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Reckitt Benckiser Group Plc (OTCPK:RBGPF)

Q1 2014 Earnings Conference Call

April 16, 2014 3:30 AM ET

Executives

Rakesh Kapoor - CEO

Adrian Hennah - CFO

Analysts

Erik Sjogren - Morgan Stanley

Martin Deboo - Jefferies

Iain Simpson - Barclays

Harold Thompson - Deutsche Bank

Christopher Wickham - Oriel Securities

Charles Manso de Zuniga - Societe Generale

Pinar Ergun - Bank of America Merrill Lynch

Celine Pannuti - JP Morgan

Rosie Edwards - Goldman Sachs

Operator

Good day and welcome to the Interim Management Statement Q1 2014 Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to [indiscernible]. Please go ahead.

Rakesh Kapoor

Good morning, and welcome to RB's first quarter results conference call. Adrian Hennah, our CFO and I will take you through a summary of today's announcement, and then we will 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.

Let me begin, by giving you an overall picture of how I see our business and the start in 2014. We have had a robust start to the year, against the backdrop of challenging conditions in a number of markets and some tough comparatives.

I am particularly pleased to see that the areas of key strategic and operational focus for the Group are performing well and are becoming an increasingly important part of our business.

In terms of our portfolio choices, we have consistently said that we are creating a new force in consumer health. This ambition is firmly embedded throughout the organization. We are allocating significant resources to consumer health, in terms of capabilities, R&D, brand equity investment and innovation, and we are seeing strong organic growth across all of our three areas.

Additionally, our recent acquisitions have all integrated very well and we have seen some good results coming from these brands, as we apply the RB consumer centric innovations and approach to them.

I am delighted with our recent agreement to acquire KY, which will give us a stronger position in the Sexual Wellbeing category in key markets of the U.S. and Brazil. The customary regulatory approvals are underway.

Making clear choices means taking appropriate actions in the non-core components of our business. Our strategic view of RBP is progressing well. All options are still on the table, however, we believe that the capital market solution is emerging as a strong option. We hope to provide a fuller update to the market on our strategic review at the half month results presentation.

With this, let me hand over to Adrian, to talk through the financials in some more details.

Adrian Hennah

Well, thank you Rakesh and good morning. For our business excluding RBP, like-for-like growth was 4%. Revenue from the BMS collaboration, which commenced in May 2013, [indiscernible] 1%. As signaled with Australia numbers in February, currency headwinds had a significant negative translation impact. The impact was a negative 10% on the base business in quarter one. Total growth at actual rates, excluding RBP, was therefore a negative 5%.

On a geographic basis, ENA had a strong result in quarter one, with 2% like-for-like growth despite a strong comparative which we had discussed on many occasions. We saw no significant change in market conditions in ENA as a whole.

In United States, the effect of strong comparatives was offset by the launch of Mucinex Allergy and the associated selling. In Europe, we have seen a steady increase in the quality of operational delivery across our European markets. All of our European regions continue to grow, except Southern Europe, where our laundry business continues to generate good cash, but to be a drag on growth.

LAPAC had another robust performance with 8% like-for-like growth, which was broad-based across all regions. LatAm achieved strong growth, led by larger markets of Brazil and Mexico. In Southeast Asia, we continue to see slower markets in India and Thailand, but our businesses are performing well and making good progress in growing the categories on which we focus.

In China, we continue to drive distribution and penetration opportunities and in ANZ, we saw good growth. We also see encouraging signs with the decline in the currencies of many emerging markets, working its way into local pricing. But this is of course happening at different rates in different countries, and depending on the competitive position of different products.

RUMEA like-for-like growth was 4%. We continue to see improved operational execution, showing gradually, an improved performance. Progress is clear and on plan across Africa and in Turkey, which has been offset in the total RUMEA numbers by a further weakening in Russian market growth, and we have, as you know, a quite large business in Russia.

Now moving from geography to our categories; Health had a strong quarter with like-for-like growth of 11% with broad based growth across all our brands. As already mentioned, we saw some strong trade selling associated with our Mucinex Allergy launched in the United States and our MegaRed launch in Europe. It is early days for consumer sales in both of these launches. In United States, the allergy season is only just commencing. In Europe, we have seen MegaRed launches across a number of countries, with different timings, existing market sizes and competitors. Early signs are however encouraging.

We are particularly pleased with the launch of our new Scholl Velvet Smooth Pedi innovation in many countries in Europe. Durex had strong innovation at growth across all areas and Gaviscon had good results with strong sales of Double Action across a number of markets.

We continue to see slow but steady progress in the quality of our end market consumer health execution across all markets. Pharmacy, distribution, penetration building and in store excellence programs have proven very successful. We have more displays and are positioned with more checkouts in more general retail and pharmacy stores than ever before.

Turning to Hygiene; Hygiene had a slow quarter, with 2% like-for-like growth. This sounds like an unusual number for our Hygiene portfolio and it is. A number of brands Finish and Veet performed well. Dettol and Lizol, one of our largest power brands, however, had a weaker quarter. It performed well in many countries, but a couple of factors impacted it negatively during the quarter. Lizol, our U.S. Dettol equivalent, had a tough quarter because of a strong comparative.

As we had previously discussed, the strong flea season in the U.S. a year ago through strong demand for our disinfection products, as well as our OTC medicines.

We saw somewhat slower growth in India, a large Dettol market for us, due to weaker market growth. We also had a slow quarter in the Middle East, as we lacked the strong price comparative helped by the MERS virus last year, and our RUMEA management undertook planned customer destocking in some Middle East markets this year. So, certainly, an unusually low growth rate in the quarter for our hygiene products, and not one we expect to see repeated very often.

Turning to our Home category; Home had a like-for-like growth rate of 1% in the quarter. Vanish had a strong result, driven by innovation in our penetration building exchange program, which is now in 30 markets. Other products had a mixed quarter, with growth in innovation, offset by continuing challenging market conditions and a tough competitive environment in ENA, our largest area for Home products.

Lastly, in our base business, portfolio brands declined by 3% on a like-for-like basis in the quarter. We expect this relatively small category to continue to have quite volatile growth rates. Increased our laundry and fabric conditioner business, our hospital supplies business in Russia and our footwear business. These businesses continue to generate much cash [indiscernible] for us.

Turning now then to RBP; revenue declined by 11% during the quarter. This reduction was driven by a number of factors, with which I am sure you're familiar. Firstly, volume market growth in the United States remained strong in the high single to low double digits. Secondly, the loss of the higher margin tablet business, which we discontinued with effect from two at the end of quarter one last year. Thirdly, the share of the U.S. market held by our film reduced from 68% at the start of the quarter, to 64% at the end. This reflects the switching of some more price sensitive patients and payors to cheaper alternatives.

We continue to expect some further net switching away and do the recent decision by United to remove our film and generic tablets from -- [indiscernible] part of that business from the first of July this year, as an example of payout inflow in this marketplace. The strong patient and doctor preference for our form is however demonstrated every day and we expect this clinical advantage to be reflected in share resilience.

Fourthly, we saw an increase in competition and some payout inflow, and lastly, as signaled in February, quarter one last year, saw some trade inventory reduction, boosting this year's quarter one year-on-year growth rate by a few percentage points. This will be reversed in quarter two.

Turning then to a strategic review of RBP, we are making good progress. We have not ruled out any options at this stage. However, as Rakesh mentioned earlier, a capital market solution is emerging as a strong option. We expect to give you a full update with our interim results presentation.

To assist in better understanding of the RBP business, we have put a RBP Information Pack on our RBP website. This provides a summary of publicly available information on RBP. It provides a background for the business and its key value drivers.

And with that, I will hand back to Rakesh.

Rakesh Kapoor

Thank you, Adrian. So to summarize, I think Q1 is yet another quarter of progress against our strategic objectives and operational focus. We are strengthening our portfolio towards health and hygiene, with innovation driven growth. We continue to see inorganic opportunities arising in consumer health and have seized one such opportunity by acquiring the KY brand.

Our business results across all three areas, particularly ENA and LAPAC confirm that our in-market executions are strong and working. With respect to our full year targets, we expect challenging and volatile market conditions to persist in the near term. But remain confident, that we can achieve our full year targets of plus 4% to 5% total revenue growth with flat to moderate operating margin expansion. Both these targets exclude RBP.

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

Question-and-Answer Session

Operator

(Operator Instructions). And we will take our first question from Erik Sjogren of Morgan Stanley. Please go ahead.

Erik Sjogren - Morgan Stanley

Yes, good morning. This is Erik from Morgan Stanley here. Two questions for me; firstly, you've alluded to that -- can you provide the volume and value split for the quarter? Exactly how fast, sort of say, are you able to offset any kind of step up in inflation that we are seeing in these countries, which are being impacted by the currency movements now? And then my second question is just, you highlight some markets, and emerging markets are seeing slowdowns. More broadly, is this happening in line with your kind of general expectation or is it faster than expected and more broad based in emerging markets. Thanks.

Rakesh Kapoor

Hi Erik. Let me just deal with both of these questions. I would say that the volume and value split is roughly even between -- across the business, as you know, and this is not the first time you see high inflation across some of these markets. I mean, our business has been operating in these markets for a very long time. Management understands this business and how to deal with inflationary conditions. I think when we make choices around pricing, we always make choices based on impact of pricing on volume growth rates, in terms of how we actually deal with competition and so on and so forth. So actually, we have managed to take pricing in many of these places, and we [indiscernible] come through well. But on the other side, we don't want to take pricing pieces exactly as the effects/headwinds would suggest, simply because they would have a negative impact on our ability to drive growth in terms of penetration, in terms of volume expansion, so on and so forth.

So I am pleased with what we are doing in terms of how we actually deal with pricing. In terms of which markets do we see -- I don't see any unexpected market behavior in the first quarter versus what we [indiscernible] to you in the past. I mean, this is not a new phenomena. We have seen some level of slowing down in markets, such as India, but also Russia, and we've called those out. Yet, some markets continue to be pretty strong. I mean, Latin America continues to be strong as a market, and in some cases, I would say, there is short term volatility, and you know, you would see them bounce back may be in due course, and some might take a bit more time, either caused by political changes or other uncertainties. But I think in aggregate, I am thinking emerging market growth rates are where we expected them to be, and I do have an opinion that emerging markets will remain strong, drive the growth for RB in the future.

Erik Sjogren - Morgan Stanley

Thank you very much.

Operator

Our next question comes from Martin Deboo of Jefferies. Please go ahead.

Martin Deboo - Jefferies

Good morning gentlemen. The stemmed out result in the quarter is clearly consumer healthcare and just appreciate some color around what you think the drivers of growth were in the quarter. There is clearly a lot of rollouts going on and that pegs the question for me around, you know, is there a pipeline-fill influence on the quarter? Just any commentary around that in more depth would be appreciated?

Adrian Hennah

Sure Martin. And the answer is a broad-based set of drivers of our consumer health growth. Most of the brands are doing well and we called out several ways [indiscernible] a few minutes ago. So the answer is fundamentally broad based, against, obviously a strong comparative from this time last year [indiscernible], the much talked about flea season strength, this time last year being, and not as strong this year.

We have cooled our pipeline-fill, and particularly Mucinex Allergy in the United States where -- an important launch where the allergy season hasn't really started yet and yet obviously, has been a sell-in in quarter one. And also the MegaRed rollout across Europe, which again is a significant launch, and obviously involves some [indiscernible]. We are not going to quantify it for you Martin, but it was big enough for us to want to call out, so that you get a sort of measured view of the trends that are going on in consumer health. Well the message is, we are very pleased. It is performing well and it is broad-based.

Martin Deboo - Jefferies

Okay Adrian, thank you for that.

Operator

Our next question comes from Iain Simpson of Barclays. Please go ahead.

Iain Simpson - Barclays

Thank you very much. Just a couple of questions for me, if I can. How are you seeing competition trend within dish wash? It sort of feels that we haven't heard much on that for a little while. Also, I understand that you are not wanting to sort of quantify the impact of pipeline-fill within Healthcare. But I suppose, thinking ex-pipeline, would this still be a result that you were sort of very pleased with and reflected a step-up in execution that we should expect to see throughout the rest of the year or should we expect to sort of return to more normalized numbers. That would be great, thanks. And then just lastly on RBP, you mentioned lapping the destock, and that should just reverse in the second quarter. Are you able to give us any sort of indication as to the magnitude of that? Thank you very much.

Rakesh Kapoor

Right, Okay. Let me just deal with the first couple of questions, competition in dish wash. I think competition by and large across categories remains strong and competitive and fierce, and people think that other people are being bad to us, but I think they are also being bad to others. This is the normal game in our industry. We are fierce competitors. On dish wash, I would say the trends are as they have been, very-very strong, very tough for all of us, and we are also being highly competitive. We are pleased actually that the new launch of Vanish power and pure, which is one of our big innovations that have been scaled up to 30 markets across the world, all around the same time. I mean, it is one of those, I would say, big climb of the new organization, is proceeding well.

So I think, we do expect them, and we called out finished to be a good result in the first quarter. So I think we are pleased with what we are doing on finished, but the competition is tough.

Competition is being tough also in Vanish, but again, in Vanish also, we have made good progress. Again in Q1, as we have focused ourselves back on market growth rate, on penetration, on doing the right things, rather than gain debt. So that's how I feel about competition, fierce and intense as ever. We are being quite competitive, also from our side, but more about the innovation and penetration, rather than some kind of a negative spiral.

The second, that is in terms of impact of pipeline-fills as a help, Adrian has already clarified. It is difficult to quantify, but important to highlight. But let's stand back from all of this. We have delivered 11% growth in this quarter. I think even if I may say so myself with my own -- it is a tremendously good result, and even if you take everything out, it is a tremendously good result. So I think we are doing good in consumer health, some of the things that we have talked out for a number of years now. We are putting in motion and are starting to show good results across a number of brands, and as you know, some of them are impacted by season and some of them are impacted may be by big innovations which might have phasings of sell-ins versus sell-out. But generally speaking, our underlying business is in very good shape, and many of those are not impacted either by these big sell-in or sell-out trends versus seasonal trends, and they are still doing very well. Durex is a case in point, Scholl is a case in point.

So I would say that, I think we should remember that 11 is a very big growth, and it has been influenced to an extent by what we have done in terms of innovation, that is always the nature of the game, but I think we should also be satisfied with our performance in Health.

And then you talked about lapping on RBP from one quarter to the next, may be Adrian, you may want to?

Adrian Hennah

Yeah, just quickly to remind you what's driving this, in quarter one last year, we saw some wholesale destocking of the film, ahead of the uncertainty they felt with the tablets, the generic tablets coming into the marketplace and then we saw the restock again in quarter two. We indicated last quarter, that we saw sort of mid-single digit effect of this reduced in quarter one reported growth, and reduced in quarter two. I'd say actually looking at it now, its more like mid to single digit that has impacted us in quarter one, and then we expect the headwind in quarter two, offsetting that, obviously in magnitude.

Iain Simpson - Barclays

That's very clear. Thank you very much gentlemen.

Operator

We will take our next question from Harold Thompson of Deutsche Bank. Please go ahead.

Harold Thompson - Deutsche Bank

Yes, good morning everyone. I have just got two follow-up questions on regions. Kind of with your RUMEA performance at 4%, in the text you note that you're starting to make progress with some of the key troubled markets like Turkey and South Africa. Could you just may be give us a bit more color on this item of improvement? Second question is on Europe, you're basically saying most countries are now getting better, while your operational performance is improving with just Southern Europe to go. How close do you think we are from reaching a low point in Southern Europe, which of course would cover as a useful contribution for European performance? Thank you.

Rakesh Kapoor

Hi Harold. Let me just start with Europe first and then get to RUMEA. I think in Europe, we do see the impact of better operational focus, the impact of gearing up our innovations. Impact of starting to focus of the organization on positive -- virtuous circle of growth versus a negative spiral of -- things that I have called off, maybe in terms of brands like Vanish, are about the things that we are doing in Europe. I mean, Vanish is not separate from Europe in that sense of trend.

So I think we have made, obviously some broad-based improvement in Europe, in terms of the way we drive the business there, the way we focus on the right brands and markets, and with the right kind of impetus for growth. I think the Southern Europe issue is not an issue of just how well we focus on brands and markets here. I think there is [indiscernible] factor too. All I would say to you is that the issue of southern Europe is certainly becoming much less worse than it was before. So we are in a situation where Southern Europe is becoming increasingly less bad, as I have said before in my words, than it was before. So we continue to do that. I would say that would be an improving result. I am not expecting Southern Europe to be a growth driver for RB in the short to medium term, although I never give up hope. But I don't think that's where we want to be. I think we want to be in a place where Southern Europe does not become a major drag on the company growth rate, or the European growth rate rather, and that is, I think we are already starting to see. So I am pleased with that.

So I think Europe is overall -- everywhere I see progress, and that includes Southern Europe. The only reason we call Southern Europe as negative, is because it is, and it is less negative than before. So also that is a good sign of progress.

In terms of RUMEA, I think we have been very explicit, that in RUMEA I would always be upfront and tell you all -- where we think we have to get our act right, versus where we can't make much of a change or we can't influence things. We'd like to be in control of our destiny in all case, but sometimes, we have to acknowledge that.

So in RUMEA, Turkey and South Africa, particularly thorny issues for a number of quarters and I have been very explicit about that, and that was also about the brands and the focus on which brands and how we actually drive growth there, and the kind of spiral, which is the positive and the negative spiral that I have talked about in the past with you guys. So we have also had, as I've said, management which we believe should have been -- should need it to be upgraded. And I think we have made all these changes, upgraded the management, focused the management on the right operating brands and markets and also the right behaviors, and they have been very explicit about how they see the change come through in numbers, and what I am pleased about is, they are delivering as they have committed to, and I can see progress in Turkey and South Africa, they are not a drag on RUMEA results any more, which is a very good sign of progress in a fairly short period of time.

But I think in this particular case, RUMEA is much more impacted, not by South Africa and Turkey, which were previous issues, but by Russia. And Russia is -- I have to acknowledge, is not what I can do much about, even if I really wanted to. There is a lot of market weakness in Russia, our business continues to do well, but we have a big business in Russia. And then Ukraine doesn't help. But although its not a material factor in RUMEA as a whole. But in that region I would say, its much more about the market, and I feel good that RUMEA is delivering on commitments its making, and its making those right changes in the organization and how execute, so that is very good for us.

Harold Thompson - Deutsche Bank

Thank you very much Rakesh.

Operator

(Operator Instructions). And we will take our next question from Chris Wickham of Oriel Securities. Please go ahead.

Christopher Wickham - Oriel Securities

Thank you very much. Just two questions for me. One is, I was wondering perhaps you could just give us a bit more detail in terms of sort of geographics and timing perhaps on when you are going to see these accelerations and where, on the hygiene and the home side. And the second point is, I mean, great acquisition to KY, definitely a brand with a very high sort of recall and recognition relative to sales value. I was wondering perhaps you could give us some early indications about how you might integrate that into your overall sexual health offering.

Rakesh Kapoor

I think we have said that hygiene number, if you recall, is unusual for Q1, and all I would say that, we have a very high set of quality brands in hygiene, that all have stood the test of time. The underlying performance in health and hygiene brands, particularly Dettol, Lizol, from an in market point of view, is good actually. We have got good share progress in the quarter in Dettol, Lizol, but the comps have been such, and there are some other changes that have taken place, which are much more about what we had to deal with from a financial comps point of view. But I would not take that number to be a number that is a new number for Hygiene. Hygiene, I think should be a good driver for RB in the future. But I would not give a target for any of these categories, because we don't set targets like that.

In terms of KY, I would say that its very early days to actually -- we are still undergoing regulatory approvals. Its very early days to spell out. All you should think about is that, in U.S. and Brazil, we didn't have any business on Sexual Wellbeing to talk of. We just launched Durex a few months ago, and that's very early days.

KY comes with a heritage of over 100 years nearly, and comes with a medical heritage actually. So we are quite excited about that. We know that this area of personal well-being, on Sexual Wellbeing, which is in [indiscernible], is something which is expanding rapidly. So we are very pleased to have that as an additional part of our portfolio from a segment point of view. But also from a geographic point of view in U.S. and Brazil, substantially gives us a business which has the highest rate in Sexual Wellbeing versus what we would have had. So I think it makes sense.

In terms of integration, this will be a very-very fast integration. This is going to even beat the integration records that we have set in the past. This is going to be done before you blink.

Christopher Wickham - Oriel Securities

Thank you.

Operator

Our next question comes from Charles Manso of Societe Generale. Please go ahead.

Charles Manso de Zuniga - Societe Generale

Yes, good morning. Most of my questions have been answered, but I have one -- could you try and get away from the pipeline fill effects. Could you perhaps give us an update on the U.S. VMS markets and at the market level, what has sort of growth been and what the trends are, more recently? I believe there has been some negative media on VMS in that market, and I was wondering, whether that had an impact in demand?

And the second question would be, I know this isn't IMS and just the sales level IMS, but given your strong growth in Health, and Health is meant to be, by far, your most profitable division. Is there any reason why that should not be beneficial to your Group margins in terms of mix? Thank you.

Rakesh Kapoor

Hi Charles. You talked about VMS actually, and I think the VMS trends in the first quarter are indeed tougher versus the prior year, and I would not know whether this is -- I would not say that this is correlated to press versus consumer spending in the first quarter in the U.S., which I think some people would believe that, because of the unseasonal or very tough weather conditions, there has been some consumer weakness in terms of spending. But our brands in VMS in the U.S. show strong trends on an underlying basis. We have seen share progress in VMS. Although I have to say that Airborne also actually had a tough quarter, because last year, the Airborne numbers were absolutely spectacular. But the underlying trends in terms of shares are strong for RB across our VMS brands in the U.S., although the market is softer in VMS in the first quarter and I would not say, whether its down to some press, because press in VMS is a factor of life. In some quarters we would see some -- you see great press and sometimes you would see some negative press.

I don't think VMS market trends, over the very medium and long term have been influenced by press, with those VMS market trends over the medium and long term have been very good. So I don't want to call out one quarter's trends, based on just one incident, I think there is a number of factors happening here, and our business continues to show good strength.

In terms of IMS -- this is in IMS, and you don't expect me to say anything more than margins versus what we have already said, which is we keep our targets of flat to moderate margin expansion, and I would stick to that.

Charles Manso de Zuniga - Societe Generale

Okay. Thank you.

Operator

We will take another question from Iain Simpson of Barclays.

Iain Simpson - Barclays

Thank you very much for allowing me a follow-up. Firstly, at the full year results, I believe you guided for the impact of FX in this year to be an 8% or 9% headwind. We have clearly seen a fair amount of currency movement in recent months, I just wondered if you could give an update on that guidance. And then secondly, for RUMEA, we saw an increase in political instability in Russia and the Ukraine during the first quarter. I just wondered, if within the quarter, that had a meaningful impact, i.e., was March worse than January and February by a sort of meaningful degree, as a result of that. If you could give us an idea of the shape of the quarter? Thank you very much.

Rakesh Kapoor

Let me deal with the second and I will get Adrian to deal with the first. I don't think we should -- I mean, we don't want to manage our business. Truly speaking, I am going to very blunt here, even by quarters, and therefore by months, I don't -- I mean, in the blank scheme of things, these things will even out over a period of time. For some reason, even if you are right the margin is weaker than January and February, who cares in a way. Next month, we will deal with this. So I think, underlying trends in Russia are, well the business is strong business, we are doing fine in this business, I have no concerns there. But really, there are some things that are happening in Russia from a consumer spending point of view, and perhaps some political fall outs from the prices with Ukraine. But I don't get worried about it, because there is nothing I can do to influence it. I am much more worried about, if I can't influence things that I want to influence. So I would not get too worried about what is happening in Russia. Our business is big, we are doing the right things, and these things will even themselves out over a period of time.

Adrian Hennah

And on exchange rates, you're quite right Iain, we guided with the full year results. So if the 30th or 31st of January exchange rates would go on to the year as a whole, we expect a 9% headwind from ForEx. Well it’s the 31st of March rates, if we were to have the actual rates for the first quarter and then the 31st of March rates for the rest of the year, we would expect the headwind for the full year of just slightly less than 8% for the full year.

Iain Simpson - Barclays

Thank you very much.

Operator

Our next question comes from Pinar Ergun from Bank of America Merrill Lynch. Please go ahead.

Pinar Ergun - Bank of America Merrill Lynch

Thank you very much. You've mentioned in your prior communications that Reckitt will get more disciplined on disposals. Can you give us a bit more color on what business areas these disposals may happen? Could any power brand potentially become a candidate for divestment for example? Thank you.

Rakesh Kapoor

Hi Pinar. I wish I could answer your question, but I don't think I will, because I have said -- really, one thing I have said and I am going to stick to that, which is in the past, RB has basically been talked about in the area of M&A. I think M&A should include B, and the B part is to really take a look at our portfolio and think about which pieces of that portfolio perhaps need a solution which is different from being in the company, and I think what we are trying to talk about, for example, in RBP is a way of thinking about our portfolio as a whole, and I won't get into further details about which other pieces [indiscernible]. I think this is part of management to always look at the portfolio, and think about which pieces should be invested behind for future growth and long term value creation, and which ones perhaps should not be, and we continue to do that. But I am not going to speculate whether there is a list like this and which parts are not in the list.

Pinar Ergun - Bank of America Merrill Lynch

Okay. Thanks.

Operator

Our next question comes from Celine Pannuti of JP Morgan. Please go ahead.

Celine Pannuti - JP Morgan

Yes good morning. Sorry, I have missed the early part of the call, so hopefully, I am not asking a question that was already asked. But I wanted to understand, if you could give us more color on RBP going forward, in terms of the market share. You said that there probably will be some more impact from United States' decision to switch to generic. So how should we look at the markets going forward, if you could give us may be a level, and then also, I wanted to understand whether decision would be more to keep the price level or whether to keep the market share high, if you wanted to make sure you had enough distribution going forward for further new medication that you would launch? That was the first part of my question; and the second part, you're talking about capital market solution. What shall we understand by that? Are you talking about a spin-off or an IPO? Thank you very much.

Adrian Hennah

Okay Celine. Let me take the second question first, what do you mean by capital market solution. We mean that RBP would be an independent publicly listed company, that's what we mean by capital market solution, which we say is emerging, and its one strong option in our review. To the first part of the question Celine, we have talked -- you and I have talked as well as more generally, we have talked many times about the drivers of market share growth for RBP in United States. We continue to be of the view that we will lose some further market share of film in the United States, and as we talked before, how much we lose is a question of the battle between clinical preference with our product, which we demonstrated every day in the clinic. We see it very visibly, patients and doctors prefer our films to the alternatives. But on the other hand, there is an economic dimension to the decision-making, there are a group of payors, who have plans, which are more economically oriented and that negotiation, that plus was a very standard one that goes on in the United States healthcare market.

And that goes on, you see in CBS and United payors that have no changes in plans which have affected the positioning of our product. We continue to expect such discussions with payors. We continue to expect that there will be some market share loss and we should expect that of course, as part of those discussions with payors, future [indiscernible], you should expect some pressure in that area, and it is a bout between those two. But I would say that, as time goes on, the resilience and the clinical preference for our form is, again, I repeat, demonstrated day-by-day and that will be an important, very important element in how the balance shakes out, but we cannot give predictions for something we don't happen to give.

Celine Pannuti - JP Morgan

Thank you.

Operator

We will now take our last question from Rosie Edwards of Goldman Sachs. Please go ahead.

Rosie Edwards - Goldman Sachs

Good morning. Two questions for me. One on FX, you have obviously been clear in terms of the translation impact. I think we are going to be talking full year about some transaction impacts as well. Could you just remind us there of your exposure? Secondly, just on RBP again, I am just wondering, if you could kind of try and talk us through the sort of decision process on RBP to some extent. What factors have led you to come to the decision, with regard to the capital market solution, any sort of detail you can give us would be much appreciated?

Adrian Hennah

Yeah, fine. Transaction ForEx, I would repeat what we said before. We are in the round, pretty well hedged the transaction exposure. We have a pretty good match between currencies of revenue and currency [indiscernible], but its more perfect, and particularly, there are a few markets where we are much more of a net importer, particularly of our healthcare products, and they are oriented actually to RUMEA, to emerging markets somewhat, but RUMEA in particular, and so yes, there is a modest headwind that we are experiencing, the transaction nature in cost of sales, as particularly we see weakness in the recent months in the [indiscernible] currency, the Turkish currency and the Russian currency. But its not huge, and it doesn't affect our overall guidance to margins, but it is a reality. Somebody mentioned earlier the positive effect of healthcare mix, that's -- and we got a bit of negative from transaction. It is a negative, as we stand at the moment, but its in the round of our guidance.

In terms of the factors that are guiding our decision making and the strategic review, the first -- second and fierce factor is what is in our shareholder's interest. We have -- Reckitt has been saying for many years as well as Rakesh, that is not a core part of our business, and we have been looking at the way to maximize its value for our shareholders over a period of time, which is now progressing through the strategic review, that is our guiding factor, and I think its appropriate to go into more nitty-gritty items that are playing through, other than to say again that the capital markets option and independent public listing for RBP is emerging as a strong option in the review.

Rosie Edwards - Goldman Sachs

Okay. Thank you.

Rakesh Kapoor

Right. So thank you very much for joining us today. We will wrap up here, and see you in July.

Operator

That will conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.

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