Russia has been Nurofen.

And Nurofen -- some product lines of Nurofen had been, what is called, up-scheduled behind the counter from front of counter. And we did flag that some months ago and said that, that factor will continue particularly in the first half of this year.

So what do I think about RUMEA going forward? First of all, RUMEA, we carved out as a special area in the future because the combination of Russia, NAMET, which is North Africa, Middle East, Turkey, that's a very large avid cluster.

But also, the African markets remain very exciting in the future. 6 of the 10 fastest-growing economies in the world are in Africa.

So we are very excited about the opportunities of RUMEA. But we also recognize that there are some near-term issues that we will navigate through.

And hopefully, we will see a stronger business in the future. Then we come to -- and therefore, I'm not -- none of the growth we've seen in Russia have surprised us.

We fully expected it to be like it is. And we do, however, back the long-term opportunity of RUMEA.

In terms of LAPAC, we've had a very, very good LAPAC growth, I would say, for the last many quarters in a row. And we have very strong businesses in LAPAC.

And we continue to invest very strongly in both BEI. But most of the BEI investment is going through for our brand building.

Penetration levels in LAPAC are still very low. Take the example of India or China, where penetration of dishwashers is less than 1% or 2%.

So we have, in LAPAC area, in Brazil, in India and in China and -- but markets like that, brand building at a very, very basic level of investing for a long-term penetration growth. And then we also back our recent innovations that we've launched in the market.

I've just given example of a Vanish Super Bar that we've launched, the Mortein, SBP product in Brazil. And we launched new innovations to support penetration, support brand building.

And we are investing behind that. So LAPAC, I think, is in a very strong place right now.

And we are constantly excited by all the opportunities in building our brands in this area.

Okay. So my question was more -- you're increasing your investments and yet, you're the margins are flat.

And what -- sort of what's enabling you to do that?

Right, okay. So I mean...

Is it top line leverage?

Yes. And I think if you look at -- let's take a look at -- when you think about LAPAC, it's very difficult to talk about LAPAC for even 1/6, 1/2.

We need to think about these markets for very long terms. And this is the reason why -- let's take a look at the last 18 months in LAPAC.

We've grown 18 months by 11%. And during that 18 months, we've also improved our operating margins in LAPAC.

I think that shows the strength of our -- both our brand portfolio category choices, but also the virtuous model we have put in place. LAPAC margins in the first 6 months, I think, are plus 10 basis points or something like that.

But I'm not concerned by that. I think we've invested strongly in the first half behind our brands, behind our penetration programs.

And we fully expected it to be like this. So I don't know whether you find that to be a surprise for you, but we...

No. It's just -- it's the difference relative to RUMEA that's what was interesting in terms of your margin.

I can explain that. I can explain why there is such a big difference between LAPAC and RUMEA.

Well, RUMEA is -- actually, if you think about what we did 18 months ago, RUMEA is a new area. By and large, that's a new area organization, a new -- a fully new capability.

So I think it's still -- when you look at how much investment we are making in building RUMEA as a unique area, as a stand-alone area, I think that's where you see quite a lot of the difference in. And secondly, of course, the growth rate in the first 6 months between LAPAC and RUMEA is different.

LAPAC grew at 11%. RUMEA grew at 6%.

And I don't have to tell you that there is an operating leverage, which is much better in LAPAC versus what is in RUMEA. So there is a combined impact of both the new area and a very different operating leverage structure between these 2 areas.

It's just a small question, really. I was wondering if you actually could expand a bit more on what happened with Food in the second quarter and where you would expect that to go in the second half of the year, please.

Right. I mean, let's take a look at Food.

The current Food category in the U.S. is in a tough place.

The competitive environment is very tough. The market growth environment is tough.

There is more food inflation that -- but that's what's driving food categories for a long time. But we have a very strong portfolio of brands in Food.

We know how to operate in a full environment in the U.S. And although I don't give specific numbers and guidance for Food growth rates in the first half, the business has been flat.

And we will navigate through all these tough challenging environments that we have both from a competitive point of view but also from a market point of view. And I remain very confident that in Food, we have a very good set of brands.

And we have people in that business who know how to do well.

And the margins as well, I mean, that obviously was -- you're talking about Food inflation. I mean, that would be the main contributor to the margin dip.

But I mean, what chance of margins turning around in the second half?

Again, we are not giving a specific guidance on Food margin in the second half.

Just on the Suboxone film/tablet mix, I think you've previously said that we should think of film as being around 1,200 basis points below tablet in terms of price with around about sort of 1,000 or 1,200 basis point lower margin, so implying sort of avenue -- sorry, EBIT per script, if you will, sort of 20%, 25% below tablet. Could you just update us of whether or not this has changed at all as the sort of competitive environment in Suboxone has heated up?

Well, Iain, the most significant way it's changed is we're no longer selling the tablets. So there is no comparison anymore to make of that regard.

I mean, I think the numbers you're indicating are consistent with the ones we gave you, I believe, a while ago. But there is no more tablet to compare it against.

And what we have said is that the generic tablets have launched at a nominal price, at a list price somewhere between our old tablets, the discontinued tablets and the film. And to our knowledge, that broadly remains their list price.

But clearly, they offer significant discounts to their pharmacy customers that take the discounted price of their product beneath the price of our film. But for details on that, you need to ask them more than you need to ask us, I guess.

But I'd be correct in thinking that your film price has not changed materially over the last 6 or 12 months? That's what I was trying to get at.

I think that's a fair assumption.

Yes, exactly.

Two questions for me. First on competition, to follow up on a previous question, could you shed some light on what you're seeing in Brazil in Mucinex, the reason being Brazil, one of your key competitors there has been quite vocal about the fact that it has entered the Surface Care category.

So I'm wondering if you're seeing any impact for your Veja brand in Brazil. And on Mucinex, I mean, you clearly had another strong quarter in Q2.

So should we read into this that Perrigo is having a little impact that you've been able to offset with innovation? Or is the Perrigo impact yet to materialize?

And my second question is on market growth. You continued to talk about some slowdown in emerging markets.

In fairness, you've been talking about this for almost 18 months now. Just wondering if you saw further slowdown in Q2 relative to Q1.

And I guess what I'm getting to is the fact that you revised up slightly your sales guidance for the year in a context of what seems to be slowing market growth. So does it effectively mean that your level of outperformance relative to the market will be in excess of 200 basis points for the year?

Right. Let's deal with the competition question first.

No, we do see competition intensifying in markets where everyone wants to get more growth. So I mean, think about it.

There has always been great competition in Europe, but everyone wants to also drive markets like Brazil, like India, like China to get more growth for their business. So we should not be surprised to see more competition.

Indeed, we are offering more competition to our competitors in many of these markets. So is our brand more -- facing more competition today than it was 2 to 3 years ago?

I would think so. Will it face more competition in the next 2 to 3 years versus today?

I also think so, just as a way that will provide more competition on more brand -- more segments to our competitors. So I think this is something which we fully expect and fully know how to deal with.

It's the predictable nature of competition that we are very happy to deal with. It's the unpredictable nature which we don't sometimes figure out how to.

So I mean, I think, are we doing more competition today in Surface Care in Brazil? Absolutely.

And yet we know Veja is an amazing brand, a brand that has tremendous, tremendous scale, scope and opportunity in Brazil. So we remain very confident that Veja has all the drivers of growth to help our Brazilian business and our LAPAC business to grow.

In terms of Mucinex, I believe that it's too early to call on what exactly is the impact of the generic situation going to be in the U.S. because Mucinex generics only started to appear somewhere in the Q2 area and although we also said that the flu season was a better flu season in Q2 versus prior year comps than a normal flu season that you expect in the second quarter.

But on the other side, Q3, Q4 seasonality might be very different in terms of the size at least, if not how it compares versus prior year. So I would say that Mucinex generic impact is more likely to be properly felt in the second half versus the first half and more particularly the second quarter.

But I would step back from this because Mucinex generic is very different to a generic in RBP. This is a brands business.

And consumers choose brands over private label when brands offer great value, when it offers great value through superior benefits and superior value propositions. And if you look at our track record of Mucinex, I've always emphasized just how much you can do with innovation.

So -- although I do know that the impact of generics in Mucinex in the second half will be more than the first half simply because they did not practically exist in the first half. But equally, we also know that this is a brand versus private label fight, as we know how to in many other markets.

We've got to make sure we convince consumers of the superiority of Mucinex versus private label, which we believe we can. And secondly, we've got to launch great, new innovation, which we have.

So that's how I would call the Mucinex bit. I think you also talked about emerging market slowdown.

Yes, I have called out that a long time ago. But I think when you look at emerging markets, you see the whole context of these markets on the one side, but also the opportunity for us on the other side.

And although the markets in the second quarter was maybe somewhat slower than the first quarter, I would say, in emerging markets, somewhat slower, but -- I don't look at that too much. I think -- I also look at our opportunity to drive growth through penetration, through innovation, through building capability and through executing extraordinarily well through investing.

So in some, I am fully aware of the market conditions in emerging markets. I have been always fully aware.

But internally, I'm much more focused on how well we can outperform these market conditions. Now we cannot always go against the market.

That is always true that at the end of the day, we cannot walk on water all the time, but we will try.

And just a follow-up on that. So we've got slowing market growth.

You've achieved another 6% like-for-like. So clearly, your level of outperformance seems to be in excess of your guidance or your target of 200 basis points.

Is that simply a function of the good flu season in the U.S. or you're actually gaining more shares than you anticipated?

No. I think that the first thing is that the flu season improves the market, doesn't it?

So I mean, in that sense, we can't count it in one but not count it in the other. But -- and the other thing is that our market outperformance target of 200 basis points remains.

But I don't personally judge it if we are ahead in the first 3 months or a bit behind in the first 3 months. I think it's a medium-term target.

It's a target which tells you that we want to substantially and sustainably outperform our markets. And I've put a number of 200 basis points to say that's the type of outperformance you should see.

Are we doing in that range in the first 6 months? Yes, we are.

But if it was 100 basis points on the other side, I would not be dramatically too excited or too upset simply because it's the medium-term target to show that we have the capacity to outperform the markets we play in and not just be, let me call it like this, a victim of the market. We don't want to be a victim of the market.

I think if you look at the whole strategy we put in place 2 years ago, our whole strategy was about changing the market conditions that we operate in ourselves. We said Health and Hygiene are faster growing categories versus the others that we operate in.

By growing our Health and Hygiene business faster than the others, we will be in faster growing markets. So if nothing changes, nothing, over the next 5 years, I believe we can add to the market growth rate simply by restructuring our portfolio over this period of time.

So -- and then if we outperform that market, we will -- should be in a good place. And that's the essence of the strategic move we have made over the last 18 months or so.

So yes, we are outperforming the market by 200 basis points in the first 6 months. Is it more or less?

I don't want to get into this exactly because it's not a 6-month type of thing. Medium term, that's what we want to do.

And we are on track.

A few housekeeping questions really. Just on the margin drivers, could you remind us what your BEI target is for the full year?

You said 80 basis points in H1, and it was weighted to H1. So I just want to get a reminder of where you expect that to be for the full year and maybe whether that's the right level at the end of the year or you need to do more BEI investments incrementally after that.

And on what you've termed capability spend, how many basis points was that? Was it material?

I guess, it must have been since you quoted out. And how much more is that to go there?

And on the private label, you mentioned that the gross margin benefited 100 basis points due to the lack of private label this time around. What was the impact of that at the EBIT margin level?

Do you want me to take any of these? Will you take...

Well, fine. Yes, I mean, Charles, we don't -- we haven't given and we're not about to give targets for BEI spend for this year.

We did have a target last year in 2012 for BEI, but that was special circumstances. So we're not going -- we're not giving this particular target this year.

We've given an intent to maintain overall operating margin. And that really is as fast as we're going.

Clearly, we called out the BEI as we go along because it's an important element of our spend. And you can see that we've invested strongly in it in the first half, which we'll -- I will repeat what we did say in terms of forward-looking guidance, if you like.

And that is we told you last February that we intended BEI to be stronger in the first half than the second. We intended to get off to a fast start, and that's exactly what we'll do.

But beyond that, it's not sensible for us to get into some minutiae of those sort of numbers. In terms of the level of capability spend, Charles, what we tried to explain was with the 230 basis points increase in the gross margin, we had an 80 basis points increase in BEI spend in the first half.

The corporate income effect, if you take that GBP 30 million of corporate income we had in half 1 last year and the 0 we had in this year, is about a 60 basis points effect. There is a little bit of a Propack effect.

You're quite sharp to pick that up and that the EBIT improvement on Propack was less than the gross margin impact, quite significantly less. It was -- that's the nature of this business.

So that also accounts for part of the difference between the 230 basis points gross margin and the minus 10 basis points of the net margin. But the difference is capability investment.

It is investment in the areas we've called out. Health care R&D, this is an area we're focusing on, obviously, as we become bigger in consumer health; the investments in the -- at the area level within emerging markets that Rakesh explained in response to an earlier question on RUMEA; and also some level of IT spend, which -- as the world becomes more digital, there is plenty of opportunities in that area.

All those areas, we've invested in some over the half, but nothing surprising there in our view. This is part of ongoing good management of the business, good management of the margin.

And I see no surprises from our -- on our perspective at all.

So would you say then that the capability spend is at least equal if not greater to the BEI spend this half?

Almost that. I'm not going to put a number to it, but just -- I'll repeat again the mathematics, 230 basis points gross margin, 80 basis points BEI, 60 basis points effect of the corporate income, a little bit of effect of the Propack net margin impact you're calling out, and the rest of it is capability.

So yes, it's not trivial. That's why we're calling it out, but we're not going to get down to total minutiae.

My question is on the provision. Adrian, if you did -- went to do this on the call, I missed it, I apologize.

But I just wanted to get more of a sense of what is in that GBP 225 million. Just anecdotally, what are you allowing for?

And specifically, does that include any allowance for the FTC referral on RBP? And I guess, second question, just following from Charles' on margin, I mean, I sort of understand you're up against a tougher EBIT margin comp in the second half, but you've got very strong growth.

You sort of seem to hint, just on Adrian, that the A&P increase should be H1 loaded. And you haven't got the tough comp of the corporate windfall.

So it just sort of feels to me like margin could be strong in H2. Can you give any commentary on that?

Those are the 2 questions.

Sure, thanks, Martin. The -- in terms of the provision, I'm afraid -- if you didn't hear earlier, I'm sorry.

Maybe you have to listen to the transcript. But the -- but we can't say more than we said before.

The -- which was that these are a small number of historic cases that have been going on for a while. They reached a stage in the half where, under the IRF rules, it's appropriate to provide for them.

And we provided for them. And really, that's about as much as we can tell you.

I'm sure you'd appreciate that it's not an area that makes sense to go into any great detail. The -- in terms of the margins going forward, no, I mean, we're not changing our guidance.

Our guidance for the year is to maintain operating margins. The -- yes, we did mention that BEI was going to be stronger in the first half than the second half.

But there's a whole load of components of margin, not least how much do you invest behind the business. It's always possible to push up margin.

But we are building this business for the long term. And the level of investment that goes into the business is a very critical factor of what we consider in margins.

And looked at and around, we're not changing our margin guidance for the full year.

Just with regards to the 6% core like-for-like outlook that you're giving us for the full year, we've heard this morning on the call that we expect Health to slow a bit in H2. RUMEA and Food aren't necessarily expected to improve in the second half.

So I just wondered if you could talk a little bit about what categories or geographies you expect will accelerate in H2 to offset those slight pressures and allow you to maintain the topline momentum that you've reported thus far this year?

Right. Let me just first and foremost clarify, Alicia, that we have set targets for the full year.

And those full year targets are 5% to 6% of total net revenue growth, including the impact of net M&A. And what I've said today is that I expect full year total net revenue, including the impact of net M&A, which I had said earlier in the year to be just over 100 basis points that we will now see at the upper end.

So just to correct the perception that I'm somehow saying that the full year target like-for-like is 6%. I'm not saying that.

I'm saying full year total net revenue target is expected to be at the upper end of 5% to 6%, including the net M&A effect. In terms of which categories do I see in the next 6 months versus the first 6 months?

Well, clearly, Health, for example, is never going to -- the number is a very big number we're willing to say. But Health to get 14%, 15% growth rate in 6 months is an amazing, amazing achievement.

I do not expect that to be the kind of growth rate you should expect from health care. Health categories are growing, by and large, in -- I would say overall in normal conditions at somewhere under the mid-single-digit range.

And we need to outperform that kind of normal market. So I don't want to give specific categories, that category targets.

But I don't think you should assume us to do as well in the second half on Health as we did in the first half. If we did, I would be delighted.

I would be thrilled. But I don't think it's reasonable to expect.

It's not reasonable to expect. And I can't give you any more specifics on what kind of growth rates, by which category, where.

Right, in case there are no further questions, can I just thank you for joining us on this call? We'd like to hear your feedback, how you felt about this.

And hopefully, we'll see you all shortly. Thank you very much.