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

Pablo E. Zuanic - Liberum Capital Limited, Research Division Harold Thompson - Deutsche Bank AG, Research Division Christopher Wickham - Oriel Securities Ltd., Research Division Alex Smith - Espirito Santo Investment Bank, Research Division Toby John McCullagh - Citigroup Inc, Research Division Guillaume Delmas - Nomura Securities Co.

Ltd., Research Division Erik Sjogren - Morgan Stanley, Research Division Alex Howson - Jefferies LLC, Research Division Charles Manso de Zuniga - Societe Generale Cross Asset Research

Good morning, and welcome to Reckitt Benckiser's Third Quarter Results Conference Call. 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.

Remember that this is a trading update only and our announcement is therefore an interim management statement rather than a full set of results. We had a strong third quarter in what have been challenging market conditions.

Growth has been driven by a continued focus on Health and Hygiene categories, which, on a like-for-like basis, grew 8% and 7%, respectively. This was achieved through a combination of innovation, brand-equity-building initiatives and stronger in-market executions.

Consequently, we saw very good growth in many of our brands across both these categories. In particular, Mucinex, Nurofen, Durex and Scholl performed well in Health, whereas Dettol, Lysol and Finish had strong performances within Hygiene.

This was tempered by a flat result in the Home category in a challenging consumer and competitive environment. We did, however, see good growth in Vanish and further stabilization of shares in a number of markets and, in particular, Europe, driven by penetration programs, such as our new Vanish tip exchange campaign.

On a geographical basis, our business continues to perform very well in emerging market areas although in slow market growth conditions. Going forward, we continue to believe that the medium-term case for emerging markets remains intact, and we will continue to invest to drive growth in our performance.

ENA had a strong relative performance at plus 2%, and I am pleased to say that the -- with the exception of Southern Europe, all of our European regions have returned to growth. As I've said all along, the challenge of our industry is to grow in both emerging and developed markets.

I'm therefore very pleased that our streamlined organizational structure and increased investment behind our brand have now delivered 5 quarters of growth within ENA. Our acquisitions continue to track ahead of ingoing expectations, and additional synergies are being invested back into the brands to fuel growth.

In sum, the group, excluding RBP, we grew 5% plus on a like-for-like basis in the quarter and plus 7% in total. On a year-to-date basis, like-for-like growth was plus 5%, with net M&A contributing plus 1%, all excluding RBP.

Turning to RBP, there are a number of things to update you on. Firstly, I am pleased to say that our film share in the U.S.

had held very well during the year, with the latest reaching [ph] a volume market share of around 68%, virtually unchanged since the launch of generic tablets in March of this year. The market growth continues to be very strong.

Secondly, we are commencing a strategic review of RBP. As we've said before, some clients [ph] following the launch of generic tablets will be the right time to look at options for this business.

This is the right time because our film share has been in the marketplace -- have been in the marketplace for just over 3 years and have gained wide acceptance from patients, prescribers and payors. We have been the global infrastructure for the addiction treatment business following our buyback of distribution rights from Merck outside of the U.S.

2 years ago. And our investments in the pipeline position us with the opportunities to grow and provide new growth platforms in time to come.

What does the strategic review entail? Well, it entails us considering all options that may be available.

The #1 priority is to maximize value for our shareholders, and while this goes on, we want to ensure that we stay focused on delivering against our current business objectives. We expect to update shareholders during the course of 2014.

So to conclude, we have had a strong Q3 in market conditions, which continued to be challenging, with high-quality Health- and Hygiene-led growth. We continue to work hard on strengthening our core business and making the right strategic choices, executing them well, while making this business even stronger for future success.

Our acquisitions are performing ahead of ingoing expectations. And consequently, we are now -- we now believe that we can achieve full year target of at least 6% total net revenue growth, including the net impact of M&A, and maintain our adjusted operating margins.

Both these targets exclude RBP. With that, Adrian and I will be pleased to take your questions.

May we have the first question, please?

Look, 3 quick questions. Number one, the Health growth, 8%, is still very good but slower than the first half.

Can you just give us a sense of why the slowdown and how should we think of the business going forward? Number two, briefly, in terms of your guidance increase, can you just add a bit more color in terms of what were the acquisitions that are doing much better than expected that helped increase the guidance and any color there would help.

And then number three, regarding the sale of RBP, well, the strategic review of RBP, obviously, the market life that, the study is up 5% today. I guess you are in a position right now that pretty much the business will have to be sold or else the business -- or the market will be not very happy with that.

The question really, Rakesh, is why now? And the reason I ask that, generics started in the early part of the year, but you still have a number of threads that are coming in 2014, like the Zubsolv tablet from Orexo, the BDSI film and potential generic film and perhaps even more generic tablet.

I mean, it sounds like it may be too early to look at a strategic review given that number of mounting threats?

Right. Let me just go through each of those.

Pablo, thank you for asking these questions. I was scared that nobody would ask these questions today, which would be very disappointing, so thank you for breaking the ice.

Health, 8% growth is very good. I don't want to compare previous quarters or any particular quarter.

I think 8% on health care is a very good result. And I think we are pleased with that because if you look at Health performance, and I called out this Mucinex, Nurofen, Scholl, Durex, all our key brands have done very well.

And I don't think this has been a quarter where you can smell any external factors. So a lot of this is driven really because we have a good innovation pipeline going through.

We are investing behind the brand. We are investing behind the capabilities, and I think, frankly, this is a good result.

I don't want to compare figures for this to say whether it's a slowdown or otherwise. I think we should just take this versus the prior year, which is where the comparison is, and 8% is a good result.

Your second question was about the guidance. And what is behind the guidance?

I've said to you that I think we are seeing a very good start to our acquisitions ahead of our ingoing expectations. We have done very well in bringing these businesses, synergizing them well, deriving some more synergies than we were expecting, and investing them back behind the brands to fuel growth, which, of course, is our first instinct.

You're going to see [ph] all of that. You believe that you don't -- there is cause to believe that we are going to now at least -- achieve at least 6% growth.

So if you remember the last time, we talked about our full year, we had said that we expected to be at the upper end of the 5% to 6% range, and today, we believe, given the strength of the acquisitions performance we have done, we should achieve at least 6% in net revenue. So that's really what is behind this latest guidance.

And the final question is, why now?

Can I ask that -- I'm sorry to interrupt. Can I ask that, is it more Schiff or this is more the device, the OTC business in emerging market?

Any different color there, is one more helping than the other?

Right. No, I think -- first of all, Schiff is the largest component of the 3 M&As, as you know.

And Schiff is doing really very well. The other 2 acquisitions are also doing well, but -- so I would not say that whether it's Schiff or the other.

All the 3 acquisitions are really doing well. And Schiff, of course, is the longest standing in the sense that we acquired that business late last year.

So we've had more time on Schiff versus the others and particularly in comparison with VMS, which only came to us some time in May. So I think Schiff, of course, is doing very well, but all the 3 are doing well.

So that's really what is behind this change. So the final question was about strategic review.

And I would say that 3 years after the launch of film, film has shown to be incredibly resilient to both generic tablets and perhaps all the competition that we have seen so far. Now we don't underestimate competition.

Competition is a fact of life. It's a fact of life in our current business, in our core business.

It's a fact of life. And competition does come in and go out.

That happens all the time. So I don't think we are guided by this quarter's competition versus the next quarter's competition.

I think what is more important is to realize that over the last years, we have now created a very strong global addiction treatment business. It's a business that has proven to defy all odds.

It's a business which has shown resilience because, let's face it, 18 months ago, you would have wondered whether film will have a meaningful share of the market. 8 months ago, you wondered whether film would be able to withstand the competition from generic tablets.

8 months -- 4 months ago, we were all wondering whether market growth rates would be still robust in this whole arena. All of these figures have proven to be strong.

And I'm very pleased that not only have we created a global addiction treatment business, this business has proven its resilience over a number of years. This business is growing at a very healthy rate.

This is largely an undersold market, and we have created a capability which is frankly beyond just the physical infrastructure and the relationships that we have with patients and with prescribers. I think this is a company where the people are incredibly, I would say, fantastic.

This is -- is it sometimes underestimate in companies. We underestimated -- I said it before, people underestimate companies that are not run, just by strategy.

They're run by people. And I think in my case, I would very strongly endorse the RB team -- RBP team.

It's a fantastic team. So I'm -- we are talking about a business which is in a very good shape.

Secondly, we have invested behind the pipeline over the several periods before and, of course, I've said that we will update the market on the pipeline during the course of 2014. And the pipeline should add growth platforms to this business in the future.

So we are talking about a business which has proven to be incredibly resilient and incredibly strong. And I do believe, as I've said before, that this is a sustainable business.

And now it's a right time because we said that sometime after the launch of the film, the generic tablets, will be a good time to assess whether or not the film proves to be resilient. And if it does, as it has actually done, we should look at the strategic option for this business.

So I think the timing of that would be exactly as I've talked about in the past. This should not come as any surprise at all to anyone, and we are talking about the strategic review now with greater confidence than we might have ever done before.

I've got 2 questions. The first one, Rakesh, you mentioned that all of your deals have done better but, clearly, Schiff is the one -- the biggest and one you've owned for the longest.

I guess it's been too early for new products at Schiff to help that success. So could you just explain the types of decisions and actions you've taken that have helped, I guess, the top line, especially performing better than you would have expected?

My other question is on -- in RBP. I mean, when I first heard of this business, I think, 10 years ago, I couldn't even spell it, and it's done way better than anyone thought possible 5, 3 years ago even.

What skill sets or skills has the RB culture, I guess, helped that success today? And I guess, by pair, what would have happened if it'd been owned by somebody else?

Do you think it would have been as successful?

No. It's a cruel question, the second one, but let me just go through this.

The first question is about Schiff, what is behind the better-than-ingoing expectations. I think we've been owners of this business for under a year.

And during that period of time, I think what we have done are getting the basics on this business executed well, improving our distribution, improving the shelving, improving the range that -- on the shelf, bringing -- streamlining really the core piece. I mean, I'm getting a bit jargonistic here.

Streamlining the core piece of the business, but in addition to streamlining all of that portfolio, what we also have done is, even if I may say so, when you have the opportunity to drive growth in brands, you also look at whether you can do that also with higher brand equity investment. So what we have done is increase the investment behind these brands.

And we increase investment -- it's not just reflected in more media money, in -- or more number of months. Actually, we've invested in longer length copy.

Now Schiff was not able to afford more than 10, 15 seconds copy, and what we had is a much more comprehensive explanation of what, for example, MegaRed does for you. And we've also performed very, very, clever, if I may say so, digital and other 360 marketing programs, like working in close collaboration with Dr.

Oz and talking about VMS in a much more holistic way. So I think in the last 9 to 10 months, we have picked up the basics, executed them much better, invested more behind the brand.

And I would agree with you -- confer with you that this is not imperially [ph] driven. I also believe that we have not fully run the course of improving the execution mechanics on the VMS franchise.

And while we have done all of this, we have also taken stock of what the VMS opportunity looks like for us, how we can actually create value here for ourselves and for our business and for our shareholders. And I think we will have a global R&D and a global category organization to look at that.

And hopefully, we should look at VMS beyond what we have just created and see where that leads to. So I think VMS is a good story.

I always was keen on this, as you all know, and I think the last 10 months have actually -- I would confirm that the choice is right.

So do you think you've won over anyone who may not have been fully convinced about the role of VMS as a category in the OTC portfolio?

I'd really be very honest with my answer here. I don't think we are looking to win over somebody.

I think the big thing here is to win over consumers and to show that you can actually drive this category to create value. I don't think I'm getting -- there is no points to be won against somebody else who is painted the other way around.

I think the most important thing is to believe that you can do something good here, and I think that's the most important thing that guides me. If I only look at who would doubt it, I would never do it.

So I think the thing is that we believe this is the right thing to do, and we are confirming that this is the right thing to do. Clearly, lots more needs to be done.

We've just only started. So I don't think we should run ahead of ourselves.

We are doing well. We are doing better than what we thought.

That's really good. Lots more needs to be done.

So that's where we are on M&A. And I think the M&A should not only be looked at, size of M&A, et cetera.

I think you have 3 very strategic M&A for RB, 3 strategic M&As, 2 very geographically important, Latin America and China, and one important from a category portfolio coverage point of view. I think that -- let's move away from numbers and performance to the bigger picture.

I think that's really what we are going for. There is question about RBP.

We've proven to be good owners of this business, and I will agree with you. I think we have done an -- we, meaning RBP people, have done an incredible job in managing this business, and I've said defined a dimensional wisdom and defined expectations.

And I think we will continue to be focused on doing this. Well, this is not our core business, and at this point in time, having shown the strength of this business, proven the resilience of our business, having invested in the clinical pipeline, creating a global addiction treatment business.

I think that's a good time for us to take a step back and think about what other options do we have for this business, how do we actually look at the best part of value creation. And I think this is a continual exercise.

This is an exercise which needs to be thorough considered and not -- we don't -- we are under no pressure to really -- to do this except to figure out the answer which serves our shareholder value the best. So what has made this business successful?

Is there any of the RB values? Yes, they are.

Yes, they are. I would not underestimate it.

I think the people of RB, I've already said, are special. And I think we have treated that business in a very special way.

We have invested behind the business. We have -- 2 years ago, 18 months ago, we were investing behind clinical pipelines and so much uncertainty existed.

Why? Because we back our people as much as we back our business opportunities.

And the people are special because they bring the best of RB culture. That is not going to disappear just because I've announced the strategic review.

I think I was talking to all the RBP people before the announcement to give to you, and they are very energized about the idea that the strategic review will give them even greater advantage and opportunities to look at their business in a much more longer term way. And I think we are positive about the reviews, so I think we should all be.

Rakesh, just a follow-up. I guess you say the RBP people are special, which, in many ways, explains why it's been way more successful than anyone thought.

I guess there is no reason to think they won't remain special longer term.

Absolutely. The RBP people are not engrained with RB.

Just 3 small things, really. Number one, I mean, on RUMEA, I was wondering perhaps if you could give us a bit more flesh on how you can cope with those headwinds?

Two is just on the margin guidance you've given us for the full year. I just want to clarify.

Does that include any increased spending rates on investment in the brands, i.e. on marketing?

And then thirdly, I mean, obviously, it's a long way to go for the conclusions of the strategic review, but I mean, do you sort of envisage in the back of your mind that if you were to exit RBP, that would sort of be pretty concurrent with something coming into the business with an acquisition being made?

Let me get Adrian to answer these questions as they are interesting ones. I missed the third one, sorry.

I think I can -- the -- on RUMEA, I guess, well, RUMEA, obviously, with 5% growth is pretty much in line with our expectations and I think pretty much in line with the market's expectation, slightly softer market in the emerging markets, which we've seen in line with everyone else, but only slightly. We also continue with some operational issues, which we've been flagging for the last several quarters and we're working our way through in line with expectations, so really not a lot to report on RUMEA.

It's pretty much steady as she goes, steady in line with the trends that we've been seeing pretty much, both market and operational in the year-to-date and we [ph] expected and flagged. So I'm not really sure we really have a lot more color to give you on RUMEA.

The second question was on guidance. Could you remind me that, what it was?

I heard guidance and then I missed the second thought.

Well, you made a comment right towards the end of your release that you -- so you. It's the last paragraph from the statement.

You said, "We continue to expect to maintain full year margins." Would that include any increase in the rate going in the second half in the rate of investment in the brands?

Yes. We are not giving huge amount of detail on this.

I mean, our view on guidance is being we have a medium-term target of modest improvement in margins. And we've consistently said that, looked at in the round, given the large increase last year that this -- that meant broadly flat this year.

And we're still in that position. We could deliver higher margins at any particular given point in time.

That's really not the point. We manage this business for a long term.

So we think as much about investing in the business as we do about the sources of cost savings. Both of them are extremely important focuses for us.

And so we remain very comfortable with the notion of flat margin this year as part of a medium-term progression of modest margin improvement. It really isn't, I don't think, helpful to go into each individual component of it.

And again, I guess our emphasis, I repeat, is as much on investing in the business as it is on finding cost savings for those investments. Really, that's the context with us, maintaining our guidance of roughly flat margin this year.

The third question, I mean -- I think Adrian didn't pick it up, but I did. So I'm going to answer the third question.

Let me be very categorical. The strategic review of RBP is a stand-alone strategic review without any configuration for anything else, and you should not at all link it to any other strategic, let's say, project we might have or otherwise.

It's completely de-linked. It's been done on a stand-alone consideration for what's the right thing we'd be doing at this point in time for RBP.

I had some questions on Suboxone, please. Firstly, on the pricing environments, have there been any changes there?

Have you changed -- or should I interpret the pricing of your films have been stable? Were -- are there any changes in your coupon strategy?

And on generics as well, are they still priced ahead of your film as I think that was at H1? Should we expect any change there?

And then in terms of the guidance on RBP, I think you guided for sales in H2 to be down in the high teens. Obviously, it's down 16% in Q3.

Should we think that anything should be particularly different in the fourth quarter? And margins as well.

I think you said the margin -- my read was the margin in H2 for RBP would be down more than the margin in H1. Have I read that correctly?

Yes, a little bit. The pricing environment for Suboxone film, no significant changes to update on.

As you think, they're actually very easy to -- Alex, the generics pricing changes, no. These prices, as far as we can see, are still slightly ahead of the film, the discounted prices for the pharmacies are less than the film, and that's the position pretty much since the launch of the 2 generics.

The guidance we gave in the half year numbers for our second half, assuming constant market share that there would be a high teens decline in the top line. It's still our position.

You've seen it in the -- come through in the last quarter, and it's still broadly our estimate for quarter 4. I emphasize, if market share remains constant.

That is the underlying assumption there, and we continue to be of the view that over time, we will see some erosion in market share really. It will happen.

How far and how fast, that's very uncertain. As you know, we remain of the view that it won't happen over time.

And similarly, our guidance on the margins in respect of RBP insofar as we gave it, it also stands -- you are seeing -- or you saw in the first half and we are seeing now and you will see, with our full year numbers, the combined effect of sort of reversed leverage when you do get declines in net revenue on -- really, it's quite a high fixed cost business. You do see negatively with -- and equally importantly, we are continuing to invest very substantially in the clinical pipeline because of our confidence in this business and because our pipeline is clearly integral to the future of the specialty the pharmaceutical business.

So I think on all 4 of your questions, it's either no change or yes, Alex.

Okay. And I guess given your decision to support the business on the strategic review, would you be prepared at this stage to offer any outlook on RBP as we get into the next year?

Or at least maybe you could help us think about some of the key moving parts around the business as we get into next year.

Well, I think we are at the very beginning of our strategic review, as Rakesh has made it clear. We've already said within prior quarterly numbers, that we would, in the course of 2014, give you great insight with the pipeline, and we'll certainly stay with that.

And we will also, of course, in the course of 2014, update you on the strategic review. And more or less information may be appropriate depending on the outcome of the strategic review, but I think we should wait to see what that is before we commit specific things to specific times, Alex.

It's actually Toby McCullagh at Citi. I've got 3 questions, if I could.

Firstly is perhaps, can you just remind us where we are on the Suboxone injectable, where we are in the various phasing of trials there and what your expected timetable is? Secondly, could you help perhaps quantify the flu impact in the comp this year and also perhaps give a little bit of help as to how much more difficult the fourth quarter comp is likely to be?

And then thirdly, just a clarification, I guess guidance coming into the year was for about 100 basis points of net M&A. Obviously, the acquisitions have been rating better, as you've said.

Could you perhaps give us what your current estimates of the net M&A tailwind is baked into your renewed guidance?

Right. Let me just start with the flu and then maybe Adrian can join in.

So where are we on Suboxone injectable? As we've said, we will give you a fuller update on the whole pipeline progress sometime in 2014.

Suboxone injectable progress is one of that. It's in progress.

There is nothing more to report between clinical periods. You have different phases in the clinical pipeline.

And within the phases of the projects, there is nothing more you can add. So I really can't tell you anything more except to say it remains a valid opportunity for RB, and we're working on the last opportunity.

The second thing is what is the flu impact in the comp. I think that question has been asked in Deutsche [ph], actually, a lot in the last conference call in the half year.

It's very difficult to estimate precisely what the impact is, but there has been an impact in the first half results because the season extended well beyond the first quarter. We all know that.

So there has been an impact, and we have to just acknowledge that. It's very difficult for me to quantify.

How difficult are the comps in the fourth quarter? Well, we have just given you a guidance the way we expect at the end of the year.

I can't do any more in being granular about the fourth quarter versus the rest of the year. I think you can make your own conclusions.

The fourth quarter is part of the guidance. And you asked me whether the -- what is the net impact we expect from M&A given that the guidance has been now at least 6%.

Well, it will be higher than the 100 basis points as I have said. I said 100 basis -- about 100 basis points.

It will be higher than the about 100 basis points.

It is almost going to be sensible about that lost earning. It goes well with 100 basis points.

Even if you double that, which we are not doing, you won't get to 200. So even if you measure that [indiscernible] double it.

Yes. It's higher than 100 basis points, but I don't think you should read much more than that.

Yes.

Three questions for me. The first one it would be on the cost of doing business in your categories because clearly, as was the case in H1, it seems based on your press release that you've continued to increase your BEI in Q3.

You're also mentioning one of your competitors being highly promotional in the U.S. hair care category.

My first question is, are we witnessing an increase in the cost of doing business in your categories? Or would you expect these levels of investment to normalize next year, particularly with input cost being less of a tailwind?

My second question is on Mucinex. You are saying in the press release that it has outperformed again in the third quarter.

So should we read into that, that basically, there's pretty much no impact from the private label product launch by Perrigo earlier this year? And finally, on market growth, I mean, you've been one of the first companies to call out the slowdown in emerging markets.

However, it seems you're being even more vocal in today's press release about the slowdown in LAPAC and RUMEA. So I was wondering whether you've seen sequentially, it's getting more challenging in emerging markets.

Right. Let me just see if we can get this through.

The cost of doing business in our categories has not changed versus what it has been. The markets that we operate in are intensely competitive.

They are competitive for us as much as we are competitive for others. So I don't see that the cost of doing business in our category has now increased substantially versus what we've been seeing over the last years.

And I would not offer any guidance to you about whether or not our investments next year will normalize or they will not normalize. I think we'll come back to that question in February.

Regarding Mucinex, Mucinex just had a good third quarter. And I would just want to point out that each time, we've all talked about flu, which is the right thing to do, to really understand what dimension that have given us.

I think I also pointed out that Mucinex is also being injected with some of the best that we've had for a number of our quarters. And by the way, if we'd had generic entry, let's say, 2 years ago or something like that, I think the Mucinex would have been far more impacted, I would say, versus where we are today, where Mucinex has run a very diversified portfolio, which consists, of course, of the core congestion products but also has cold and flu, sinus and now nighttime.

So I think the Mucinex range is now a broad range. And although we still haven't seen the full impact of private label on the core -- not core, one part of the range of Mucinex [indiscernible] clearly, we've been off-season so far.

But even when there is an impact, it is going to be less, less so with a very diversified range of Mucinex versus what it would have been if we didn't have that innovation going in for us. So we continue to innovate behind Mucinex.

We continue to invest behind the franchise, but I think that's a good story about Mucinex. And there was another question, I think...

Emerging markets, all are getting tougher. I'm not sure we fully understood your question, Guillaume.

I mean, we have seen some softening in the emerging markets we serve, just like you've seen from 100 and other sources. We're not an outlier in there, but we continue to perform well in that context.

We haven't seen any significant discontinuity. We've seen a gradual softening, which has been going on for some time frankly.

So no -- we would confirm the slight softness, no discontinuity, though, in what we can see.

Yes. I think what Adrian and I would want to say is that there is no suddenness here.

I mean, if you guys are saying like, "Oh my god, this is -- did something crash land in the third quarter?" , I would say no.

I think we have seen this trend. And -- we've been talking about this trend for 2 years now but nothing silent, and I think we should expect that.

I mean, the headlines are there. You've got macros in emerging markets are much tougher, and no business can claim to be perfectly immune from those macros even though we have fantastic opportunities for driving penetration and driving our brand, but nobody can be immune from the macros.

That's one context. The other context, I think, I've always been at pains to point out is no matter how big you are in emerging markets or not, there is still a substantial business we all run beyond emerging markets.

That's for developed markets. And I think the challenge of our industry is not just to find that 100 basis points of extra growth or otherwise in emerging markets, it's to find ways of growing sustainably developed markets.

Why should we give up on those markets? Why should we figure out how to serve consumers better with innovation, how to drive our brands more consistently?

And I think, for me, the pleasing aspect is not just how resilient and good our business is in emerging markets, it's this 5 quarters of continuous growth in ENA. And I think that's why we are much more comprehensive in our business opportunities, geographically, of course, through our brand portfolio, yes, and that's what I'd like to point out again to you guys.

[Audio Gap] you're in Phase II trials of injectable risperidone and antipsychotic. This is a different area from opioid addiction treatment.

Could you please help us understand the opportunities in this rather highly generic-ized market and, more importantly, how your investments in the pipeline tie in with your strategic review of the business?

Thank you, Pina [ph]. I just only heard part of the question, but I think I can guess the whole question.

The question is probably, you just picked up that we -- there is a pipeline project in Phase 2, which is about an injectable risperidone and how that fits in from the strategy point of view and what -- how does it fit in from a strategic review point of view. Well, actually, the whole starting point of the pipeline is really creating an injectable where it will not lead to opioid dependency problem, and that's through the Atrigel technology that we bought in-house, and that's what our primary pipeline project is.

During the course of the pipeline, we also saw an opportunity of looking at the injectable delivery technology with risperidone, which is a known ingredient for schizophrenia, and to look at that to see whether we could deliver better patient outcomes with an injectable, which is of course monthly product, and that we have invested in Phase 2 of that technology. So I think we are not discovering new molecules here.

We are just applying a delivery technology, a monthly injectable technology into another area, which we believe is an interesting area for us. And we'll come back, like I said to you, in 2014 to talk about some of those opportunities and see how -- and describe to you more holistically what that means for RBP.

Erik Sjogren at Morgan Stanley. Just 2 quick questions.

Firstly, I just wanted to ask you about the competitive environment you're seeing in the ENA region, particularly in North America, whether you've seen any changes there? I mean, you mentioned that hair care [ph] business.

And then secondly, I just wanted to come back on the VMS market. You mentioned you've obviously been doing very well with Schiff early on here.

Is there something specific about the U.S. in VMS?

Or is it -- do you see potential in other regions here, too, in this market?

Right, okay. So the competitive environment in U.S.

remains as it has been. I mean, I don't think I can report anything new and we performed quite well in the U.S., too.

So I think nothing new really to report in the U.S. But in terms of VMS, I think we should -- we will take a step first to understand this category more holistically.

As I've said, we have committed some resources to look at it, and then we will come back and give you an assessment of how we see this category at RB and where we see the opportunities and how we believe we can leverage those opportunities. I think it's too early for me to comment on anything beyond Schiff U.S.

at this moment except to say that we are looking at it.

It's Toby McCullagh again. Just a quick follow-up on RBP margin between first half and second half.

The second half -- obviously you clarified again today that they're going to be lower than the first half. If we look back, the first quarter clearly benefited -- or probably benefited from channel filled prior to cessation of the tablets, which have very much higher margin.

Second quarter is the first quarter generics and the first half was down, what, 650 basis points or so. So I suppose the simple math would be perhaps to say that we've got 2 full quarters of generic competition in the second half of the year.

So should we just be doubling that impact? This is one of the big unknowns for me is, how -- there was a big step-up in the pipeline innovation investment.

To what degree was the first half margin decrease influenced by the negative mix on generics or -- and therefore, the amount that's going to be incremental in the second half? And to what degree was the reduced margin related to the step-up in innovation investment, in which case we already had a full half of it in the first half?

Yes. Those were little too much detail, I think, Toby, to get into a response -- but the -- but I think what we did say at the half year was exactly as you were implying that you have to split the first half down into 2 quarters because the second quarter is significantly affecting on the top line coming down there with the first quarter.

And the second quarter was a much better guide in terms of profitability to the second half although you have to break it enough -- you have to -- [indiscernible] amount of this to break it too, together. And I think [indiscernible] have done that.

They get into the right zones. And those elements are contributing to the reduced margin, both for negatively reached and the investments in the pipeline.

But beyond that, in terms of breaking up, which contributes which, we're not going to get into that level of detail, Toby.

Two questions. Relating to pharma, can you tell us what proportion of the business the sales at the 9-month stage are actually non-U.S.

and perhaps provide some color on that non-U.S. growth profile?

And just a little more detail on the size of the fixed costs within the pharma business in relation to the total cost base would be very helpful as well.

Sure. We don't disclose exactly what the non-U.S.

business is, but it is relatively small. I mean, it's meaningful.

It's a meaningful part of the business, but it is relatively small compared to the whole competitive U.S. business, and it's the U.S.

business which shapes the number substantially. However, I think that in itself is an opportunity because intrinsically, there is nothing about European or other parts of the world that make them less subject to opioid addiction and as we look to the future, that's an extremely important area.

In the short term, it's quite challenging in a growth context, just as we had to work on the U.S. business over -- on the U.S.

market over a decade and get it properly established, the treatment for addiction outside of clinics, so the same challenge in Europe. So it is in the, medium and longer term, a significant growth potential.

In the short term, the markets are challenging as, indeed, in -- particularly in the case of Europe, but also all pharmaceutical companies at the moment. So I think the answer to your question, is still a nod to your question, non-U.S.

relatively small. Short term, there is growth opportunity, but it's a challenging environment.

In the medium term, we see a very significant opportunity for this business outside the U.S. In terms of quantifying fixed cost in RBP, again, we're not going to go down that route, but this is a specialty pharmaceutical company, and it has -- they have the -- it has the economic structure, the cost structure that is typical of a specialty pharmaceutical company.

There is a lot of activity we have in the field dealing with physicians, a lot of clinical gains on people, as we call actually, supporting doctors, which are a very large part of the business model of the company. And they clearly are fixed costs.

And that is what -- and that distinguishes it from -- quite significantly from the rest of our business. So again, we're not going to give the numbers to it, but it is a relatively high level of fixed cost compared with the rest of the RB business, as you would expect from its business model.

Okay. Actually, to push you a little bit on the non-U.S.

sales within the pharma business, would it be fair to say that it's less than a quarter of the total sales within that pharma business? And also, how would do the margins look in comparison to the U.S.

business?

Yes. I think it's so much less than a quarter.

The -- but we're not going to disclose relative to margins.

Well, what you need to do is just basically look at what we had disclosed some time in 2011, mid-2011 of some breakdown of our U.S. versus non-U.S.

That's the time when we had just gotten our hands to the med [ph] business. And I think you can run your own projections from there in terms of what growth rates we would have had in the U.S.

versus non-U.S. On U.S., I think as, probably, Adrian pointed out, it's a step forward because of improved volumes and how we are managing to still find some growth in the market but have stepped back because of pricing -- or some step back at least.

And the U.S. business, over the last few years, I'm sure the price decrease is clear to you.

So we should not go beyond that, but to give you this kind of a way to think about U.S. versus non-U.S.

Look, 3 quick questions. Number one, as part of a strategic review, while you're still on RB Pharma, is there any scenario, given the new competition, that you would reintroduce the Suboxone tablet?

That's point number one. Point number two, given the changes in the U.S.

with the Affordable Care Act, also called by some Obamacare, do you see any impact from that in the Suboxone business? Will it be positive or negative?

And then number three and last, more in general terms, while we are on the subject of divestitures and strategic reviews, are there any large chunks worth mentioning in the core business that could also -- will leave you, like for example, the Food brands or even parts within the laundry portfolio or within the portfolio brands? If you can comment on that.

Yes. Let me just try and answer these questions.

I don't think we are going to talk about what our product portfolio strategy should look like, what the clinical pipeline should look like today on RBP. So I'm not going to answer really a question, which is, are we going to reintroduce tablets, because it's a very wide question really here.

We will look at the right thing to do for RBP based on what's right for patients and what's right for the business, what's right for shareholders. Regarding the Affordable Care Act, the Obamacare Act, I don't personally think that this is going to have a very significant impact in the market.

It might be modest. It might just be modest, but I don't think, for example, the growth rates of the market are going to jump from 10%, for example, to 20% or 15% or 18%.

I think this is -- it is very difficult. To my mind, it will be very difficult to even notice the distance in the market caused by the Affordable Care Act.

And the final question was, are you also looking at some other strategic reviews in the business on your core, et cetera? Well, we always look at our portfolio strategy, and we have announced a portfolio strategy.

And as a part of the portfolio strategy, we have announced in the past the removal of our private label business. We've announced today the strategic review of the RBP business, which is a slightly different way of looking at our portfolio.

And the last which we have done is we have streamlined our footwear business from a portfolio point of view early this year. So as a business, while we look at all the acquisition opportunities, we also look at portfolio strategy in holistic term.

We continuously do that. And when we believe that certain steps needs to be taken, that's what we do.

So at this stage, I don't want you to read that there is anything more than what we have announced today because there isn't.

Three questions from me, 2 on the strategic review. I know it's very early days, but I guess you must have some idea of whether there are any sort of tax implications from the strategic review.

Secondly, if you don't find a trade buyer, would you say you are committed to exiting or is one option, one potential outcome of the review that you retain the business? And the third question is really an update on how you currently see category growth in Health, Hygiene and Home?

Is there any change to any of the category groups?

Sure. The -- Charles, we're not going to comment on the tax implication of the review.

That would be no surprise to you. In response to your second question also of the price, we are trying to make it very clear.

We are looking at all options, and all options means all options. It doesn't exclude anything, in or out.

So yes, we're looking at all options. Your last question, I'm not sure I fully understand, different category growth rates in Health, Hygiene and Home.

The...

I think our portfolio strategy is very clear. Our portfolio strategy is that we want to focus on Health, Hygiene and Home, and we've laid down a KPI for Health and Hygiene, in total.

We believe Health and Hygiene, in total, offer higher growth, higher margin opportunities. And the brand in aggregate in these categories have stronger loyalty, stronger equity subject to less price promotion, subject to less -- the more solid and robust equity.

So I think it's very clear. And our investment strategy, our -- our whole business opportunity is being driven through this kind of portfolio strategy.

So I think beyond that, I don't think there is any more to add from my side.

The question was, in the past, you have commented on what the global category growth is for your category.

In total, you mean?

Yes, exactly.

In total -- sorry, in total, the market growth rate is in the region of 2% plus. Is that what you -- in aggregate?

Exactly, and a bit of color...

If I look at the recent trends, I would say the recent trends point to market growth rate, which is around 2% plus for the market that we -- and now, you need to understand this is the mix of RB categories, brands and markets. So I think this is where we see it -- and this is broadly speaking the kind of trends we've seen.

Now clearly, in some quarters, you would see higher or lower depending on whether or not there has been any seasonal impact one way or the other. By and large, if we just aggregate all of this and look at the kind of growth rates, that's the kind of growth rates we're looking at, 2% plus.

And is 2% plus a little bit better than it has been?

It's not material, but there are some ups and downs. We've just talked about those ups and downs already.

Markets -- there are -- some markets in Southern Europe, it remains really quite tough. But by and large, there are some markets which are in good territories.

There is positive momentum, if you want. But in aggregate, it's broadly as I described to you.

Okay. Can I just say thank you very much for joining us for this call, and we look forward to talking to you next year.

Thank you.