Reckitt Benckiser Group plc

Rakesh Kapoor – CEO Adrian Hennah – CFO

Celine Pannuti – JP Morgan Iain Simpson – Société Générale Erik Sjogren – Morgan Stanley Harold Thompson – Deutsche Bank Jeremy Fialko – Redburn Partners Rosie Edwards – Goldman Sachs Charles Manso de Zuniga – Société Générale Charles Pick – Numis Securities Toby McCullagh – Citigroup Guillaume Delmas – Nomura Securities

Good morning, and welcome to RB’s Third Quarter Results Conference Call. Adrian Hennah, our CFO and I will take you through a summary of today’s announcement and then we’ll be pleased to take your questions.

Remember, this is a trading update only and our announcement is therefore an interim management statement rather than a full set of results. I would like to quickly give you an overall picture of how I see our business and the key messages I want you to take away from this call.

Firstly, let me give you some context around the current environment as we see. Growth has not yet returned to developed markets, and emerging markets in aggregate, are weaker.

Indian market growth is well below the rate seen in recent years. In Brazil, the post-World Cup bounce back in consumer staples has not materialized and the consumer and trade environment is weaker than just 12 months ago.

Thailand and Indonesia have experienced significant downturn, and the Middle East markets show a mixed picture. Somewhat surprisingly, Russia continues to exhibit market growth in our categories.

And finally, Europe and North America are relatively flat. Given this backdrop, I think our performance so far this year has been robust.

Our people have worked even harder to execute a strong pipeline of innovation and position our brands to bounce back strongly as markets start to recover. I am particularly pleased that the operational improvements we have made in RUMEA have delivered strong results.

We are continuing with a long-term brand building efforts, such as our commitment on Banega Swachh India program, translated in English, a greener and healthier India program in partnership with key stakeholders. Secondly, I’ve always said that where RB focuses, it wins.

To further sharpen our focus on Health, Hygiene and Home, we’re dealing with our non-core businesses appropriately. In this context, we have made excellent progress in the separation of RB Pharmaceutical business and I am very pleased to tell you that we expect the demerger to complete before the end of the year.

We are confident that with this move, both businesses will be able to realize their full potential as stand-alone entities. We have now disposed of our footwear business with the transaction completing in August.

Thirdly, the integration of the consumer operation in Russia, which we acquired with SSL, is now well advanced, leading the hospital business as a stand-alone entity. We are examining a number of options for realizing the best value for this hospital business.

And finally, as I’ve said in the half year, our brands are strong as is our culture. And our earnings model remains intact despite top line dynamics, as we’ve been taking multiple steps across the levers of the P&L to maintain earnings momentum.

And now I will hand over to Adrian.

Thank you, Rakesh, and good morning. I’m not going to talk through the IMS financials.

We’ll be pleased to address any particular points you have on the IMS in the question and answer session. We did however think it might helpful to give a little more color on the full detailed aspects of the numbers.

The net impact of M&A, impact of changes in exchange rates, the price and volume composition of growth and where we are exactly with RBP. The net impact on growth of M&A has become a bit more complicated, given the activities we have been doing over the last nine months.

The impact on revenue growth in quarter three was a small net reduction. In the year-to-date numbers, the net impact was a small increase.

For this reason, you see total cost and exchange rate growth, excluding RBP, in quarter three at 2%, lower than the 3% like-for-like growth. And the year-to-date total growth as 4% is same as the like-for-like growth.

We expect the net impact of M&A in the full-year to be about flat. This net M&A effect comprises, firstly the K-Y acquisition.

This transaction is completing in stages, as competition issues appeared in various countries. The great majority is now complete.

Secondly, the BMS collaboration was completed in May 2013. Hence its results were excluded from the like-for-like calculation into May of this year, the anniversary of the collaboration agreement.

Thirdly, the Footwear disposal. This transaction was completed in quarter three.

All past, Footwear revenue, which was £76 million in 2013, is excluded from the like-for-like calculation. And fourthly, the Medcom hospital business in Russia.

As Rakesh has mentioned, the integration of the Medcom consumer business with the existing RB consumer business is progressing well. This leaves the small parts [ph] of the business as a stand-alone entity, and we took the decision during the quarter to start the formal process to realign the best value for shareholders, accordingly both past and future numbers are excluded from the like-for-like calculation.

The Medcom hospital business has an annualized revenue of about £65 million. Turning to the impact of currency exchange rate changes.

As expected, headwinds continued to have a significant negative translation impact on reported numbers. A reduction of 10% on a year-to-date basis, and a reduction of 9% in quarter three.

If the exchange rates prevailing at the September 30, we have to persist for the remainder of the year, we would expect a full-year negative translation impact on reported revenue of between minus 8% and minus 9%. If the exchange rate prevailing at the September 30 persists through until December 31st of next year 2015, we would expect the translation impact on 2015, reported revenue to be probably neutral over 2014.

Turning to the price and volume composition and growth. We mentioned at half one that the contribution of volumes on the one side and price and mix on the other side was broadly equal.

This continued to be the case in quarter three. We also continued to see a limited ability to take price across the developed markets in ENA.

Conversely prices continued to play a significant role in the emerging markets in RUMEA and LAPAC, wherein many countries, we have of course seen weakening currencies and higher domestic inflation. Now turning to RBP.

The underlying volume growth in buprenorphine prescriptions in the United States continues to be strong. As expected, RBP’s share of buprenorphine prescriptions declined slightly around to 60%, which was the result of increased pricing pressures from generic and branded tablets and removal from a formulary of part of United Healthcare from the July 1.

Strong market growth, some share loss and some price pressure led to the 9% reduction in constant currency RBP revenue in quarter three. We expect trends seen in the first quarter and their impact on our results to be broadly similar in the fourth quarter.

A fourth generic buprenorphine/naloxone tablet was approved in September. In addition, a branded film competitor may launch a competing product in quarter four.

We firmly believe that this product breaches our IP protection and we have initiated the corresponding legal process. There continues to be very clear patient and physician preference for Suboxone Film, however we have always said that increased price competition in the US marketplace will drive some further share loss among more price sensitive payors.

We continue to expect this dynamic to play out in 2015. RBP held an end-of-phase II meeting with the FDA on September 30 on our Suboxone Depot pipeline product, and we are awaiting formal feedback from the meeting.

We are working hard on preparing phase III program. Turning to the strategic review of RBP, as Rakesh has already mentioned, the operational and financial separation of RBP is simply aboard and other activities associated with the demerger are progressing well.

We therefore expect to be in a position the demerger business prior to the year end. We are planning to make further information available to, including expected and a detailed timetable, including management presentations and to discuss the road show.

And with what, I would turn back to Rakesh to wrap up.

Thank you, Adrian. Let me talk about the outlook for the year, as we see it.

I am pleased to tell you that we are reiterating our full-year targets. Our net revenue, we continue to expect growth of 4% to 5% on a total basis at constant currency, excluding RBP.

I do expect this to be at the lower end of this range now due to the tougher market conditions and the deliberate actions we’ve taken around our portfolio. On adjusted operation profit, excluding RBP, we reiterate our expectation of continuing operating margin expansion in the second half.

In times of tougher top line growth, I am pleased, that our company proactively pressed the right levers through P&L to maintain the earnings momentum. The combination of our focus on higher margin categories on project fuel on synergies from more efficient media buying and planning and fixed cost containment, gives me confidence we can achieve this nice margin expansion I talked about at half year.

With that, Adrian and I will now be pleased to take your questions. Can we have our first question please?

Yes, good morning. My first question is just to rebound on your outlook for the year.

Do you expect the market to remain, as you see the same trend as you see in the third year into the year end, and could you tell us what have been the positive impact on RUMEA from this trade loading and what should we expect to be the – or what was the underlying performance of RUMEA in the third quarter? And my second question is on the sales division, which was slightly down and you mentioned some Mucinex weaker sell-in.

Could you maybe talk a bit about the market growth rate? What’s the difference between emerging markets and developed markets for that division, and whether a mid-single-digit in this environment is the right number we should be looking at?

Thank you.

Right. Hi, Celine.

Well, how do we see the market in the fourth quarter broadly similar to what we’ve being seeing as of now? So I do not expect any significant change in market conditions over the fourth quarter.

You asked me another question about RUMEA. What has been the impact of trade sell-in in Turkey?

I would say it’s not material really to RUMEA. What was material in RUMEA is the fact that the RUMEA area has done well.

We have called out a number of times, the operational challenges we had faced and what we were doing about those challenges. And I think we are pleased to say that those challenges are being met very strongly, so I think that’s where we should think about RUMEA.

Another question from you was Mucinex and the impact of sell-in in Mucinex. I would say again, we wanted to call it out, because we believe that our underlying Mucinex business in quarter three performed strongly, but we did not see that reflected in revenue because of what I would think was cautious trade buying patterns based on last years’ experience of the trade where in this point in time in the year, they are actually prepared for a much bigger flu season and it turned out, which was a carryover of previous flu season and so on and so forth.

So I would not give too much attention to that too, because in the grand scheme of things, what we want to call out is that underlying performance in Mucinex actually was good, but maybe not reflected so much in revenue. And I think your final question was around the environment [ph] in Europe.

I think the developed market growth rates have been flat and emerging market growth rates have been weaker through the year. And if you think about – let me answer the question in other way, although you do see changes between RUMEA and LAPAC over the year, but when you aggregate the whole, you do broadly see the same sort of trends in emerging market growth sales that we’ve had.

Now by nature, emerging markets tend to be volatile. You have some changes from one market to the other that can happen lot of swiftly in some cases and I think in aggregate, our emerging markets have grown at about 6% and that has not changed over the year, although you see changes within one area versus the other.

Thank you.

Thank you very much. Just a couple of questions from me, if I may.

Firstly, within ENA, you talk about how Europe did better than North America. And I was just sort of wondering, is that underlying market driven, or is it your performance within the markets?

I know you’ve called out Mucinex. But is there any sort of color you can give on that would be incredibly helpful.

And then just secondly, sort of more generally within health care in terms of MegaRed roll out. Clearly done a huge amount of work on that recently.

How much roll out is there left to go into, or have you already executed most of the white space fills, that would be extremely helpful. And then just lastly, if I may, on the Medcom hospital business.

Given the small size of it, I am assuming it’s exclusion from like-for-like is non-material. If you could just confirm that?

Okay, let me take a couple of questions, and then maybe, Adrian can jump in for a few of these. The fact of the matter is that Europe has performed strongly this year versus the trends of last many years.

And I think I would attribute that to a combination of markets being moving from worse to bad. And I think our performance being better.

I think we have made operational improvements in Europe, and some of our health categories have performed particularly well in Europe. We’ve called that out in the past.

So I think we remain pleased with how we are performing in Europe, although North America has certainly been a tougher year this year. And I would see this is a combination of a very strong first six months of last year, but maybe even first nine months of last year because of a fantastic flu season, but also the US market is generally seen to be, by us at least, a bit softer than it was 12 months ago.

So I think in aggregate I would say Europe, North America has done well, but there are changes within Europe and North America between this year and last year. In terms of health care, MegaRed roll out, we did call out at the beginning of the year that we were going in 21st markets at the same time, but I also made one point quite clear at that time that building brands is not an immediate process, building brands is a long-term process which requires patience, it requires effort, it requires an approach, through which we can actually build them with the right level of education, with the right level of innovation, with the right level of penetration by being active with these.

When you think about building brands in consumer health, this is even more – this whole concept is even more accentuated. This is even longer term process, because in this particular case, in MegaRed, particularly in Europe, we are building a category, we are not just building a brand.

Heart health as a category, as a benefit, does not truly exist. So we are aware, fully aware of what we are dealing with here and we are patient about it.

So MegaRed, I think we are where we should have been, but I don’t think we should get ahead in terms of thinking that this is going to be an explosive part of our European health care business. In terms of Medcom, I think there was another question, maybe if Adrian you want to talk about that.

Yes, surely. First of all, absolutely the exclusion of Medcom hospital is not material, but just to give you a little bit more color in case you’re interested about how it came about, we acquired the Medcom business in Russia as part of the SSL acquisition in 2010 or at least we acquired a majority stake in the Medcom business in Russia.

We didn’t get full control until till what was the end of 2012. And what was the Medcom or what is the Medcom business?

It is primarily a consumer pharmacy-oriented business, with an excellent go-to-market channel in Russia, predominantly initially serving context combos [ph]. And we have been – now that we have had the full control over the last year or so integrating the Medcom consumer business into the existing RB consumer channel, which is a huge [indiscernible] for us.

And that integration is going very well. And as a result, has liberated this small Medcom hospital supplies business, which we also acquired with it and which had shared the same distribution channels.

It’s really as a stand-alone business. And we are not in the business of hospital – as hospital suppliers or medical device in general.

At Medcom, obviously we are seeking to realize the best value from this to shareholders in the most appropriate way. And as it is now stand-alone, the integration with the consumer business is developed well, we’re flagging that fact and we’ve started a formal process to this and realize the best value for shareholders as we can.

That’s what it is. I repeat its inventory of 65 million or so revenue and that’s really all the rest of it, Iain.

Thanks very much.

Yes, good morning. Just two quick questions for me.

Firstly, you saw very confident about the margin for the second half of the year. Is there any more color you can give us on what you see as the margin drivers, particularly at the additional cost saving that you talked about at the half year?

And then secondly, you flag that – in RUMEA, you flagged that you were surprised by the trends of Russia. Have you already seen a slowdown just now, or is it more like you’re generally surprised?

Thank you.

Right, okay. Erik, I cannot repeat myself more actually, because I’ve said this all through, that being a special skill which comes through not just in good times, we are also tough times, and I think we were pretty proactive about looking at all the drivers in the P&L and thinking about how we could actually keep our earnings model intact and keep margin momentum high.

And I think when you think about all the drivers, there are lots of drivers. You’ve got optimizing pricing and trade spend making sure you are hugely focused on project fuel, which is the cost containment program that we have on product cost.

You think about how we can optimize our fixed costs, because even if we believe we run a right ship, there is always an opportunity to find more. And then I think we flagged early – in the early part of the year, maybe even last year, that we have started a media planning and buying program to really find leverage, but also become a smarter media buyer and planner, and I think that’s what we have done.

So when you think about in combination, it gives me the confidence to think that the second half margins would be another nice margins on half. On your second question on Russia.

Yes, I think when you think about macro of Russia, you see the headline, you think, well, the GDP growth rate is basically flat to declining, and you see all the challenge of not just the economic challenge of Russia with oil prices, but also the political issues that we are seeing there. So in the context, if Russia was to exhibit a downturn, you would not be surprised.

What is a surprise is that, we are not seeing there at this point in time, but we are just calling it because Russia did well in the quarter and we did not see any significant slowdown in our categories. So we probably should talk about that.

Okay, thank you very much.

Hi, good morning gentlemen. Two questions for me.

One on dividend and other one on M&A. How should we think of the dividend for full-year 2014, given that RB will – there should be largely – RB and RBP together for the vast majority of the years, anything you could say on that?

And as a second question on dividend, how should we think of the RB dividend policy for next year and beyond? From an M&A perspective, although you called out that M&A will basically have no impact on revenues this year.

You have actually done quite a lot of things in the last 12 to 18 months shift. In China, you brought something, the BMS business in Mexico, Brazil, and of course K-Y Jelly more recently.

There is quite lot of activity. How is it going across the board?

Are there any major initiatives you can call out beyond maybe the MegaRed re-launch and just how these businesses are wedding into the group? Thank you.

Sure, Harold. So let me take the dividend one.

With regard to 2014 dividend, now it’s obviously the thing for shareholders, but we expect – as management, we expect, the board that RB will pay full dividend for the full-year. The demerger, we expect to happen shortly before the end of the year.

So RB will regard the payment of the dividend. It’s a RB issue for 2014 in accordance with its current policy.

So it should be noted probably on 2014, probably beyond that, but beyond that I can’t comment on that on the RBP dividend policy that it can be a matter for the RBP board and they will make that policy clear, all of the perspectives which you should expect soon. In terms of RB’s policy after 2014, we do not expect a change.

I mean here is our policies, you know to have 50% of adjusted earnings, but to allow for one-off things like the movements in the exchange rates we’re seeing now so that would slightly above 50%. We would expect no change in that sort of policy, 50% would underlying for changes.

So that I think is all we can say about the dividend now. In terms of M&A, the specific guidance we were giving.

I’m sure you’ll appreciate this Harold, but for the difference in like-for-like in total numbers in the full-year when we were saying it would be broadly neutral. Yes, so the broader question of how our acquisition is going, it’s the [indiscernible].

I don’t think it’s appropriate now to go through every single of them we had in the last few years, sort of a generality, you’ve heard us say over the repeating quarters but the integrations of all uniformly, the ones that I’ve seen in my two years is being progressing very well and that continues too. I am not sure what more I can say about that.

That’s okay. And thank you very much for the very clear dividend answer.

Hi. Good morning, it’s Jeremy Fialko with Redburn here.

Just one question for me, which is on Brazil. That seems to be the one market which got notably tougher in the quarter.

Perhaps you could talk a little bit more about that one from a macro standpoint, and also what you’re seeing in terms of the competitive environment, which is something that you also referenced in the statement? Thanks.

Yes. Okay.

I think you’re all aware [ph] there was a huge event taking place in Brazil. And when that event was taking place, some of us knew that there would be some categories which would benefit very strongly before the event, like beer, like alcohol, like maybe soft drinks and some would suffer somewhat, as the trade would divert its attention from fun categories and put it behind others.

And we’ve seen that again in the game across the world when such events do take place. And there was this expectation that after the World Cup, you would see a re-correction of some of these back into the kind of categories that our industry deals with in, I would say HPC if you want or more expanded to version of that.

And we haven’t seen that. And it’s probably down to a number of factors.

One is we’ve all read this very significant political, I would say, uncertainty that exists in Brazil, which also is creating a significant level of economic uncertainty. I think on top of that, you’ve seen what is happening to the underlying economic forces in Brazil, which is about commodity prices and the lot of economic connection that Brazil has with the rest of the world, if you want.

So I think when you think about all that and when you think about the consumer environment and the trade environment connected to that, I think I personally see Brazil to be in a tougher position now than it was 12 months ago. And when markets do get tougher, one immediate consequence is that the whole environment from a competitive point of view automatically gets tougher.

So I think these are – these are connected events, it’s not unconnected. And we did call it out because perhaps some of us were hoping that Latin America, particularly Brazil, will bounce back in the third quarter, but we haven’t seen that – quite opposite actually, we have seen more weakness.

And I don’t know whether I can say today that this is about to correct anytime soon.

Fine, that’s all very clear. Thanks so much.

Thank you. Yes, good morning.

Just one question for me. Just on the Amopé roll out, which you mentioned in the release this morning has started in the US and Brazil.

Just wondering if you can give us a little bit more color on that, if you haven’t kind of seen any major impact in sell-in, but also any details you can give on for the best you can use innovations that you’re planning to launch in the end markets, it would be very helpful. Thank you.

Rosie, I think it is very fair to say it’s very early to say anything about Amopé launch in either US or Brazil, except to say that we are excited about that launch. What have we launched in US and Brazil, we would launch to start with our Scholl Pedi Perfect product, which has done extraordinarily well in many parts of the world.

And together with that, we have launched a small range of creams and refills, which let’s say makes a foot care regime as one holistic experience, but again I would caution this is very early. And perhaps over the next several quarters, we will start to see what – how we make progress, but I would think that you could see immediate results like I did call out for MegRed to, I don’t think we should expect very significant news flow in new brand launches, particularly when they are in health care, although we remain very excited about the opportunity for us.

Okay. Thank you.

Yes, good morning. Even at the lower end of your like-for-like guidance of 4% to 5%, it does seem as if you require, sort of a pick-up in the last quarter.

So could you, sort of, take us through any reasons to be more cheerful about Q4 as compared to Q3, and as the underlying performance in Mucinex, do you expect that to come through more visibly next quarter, disinfectant demands following Ebola, is that beginning to come through. So essentially those kind of things.

That’s the first question. Second question.

Obviously good to see growth coming back into the air care category. Just a bit more color on that.

How sustainable you think that is? In the release you talk about focusing on new offerings suited to heavy users.

Perhaps you could give a bit more color on that. Thirdly, you’ve done quite a lot of portfolio clean up, and I was just wondering whether there was much more on that to do?

And then finally on the margins. Yes, if you are still confident about good margin improvement, but at the same time you mentioned slower growth raises the confidence between businesses, so just wondering net-net whether maybe the margin headwinds are creeping up against the margin tailwinds?

Thank you.

Okay, let me just be – if I can remember honestly all these questions. So we are – would like to be 4% on growth like-for-like and on total.

And we said that our total revenue growth target was 4% to 5%, and we now expect, given the tougher market comps – the market conditions as well as the portfolio decisions we’ve taken to now achieve at the lower end of the 4% to 5%. So it might be 4%, we are thankful here to be at the lower end of 4% to 5% and I am not sure how else to explain that, what you should think about for the fourth quarter.

So in terms of – and I would not go into too much into Ebola versus Mucinex. These are all nice interesting things but – or not nice actually in some cases sorry, but they do not actually have any relevance to our Q4 and full-year.

In terms of air care, how sustainable. First of all, we have always acknowledged that we have – we’ve had challenges in air care.

Our opportunity is to actually get innovation that drives the brand and drives the performance. And when you think about air care, and I am now getting into details, which probably for earnings call is a bit too much, but let me just say it anyways, that in air care, there are some heavy users who buy multiple formats, who buy aerosols and candles and wax and electricals and the whole lot.

They buy sometimes six plus formats in a year. And if you get a good strong innovation which is relevant for these air care buyers, you can actually make significant progress.

That’s clearly what we are trying to achieve. And some of the innovations that we’ve launched are targeting this heavy user profiles.

How sustainable it is? Well, we play in a very competitive market, in a very difficult market, and our hope is that we will consistently produce good innovation that helps us compete effectively.

So I would not talk about 2015 and beyond, because I am quite sure we will have another opportunity to talk about ‘15 and beyond on air care, but so far what we have launched in Q3 seems to be doing best. But I think the whole performance is not just about air care, although of course air care has done best.

I think we have talked about Vanish a number of quarters now, a number of years. And I think what is pleasing is that we have sustained our strong growth on Vanish, our strong out-performance in Vanish.

So I think home is now a combination not just of air care doing better, but I think Vanish continuing to do better. So I think that’s the second part of home care as a thing you need to take into account.

Portfolio clean up, maybe Adrian you want to answer this question?

Sure, I’d be happy to. For portfolio, you’re quite right, we have been making progress whether it’s the footwear, whether it’s this Medcom hospital weakness, whether it’s RBP.

The bulk of what is left in the portfolio of category, not 100% but the bulk of what is left is laundry and fabric softener, and there can be many solutions to what we do within the portfolio. We’re going to deal with it differently, and not quite about for business.

We disposed some, others we may dispose or we may just seek in the best interest of shareholders to manage them very tightly. So no prescriptions for what we do in portfolio, we will do it the best thing to maximize shareholder value.

In terms of margins, you mentioned that whether top line is growing as fast as company get margin improvement. That is true.

As an arithmetic, no question about that, but we have many levers to pull on margins. You heard, Rakesh, both in his prepared speech and in his Q&A delineated some, and I’m not going to repeat that again.

We remain very confident with our medium-term guidance that it is possible given our portfolio, given those levers, given the nature of RB to deliver moderate margin growth over the medium-term. There is nothing about what’s going on at the moment that causes any doubt about that.

Can I give you a bit of more on portfolio which I think is probably helpful as a context? Just a couple of years ago portfolio brands was just around under 10% of our core business, and now they are just under 4% of our core business.

So we have actually taken quite substantial step in dealing with that part, but there is another interesting dimension to what we’ve done already. A lot of what we have dealt with were actually not just portfolio, but was essentially non-branded businesses.

Propack Private Label was non-branded, so was Footwear. Yes, it was branded but the product line was – if we were selling Footwear, we were not selling consumer brand in that sense.

And then of course what we’ve just talked about which is Medcom medical gloves business is also not a branded business. So I think what remains is essentially now a branded business and this is why we think we need to think about them a bit differently to not that they are group of our business, but they are brands.

And I think we need to find a different and appropriate solution when we talk about branded businesses versus when we are talking about businesses that are not branded, that are not really kind of business we know how to run. And I think that’s the context of portfolio.

Much, much smaller in the context of RB now, than just two years ago, but also what we have taken out is largely unbranded, really complex stuff, which we don’t know really how to manage properly and it’s probably better dealt with elsewhere versus what we have to do.

Good morning, everyone. Thank you very much indeed.

I just had two questions please. Can you provide some clarification on why the demerger has been able to proceed sooner than was originally planned, and is it premature to ask if you can give any guidance on how the debt will be assigned between the ongoing Reckitt’s and the RB former operations?

And second question was to do with Mucinex and the like-for-like there in Q3. Is it possible to disentangle that please and say what it was in the first half, or at least give some point of two degree Mucinex was restraining impact on the health operations in Q3?

Yes, surely. Why the demerger so quick?

Well, we would like to get on with things basically, and the preparations have gotten well, the preparations financially, although the accounts and those sort of things you got to do the preparations operationally and making it stand-alone, the preparations in assembling what we believe is a very good board. It has been well, and we want to get on with things.

So why wait, is as simple as that really. With regard to how the debt would be assigned?

No, we can’t give you details now. You will see a prospectus along with the other rest of the documentation fairly shortly, and that would include the debt, and as we have, in response to an earlier question the dividend policy and obviously [ph].

On your question of Mucinex like-for-like. No, we don’t give for that level of data.

I’m sorry. We do give sort of shape which is what we’ve done, but we can’t go any further than that [indiscernible].

Okay, thanks.

Thank you for allowing me a follow-up. In fact two quick ones.

The first one, you commented on pricing versus volume, and you also said the pricing was tough to really [ph] achieve in emerging markets, so my question is did you rise pricing through the quarter in LAPAC, and is that what may have [indiscernible], first question. Second question on health.

Could you comment on what is the growth rate for that market, and also there has been a news today about one of, I think your asset being up for sale, your name is not listed among the potential buyer. I just wondered whether you can overrule [indiscernible] conference where you mentioned that M&A could be part of that growth, whether on the M&A front and how [indiscernible] that businesses.

Thank you.

Let me ask Adrian to take the first question, pricing volume and I will come back and answer the other couple of ones.

Celine, add to what we said already, yes, that we have seen pricing across emerging markets. Yes, there has been pricing in the LAPAC number.

Not sure what more I can add. I’m not going to quantify precisely, I’m afraid that’s not our policy.

And I think you asked about health and how we should think about growth in health versus the market. I think you should think about health having outperformed the market in the third quarter quite comfortably, but on the other side I think when we did the double-digit growth on health, we always said that that’s not where the market is and that’s – we just had a two phenomenal quarters of growth.

6% is not a bad growth rate in the context of the market. I want to tell you that.

It’s a good growth rate and comfortably outperforms the market. So that’s how I think about health.

Of course it’s 6% versus the 10% but 10% was not a normal growth rate, and I am not saying that 6% is normal or otherwise, because we don’t give targets by sector or target by category. It’s just that 6% growth rate comfortably outperforms our markets.

Now in terms of the last question on M&A, I really do not want to have any comment around M&A, because it’s not what we want to do. I think you read the press release, we read the press and that is where it is.

Thank you.

Hi there. Just a couple of questions on RBP actually.

Actually you said that 4Q is likely to look very similar to 3Q, and after that, I guess will be something for RBP to communicate. But just looking at the recently generics collective share of the market appears to have flattened off absolutely in the past six weeks or so, and the results of the third generic really appears to be taking share from the other generics.

It there anything you can expand in terms of the dynamics there? Is it pricing within the generics, is that how the prescriptions are worded or is that something else that you can help with there?

And then just in terms of the pricing pressure. Since I think your US volumes looked to be essentially flat with the market growth being underlined by the share loss, can you sort of comment a little bit about how pricing pressure is effectively working in that market?

Thanks very much.

Very good. The limited amount frankly in addition to what we’re going to be saying in a systematically though, I think we can add to be honest, Toby, we have consistently said that the arrival of generics will pressure price, will lead to our market share losses in the more price sensitive parts of the market.

We have been very consistent about that. We continue to believe that’s the case.

Yes, its early days in the fourth generic entry probably where it was actually fourth generic being approved. We do expect that to have an impact on the pricing within the generics.

We do expect that to have a knock-on effect on the more price sensitive payors. And we’ve indicated in the past that we see that more price sensitive payors has been roughly 25% of the total roughly.

So we do expect that dynamic to play through. We’re not expecting a dramatic effect to end up frankly but certainly not in quarter four into the guidance that we see quarter four as being pretty similar to quarter three.

So there is no change in the guidance. We’ve consistently given around the impact of generics through price on payors are the more price sensitive part of the market.

So the rest of the market, the advantages we have – clearly good advantages we have, the preference we have which is very clear among the patients and it’s very clear among the clinicians is reaffirm everyday we’re out there is reaffirm continuity in the market data. We expect that to be very, very strong influence to the rest of the market.

That does not mean, it is completely immune to some price pressure in the rest of the market, to your second question, we do expect there to be some price pressure. And these dynamics will play out in the fourth quarter, but also through 2015.

Not sure we can add any more to that, I’m afraid.

I think, Toby, there is something else to keep in mind. I think what we have said all along is that price sensitive payors and price sensitive patients are both susceptible to entry from cheaper versions of our products.

Now industry analog suggests that there is a difference in price pressure when you have one or two generics versus when you have three or four generics. The last two have just about made an entry.

So we – I think the analog would suggest that this whole price pressure should be somewhat different when you have more generic competition versus when you have one or two generic competitors. So that’s the reason why we’ve been quite consistent in saying that when you have a full grown generic competition, you should expect further erosion in our film share and you should expect further price pressure.

Good morning, gentlemen. A couple of questions for me.

First question for Adrian. It’s on the FX.

You’ve guided for minus 8% to minus 9% translational impact for the year, which effectively implies around minus 6% for the second half, which is much less than 10% you faced in H1. Now in H1, one of the reasons for your operating margin contraction in RUMEA and to some extent in LATAP was negative transactional impact.

So can we therefore assume that you will be facing less of a headwind from FX in H2 on your operating margins, and actually you could be facing a small tailwind in 2015 based on current exchange rate in the raw material prices? And then my second question is a follow-up on the competitive activities.

I was wondering whether you’ve seen a broad based increase in competitive activities in Q3. You already mentioned Brazil.

I think in the press release, you also talked about Finnish are facing tougher market condition. So, are we effectively seeing some inflationary pressure across all your categories, which will offset any potential benefits you could get from lower raw material prices?

I’ll get on the first question. You are quite right, looking at today’s rates, we are seeing a slight abating in the headwinds for foreign exchanges, slight abating in the headwinds in foreign exchange.

You are right directionally, that what impacts translation is the same direction for our business as the transaction effect. So direction, you’re right.

We just caution however that because of the fact that we do in certain hedging around transaction, because of the fact that we have inventory lags that play in, it’s not immediate. The transaction will tend to lag.

It will be somewhat more defused than the translation of it, but directionally I do agree with that with your point.

Except let me – although I’m sure, Adrian, has given as comprehensive an answer that you should expect, but I don’t think it is an area by area margin expansion can easily be derived from the total picture we give you. I mean you just have to look at what is happening with the Russian rubles, you just have to look at what is still the challenge around the reals and then you say like okay, what’s really likely to happen.

So I think in aggregate the picture that Adrian has given you is absolutely correct, but I don’t think you should draw conclusions on an area by area margin expansion based on what is happening in the second half versus the first half of it.

I know about [indiscernible].

In terms of competitive activities, in aggregate I do not think we see ourselves in significantly more competitive circumstances than we saw in the first six months of the year. In aggregate, we do not.

We’ve just pointed out areas of competition where we still see an intensity, which is significant, I’ve called it out, but in aggregate I think we are in similar competitive environment. And I don’t think you should get to draw a conclusion that there would be deflationary pressures now or in the second part of the – or last part of the year.

I don’t think that confusion is valid, simply because I do not believe that the level and intensity of competition that we are seeing in aggregate is any different now than was at the start of the year. What is different is that the market conditions in aggregate, the market growth rates in aggregate are somewhat slower now than they were at the beginning of the year, but that’s something that we’ve been talking about, not just this quarter, but before.

I mean we’ve talked about that but we expect market conditions to slow down further and particularly in emerging markets, and I’ve just actually want to go granularity of where it is. So I don’t want you to draw any conclusions about deflationary pressures.

I think this where we stand.

Thank you very much.

Thank you very much. Just a couple of quick follow-ups.

Firstly, when asked about, sort of, portfolio tightening up and potential disposals, you talked about how much smaller portfolio brands is. Would it be fair to conclude from that, that anything not in portfolio brands you wouldn’t see yourselves sort of getting rid of under any circumstances for the, sort of, foreseeable future?

And then secondly, you gave some answers on transaction FX and your hedging policies there. Clearly oils come off a long way.

Would it be fair to sort of assume that with the six months lag, we might see some gross margin help from that next year? Thank you very much.

Okay, let me just take the more interesting question and then leave. On portfolio, I mean I think we’ve clearly outlined a strategy for RB.

And RB’s strategy is to focus on Health, Hygiene and Home. And there is an inherent connection between Health, Hygiene and Home.

Hygiene is a foundation of good health and healthier home is a happier home. There is a connection.

And that’s our goal of our business. Then we also spelt out as a result of this strategy, which were not core to this, there were portfolio brands, there is RBP and there is food.

What we have dealt with is actually, I mean if you think about the thread of businesses we’ve dealt with, they are all essentially non-branded businesses, RBP is a non-branded business. The portfolio brands that I outlined are non-branded businesses.

Now we are left with our core business and we are left with some branded businesses that are non-core, but they all have a role to play in RB at this point in time, but as any responsible leadership, as any responsible management, our job is to constantly look at what is the best way of maximizing our portfolio value, which is the right answer, and we will consistent to look at that.

Turning to the boring question, Iain, which I understood to be the oil and other commodity price weakness help gross margin. Well, it will directionally help cost of goods clearly, if it materializes, and we do obviously see a little bit of it materializing now.

However two things. One its size is small frankly in our cost of sales, and secondly, don’t forget gross margin is also impacted by price.

And clearly the effect of what was the environment and commodity prices is also going to affect indirectly or somewhat directly the price environment for our goods too. So you need to be cautious in translating that too aggressively into margin.

Thank you very much. Thought it was less a try.

Thanks again.

I think Charlie found his answer and left the call. And therefore if there are no more questions, we’ll wrap up here.

Thank you very much for joining us today.