Reckitt Benckiser Group's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Reckitt Benckiser (RBGPF)

Reckitt Benckiser Group (OTCPK:RBGPF) 2013 Earnings Call February 12, 2014 3:30 AM ET


Rakesh Kapoor - Chief Executive Officer, Executive Director and Member of Nomination Committee

Adrian N. Hennah - Chief Financial Officer and Executive Director

Heather Allen - Executive Vice President of Category Development Organization


Jeremy Fialko - Redburn Partners LLP, Research Division

Harold Thompson - Deutsche Bank AG, Research Division

Erik Sjogren - Morgan Stanley, Research Division

Christopher Wickham - Oriel Securities Ltd., Research Division

Robert Waldschmidt - BofA Merrill Lynch, Research Division

Charles Manso de Zuniga - Societe Generale Cross Asset Research

Iain Galloway Simpson - Barclays Capital, Research Division

Rakesh Kapoor

Right. Good morning, and welcome to RB's Full Year 2013 Results. I'm going to take very brief opening comments, and then I'm going to give center stage to Adrian, our CFO; and Heather Allen, our EVP for Category.

Let me just start the whole presentation with a few messages from my side. The first one, really, is this, that we know this company has the right strategy. We have a clear strategy to grow and focus our business on Health and Hygiene, and we know that this is the right strategy for not just driving growth, but also value creation for our shareholders. But I also know, having been on this business for a long time, that just a clear strategy, the right strategy, does not take you very far. It often becomes a paper exercise if it is not followed with the right execution.

And what gives me pleasure is I think this business is getting better at improving its execution. We are getting better at executing, and you'll see plenty of examples today, when we talk about innovations, of how we are scaling these innovations and how we're making them bigger and better. But we are also sure that, at this point in time, we have a lot more to do to improve from where we are. I know that RB is still not operating at its very best. We can be better still.

So that's my first message. The second message is very simple, that RB core expertise is in building brands that consumers love. That's what our core expertise in this company is. But we also know that this expertise means that you need to have a long-term mindset. You need to have a mindset which drives growth for brands over a long period of time, which means that we need to fund those investments with the right equity programs.

What's good about what we have done, what's really -- what's special about what we have done, to my mind, is that we've shown that we can invest for tomorrow and yet deliver today. So I think my message to you is that, over the last 2 years, we've put nearly GBP 200 million, or over GBP 200 million, of Brand Equity Investment plus capability-building, and we've delivered over these 2 years 100 basis points of op margin expansion. So this company has delivered both the fuel for our investments for the future, but also the results for today.

And the third thing I'd like to leave you with is this, which is we all know that it is going to be a challenging market. It -- we see this all the day, all the time and so do you. But I also believe that some of the noise on emerging markets, particularly, sometimes hides the fact that these markets are still very exciting opportunities for us in the long term.

So unlike maybe many people, I'm not swayed by the headlines of today. I'm absolutely sure that the long-term story on emerging market growth rate is still very, very exciting for RB. And this is the reason why I believe that although we have very tough times, very challenging times, we also have a very exciting opportunity for growth in the future.

As we talk about -- more closely about was has happened in 2013, just as a headline, of course, we delivered 7% of growth for the business as a whole, and for a -- on a like-for-like basis, was 5%. So clearly, M&A came in much better than what we had initially expected, and I'm quite pleased about that. I think, once again, reinforces to my mind RB's expertise, not just in identifying the right targets but really, what I have said some time ago, what makes us special is what we do with these targets and what we do with the acquisitions. So it's very, very nice to see how we've outperformed against our good expectations on some of these M&As.

The other big thing which, as I already told you, is that we've invested another GBP 100 million in 2013 behind brand equity. But the interesting thing about what we've done in 2013, which is, again, a departure from prior years is a lot of the incremental investment of brand equity has gone behind social and digital. It's not been on television. So if you ask me the proportion of investment in 2013 was the past years, this one has been probably the biggest investment in increase in incremental terms that we've made behind social and digital, but also behind things that I know will drive our long-term, which is in penetration programs, in -- also in building equities for our healthcare brands with healthcare professionals.

I do know that things like this sometimes don't pay out in the month that we do them or sometimes even in the quarter, but are the right programs. So I think, while you see the headline of GBP 100 million more investment in brand equity, it's truly brand equity investment in the right places with the right equity mindsets in place. So that's very important.

Next point I'd like to say is that the virtual mindset model, earnings model mindset of the company is alive and kicking. We improved our gross margin by about 150 basis points in 2013. Now clearly, we know that we did have a benefit of private label continuation, but the important story here is that our whole strategic mix of -- around Health and Hygiene, but also driving a very significant cost saving program. Driving pricing, is coming into play and made a very nice gross margin expansion. And clearly, I've talked about our op margin expansion of 20 basis points, which is also ahead of our target of maintaining our operating margin.

And finally, basically on cash and on net working capital, sometimes forgotten items on the balance sheet, this has been a very nice year, too. I think we've shown RB's strong focus on very vital elements of what makes this company very good. We managed to decrease our inventories. We managed to get our receivables down. That's all very nice parts of -- I'll call them the nice parts of net working capital or the right parts of networking capital, without losing focus on payables. And then we converted over 100% of our net income in cash. So that's very nice. I think a very nice tick, I would say, for us and, of course, the dividend is in line with our payout ratio of 50%.

Moving forward, what I would say is that we have become a GBP 10 billion company for the very first time. It's kind of a milestone, so I think we should just talk about that. It's GBP 10 billion, and it's about 30% bigger than where we were in 2009. And when you look at our net income adjusted, we are now at around GBP 2 billion, which is another sort of nice round number, 40% higher than where we were in 2009. So I mean these are very nice sort of marks, tick marks, marks in our company's journey. We are still way behind where we see ourselves in the future, but really still nice milestones, nice marks, which somehow remind me that it's time to get somebody else on this stage who is without a mark, battle-hardened, veteran of 13 months, my CFO, Adrian.

Adrian N. Hennah

Interesting introduction, very good. Thank you, Rakesh. Very good, a turn of 13 months indeed, very good.

Well, thank you for it, Rakesh, I think. The -- turning firstly to slide, I think, 7, and the income statement. Am I operating this or is someone else operating this? Are they going to move automatically or do I have to make them move? Sorry.

Okay, so Slide 7 in the income statement. As you've seen, revenue for quarter 4 was GBP 2.501 billion, a like-for-like growth of 2% for the group as a whole and 4% to the base business, excluding RBP, after adjusting for movements in exchange rates and for the effect of acquisitions and disposals.

Revenue for half 2 was GBP 5.049 billion, a like-for-like growth of 2% for the group as a whole and 4% for the base business. For the full year, revenue, as Rakesh has just said, was just over GBP 10 billion mark, a 4% like-for-like growth for the group as a whole and 5% for the base business.

All 3 of the acquisitions made in the last 18 months have performed well on the top and bottom lines. This increased total revenue growth for the base business for the year to 7%, exceeding our target.

We have now annualized the acquisition of Schiff, and we'll annualize the acquisition of Guilong -- well, effectively have annualized the acquisition of Guilong at the very start of the year, and we will annualize the start of the BMS collaboration during half 1.

The year-on-year effect of these acquisitions will, therefore, not be material for the group in 2014.

Movements in foreign exchange rates reduced the quarter 4 reported growth rate by 4%. For the year as a whole, the net translational impact of currency movements on revenue was 0. And we have set out an analysis of the impact of currency movements and acquisitions in the appendices to this presentation.

Gross margin in half 2 increased by 80 basis points for the group as a whole, lower than the 230 basis points increase in half 1. Adjusted operating profit before exceptional costs in the half was GBP 1.453 billion, level with last year. The adjusted operating profit margin was 28.8%, 90 basis points lower than half 2 last year. But the operating profit margin for the base business was 26.8%, 70 basis points higher than quarter 2 -- than half 2, excuse me, last year.

Adjusted operating margin in the base business decreased by -- increased by 20 basis points for the full year and operating profit by 7%. There were a number of drivers of the gross and operating margin movements, and we'll return to these in a later slide.

Exceptional costs charged in the half were GBP 22 million. We have set out an analysis of these costs in an appendix. We have also set out in the appendix the guidance we have given for exceptional items in the past and the progress against that guidance. We are firmly on track with the guidance previously given.

Lastly on this slide, you will note that the 2012 numbers are described as having been restated. This simply relates to the new version of IAS 19, and we show the technical numbers for this in an appendix to the presentation.

Okay, so moving to Slide 8, and moving a little further down the income statement. Net finance costs in half 2 were GBP 15 million, essentially the same as in half 2 2012. Average borrowing levels were slightly above half 2 last year. And of course, the U.S. -- the USD 1 billion bond is bond -- these bonds we issued in September 2013 increased slightly short-term borrowing costs as they replaced the U.S. dollar commercial paper. These increases, however, were offset by lower net pension finance costs.

The tax rate for half 2 was 24%, giving 25% for the full year, in line with the guidance we've given you. The tax rate on adjusted net income, i.e. excluding exceptionals at half 2, was 23% and for the full year, was 24%. The board is recommending a second half dividend of 77p per share, in line with its policy of distributing 50% of adjusted earnings per share. This is a 2% increase in the full year dividend.

Looking forward into 2014, a couple of more detailed points for you. Firstly, if the 31st of December 2013 exchange rates were to continue to the end of 2014, full year reported revenue and profit will be decreased by about 7%. And at 31st of January 2014 rates, the decrease would have been -- would be about 9%. And then secondly, we expect the adjusted tax rate for 2014 to be around the same level as you've seen for the full year in 2013.

Turning then to Slide 9, an analysis of revenue growth rates by business segment by quarter. Firstly, on price and volume changes across the geographies we operate in. The 5% growth in the base business for the full year was split broadly evenly between volume on the one side and price and mix on the other. In quarter 4, the growth had a slightly higher proportion of price and mix.

With respect to ENA sales, we achieved very good growth for the full year. Like-for-like growth in half 1 was boosted by a strong and long flu season, as you know. And conversely, the principal driver of the slightly lower growth in quarter 4 was the strong comparator, supplemented by the decline in portfolio brands, which we'll look at in a minute, which are substantially in ENA.

In LAPAC, we achieved 10% growth for the full year, quarter 4 growth of 9%, so further strong performances in India and China. Some decline in the rate of market growth is, however, clear in many LAPAC emerging markets. And we continued to see challenging conditions in Japan and Korea.

In RUMEA, we achieved 5% growth in the full year. The 3% Q4 growth was adversely impacted by the combination of operational issues, which we have signaled earlier, and the slowing market growth in, especially, Russia, our largest market in our RUMEA region.

We'll look at RBP in a little more detail in a subsequent slide. And we have, again, included as an appendix, a reconciliation of the reported to the like-for-like numbers shown in this slide.

Turning to Slide 10, an analysis of revenue growth rates by the principal categories set out in our strategy in February the year before last. Firstly, Health. The reduction in the growth rates since Q2 is clearly attributable to the strong comparator last year. Looking through this seasonal effect, the strength of our consumer Health business is clear from the half 2 performance.

In Hygiene, Dettol and Lysol. In Hygiene, Dettol and Lysol continued to be important drivers of this segment, performing well across all areas. In Home, Q4 saw good Vanish growth across most geographies and improved Air Wick performance in the United States.

Portfolio brands were down 16% in quarter 4. The decline in footwear sales and in laundry detergents and fabric softeners, both mainly in Europe, were the main drivers of this decline. The growth rates in this category will continue to be quite volatile due to the nature of the businesses.

Turning then to Slide 11, and a look at margins. Firstly, on gross margin. The improvement in half 2 was lower than in half 1, an increase of 80 basis points, down from 230 basis points in half 1. But as in half 1, the growth in half 2 gross margin continued to be driven by a wide number of factors: mix changes, pricing and our own efficiency programs all contributed materially.

The disposal of Propack, the private label business, accounted for about 70 basis points improvement in half 2, down from over 100 basis points in half 1, and this benefits -- Propack benefit is now fully annualized. These benefits were offset by a reduction in the gross margin in RBP, which, again, we'll come back to in a minute, and some gross margin headwind from the currency depreciation in several emerging market countries. And of course, we're also lapping a much stronger gross margin performance in the second half last year.

Beneath gross margin, we maintained in half 2 the level of investment in brand equity or BEI at 11.8% of revenue. This followed the substantial 80 basis points increase in half 1, and meant a second year in which BEI increased by over GBP 100 million in absolute spend in the full year. There was also continued investment in capabilities, in particular, in emerging markets, and in particular, in healthcare R&D. Together, this delivered a 70-basis-points increase in operating margin in the base business in half 2 and a 20-basis-points increase for the full year.

Turning then to Slide 12. This shows an analysis of operating margin before exceptional costs by business segment for half 1 and half 2. As we've seen, the group delivered a 70-basis-points increase in adjusted operating margin in the base business in half 2, and a 90-basis-points reduction for the whole business, including RBP. You can see the significant reduction in RBP operating margin, 1,130 basis points, and again, we'll return to this in just a moment.

Within ENA, we saw continued good margin progress, with further mix benefit from a strong growth in health sales, though this contribution was slightly less in half 1 as you would imagine; the continued strong delivery of cost savings from our efficiency efforts; and the discontinuation of Propack sales, most of which were in ENA.

In LAPAC, as previously flagged, the half 2 margin was reduced by 80 basis points and the full year margin by 50 basis points by the impact of amortizing the cost of the 3-year collaboration agreement with BMS. The positive effects of pricing, mix and cost efficiencies were offset by some modest headwinds from the weaker emerging market currencies, and of course, planned investment in area capabilities.

With regard to RUMEA, the half 2 margin was more significantly impacted by the weaker emerging market currencies, as our RUMEA countries import a higher proportion of their product from elsewhere in the group. And in addition, planned investment in BEI in capabilities and some operational changes lowered the RUMEA margin in the half.

Turning then to the next slide, net working capital, Slide 13, I think. You can see that the strong overall position continues, and you can see improvements in receivables and inventory measured as a percent of revenue. Good performances, which we're happy with, and the group's keen focus on this area will, for sure, continue.

If we turn to the next slide, the free cash flow, Slide 14. As you can see, the group had another good half of cash generation. Free cash flow generated in half 2 was just over GBP 1 billion, GBP 1.012 billion, again, close to the 100% of net income mark. There was a modest increase in capital expenditure in half 2, with a focus on investment in healthcare factories, R&D facilities and IT. And as previously signaled, we expect this slightly higher annual level of capital expenditure to continue.

The group had net debt of GBP 2.1 billion at the end of the year. This was down from GBP 2.8 billion at the end of half 1 due, of course, to the good cash generation.

Turning then to the next slide, Slide 15, and a few words on the progress of the RBP business. Q4 net revenue declined by 18%, in line with guidance. This was driven by the essentially constant share of the U.S. Suboxone market achieved by RBP's film through to the end of the year, an underlying growth in the market of 11%, the loss of tablet share to generic entrants and performance in markets outside the U.S.A. in line with expectations, with volume growth largely offset by government price reductions.

Operating margin in half 2 declined by 1,130 basis points. As previously signaled, this is the result of the lower margins on film and on tablets, some pricing pressure, an increase in investment behind the pipeline, and as with most specialty pharmaceutical businesses, a relatively low proportion of variable cost in the business.

Looking forward on a short-term basis into 2014, the effect of the loss of tablet sales will annualize from the end of quarter 1. We expect, however, fluctuations in wholesale and retail inventory levels in the prior year to mean that reported sales in Q1 will be boosted by mid-single digits and that quarter 2 sales will be similarly reduced. We also expect to see in quarter 1 some loss of market share as the more price-sensitive segments of the payor market look to switch patients to cheaper alternatives, and later in the year, some pricing pressure on margins.

Turning then to Slide 16. We will look here briefly a brief outline in the next slide, the 4 drivers of what we see as the longer-term value of RBP. Firstly, the competitive dynamics between RBP and the competitors on the market today; secondly, the challenges to our Suboxone film patents in the United States; thirdly, the RBP pipeline; and fourthly, the opportunity for RBP outside the United States.

We expect the U.S.A. market for Suboxone treatments to continue to grow strongly. We also continue to expect our film to lose some share and that there will be some price erosion, as the more price-sensitive payor segments look to take advantage of cheaper alternatives. We also continue to communicate and demonstrate the clinical advantages of our film over generic Suboxone tablets and to obtain data comparing it with new branded products. The advantages of our product are widely recognized by patients and physicians, and this gives our products strength as it faces branded challenge and generic price challenge.

Turning to the next slide, Slide 17, and the Waxman-Hatch challenges to the film. There have been no further material developments in the 3 Waxman-Hatch challenges to our film patents in the United States. We expect the litigation to follow the typical timeline for Waxman-Hatch litigation, and accordingly, it may be some time before there are material developments. We continue to believe that our IP is strong, with multiple levels of defense arising from multiple patents.

Turning to the next slide, Slide 18, and a very outlined view, a very outlined view, I emphasize, of the RBP pipeline. As mentioned earlier, we have increased investment in our pipeline, reflecting the stage of development of the projects. Total R&D spend in RBP in 2013 was GBP 47 million, an increase of 88% on the level in 2012.

This slide simply highlights that 2 of the programs we have previously mentioned have recently had or have significant milestones later this year, one in particular later this year. We will provide a fuller description of all the products in the RBP clinical pipeline to you later in the year.

Turning to Slide 19, and the RBP business outside the United States. Some of you will be aware, RBP obtained the rights to Suboxone back from Schering-Plough in the United States in 2002, since when our excellent management team there have built the strong business we have today. We only reacquired the rights outside the United States in 2010. And since 2010, our management has been very focused on developments inside the U.S.A. Accordingly, the business and business potential outside the U.S.A. is much less developed.

This chart gives you just a few pieces of data on the business outside the U.S.A. Current sales are small but the potential is significant. And again, we'll cover this area with you in more detail later in the year.

In short, RBP is a global leader in the provision of pharmaceutical treatment for addiction. The market for addiction treatment is significantly underdeveloped and has much potential for further strong growth. RBP faces some short-term uncertainty, but is well-placed to build in the medium term on its current leadership position.

So turning lastly on RBP to Slide 20, and our strategic review of the business. The review we announced in November of last year is underway. We are making good progress in creating a stand-alone structure for the business. In carrying out the review, we are, of course, being guided by the goals of maximizing the value of the business to our shareholders, and all options for the future of the business as we stand today remains fully open. We will, as we set out in October last year, give you more information on this review later in the year.

And with that, I'll hand it back to the boss.

Rakesh Kapoor

Right. Thank you very much, Adrian. I hope the whole explanation on RBP has also been a helpful update. We have also put out an announcement in the press release this morning that we have appointed a Chairman for RBP. Let me just tell you who he is. His name is Howard Pien, Howard P-I-E-N, Pien. He has got a tremendous track record of success in global pharmaceutical businesses. He started his career in a number of well-known names, with his final position being as President of International Pharmaceuticals for GSK, till 2003. And then his last, I would say, executive responsibility was as Chairman and CEO of a company called Medarex. And over the last years, he's been advising and working with speciality pharma companies, so he's got both Big Pharma, as well as speciality pharma company experience, and we hope Howard will be able to bring some more expertise and depth to our strategic review program, so which is very interesting news. So I just thought we should talk about that.

Right. Before we turn the page over for 2014 and talk about our exciting innovation, let me just try and summarize what has happened in 2013 just on 1 page.

So first is that I think you've seen that this business has really tried to increase and enhance our capability by focusing on consumer health and strengthening where we need to be very good, not just today but also in the future. I think we're happy with the progress we are making in strengthening our capability in consumer health and becoming a much better player in this area.

The second thing is this. From a strategic point of view, the 3 key M&As that we did 12 months ago or so were all very carefully chosen for the impact that they will create for the future success of RB. The first one, Schiff, gives us a powerful entryway in VMS. And we all are very excited about the opportunity in VMS. The second one was our work in China. And China, we have created a platform in consumer health by acquiring a market-leading sore throat brand. And the third one was this collaboration agreement where we did -- where actually, we did not have much of a presence in Latin America, and now, we have a very strong business platform for healthcare in Mexico and Brazil. And as we've flagged a number of times today, the progress we've made in a very short period of time is very good. It's really, very good. And as you'll see later, the fact that we have actually taken this 12 months of experience and trying to scale it up from here is also very, very good for us.

The next step is more, let's say, on the operational side. I think you will see from Heather's presentation that when we created the organization structure we created, and we didn't really talk that much about it in the past, but we have said that the new organization should enable this company to become better at scaling initiatives bigger to enhance the scale because in most complex organizations, you have a phenomena, which I've always described as snakes and ladders. You have ladders but you also have snakes, which are waiting to put you back to the point you've started.

The new organization structure we've put up in place was about killing the snakes and increasing the number of ladders. And you will see from Heather's presentation how the ladders are taking us to a different place than we would have normally got to. So that's very important.

The next part is, I do remember my first year of full presentation in the new strategy, January 2012, and I remember, there were members of the audience who asked me about 2 questions, 2, I remember. One was, how do you actually drive growth in developed markets in Europe? It was a big problem, and I stood there and I said, without really having the history to show you, that a good company is one which can drive growth in both emerging markets and developed markets because you guys can get sometimes very excited about saying this one has 40 there and 60 there, and the other way around, but actually nobody remembers that you still have a very large business to manage and grow in developed markets. So the challenge of the industry and challenge for companies like us is how do you actually get there. So I'm very pleased actually that we have shown a sustained capability of driving growth in developed markets and Europe is back in growth. So that's really very important to know.

And the next question that I was asked was like, "We know you're quite bad in China, aren't you? A decade of trying in China, you haven't got anywhere," and that was indeed acknowledged to be a weakness. And I did say that we are going to focus in China and make that better. And I have to tell you that the last 2 years, but also the last year has been a really very nice success year for China. And today, I feel that the Chinese business has got to a scale, and in a virtuous way, not in a parasitical way, that is going to create good value for us. So I'm really pleased about that too from an operational point of view.

And finally, of course, like I said before, this company is at its best when it's also driving growth virtuously, not just basically forsaking today for tomorrow. And we found the right balance between the 2. And I think I'm very pleased with the fact that we've actually increased our investments, first of all, doing really great gross margin expansion over 2 years, invested behind brands, invested behind capabilities. And hopefully, in over 100 -- in over 2 years, getting 100 basis points is, I would say, a very nice result too. So I mean, I think 2013 has marked really 2 years of, to my mind, really good progress.

So there's something else, which I'm not going to take you all through the chart, but I'll always want to remind you where we stand in terms of our KPIs, so maybe the last 2 lines are quite important for you to know.

So in terms of Health and Hygiene, we are now 72% of our business. You might member in 2012 January, I said we'll get there by 2016, but actually, we've got there by 2013. We've got there by 2013 clearly because of fantastic organic growth, but also because of the M&As that we've done, so I have to say that. Both the much higher organic growth on Health and Hygiene, as well as M&A, has gotten us to 72% by 2013 itself. And now, we, again, from an organic point of view, expect to grow that by about on an average 1% per annum, per annum. That's still our target, so you can do your math for the future.

The other KPI we set was that we want to see our geographic portfolio from 45%-55%, you might remember, to the other way around over a period of time. So we had 42% of our business, at that point in time, in emerging markets, 58% in developed market areas. We have gone backwards in 2013 a bit. And we've gone backwards because of clever mathematics because the FX and the M&A that we have done over the last 12 months have actually meant that our emerging markets KPI was not fulfilled in 2013. So we are behind on the emerging market KPI because of 2 factors: the impact of FX, as well as, in my -- when we set targets, we did not take into -- obviously, there were constant targets and -- but it doesn't matter. That's where we are. And I'm not too unexcited [ph] about that. So that's where we are on the KPIs for -- in 2013 and we march on, we march on from here.

Right. So with that, let me just introduce to you Heather Allen. You've met her before. You've seen her before. She's going to talk about our amazing pipeline for 2014.

Heather Allen

There's no ladders in the presentation, just so that you know.

Rakesh Kapoor

There's no snakes, too.

Heather Allen

Yes, and there's no snakes as well. So good morning, and I'm delighted to talk to you about our innovation for 2014. So I'm going to just jump right in and start with Health.

We acquired Mucinex in 2008, and since then, we've taken the brand from cough to multi-symptom colds and flu, as well as sinus, always remembering one thing, which is mucus, because Mucinex is about -- I always get this, I'm going trip over my words, Mucinex is about mucus. Mucinex in, mucus out.

So we're really excited in 2014 to be able to offer Mucinex Allergy. Yes, super fantastic launch in the U.S. Allergy is a $2.5 billion market in the U.S. More than 75% of Mucinex users also take an allergy treatment, and now, we're able to offer them Mucinex Allergy, maximum strength, non-drowsy antihistamine, acts fast and lasts for 24 hours. So super excited about this. And it relieves the symptoms that makes allergy sufferers crazy: Their runny nose, mucus. Mucinex in, mucus out. So super excited about Mucinex Allergy.

Also, super excited about MegaRed, and this is a great example of the scaling that Rakesh talked to you about earlier, because we're launching MegaRed into more than 20 markets in 2014. Some of you may have already seen the displays in Boots, if you've seen the displays in Boots at Oxford Street. I can see a few heads nodding. Hopefully, you've seen some of them. But we're really excited about this. And there's some very simple principles for the success of MegaRed, yes? The first simple principle is establishing amazing retailer presence. The third one is strong trial driving, which is, of course, backed by big awareness. This is one of our billboards in Poland, this one is, I think it's in Warsaw, super fantastic, an excellent example of in-market execution. And I'm just going to run you the educational launch advertising from the U.K.


Heather Allen

So this is the launch advertising for the U.K., and we're really, really excited to take the MegaRed franchise and launch it into so many markets.

I'm going to jump back to the U.S. now and talk about Airborne where Airborne is launching into Airborne Everyday. Airborne is an immune support brand. People take it when they feel they need a boost or they feel they need support for their immune system. And we're launching now Airborne Everyday, bringing immune support plus a multivitamin, because lots of Airborne users also take a multivitamin. And we've created a blend, giving them immune support and their daily multivitamin for everyday use. So a super exciting launch in the U.S. on the Airborne franchise. And given we've had this business for about a year, we're really, really excited to be driving all of this innovation to market. So super exciting.

I'm going to move now to Nurofen, and I'm going to talk to you about 2 initiatives. The first one is Nurofen for Youth. And we talked about this before. What -- this initiative has been fantastically successful for us, and it's actually in Germany now, the second largest SKU in children analgesics, behind the #1 SKU which is Nurofen for Children. And what's exciting now is we're able to expand this to 7 more markets in 2014. So super excited to take the success of Nurofen for Youth and start to expand it, which is something that will happen when we have registrations come through, and we're able to take some successful SKUs into more markets.

But we're also starting this year with something else new on Nurofen, which is Nurofen for Children, Pain and Fever, effective relief that lasts for 8 hours to really tackle those -- the pain, the sore throat, the feverish symptoms, the body aches that really prevent kids from getting the rest that they need. So really exciting, lasts for 8 hours, which really aids rest, aids recovery. So I'm really excited about that.

Moving back to scaling and another initiative that's going into more than 20 markets this year. I will show you the Scholl Express Pedi. The Scholl Express Pedi is an electronic foot file, going into 20 markets this year. It's brand-new, super exciting. I'm not going to turning it on because that will get very distracting. But the Express Pedi really gives you perfectly smooth skin in 1 application. It's got a simple rotating head, absolutely unobstructed by the device, you can get to all the contours of the foot. If you're a runner, you sometimes get calluses in the center of your foot, the back of your foot. It can reach all of your foot for perfectly smooth skin in 1 application. So we're really excited about it and it's, again, as I've said, rolling into more than 20 markets in 2014.

And of course, I need to talk about Durex. So really exciting news for Durex Real Feel. Durex Real Feel this year will give you -- will give even more natural skin-on-skin feeling. It's a world's first for Durex, behind this sits the world's thinnest polyisoprene condom. Polyisoprene is a softer, more flexible material which gives a more natural feeling. We will have the thinnest polyisoprene condom out there for the most natural feeling possible, and we're bringing this into 25 markets in 2014. So super excited about that as well. I get very excited about innovation as you can tell.

And I want to show you 1 other thing on Durex, which I think relates to scaling, and it's what we activated for World AIDS Day at the end of last year. I'm not going to play the video because the video is 2 minutes, and that would take up like 1/4 of my time. But if you want to check it out, go to

This was our World AIDS Day activation for Durex. We reached 900 million people globally, 200 million views of the video, 19 million engaging with us, talking to us, tweeting us, sharing us, engaging, really engaging with the brand across 36 markets. We ran 11 live events. It was a big partnership with MTV. And it's a fantastic example of one of our brands doing something on a fantastic global scale for an absolute great cause and building great brand equity. So that's just an example of Someone Like Me, check out the video. It's still up on

So I want to move to Hygiene, and I have a question, not expecting any answers from the audience. But the question is what's powerful and pure? And the answer to the question is Finish. Yes? The answer to the question is Finish. This is our biggest Finish launch ever, and we get really excited about this in the office because we're taking this biz [ph] to the most amazing number of markets. We're going into more than 30 markets in 2014. It is the first time we have ever done the same initiative on Finish in that many markets at the same time. We're super excited about it.

And it's more power, yes, because we've boosted our oxygen action. It's more pure. We've used less chemicals. It's absolutely spot on for what consumers are looking for. And the retailer execution is absolutely amazing. Please check us out. Look in Tesco, look at the absolute fantastic retailer execution, and this is how we're explaining it to consumers in the U.K.


Heather Allen

So really excited about that, and actually, really excited about how our Surface franchise is doing in Power and Pure, Power and Free. We've talked about Dettol/Lysol on this before. It did really well for us in 2013. We're now also expanding that to our local hero franchise with Veja in Brazil, St. Marc in France, so really driving that successful franchise across our local heroes now as well.

Moving from power and pure, I want to talk about staying tough and staying tough on germs.

So Dettol is having a big brand refresh this year. It's really, really important to make sure that your brand is fresh. We have a big brand refresh going on in our most 10 most important markets on Dettol, soft on skin, with a new pH balanced formula and some great looking packs, and tough on germs, and we'll be really driving that tough on germ claims, our tough on germs with protecting consumers from 100 illness-causing germs so that they can be 100% sure. So a fantastic year we're expecting for Dettol with a big brand refresh, making sure that people are really clear that we're soft on skin, but we are really, really tough on germs, which is super important for our consumers.

And I want to talk about one innovation on Harpic. We don't talk about in the bowl cleaners very often. I get quite excited about in the bowl cleaners. And we have a very super successful product called Harpic Hygienic, which is a very simple block -- cage-free block, and Hygienic just got maxed. So we now have 3 blocks and 2 pumps [ph] of freshness on the ends. Harpic Hygienic Max, and we're really, really excited because it's a big extension to our successful Harpic Hygienic franchise.

Home. Some really exciting things to talk about on Home, starting from Vanish. Vanish Oxi Action is a very successful franchise for us, and we constantly have to make it better and improve it. And this year, it's getting better with Whatever the Stain, really focusing on ensuring that we've got the right performance, and really helping consumers get the best results from their Vanish.

They can put it in the wash, they can soak with it, they can pretreat with it. And whatever the stain, there's a way to get it out with Vanish. We've actually driven this across the world with Tip Exchange, which is now in almost 30 markets, to help consumers also exchange tips with each other. I have a special recipe for getting rid of your grass stains out of cricket whites. I'm sure there's lots of other consumers out there who were sharing their tips and their best ways to activate, and I'm going to show you what we're doing in Russia.


Heather Allen

And Air Wick. Air Wick this year is launching a Home Signature collection in Premium Reeds in more than 10 markets. It's a really bold step for us. We're really excited. The fragrances are super fantastic. And we're also launching our Rare collection. Our Rare collection is another great example of scaling. This is going into more than 20 markets. It's a really exciting collection. It looks really disruptive in the store. But more importantly, the consumer will be super delighted when she gets at home.

Fragrances, like Oriental Passion Flowers, are really, really exciting fragrances. We're taking it fully across the range with a big, big fragrance event across, as I said, more than 20 -- more than 20 markets for an uplifting natural experience for all of those consumers. And we're really, really excited about it because, actually, Air Wick is about freshening their home, and who know the consumers are really, really excited to discover some of these rare scents.

And with that, I'll hand it back to Rakesh.

Rakesh Kapoor

Right. Thank you, Heather. So with that, before I get to the Q&A, let me just try and take you through very simply the targets for 2014.

So the targets for 2014 are basically, our net revenue at 4% to 5% and operating margin, flat to moderate expansion. Just to set you the context, this is -- this takes into consideration the modest but immaterial impact of net M&A left remaining from 2013.

As Adrian already flagged, there is some impact but it's immaterial on a group level in the first few months of the year. So that's really what it is, nearly like-for-like growth, the 4% to 5% growth target that we've set. It's almost like-for-like growth. So that's our net revenue target for 2014. And our op margin being flat to moderate expansion. Okay?

So, yes, Jeremy is going first.

Question-and-Answer Session

Jeremy Fialko - Redburn Partners LLP, Research Division

Jeremy Fialko, Redburn, a couple of questions. First one on currency transaction and margin. Can you just talk about some of the sensitivities surrounding that? So obviously, if you're getting a 79% [ph] hit on your revenues, how much of that or what sort of margin effect might that have on your numbers or is it too complicated for you to really give any guidance on that? And then, the second point is on this amortization of the BMS costs in LATAM. So again, what sort of number is that we are looking at?

Rakesh Kapoor

Let me take you for the second one, and Adrian will take you for the first one. The more complex question, Adrian will handle. There has been an impact of the collaboration amortization, that has meant that the LAPAC margins have been -- which have been reported as negative would have actually been in positive territory without the amortization, so that's a very simple way of looking at it. It has had an impact at the LATAM level of -- on op margin. You also had a question on what is the impact of currency on revenue and on...

Adrian N. Hennah

Yes, transaction, the transaction impact of currency movements. Yes, I mean if you step back, essentially, we have a pretty good match in the round between the currencies in which we get money and in the currencies in which we spend money, so we do not have a in normal circumstances material transaction exposure. However, we do have a slight exposure when you narrow it down to emerging markets because although we have a lot of factories in emerging markets, it's part of our model to -- for much of our product range, to have factories close to the market, which is one of the things that helps give us a hedge. But obviously, some of those factories buy imports so they're denominated in dollars.

And also, in our -- particularly in our healthcare factory where we have a more centralized manufacturing network which is dictated by the economics of consumer health products; we also have more imports into emerging markets. So we have seen in the last part of last year where there have been some obviously quite big depreciations in some emerging market currencies, we have seen a minor headwind from transactional ForEx-driven impact in cost of sales, and I tried to flag that a little bit in the results comments. It's bigger in RUMEA. It's not enormous in either, but it's bigger in RUMEA than LAPAC because we have more imported into RUMEA. We have more factories we've already got in LAPAC.

So I think in summary, it's a modest impact, a modest exposure. And it was slightly negative towards the end of last year because of the -- our exposure sits in emerging markets, and we had some pretty big movements there, but I wouldn't want you to overstate the size of this exposure.

Rakesh Kapoor

Right. Harold.

Harold Thompson - Deutsche Bank AG, Research Division

Harold Thompson, Deutsche Bank. I've got 4 questions. Rakesh, you kind of made a point on Europe being positive. You seem quite excited about that. Can you maybe just give us some examples of what's going well in Europe? Is it markets or is it the mix, which is really starting to work for you or is it just broad base across the business? Secondly, you've set your targets for the year ahead, some other corporates have done likewise, but have flagged a weak Q1 versus the full year. Is there anything you want to add at this point on -- yes, any specific towards the short term? Thirdly, Heather, you kind of said Vanish, and Rakesh said, is really back to growth and doing well, so have we lapsed the competitive battles there, and that we're kind of starting to recover market share? And then finally, portfolio brands, as you said, was a significant drag on your organic growth this year. You said it's going to remain volatile. Can you just remind us what's left in portfolio brands?

Rakesh Kapoor

Okay. So let's start with Europe. Yes, Europe is back in growth. And it has been a challenge for companies to drive growth in Europe. What has happened in Europe? I think we have become much more focused on where we want to, I have said this before, but let me just remind you, where we want to play and win and where we want to play, not where we don't want to lose, let me put it this way, and where we don't really want to focus. So we've been very much more selective about how to invest and where to invest. And to put the -- put a proper strategy not just from a category point of view but also from a geographic point of view.

So I think Europe also is not one market. I think most people think about Europe as one market, but it's not one market. And if you accept that there are parts of Europe where you can actually selectively drive growth and parts where you actually manage -- you need to manage your P&L in a very different way, then maybe there is opportunity for driving growth in Europe, and that's what we've done. We've been very selective on portfolio and geography, category portfolio and geography.

Some examples -- and let me just answer another question of that through an example, Vanish. Vanish has been a battleground for Europe for a number of years. And actually, we got sucked into that battleground and that meant that we were, in my opinion, playing a lose-lose game. Lose-lose game because I think the promotional intensity of Vanish have got -- or fabric treatment have got to point where I don't think there was a winner in the market. And what we've done is very simple. We've actually refocused the whole proposition back to the real enemy.

And the real enemy for Vanish is not the one with the green cap. The real enemy on Vanish is the one who brings detergents to market because detergents are just not good enough. And actually, if you refocus the battle on the real enemy, which is detergents are not enough, we actually get consumers to try and try our category for the very first time. For someone who's sitting with very significant market share, that's a big, winning strategy. So actually, we have reoriented, in some cases, the way we focused on some of these battles, driving, let's say, better pricing in the market also, as a result of lower promo, but also investing for growth in a very different way, being more selective across categories and geographies.

In some examples that you've seen, but these are not only examples for 2014 but also for 2013, really doing things better in Europe by taking best practice from even U.S. and translating in Europe. And I have an example where, for example, what we were doing tremendously well in the U.S., which is I think how we do some of the air care executions are much better done in the U.S. We've actually used some of those examples in markets in Europe to become better. So I think it's a consequence of our unified organization, our simple organization, our faster organization, an organization, which is much more competitive. We've invested more in Europe than we had in the past by driving costs down to be very open, but also being very selective. So I think we've done just the right things for Europe because bringing Europe into growth is a very important part of doing better.

The other question was around Vanish. I think I have already answered what is important to get it back into growth, just very simple fundamental thing with Vanish, remembering who the enemy is and driving equity in the right way rather than play a lose-lose battle. Q1, you asked for Q1, whether this is going to be -- I think we should not set targets for the quarter. I think this is a very dangerous game to play. And if I -- even if I -- I have -- I can -- I'm tempted to say something but I'm not going to. I'm not going to because that is a trap.

You guys should not worry about the quarter. I think you should worry -- I can't even ask you to worry about the long term because it's not possible. But I think -- really, I think you should not get too excited about the quarter. Whatever I publish in Q1 should not be of any consequence. The most important thing is whether we are trying to focus on the right driver of value creation, and we are. And I think some quarters will be better than the others, and it's a fact of life. We don't play that game. So I would not answer that question even if I have a view on what it is going to be. And then the last one is on portfolio of brands.

The good news is the portfolio of brands are becoming a smaller part of our business than they were 5 years ago. It was like 12% of our business, it's 6% of our business. But as you've seen, it's pretty volatile. And simple math, and I'm not as good as you as -- in math, of course, 15% of 6% is whatever points of growth. So you can see there is, in some quarters, an impact of portfolio of brands. In many of these cases, these are very conscious decisions that we are taking. It's not a question of like that's the way the market is and that's what we are going to suffer. I think we are making planned choices on, again, where to win and where to not focus. And portfolio is a streamlining of those decisions. And some of those are to do with footwear, which we've talked about before. Some of them are in laundry and fabric softeners.

And I think it's not a good idea to fight for something which you know is a losing game. I mean I think we are better off playing another game where we are likely to be a winner. So I think portfolio -- I'm not highly unexcited that the fact is that we have got 15% lower. It's a 6% of our company portfolio. In some quarters, it does make an impact. In the year as a whole, of course, there is an impact.

I think one of the things that we have not appropriately flagged, but I think some of you will have seen that actually over the year 2013, our results are higher-quality results than even 2012. Because if you look at just pure Health, Hygiene and Home growth, which has been our focus, which is what I've talked about enough to you all, I think our 2013 numbers are actually much better than 2012, which was a good year actually. So I think portfolio is a planned, deliberate choice for the company. And I really don't want to get too excited about the fact that it's minus 15 or minus 5. That's how it is going to be. We are going to make very planned decisions, the right decisions to drive the right quality of our results.

Erik Sjogren - Morgan Stanley, Research Division

Erik Sjogren from Morgan Stanley. 2 questions from me. Firstly, on the BEI, and we see you had a couple of years on a big step up. How do you see this going forward in terms of percentage of sales? And then secondly, could you talk a little bit more about RUMEA? You highlight certain markets or execution difficulties and the market slowdown, et cetera. So how do you expect this to move forward now essentially?

Rakesh Kapoor

Absolutely. So let's just start with RUMEA and then I'll come back to BEI. So RUMEA actually, first and foremost, I'd like to say I'm not very happy with what we have done in RUMEA. It's not very easy to say that. It is very -- not very good. But I may just tell you that it's not something which has happened suddenly over the last quarter. I just want to make sure that everyone understands that the difference between RUMEA fourth quarter and the previous quarters is not things going from bad to worse, actually not. Our operation or our operating dynamics in RUMEA are, if I might even say so, are showing some positive early signs of what we have done. We've done a lot of things, changes in organization, changes in management, changes in how we invest behind our brands, improving our capabilities.

And I would say some of that has modest early signs of positive results. But the difference between RUMEA in previous quarters and the last quarter is down to, I would say, a pretty significant change in Russia dynamics. So I think the year as a whole has not been a stellar year for RUMEA. We have some external challenges which we all know about, which we have to manage, but there's only a limited impact we can make on those. What we can improve and we must improve is our internal operating dynamics in RUMEA. And we are all over this, we are all over this. And we put high-quality capable people with the right mindset and it's not going to happen overnight. I never expect things to, like in our industry, to turn bad -- good to bad overnight, but also the other side. So we have to just back ourselves doing the right thing, and hopefully, we will see better times in RUMEA.

Back to your question on BEI. I never personally signed up to setting ourselves every year saying, "I will expect x million more in BEI". I always said that we first look at our opportunity in front of us, which brands, which markets, which investments, where innovation, and then decide whether we are investing appropriately behind this. If we were short, we have to raise it, and that's what we have done. We have not got stuck with a target in mind and then gone backwards. We go from bottom to up. And in the bottom-to-up exercise, we decide the investment plan. So I don't have to stand in front of you and say like, "This is the amount of BEI we're going to spend". We are going to appropriately invest behind our brands. That's our commitment.

So now if you want to be very specific in terms of percentage to revenue, et cetera, et cetera, what I would tell you is this, that we will invest appropriately behind our brands in 2014, absolutely without compromising. This is a key part of our, again, our virtuous mindset. But I think you should also remember 1 thing, which we might have overlooked, that we conducted a very significant global media exercise in 2013, which has come to an end now. So as we look forward to 2014, we look forward also with some optimism around the value creation we will have on having conducted one of the -- after many years, a very significant exercise, which we hope we will be investing in a better quality way, and hopefully, we should get some more benefits from this exercise. So we will certainly increase our investment in BEI in absolute, but I don't want to give you any targets in terms of percentages and mathematics like that. Yes?

Christopher Wickham - Oriel Securities Ltd., Research Division

Yes, it's Chris Wickham from Oriel Securities. Just a couple of things. I was wondering if you could perhaps put a bit more flesh on where you are with the strategic review on RBP. Obviously, you've given some details about appointment of a new Chairman. And then secondly, I was wondering perhaps if we could look the other way and think I mean, we're quite a long way into SSL ownership now. It continues to deliver some very positive messages about your ability to acquire businesses and do well with them, and perhaps expand a bit more on your appetite for bringing new businesses into RB?

Rakesh Kapoor

Right. Let me take the second one, and I'm going to get Adrian to take the first one or [ph] I'll do the answer to the first one very shortly. So the second one is this. I really do believe that this company has a tremendous capability to do well with M&A. And I think most of that capability is not saying only which one we want to buy because we probably say no to many more than what you -- we say yes to. But I think, as I've said before, the tremendous capability actually, and which is the unique one, I would say, is how well we do, how swiftly we integrate it, how swiftly we get the synergies, how our mindset of deploying some of the extra synergies into driving topline growth, figuring out the jewels [ph[ from it, learning it faster and expanding them, scaling them, making them bigger. And I think we've seen that in all the acquisitions, at least to my mind, we have done much better than previous owners of those acquisitions. So that is certainly very good.

The second thing I'd like to say is that this company's story is still principally driven by our organic growth. That's what we're focused on. We don't wake up in the morning, go to office thinking which one is the next. I think we have tremendous opportunities to grow organically. Our growth on health of 10% is, I think, tremendous organic growth out there. It's just tremendous growth, 7% on Hygiene. It's just great. But I've also said that we operate in consumer health, which is a tremendously fragmented industry.

The top 10 players in consumer health is 20-odd percent of the total market. And I do expect that over a period of time, this industry will consolidate. There will be aggregation. And whenever aggregation takes place in industries, you always obviously have 2 sides: those who are getting out and those who are on the positive side, on the aggregation side. And I've said in the past that RB will be on the side of the aggregators. So that is how I feel. I don't have an immediate point of view on anything. I have a point of view on the industry as a whole in the future. Right. So you have a question on whether -- what update to give on...

Adrian N. Hennah

Yes, Chris, I'm sorry. I mean, we're not really able to give you any more -- we're not able to give you any more update than we said with our prepared remarks. We are -- there's a lot of good work going on, lots of internal preparation. Whenever you're looking at bits of an organization, there's technical stuff to do in grouping it together, and so on. Lots of good work going on that. But we're not at a stage where it makes sense for us to be talking anymore about the outcomes. And we will come back, as we said we would, in October in the course of this year and give a lot more details. I'm afraid that's all we can say at the moment.

Rakesh Kapoor

I just -- I've said this before, I'm going to say it again. In RB, this is our way. We don't have -- we're not working for 10 months, and then one day, we say, "We are announcing a review". We announce a review and then, that was the time when we started the reviews. It's not like we start the review when we announce a review, which is in October, late October. So I think we are well progressing. I think the progress has been good, but we are not ready to say anything more.

Robert Waldschmidt - BofA Merrill Lynch, Research Division

It's Bob Waldschmidt from Merrill Lynch. I've got 3 questions, if I may. Firstly, just coming back to Bristol Myers and the amortization. Given it's a collaboration agreement over, I think it's 3 years, I'm assuming you have to amortize the costs pro rate over those 3 years. And then if, indeed, you end up with the asset long-term in terms of purchase, then I guess there is a step up in margin as that falls out. So that's question number one. Second question, back on RBP. Clearly, the U.S. had some investigations into your offices there. Any update we can have on that would be certainly welcome. And then thirdly, in terms of the mix of growth for 2014, we've got growth in Europe, that's wonderful. Can you give us a comment in terms of how you see the market growth rates, U.S., Europe, emerging markets, and then your relative thought in terms of performance of your business within those?

Rakesh Kapoor

Let me start with the last one, and then where needed, I think Adrian can comment and jump in. How we think about markets at this point in time in -- for 2014, I think we expect -- I'll tell you, which is the difficult -- most difficult market to call. I'm going to tell you, this is my personal opinion, not necessarily shared with anyone maybe even on this floor. I -- the most difficult market to call, I think, in my opinion, is going to be the U.S., personally, just personally. It's very difficult because the macros look quite good with the headline data, but when you think about consumer behavior, not very sure. So I think that's the most difficult market to call out in the U.S, and it's a nice sizable market where we've done very well. Europe, I would expect to be in the same territory that we've seen. Europe, I think, would be good if you can get 1% growth in the market in Europe. That's how I see it. It would be a good time because it was a bit wobbly in the past. So I would say about 1% growth in Europe, U.S. maybe in the same ballpark, 1% in ENA growth.

In emerging markets, I had said in the past a couple of years ago that growth rates have come down from high single digits to mid- to high-single digits. That's what I've said and I now see growth rates of around mid-single digits in aggregate in emerging markets. There are some which are as clean as they used to be, but there are some which are really - so again, like the European phenomena, there is not one common European phenomena. There are parts of Europe which are worse and parts of Europe which are behaving as if nothing happened. Similarly, in emerging markets, there are some markets which are really quite weaker versus where they were 24 months ago, 12 months ago, and in some cases, they are quite okay. So I think you should just -- that's how we think about it, mid-single digits or so in emerging markets as a whole.

ENA should be about 1% or so. That's how I see them right now. And we should -- we have and you've seen from ENA growth rates and emerging market growth rates, we are outperforming these markets by about 200 basis points, which is what we have always said our ambition should be. So that's on emerging markets. BMS amortization, 3-years later, what will happen in LAPAC, some margin will go up, obviously, because in LAPAC what will happen at the group level, we will see. So that's what is going to happen in 3 years from now. There is going -- there will be some impact from the BMS lack of amortization. You have some question around mix, RBP investigation. There is nothing we can share with you. We have no information about what their basis is. And therefore, there is nothing more we can share with you in the investigation. And then, is there anything else I missed out?

Unknown Analyst

[indiscernible] from Nomura. Just keen to know the evolution on this -- on the brand equity investment, GBP 100 million for 2 years. You were talking about more and more of that's digital? Can you just give us the evolution of that digital spend and really what you're getting out of that? Do you get more out of that than the traditional spend?

Rakesh Kapoor

Well, that's very good. The thing is this. I mean, there are 2 ways of looking at how we invest behind digital and social. One is truly understanding the consumer path to engagement and purchase, and that path is not necessarily as straightforward as it used to be. So they are interacting with brands and with categories in multiple touch points, through TV, of course, through point-of-purchase, through social and digital. So the first exercise is to truly understand for each of your categories, what those most critical touch points is. And when we think about that, we then try and see how to make the right impact of the right touch point. I think in the past, as I've said before, no new news, is that RB does not have to look over its shoulder to see which are the companies doing a better job in social and digital.

I think RB has to look forward to see whether consumers are ahead of us in how they are consuming and how they're engaging with brands in social and digital. And to my mind, this is the real risk for companies, that we're behind consumers, not behind each other. And I think what we have looked at and I think the part [ph] of the media review also has shown us great learnings in how we can actually dial up and be more engaged more with consumers on social and digital.

Some of our brands and some experiences Heather talked about the partnership with MTV to lift the social purpose of Durex, but also the great work we've done on Durex. Durex is not a brand that you can actually advertise in all times of the day in all markets as an example, so we have significantly increased our investment in social and digital, really understanding those critical moments and touch points that consumers are engaged with our brands in that space. But beyond social and digital, I also said that we have increased our investment behind building our brand equities in the healthcare domain.

What that means is that we know that the influencers in healthcare are not just companies. Companies don't directly influence only. We have many influencing points like healthcare professionals, sometimes people go to pharmacists, sometimes the doctor detailing is the most important aspect of getting people to try our brand or try our product and then, have faith and confidence in the future. So we have increased our investment also in healthcare professional, [indiscernible] management, and so on and so forth.

And the final point of investment, and I did say many years ago, when I talked about brand equity concept of that, how do we actually create consumers for the very first time? That work we did do with new moms in hospitals, for example, we go and give samples of Dettol to all new moms, when I say, all meaning not 100% of them but a number of new moms in over 30, 40 countries around the world. That creates a lasting relationship for life. I can't tell you exactly what the ROI of that spend when I give a -- when I really briefed the mom who's really worried about her child's health and well-being, and when we talked about hygiene practices, when we talked about how do we -- how to keep your child free from germs, and how to protect them and how to make them healthy, keep them healthy. I don't know whether there is an immediate impact on sales, but I do know it's the right thing for creating a lasting relationship with our brand. And we know it works over a large number of times.

So long answer to a question. We have a much more comprehensive opinion about brand equity building. It's not about television. It's about all these things that I've just talked about in a way. And the reason why we put this measure was not for you, and I have said this also. It's not for you, it's for our own people because what does happen in companies is that always, people try and secure their short-term by investing more in that area, even if they know they are making a trade-off for the long term, advertising and promo is the worst bucket in the world which still comes to being in spite of my 2 years of saying, it's bull****.

So because you can cut advertising and promote. One is basically forsaking your future for the short term. The reason why we put these buckets together was because it's true that television advertising may have a shorter term payback than social and digital, which is a bit less measurable or even healthcare professional detailing, or the work we do with moms. So I don't want people to cut on those areas to show that we can actually drive [indiscernible] . I want a more comprehensive measure. So really I -- it's a complex measure for you all, and I'm sorry about that. It's not for you. It's for my own people.

Charles Manso de Zuniga - Societe Generale Cross Asset Research

Yes, it's Charles Manso from Soc Gen here. My questions, Mucinex, could you give us an update on all those sorts of subcategories that Mucinex has gone into? How well is Mucinex doing in cough and cold, flu and sinus? And you did mention that the entry into Allergy is a new, I think it was $2.5 billion category revenue pool. If you put it all together, all the categories it's in now, what is the total category revenue pool that Mucinex plays in? The second question is on -- I may have missed this in the presentation, but your organic growth, if you could split it into volume and price/mix, and particularly in Q4? So I think Asia, you said it was a higher price/mix in Q4, and everyone's a bit concerned about imported inflation? And the final question is on the dividend, the final dividend, if I got it right, went down GBP 0.01? So I was just wondering why you've inserted that extra bit of caution into your dividend?

Rakesh Kapoor

So why don't we start with Heather taking the question on Mucinex, and then, I think, Adrian, you can follow up with the volume.

Heather Allen

It's just over a $5 billion market that we're planning in now on Mucinex. When we look across cough, most of the symptom cold and flu, sinus and now Allergy, so super exciting in terms of the number of market that we compete in, and clearly, driving our relevance throughout the year, so that we can support ourselves through the season, and that's basically, overall, it's a much bigger pool, much more relevant throughout the year for the brand.

Adrian N. Hennah

Yes. And on the other -- sorry, Heather. And on the other 2 questions, the dividend policy, all we've done is follow the policy. The policy is that we pay out 50% of our adjusted earnings per share. We're paying out a 50% of our adjusted earnings per share, that leads to a 2% increase for the year as a whole. It leads to a 1% decrease or GBP 0.01 decrease for the half year because there's obviously some headwinds in the exchange in the second half and there was RBP. We weren't being cautious or not cautious, we were following the policy, and the board couldn't see any reason to change the policy, so that's -- it wasn't a signal of any sort that you should go away from where -- from that at all. The -- and then, we're very comfortable, if we pay out 50% of earnings per share, it's a sensible place to be in terms of capital allocation from our point of view, so we had no intention of changing that.

In terms of the split of top line between volume and price/mix, indeed, I'd just repeat what we said earlier which was that for the year as a whole around half-half, half volume, 50%, half price/mix. But that in quarter 4, we did see slightly more price/mix proportionately than volume. We didn't see anything particularly significant in that. I mean, you can see in the portfolio element the fact that that declined more in itself, or we've moved slightly that ratio that way, but that in essence, we don't see anything material difference in quarter 4 from what we've seen for the year as a whole.

Iain Galloway Simpson - Barclays Capital, Research Division

It's Iain Simpson, Barclays. A couple of questions from me, if I can. Firstly, Suboxone film has clearly done incredibly well, holding share against both generic tablets and also against Orexo, which you have a chart for in the appendix, but I can't even see Orexo on the chart. Any color on that would be great as to the sustainability of that and the drivers of that. Secondly, clearly, Project Fuel did quite a lot of heavy lifting in terms of freeing up margins for BEI reinvestment. I just wondered if you could say anything about whether there might be any more cost savings in the future or how you felt about that? And then just lastly, it seems a while since we've heard anything on Food at all, so which is kind of understandable given its size, I guess, but any update on that would be great.

Rakesh Kapoor

Okay. Let me just start with the first question on market share and Orexo at the end of 2013. Although we should not underestimate basically any competitor, but we had a choice to make whether we should put ourselves on the market share chart not them, because the scale difference were so much, and we decided to put ourselves on the market share chart and not them. I think their market share was around 1%, but I could be wrong by a few decimal points, and you know I don't concentrate on decimals, so that's one.

The second one is about Food. Let's talk about Food. I think Food is a very good business. First and foremost, I think we have fantastic brands in Food. It is a great business, but clearly, the category situation in the Food, the category itself in the U.S. is not in the best shape overall category dynamics on Food. This is a category, in my mind, was benefiting in the past by significant inflationary impact in terms of pricing, and that was coming through, but this is a market which is eventually flat in volume and flat in inflation. In that context, we just have to navigate through our great brands. I mean, I don't think the Food business itself is troubled. It's a good business, it's a solid business. And in the context of the market, it performs okay, I would say. There is not very much more I can add on Food. Is there anything else I missed out from a...

Adrian N. Hennah

Project Fuel.

Rakesh Kapoor

Project Fuel, yes. I don't think Project Fuel is a year-to-year project in that sense. I mean we start all over again, of course. But Project Fuel is very much embedded in the mindset of what we have to do every year. I have always said that in this company, that when we think about innovation, speed is a greater driving factor than optimized cost. We actually don't always wait for the best cost structure before we decide to launch innovation. We'd rather be faster than being absolutely buttoned down from a cost point of view. That gives us tremendous opportunity to come back and then say like, "Okay, we are going now get to -- get behind cost". So Project Fuel is also a constant program of actually saying there's always juice in the lemon, always. So we are going to have another Project Fuel in 2014 because we can't give up on that and hope to use that to drive investment in the business.

Unknown Analyst

Yes, just one follow-up question. Two years ago, the pitch on your consumer healthcare franchise was to buy businesses, cost out of them and then kind of globalize some power brands in healthcare. And then we kind of run into a little bit of a lull [ph] where the regulatory side was just not quite achieving the speed which you wanted. To me, just sitting there you seem to get a wave of kind of brand stretch across the world there. Have we reached that kind of sweet spot where you've caught up with your delay or is it the types of products you're launching just don't require quite as much regulation...

Rakesh Kapoor

I think it's a bit -- I wouldn't say we have reached the sweet spot because I think this company can never be happy while -- from a mindset point of view, we can do better, and better and better, always. But I think we are getting better with how we -- some of the investment we've made in our regulatory side gives us a better quality of understanding what it takes to actually get multiple rollouts, you see what I'm saying? Because every country does not have to follow the same regulation and the product cannot be immediately rolled out from one market to the other. So I think some of the regulatory capabilities that we've put in place are enabling a more, I would say, scaled up version of our healthcare businesses.

On the other side, I have to acknowledge that the recent example of BMS is also down to having a lower hurdle from a regulatory point of view, and therefore, our ability to do -- to launch them faster. But I would not just give the 12-month -- that 12 months that it has taken us is not only down to regulatory. It would be too uncharitable from our people if I said that because I think taking a new category on and then trying to understand the dynamics of the category in a completely new territory that you haven't had any history and experience before of those categories, and then figuring out exactly how to enable those launches is not just down to better regulatory capabilities. It's also down to a faster and a much more globalized organization structure, that is what we have put in place. So I think Health will always have those dynamics of not being able to do everything in 1 go. We accept that, but we are better prepared now to do it in as many cases as we possibly can with the right regulatory capabilities, but also the organization enables it to my mind.

Unknown Analyst

And a final question on Allergy, I mean, the Mucinex expansion into there. I mean, if I look at Strepsils, you've bought some Strepsil type brands, Sepracor, I think, in [indiscernible] and then your Chinese, and then something, of course, in LATAM. But if you are now in Allergy in the U.S., would that prevent you from wanting other allergy brands in the U.S. or is Mucinex, that's it, that's the Powerbrand?

Rakesh Kapoor

If your allusion is to something which does not happen -- is outside the company, I have no comments to make, as you can well imagine. I think Mucinex has a tremendous opportunity on one basis, that in the U.S., it's truly trusted as an expert in getting mucus out. And we know that 75% of consumers who buy Mucinex also buy allergy products. So it's a very simple extension of saying, "Where is mucus relevant and do my consumers already think about my brand in a similar way?" So I think this is a very natural progression of Mucinex into Allergy, which is contiguous. We've always done cough congestion, sinus, cold and flu, Allergy. So that's what Powerbrands do. They come with a core idea and then they take their ideas to other segments and categories. That's the difference between managing brands and managing categories. Managing a category is thinking about 1 category and which category, how we do manage the category. Brands transcend the category thinking. So we don't think about which category. We think about brands and footprints, and what they stand for and what can they -- actually, how can they actually give better -- satisfy consumer needs better, and so on and so forth. That's what enables Mucinex to get into Allergy. And that's it. Yes, let's take one more.

Unknown Analyst

It's John Phil [ph] from [indiscernible] Capital. Rakesh, you've mentioned a few investment stopped for emerging markets, and we've seen in the past when there's been slowdowns that it's often been quite a good time for the really strong companies to invest either organically or through M&A? Are you seeing any opportunities yet, and as well as having a plan for the year on what you want to achieve as an organization, do you have the flexibility organizationally or budget-wise to take advantage of any opportunities that might come along?

Rakesh Kapoor

In emerging markets, you mean? No, I think first of all, well, I said I'm very excited about emerging markets is because I know that emerging markets over the long term are always going to be a key driver of our growth. And we have tremendous opportunity because we still think about our penetration of how low it is in emerging markets, so how many years of growth we can actually look forward to. Even if the market conditions are tougher, and I've just explained to you that they are tougher. So if you look beyond the immediate toughness of the market and see the longer-term opportunity of emerging markets, that's what excites me. I don't look at the headline on the morning, I'm just looking at the long-term story here.

In terms of M&A in emerging markets, I mean I think I've just said what I have to say about M&A, that we will always be looking for the right opportunities if they make sense from a strategic point of view. If we think we can be better owners of the business than somebody else, and if we can think we can drive tremendous value based on what the valuation of the business is and how we can actually extract that value from there on. And that, we are not thinking about just as a pure emerging market or a pure developed market exercise. It's much more about strategy. You've seen over the last 3 years -- last year rather or even a few years before that, a number of our assets were actually in emerging markets.

We've got Paras in India, we've got BMS, which is not an M&A, pure M&A, it's a collaboration to start with. And, of course, China. But in those 3 cases, there were very specific, India, China, Brazil, Mexico assets, high-quality businesses, very good brands that we believe were, to our humble mind, undermanaged and that we could do much better with, which we have. So I think that's what we are going to look at, the strategy and whether we have interesting ideas, and whether they are developed markets or emerging markets is something to be seen.

Okay. Well, thank you very much for joining us today, and thank you.

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