Reckitt Benckiser Group's (RBGPF) CEO Rakesh Kapoor on Q2 2014 Results - Earnings Call Transcript

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Reckitt Benckiser Group (OTCPK:RBGPF) Q2 2014 Earnings Conference Call July 28, 2014 3:45 AM ET


Rakesh Kapoor – Chief Executive Officer

Adrian Hennah – Chief Financial Officer

Shawn Thaxter – CEO of RB Pharmaceuticals

Christian Heidbreder – Head of R&D for RBP

Howard Pien – Chairman Designate for RBP


Christopher Wickham – Oriel Securities Ltd

Celine Pannuti – JPMorgan

Guillaume Delmas – Nomura Securities

Charles Pickett – Numis Securities

Rosie Edwards – Goldman Sachs

Pinar Ergun – Bank of America Merrill Lynch

Mick Cooper – Edison Investment Research

Erik Sjogren – Morgan Stanley

Toby McCullagh – Citigroup

Harold Thompson – Deutsche Bank

Rakesh Kapoor

Good morning and welcome to our Half Year Results Presentation. As you know, this is a presentation that is going to be split into two halves. In the first half we will deal with the half year results and in the second half, just after a short break, we’d like to talk more expansively about RBP and what we are trying to do there.

So my suggestion is to hold on to questions around RBP for the second half. So that we can deal with them in one go. I have been reminded to tell you that there is a mike in front of you or right next to you in your seats. So, if you need to ask questions at an appropriate stage, please use these mikes.

And with that, let me just move straightaway to my three key messages of the day. And the first one is we continue to focus on the core and focusing on the core means giving appropriate attention to health hygiene and home as our organic growth strategy. Focusing on our 16 power markets as our organic goal strategy, but also is to do with value enhancing M&A which come at the right price from time-t0-time.

But I have said before that focusing on the core will also be enabled if we deal also with the non-core at an appropriate time. So I am going to talk about that today. The second bid is that the virtuous earnings model of this company is intact and we are taking steps to make sure that even in challenging times, it remains robust.

So I am going to talk about that and the third thing is of course, as you have seen from our release we are on track with our full-year targets we are fully on track there.

So let's just start with the first one which is focusing on the core and what I mean by that. So as you've seen that in the first half and in the second quarter itself we had a very nice like-for-like growth on health of plus 10%.

We have had a very, very nice growth on health in combination hygiene also started to pick up from a rather modest first quarter. I also want to call out that they are not happy about what we have achieved in the second quarter particularly our home and it is something that we would like to address but again home has two halves.

One half is Vanish and you know managers vanish has also had a tough number of years but what I would like to is that on Vanish we have created the platform for growth. We have brought back growth to the category we have brought back penetration into this brand and the amount growing category penetration and shares on Vanish as a result of which Vanish is in good growth.

On the other side we are not happy with AirWick. Airwick is undergoing weight of market. So as a market air cir is flat to decline clearly it's also very challenging market. So while we are continuing to focus on our core" business is performing well that are some parts which are extraordinarily well and some parts we want to do better than.

But part of the training of core businesses also making sure we are creating platforms for growth not just for this half of the next one but also in the future. So you have seen that we are building capabilities in our company.

We have talked about that last time we met but clearly it was also heard of on investment of about 100 million over the next seven years is to build up state-of-the-art R&D technical Center of excellence in the UK and that's part of our abilities to create growth in our core categories in the future.

If I believe we are making good progress in terms of that but also as you know I have also always said are these opportunities although the vast in its growth platforms also there for M&A. And we have now about completed 12 months of BMS which is a collaboration agreement in Latin America I have to tell you that we are doing very well there.

And growth and BMS brands is well ahead of markets so that 12 months has gone up well. We have completed the integration of KY in the key North American markets and are really feeling about that is also good which we always expected to be so I think you can see that the M&A part is doing still very good and then there is another part which is D is said to you for us focusing on organic growth also means and not focusing on the non-core.

And the d part generally speaking has divestments, demergers and discontinuations. And I hope in the last two years or so we would have had all the CDs done we discontinued private-label in 2012. We have decided to exit the footwear business which was in Europe but was in some other parts of the world we have just signed agreement to do that. And that should happen during the course of this quarter and finally they are talking about demerging RBP later today.

So really this is something that we must do in this company to make sure that the focus on core remains paramount. Moving on to our earnings model and I meant to tell you something about all are new inductees every year so all the new inductees which comes to RB.

You hear this message from me every year which is our earnings model starts with gross margin. It starts with gross margin by focusing on expanding on gross margin which is all the levers of gross margin makes pricing and project fuel bang the nomenclature we use to drive our product cost. We need to make sure that the focus of our company and all the people and actually if you ask me, gross margin is one line where probably the entire organization

Probably the entire organization whether you are in marketing, sales the entire organization can actually make an impact on gross margin and I want people to know that our model of earning statute gross margin.

And that's why I'm pleased with not just in the last couple of years but also the first half despite significant efforts headwinds we managed expander gross margin by 60 basis points in total 90 basis points excluding RBC which is quite good.

So beyond the efficiencies that we have got from gross margin in the first half we have got the efficiencies that have called out in February when I spoke to you which are efficiencies in media I just tell you that late last year we have completed our global media planning and buying.

So this is not just about buying and efficiently by media it is also about planning our media better. Planning our media better is very important in a market where media consumption habit of people like you and I are changing quite rapidly.

So we have gone to make sure we're addressing people at the right touch point and planning the media better because that makes us more effective but the and being more effective in media planning begun to use our very significant investments that they are making in media about but also increase over the last couple of years making sure that we buy more efficiently.

And I'm pleased that we could lock in quite a lot of those benefits in the first half of the year so that every since he program continues on the last bit is about six cost. If you've not heard it before here it is now I believe that it is always juice of the lemon. We can always squeeze cost out no matter what which means we have to apply then it must be a nonstop process in a company.

What we're trying to do now is to make sure that that mindset of being inefficient machine a lean mean faster machine continues to be in the company as a whole. So I'm going to talk to you about how they are doing that in a practical way now. How to make this company even more effective from an organizational point of view.

And clearly when you have all this you can actually expand your margins quite nicely as he had done in the first half. So let me just give you an example, a real example of what we mean by efficiencies in the organization. You remember we have talked about bringing ENA together.

We brought ENA together which at that point in time was a strange concept but we made it bring to life I personally still believe that quite a lot of our growth in ENA which has been quite consistent over a number of quarters has to do somewhat with how we are organized in ENA and in the first part we delayered in and made the decision-making in ENA simpler under one leadership if you want, delayered the whole organization from regions and markets to just markets.

So we had that in 2012. As stage two or phase two, we are going to have a more integrated brand and customer management organization. What does that really means? It means like this, take Finish as a practical example. Finish is a brand which we have in every market in ENA, every market in ENA has brand Finish.

In the US of course, but also in other parts of the Europe. We have brand marketing teams in every market looking after Finish. Now Finish is the brand which has a simple proposition a simple benefit with the pipeline which we have, which gets ruled out every year.

We are in the same concept. So it seems rather inefficient that you want to actually change Finish marketing and marketing mix from one market to the other. So what we are trying to do now is very simple. We are going to have one power or one organization to manage Finish across all of ENA. So Finish will be managed from one part of ENA for the whole of the ENA organization something like this.

I‘ve said often that Europe and North America would have been one region in every company if they did have an implanting ocean to consider when we decide how to manage the organization. So that’s what we are going to do as an example, centralized marketing in ENA across brands with one power, one market organization looking after the brand making it more consistent, making it bigger, making it faster, making it simpler to operate.

So that is underway and we hope that programs like this in the company will ensure that we have an efficient more effective and a leaner organization and therefore help us being efficient from a fixed cost point of view.

And finally I want to talk to you about my third message which is we are on track with our target for the year and you’ve seen that our like-for-like growth in the first half is 4%. We have invested modestly more in absolute behind our brands, gross margins are up 40 basis points and quite pleasingly, grows our cash conversion.

Our cash conversion is at 90% to our net revenues and the board has declared a dividend, interim dividend of 63 which is the same as last year reiterating the confidence that we have of course on the future cash flows and earnings potential of the company. So, this is my opening message.

With that, I’d like to hand you over to Adrian who is going to talk to you more expansively about the results.

Adrian Hennah

Well, thank you Rakesh and good morning ladies and gentlemen. If we can turn the first slide, Slide 12. As Rakesh mentioned, revenue for quarter two was ₤2.1 billion for the base business by which we mean as you know excluding RBP. This represents a like-for-like growth of 4% after adjusting for movements in exchange rates and for the effective acquisition. Revenue of RBP was 174 million in quarter two, a reduction of 5% on a like-for-like basis. Together these gave a group growth of 2%.

Revenue for the half one is ₤4.3 billion for the base business, representing also a like for like growth of 4% and growth in half one for the group as a whole was also 3%.

The KY acquisition is in the form of several transactions in different countries and it’s being completed in stages mainly as antitrust issues are resolved. The transaction has completed in many but not all countries. The BMS collaboration started last May and it’s in like-for-like numbers for part of the quarter.

The impact of acquisitions was therefore small comprising only one month of the BMS collaboration and the early KY. Movements in foreign exchange rates reduced the quarter two reported net revenue and operating profit growth rate by 11% and the half one rate by 10%.

Gross margin half one increased by 90 basis points for the base business and by 60 basis points for the group as a whole. Adjusted operating profit before exceptional costs in the half was ₤898 million for the base business, the operating profit margin was 20.8% 40 basis points higher than half one last year.

Adjusted operating profit in RBP in half one was ₤183 million, this was a decrease in margin of 380 basis on half one last year. Together these gives a 10% basis points decrease in margin as you see for the Group as a whole.

We will look more closely at revenue growth and the margin for the base business in a moment, we look more closely at the RBP financial after the break. The 22 million exceptional item you see charge in – the items you see charge in half one are almost all under the existing acquisition integration restructuring program which totaled 170 million pound. ₤1 million relates to the acquisition and integration cost of KY in respect of which we expect a total of ₤20 million. We have as usual, set out a full analysis of these exceptional items in an Appendix for this presentation material.

Moving to the next slide, Slide 14 and further down the income statement. Our net finance costs were ₤18 million, a small increase on half one 2013 reflecting slightly lower total borrowings and a slight increase in the cost of borrowings, following the $1 billion bond issue in quarter three last year.

The tax rate and adjusted net income in other words excluding the impact of exceptional items for half one was 22%, a rate we expect for the full year. This is lower than the around 24% rate we expect at the start of the year for two broadly equal leasings.

Firstly, a structural change as a result of changes in corporate tax rate in countries where we do business and the level of business we do in those countries, we expect this part of reduction to be the same in future years and secondly, some small favorable one-off adjustments.

Adjusted, diluted EPS in half one was 113.4, a decrease of 4% on last year. This is well below the 3% increase in constant rate adjusted operating profits due to the impact from the strength of sterling, offset by the reduction in the tax rate. The board has approved an interim dividend of 60 per share. This is the same as in half one 2013 in sterling.

Our normal policy is to pay out 50% of adjusted net income. However the Board considered it‘s inappropriate to reduce the sterling dividend in line with the reduction in reported sterling net income given the strong underlying performance of the business and the negative impact of currency headwinds. This has increased the payout ratio from 50% to 52%, we would expect to return to a 50% payout over time.

As already mentioned, the translational effects of movements in currencies decreased reported revenue and profit by about 11% in quarter two and by about 10% in half one. If the exchange rate for the 30 of June were to continue to year end, full year reported revenue and profit would be decreased by about 8%.

We entered into an agreement on the 18 of July, subject to certain employee consultation processes to serve our footwear operation and to license our Show brand for use in the fields of footwear only for Iridous, a German private equity company. This transaction is not reflected in the half one numbers.

We have set out in an appendix a summary of the financials of the business sold which had revenue of ₤76 million in 2013, it was reported mainly in ENA but partly in the LAPAC segment and it was reported in the portfolio category.

Turning to the next slide, Slide 16 an analysis of revenue growth rate by business segment by quarter, firstly on price and volume changes across the geographies we operate in. The 4% growth in the base business in half one was against that broadly evenly between volume on the one side and mix and price on the other.

With respect to ENA sales, the Group achieved another quarter of 2% growth. As in quarter one, there was a tough comparator, the last flu season was not only stronger than normal, but was also longer delivering strong quarter two growth last year.

However, we also benefited again in quarter two this year from some one-off tailwinds. In quarter one, we benefited from stocking of Mucinex Allergy products in the USA and of Megared in several European countries. In quarter two, we have benefited in particular from stocking of our Scholl Express Pedi foot care product.

And looking forward it is important the fact that only that we will have slight easier comps, but also that we benefited in half one and in quarter two from these tailwinds.

Turning to RUMEA. We achieved a 7% growth in RUMEA in quarter two. As we have signaled over the last year or so, growth in RUMEA is returning gradually toward its full potential as we improve execution.

We do expect to see some modest fluctuation in the RUMEA growth rate in coming quarters partly as this area serves a number of quite volatile markets and also as we are implementing some changes to our go-to-market arrangements in material markets which will have the effect of altering slightly a point in logistical chain that the sales are recorded. However, we do expect to see continued gradual improvements in execution in an area with significant potential for us.

In LAPAC, we saw a reduction in our growth rate to 6%, a somewhat lower number than we expect for an area serving many emerging markets as well as some more mature markets of Japan, Korea and ANZ. We saw varying drivers across the various geographies served within LAPAC, a modest reduction in the growth rate of the India market, coupled with mark slowing of the market growth in Thailand and Indonesia were significant contributors for the slowing of the area growth rate.

We do expect these market growth rates and our own growth rates to improve over time, but do not expect significant immediate change. In RBP, the minus 5% revenue decline in quarter two was determined by a combination of continuing strong market growth most notably continuing low double-digit growth and buprenorphine prescription volume in the United States.

By a modest reduction in market share in the United States markets and by some price pressure. Looking forward to the rest of the year, we expect continuing strong market growth. Our firm share in the United States will however be reduced modestly by the changes in the United formulary for some of that business and the approval of a third generic Suboxane tablet will also add to the share and price pressure in some parts of the market.

We will return to RBP as both Rakesh and I have already mentioned after the break. Beginning through as an appendix a reconciliation of the reported the like-for-like numbers in this slide.

Turning then to the next slide, Slide 18, an analysis of revenue growth rate for the principal product categories. Firstly, Health. We achieved another strong quarter with 10% growth further evidenced with a focus the Group is putting on consumer health is yielding good results.

As mentioned in connection with the ENA growth trends on the previous slide, this growth rate is despite a strong comparative, but benefited from some stocking in which we do not expect to repeat in the coming quarters.

Hygienist growth of 4% followed a week quarter one strong results in the Dettol. Lysol brands offset by weaker product sales in pest. The pest numbers were the result of a weaker season in some markets some localized competitive issues and the timing of our own cycle of product innovation. Home sales declined by 1% at solid performance and vanish was held back by some weakness in Airwick. We are very focused on improving our Airwick innovation and execution.

Both of the brands were down 8% in quarter two, the main marketplace is served by a portfolio brands that remains challenging in the food business achieved is another solid quarter 2% growth reflecting slightly the strength of our brands in a quite tough food marketplace.

Turning then to the next slide and an analysis of gross margin brand equity investment and operating margin. In respect to gross margin as mentioned earlier the group continued to make good progress in the base business with a 90 basis point increase in half one. The growth has been driven and be continues to be driven by a number of factors. Firstly the strong growth in healthcare category helped the gross margin mix and offset the slightly negative gross margin effect of foster emerging markets growth.

Secondly we saw headwinds from the depreciation on many emerging markets currencies. If the reasonably good natural hedge with much of our costs denominated in the same currency as our revenue however this is not a perfect hedge and a quite substantial weakness of a number of currencies then we do import some proportion of goods sold from more mature markets and the rising local cost of internationally traded commodity inputs for this markets has impacted the local cost of production.

Thirdly however the strength of our brand has enabled us to reflect much of this increase input costs in higher net prices realized. Fourthly we continue to see a stable commodity and import cost environment as denominated in dollars and lastly the group continues to benefit from its ongoing cost-reduction program on which Rakesh is already focused.

On BEI you can see the 30 basis point reduction in the level of spend in half one reflecting a small increase in absolute spend. The reduction does not or of course reflect any reduction in our commitment to BEI product innovation and BEI are clearly at the heart of for business.

It follows a 60 basis points increase in the level of BEI spend in 2012 and the 80 basis points increase in 2013 and the important focus on efficiency in BEI signaled at the start of the year. We expect continued modest fluctuation in the level of BEI going forward but not significant trend change in the level of spend.

Other SG&A costs increased by 80 basis points in the base business. This reflects further investment in healthcare R&D and related activity. In healthcare point of sale communication with customers which is not included in our definition in BEI and in systems.

Hygiene’s growth of 4% followed a week quarter one strong results in the Dettol. Lysol brands offset by weaker product sales in pest. The pest numbers were the result of a weaker season in some markets some localized competitive issues and the timing of our own cycle of product innovation. Home sales declined by 1% at solid performance and vanish was held back by some weakness in Airwick. We are very focused on improving our Airwick innovation and execution.

Both of the brands were down 8% in quarter two, the main marketplace is served by a portfolio brands that remains challenging in the food business achieved is another solid quarter 2% growth reflecting slightly the strength of our brands in a quite tough food marketplace.

Turning then to the next slide and an analysis of gross margin brand equity investment and operating margin. In respect to gross margin as mentioned earlier the group continued to make good progress in the base business with a 90 basis point increase in half one.

The growth has been driven and be continues to be driven by a number of factors. Firstly the strong growth in healthcare category helped the gross margin mix and offset the slightly negative gross margin effect of foster emerging markets growth.

Secondly we saw headwinds from the depreciation on many emerging markets currencies. If the reasonably good natural hedge with much of our costs denominated in the same currency as our revenue however this is not a perfect hedge and a quite substantial weakness of a number of currencies then we do import some proportion of goods sold from more mature markets and the rising local cost of internationally traded commodity inputs for this markets has impacted the local cost of production.

Thirdly however the strength of our brand has enabled us to reflect much of this increase input costs in higher net prices realized. Fourthly we continue to see a stable commodity and import cost environment as denominated in dollars and lastly the group continues to benefit from its ongoing cost-reduction program on which Rakesh is already focused.

On BEI you can see the 30 basis point reduction in the level of spend in half one reflecting a small increase in absolute spend. The reduction does not or of course reflect any reduction in our commitment to BEI. Product innovation and BEI are clearly at the heart of for business.

It follows a 60 basis points increase in the level of BEI spend in 2012 and the 80 basis points increase in 2013 and the important focus on efficiency in BEI signaled at the start of the year. We expect continued modest fluctuations in the level of BEI going forward but not significant trend change in the level of spend.

Other SG&A costs increased by 80 basis points in the base business. This reflected further investment in healthcare R&D and related activity. In healthcare point of sale communication with customers which is not included in our BEI definition and in systems

Looking forward, the investment in cash to get increasing our routine keen attention to all costs with the specific additional program we expect this to be evident in the SG&A line in the next few quarters.

Operating margin therefore increased by 40 basis points in the base business. As Rakesh has mentioned we have increased slightly our expectations for the 2014 margin. Our expectation for our margin progress in the medium-term is unchanged.

Turning to the next slide, this shows an analysis of operating profit before exceptional costs by business segment for half one.

You can see the 40 basis points increase in operating margin for the base business comprises strong 130 basis points increase in the ENA area and decreases in LAPAC and RUMEA.

With regard to ENA the mix benefit from strong growth in health sales and the strong delivery of cost savings that Rakesh described drove the strong margin delivery. With regard to LAPAC, the 50 basis points decrease in margin was broadly equal to the amortization on the acquisition intangible from the collaboration with BMS which also impacted half two last year. This impact has now annualized.

The negative impact of currency movements on LAPAC costs were offset by a mix and price improvements. With regards to RUMEA the movement in currencies is the main driver of the 140 basis points reduction in the operating margin. RUMEA includes Russia South Africa and Turkey all of which are material markets for us and all of which have seen weak currencies in the last nine months.

Turning to the next slide in a summary of the group’s net working capital position we can see that the strong overall motion continues with only small movements in each of the components of the working capital and the group’s keen focus on this area for sure will continue.

Turning then to the next slide the last slide as this part of the presentation, the cash flow statement. As you can see the group had another good half of cash generation. Free cash flow generated in the half one was 729 million pounds working capital and capital expenditure deployment remained disciplined. The group had net debt of 2.2 billion pounds at the end of half.

And with that I will hand back to Rakesh. Thank you.

Rakesh Kapoor

Thank you Adrian. Before I get to the target for the full-year let me just give you a quick snapshot of our pipeline for the second half of this year. I'm going to be about a band which I haven't spoken to you for quite some time I think about and this is Airborne. Airborne is a band which came to us as a part of the Ship acquisition in late 2012 early 2013 and Airborne is an immunity brand which started with a very nice brand story on Monday maybe I will talk to you about this brand story. Fantastic story.

Now Airborne is an episodic plan and mostly used when you have cold and flu when people want to boost their immune systems. So what we have done is we have launched an everyday line making immunity and everyday opportunity for people to look after themselves and early in the year.

We know that people use multivitamins for immunity so we have actually added multivitamins to the Airborne line so that's what we have done earlier in the year and now they are ruled out the gummies format which is proving to be quite popular with certain segments of the consumer so we have added a gummies format to the everyday line hoping to get people to use airborne on a more daily basis making it more episodic.

So that's our first airborne innovation another one again sticking to airborne is what we call airborne dual action. And the thing I like about this innovation is what it says on the pack it's clinically proven to boost your immune system and this is our and I have talked to you before this.

RB wants to make sure that we bring more science and clinical evidence to BMS and the reason I like this innovation the reason I wanted to show it to you today was because we're bringing just that forward.

It has to ingredients one is a beta immune booster boost your immune system and the other one has an antioxidant which makes your immune cells healthy. So we are quite happy about this innovation is going into the second half in the US. And I hope they would be proving quite popular.

Moving on to Mucinex I think the back says it all what the product is inspired by hug in a mug. It has always been a relief for hard-working heroes and Mucinex has got powerful ingredients when you have a cough and cold and flu you also want some emotional support. A hot drink sometimes does quite a lot of that and this is going into the market in the second half with a number of variants in the US.

Moving on to Scholl. I think we called out in our release that this product the velvet smooth product has proven to be the very popular in whichever market we have taken to be.

So actually something that was initially because this product was sold for 29 pounds 99 are somewhere in that range. And we are now basically rolling it out also to our brick market and I was in Russia a couple of weeks ago it is really flying off the shelves there that you know see the Ozone.RU sort of click there has done very well.

So we are pleased about that but what we are also pleased about is the slide I'm going to show you next which is Scholl is not going to confine itself only in markets where we have Scholl the brand name we are going to think about how to enter foot care in the rest of the world. So I'm very, very pleased that we are going to announce the launch of a new brand called Amopace.

Now I can't believe that there are too many Portuguese in this room but if you are euro exactly what this plan means it means loving your feet. And we're launching Amopace in US in Latin America and we're launching it with this fantastic innovation which we know consumers .love.

We know consumers love this. So we are pleased that despite there not being able to get the most consumer business has not prevented from really providing our innovations in markets where we did not have the Scholl brand-name. So that is most pleasing.

We are not waiting for things like this to happen we are going to take our destiny in our own hands and I'm very pleased about it. I'm very confident this is going to prove to be a big success in the US as indeed it has in every market we have taken it to.

Moving on to devices and let stock about Durex. I have told Adrian the next time he is starting about, agreed? Okay I'm not playing with this anymore. So this is a device which is really designed for the female body allows lovers to experience the transformation power of great sex.

But the reason I point this out as an innovation really is this that they are going to use the e-channel to really talk about innovation ideas like this for a number of reasons for example many people are not very comfortable buying pleasure toys on shelves in supermarkets when they are with kids or other members of their family.

And secondly when you have a product line like this which is twice significant in terms of the kind of things you can buy e-channels do and much better job of giving people the choices that you can put in front of them. So we are quite happy about what we're doing here is gone to China on the e-channel we started doing okay and we plan to take it to the rest of the world progressively with the expanding our Durex devices range across the world.

Moving on to hygiene let's start with the same idea how the new channels can inspire to launch different type of innovations so I really want to talk to you about infinite sales what is infinite sales.

Well there is a market out there called IPL is intense pulse light. IPL works by actually targeting the hair follicle in the roots and ensuring that all four or five applications you can actually have permanent hair removers. So this is the nirvana in hair removal. It can offer you permanent hair removal by making IPL technology used four or five times over a period of time.

Now this is not an item which is which comes with the same kind of price pricing that we are used to in Veet or brands like this. This is – right now in test market in the US retailing the two sort of lines in this one retail: $249 the other one is to $299. So this is a transformational treatment. This is not a just an everyday treatment it's a transformational treatment. Now how big is this market in salons and clinics this is a 3.5 billion market. So we are bringing several treatment at home and $249 is a very cheap alternative to what you would normally pay in the clinic or a salon for this.

So we're going to watch this quite intensively. The products are very nice the experience is very good and they are really at this point of time in test market in the US trying to see how to make it a very, very interesting ideas going forward. That's why I want to call it out.

On Finish we are launching our all in one concentrated gel. Now the interesting thing about this product line is first of all it is phosphate free secondly it works on short cycles it is a concentrate the product and right now it is in Italy and it is going to take into 20 more markets in Europe, North America in the next few months.

Moving on from finish to Harpic. Now this is the best ever claim on Harpic is it works in one minute and the reason you know it works in one minute is because it changes color. So people sometimes don't know how much they want to leave their toilet clean as and when they need to come back and clean their boards but this is a one minute action where it then changes color for people to say that well that's no time for you to actually get the best results from Harpic.

Moving on to Sagrotan Dettol or Lysol we are largely very nice interesting product it's called TipTop. Tiptop is basically the cleaning power in your hands with the white the best thing I can do is to show you all the advertising that is going to be supporting this launch starting with Germany by being taken out to many markets across Europe and North America.

Being Dettol, Lysol, Sagrotan for those of you who haven't seen the Sagrotan before, Sagrotan is even – how does it looking physically, so which means you have never heard of Sagrotan for some of you. Sagrotan is like Dettol in Germany. For those of you are from Germany know Sagrotan if there is disinfection germ brand in Germany. And it is a fantastic brand it is doing great in Germany and Sagrotan Lysol, Dettol on the same jam protection brands like Amope and Scholl.

Right moving to Dettol, so we're launching a range of Dettol lasting fresh products with a new technology which makes Dettol give you lasting freshness so it has the technology which gives you the freshness feeling for longer. So this is getting rolled out in a number of Asian markets as we speak.

Mortein, again I have picked out some innovations that I have not talked to you about in the past now we're launching an outdoor range with Mortein and the reason why they are largely outdoor range with Mortein is because when you have we know that millions of barbecues are really actually spoiled by insects and people want to have products which also work in an outdoor environment.

So we're launching a range of products the one on the left-hand side actually is like a freshatic product. So it constantly emanates active which keeps your insects away. So it is really that same idea which we have used in air freshening also in pest-control.

So that's a very interesting way to deliver it constant dealing with your best it also comes in candles and it also comes with coils. So we are quite excited about that. It's going into Australia but also in Brazil and a number of other pest-control markets and in the nature guard platform.

Right moving from hygiene to home we will start with Vanish on Vanish we are launching Vanish gold. For some of you who have been seen or vanish the shelves in the UK would have already seen Vanish Gold in the UK it comes with our best ever products with promise of stain removal in 30 seconds. And if you don't believe it.


So Vanish is a bit like RB what you see is what you get deliver what you say. So I think that's what Vanish Gold is all about it is something that we have seen working really very well in the UK and we're going to take it to our European North American markets shortly. So that's on Vanish.

Let's come to Airwick. On Airwick, these our first-ever premium aerosol in three and the interesting thing about this Airwick Pure is that it has a concentrated set of sequences. For that has no water inside the can. It doesn't have a what to based formula. The concentrated formula that the amount of fragments you releases 15 times that of a standard aerosol. So it is a concentrated premium aerosol that we have launched initially in France and the early results are indeed quite interesting.

The next one on Airwick is the time of the year when you launch candles. This one is different. This candle is different because most candles only give you fragrance when they are lit which means that for a vast majority of time when you have candles sitting on your mantel pieces or your – on the surfaces they don't have any fragrance.

So we have actually combined a gel at the bottom of the candle with the stand wax candle on the top which means that you constantly have fragments is coming out of this candle so there is a gel combination that's why we call the Airwick eternal sense. So the gel in the base of the candle and the candle gets lit as and when you want it to give you great fragrances all day long.

So this is a snapshot of online of innovations I have just picked out 15 from a number of them that are going out in the marketplace but I want to finish this section on innovation with brand building and I want to give you one example on Durex again where we know that there is a significant even which takes place around March every year and it is called the earth hour.

Earth hour is called traction than the lights off. So when you know when you turn the lights off Durex has a role to play right? And that role is called turn it on. So turn it off to turn it on and we use that idea to make 2 billion impressions in 50+ countries. The consumer engagement was 350 million or so, the video itself was watched by around 80 million and you will be 50 or 70 people more watching it now.


It is very nice and you know when you want to create brands with purpose they must do more than just sell products, sell innovation but stand for something and the reason we like it in the reason I wanted to show it to you is that that's what underlying band building.

It’s all about creating branch with purpose creating brands that stand for something creating brands that people love and not just because not just because they have great products they have great products from in these brands and is exempt from Durex.

It’s one of the examples that we are using to actually touch lives in ways beyond product and innovation. So I thought I should show this to you. Actually I do know how you like the music and the ad this has been cut out as a single in the music the track has been cut out and selling as a single now across many markets.

That's something from the stars. I let's come back from turn-off to turn on to our full-year targets and how we see them. So this is how this is a slight I showed you in February that we expect net revenues to total revenue – that the revenue to be 4 to 5% and operating margin flat to moderate expansion in the year.

Now I must be candid here that the environment is tougher today than what we saw actually at the beginning of the year it has toughened up. I don't know whether you hear the same thing but we see tougher and I think we have indicated that we see it tougher.

But despite that we believe that they are on track to achieve our top line revenue results of 4 to 5%. In terms of op margins let's face it our first half op margin expansion is nice. So we have had nice expansion the first half. We have also announced this kind of steps they are making in terms of making sure our earnings model cycle is intact is virtuous and therefore in the second half to we expect to have op margins expand nicely.

So that's what you should expect top line to be on track with 4 to 5% and continued expansion also in the second half as we have seen in the first half.

With that I think they are ready to take Q&A on this part of the presentation which is the excluding RBP and then we come back after a short break to discuss RBP

Question-and-Answer Session

Rakesh Kapoor

Yes, you want to go first? You have a mike actually. So get yourself a mike, right next to you maybe.

Christopher Wickham – Oriel Securities Ltd

Yes thanks, a Christopher Wickham here from Oriel Securities. Just a couple of questions, one, I was wondering you talk a bit more about the food side of the business. You may had an easier comps than in Q1, I was wondering why we didn’t a little bit faster in Q2 and the second was just on the dividend and the payout ratio, I mean clearly we are running into sort of a period of sterling is trending stronger, I mean, how far do you think your board is likely to be willing to stretch the elastic band on that beyond sort of a 52% payout ratio?

Rakesh Kapoor

Right, so let’s deal with the first one. I think the food business, again it’s very difficult to make commentary around one quarter and the second quarter. I think we have said that food business is a very good business which has got great brands and we continue to support those brands with the right innovation and with the right execution. I think the first half has been a good first half on food despite tough markets.

The first half has been a good half. So I don’t see anything from one quarter to the other and I know some people have talked about Easter facing et cetera. I don’t think we should just work too much. I any case, our food business has a much more seasonality around Thanksgiving versus Easter, just to put it into the context. So, I think first half has been a good first half and I think we are happy with our first half performance in terms of what are doing.

You had another question on dividend and I think the Board will consider really the impact of FX as it has indeed in the first half to decide and put it for shareholders, because the full year dividends then goes to shareholder approval in May next year.

So it will definitely look at the impact of FX when making that decision and use its – I would say judgment, because the underlying performance of the business is strong, is healthy and I think it will use both that judgment to decide whether it wants to be flexible in the payout ratios even if that is for a short period of time.

So my estimation is the Board will take care of the underlying – it will take into consideration the underlying health of the business which is solid and then decide what that means in terms of payout ratios even if there was a change in the temporary payout ratios to beyond 50 I am sure they will take into consideration when deciding the full year dividend and proposing for shareholders in the second half.

Yes, Celine.

Celine Pannuti – JPMorgan

Yes, Celine Pannuti, JPMorgan. My first question is on the healthcare business. Can you tell us what the underlying growth of the market and also you have flagged out a few items which were positively impacting on the sale in Q1 and Q2. What has happened that is different this year because I think you always have innovation?

So why is it? I understand – was a big opportunity but twice this time around we had this selling that we are very different than in the previous years. And my second question would be on margin, you seem to be having a better outlook now on the margin. What has happened that is different?

And if you could bit shed light on the BEI – you said 2012 and 2013 you increased a lot, it was down in H1. Can you give some commentary given all the lineup of innovation you get with them?

Rakesh Kapoor

Let’s start with Health. I think first of all our underlying business in health is outperforming the markets quite significantly. So, we are happy about that 10% growth, already we have a view that there is a significant outperformance of the market I don’t even have to sort of say that.

And I think the Health brands are performing well across the board. So it’s not something that I want to tell you about one brand name, particular although I have called out Scholl, because Scholl has been quite like that actually. So, all Health brands are doing well, we are outperforming the markets quite significantly.

Adrian did talk to you about some sell-in in the first half and you are quite right to say we have innovations taking place every time. But I think you quite pointed out the fact that we have launched Megared in Europe and we – Scholl, in many countries it’s like a new brand launch, China for example is a new launch, because Scholl did not exist in China.

So when you have beyond innovation maybe new geographic entries et cetera, I think it was just prudent to call out that we have that. Although he also said and rightly saw that last year we had a tough comp too.

So I mean, I don’t think you will read too much into all of this except to put the facts on the table to say, our Health business is doing really very well. It’s broad based. It’s outperforming the markets quite significantly but don’t think this is a normal rate of growth because clearly there are some factors which take into – I’ll come back to you.

Then you had a question around margins. First of all, I think I try to explain once again for you who have been watching RB for a very long time, you know our philosophy of margins. So I think, it starts with gross margin.

We should not think about we have to start with our fixed cost to start, we’ll think about gross margin and expanding gross margins by 90 basis points on an underlying basis is just very, very good despite some very strong headwinds which talks to you about just how many levers are being pressed in the right direction in terms of pricing, in terms of mix management in terms of our cost of goods and fuel mentality.

And then, when we talked about BEI, there was a substantial – so I think there are two things. I think to just look at BEI in terms of cost is not a good idea. I think we need to think about how we are spending on money, not how much we are spending on money only.

We must think about how much we are spending money but also how we are spending the money. So this program of looking at BEI was more broad versus just how much and how to cut that cost in terms of cost per point if you want. And I think we are quite happy with what we have achieved.

We’ll have to change some agencies in terms of both media planning agencies and buying agencies across the world. But we have got a good result from that and we expect to use that result for this year. But beyond that I think we should also say that from an efficiency point of view, we believe that we should also look at how we can make our business more efficient from a cost management point of view.

As we invest behind building capabilities, there is also this whole question of how do we actually make this business more and more efficient from a cost management point of view – fixed cost management point of view and I give you one example of that. So, I think when you put it all in totality.

I think the whole margin management has been a more broad-based approach rather than just looking at one lever and that tells me that I think this company is pressing all the right levers to keep its margin momentum going. This is the reason why we said you should expect our second half margins also to be up expanding nicely.

Celine Pannuti – JPMorgan

And my question was on the market growth in the healthcare, what’s the market growth right now?

Rakesh Kapoor

Yes, like I told you, it’s substantially lower than 10%, substantially lower than 10%.

Guillaume Delmas – Nomura Securities

Guillaume Delmas from Nomura. Three questions from me. The first one, RUMEA, I mean clearly one of the highlights of your Q2 sales performance. It’s been 12 months now that Frederic Larmuseau has been appointed as Head of RUMEA. Clearly, good performance against a tough environment. What remains to be done in RUMEA before going back to full potential as Adrian alluded to?

Is it just to get market growth back to where it was few years ago or is it just some work to be done there? And also on the margin front in RUMEA, you said that the 140 basis points margin contraction in H1 was done with the FX transactional impact, so is it fair to assume that in the second half to see some improvements given FX is going to be much less of a headwind?

Second question is on SAP. I think it was at the February 2012 presentation we were talking about implementing SAP. Just wondering while you were if you were to on track and whether you are starting to see some savings coming to you we are talking about 10 million sterling from 2014?

And the last question to put up on Celine’s. I mean, is it fair to say that in health, you are now focusing more in less regulated product categories such as BMS, sexual well-being, even foot care, where you can actually launched your products much faster going to after a more wide base rather than OTC which is much more regulated? Thank you.

Rakesh Kapoor

Okay, let me just take a few of these questions and then maybe Adrian can also help me with one or two. So, in RUMEA, I think, can I just be a bit – I think by definition we can never exploit our full potential, because the day you do that, you are sort of the story finishers. So I am never going to tell you that I am happy with what we have achieved because we also want to do more.

I can never tell you that our potential has been exploited in RUMEA. I don’t believe our potential has been exploited in ENA. I think we have to drive a huge amount of penetration opportunities across our brands in ENA. So, I don’t think that journey on exploiting our potential is ENA is done and by far not in RUMEA. And I don’t know when I can tell you or by the way now we have managed to exploit our full potential in RUMEA. So I don’t think the day will come. You should not expect that day at least when I am here.

Second point is on – but we must say that, I think, the changes that we wanted to put in place the changes that we guided to you are proving to be effective in the market. So, I think we are pleased with how we are doing in RUMEA.

You are seeing the results of those operation changes and our performance in Turkey, in Africa, which were the issues that we have seen, but RUMEA also has volatile markets. I think, you all know that, Russia is a volatile market and not just because of the headlines of what has happened.

But generally consumer markets in Russia are volatile, but as indeed there are in some other parts of RUMEA in Middle East and so on. So I think, I never prefer to talk about markets, more talk about where we need to improve our gains. And I think our gain has definitely improved in RUMEA and therefore we feel better about where we are in RUMEA as such.

Your second question was about are we on track with SAP? We are on track with SAP. We did call out ₤10 million of savings in 2014. I think when we spoke to you last – I think we will get 2014, they were mostly driven from a procurement point of view.

The most earliest benefits of SAP were going to be in our ability to actually have end-to-end view of what we are buying, where we are buying, how much we are paying for and so and so forth and lock in some early benefits of procurement and that I think we will get how – but the program is fairly on track. There is nothing to report there.

Adrian Hennah

When you look back to 2012, a more – I have had these questions for a number of them. We do not have a single implementation. It’s a misapprehension it’s actually things we have in accounting. We see it very differently because ongoing need to renew ERP systems that will go on forever as technology changes and as the company evolves.

And there are lot of developments to it. There has been implementations in this path, procurement production has been one of them is deliver some benefits. We got other implementations but there is no big movement. But we are going to talk about it at some point, just not the way we are approaching as things upgrade and renew is thinking a full bridge that use some of these but it never ends.

Rakesh Kapoor

And the last question was around, are we choosing to operate in less regulated markets? Actually not, I mean, what we are trying to do is to make sure that we have our fair share in Mucinex and Europe – I think there are – on the other hand some categories where you can launch where you can use the regulation in a way that helps you both create enough barriers to entry and yet at the same time launch faster.

Because some of these categories that we are operating like sexual well being is not that there is no regulation. They are – actually we prefer to launch them as what is called medical devices. And when you think about regulatory landscape, you think about and making it up a little regulation, although there is always regulation even in cleaning products to high regulation and extremely high regulation in prescription pharmaceutical products.

And if you thought that OTC was somewhere in the middle for example, medical devices is in between cleaning and prescription medical – sorry in OTC medical. So there is regulation, but that regulation does allow you to create enough barrier for entry, but at the same time, therefore gives you strain – but also makes you go to market faster and that’s what we are trying to do.

But I don’t think we are choosing to operate in categories which have sort of left regulation. I think we are just using regulation appropriately to make sure that we are faster to markets.

Yes, whoever has a mike, go first.

Charles Pickett – Numis Securities

It’s Charles Pickett, Numis. Couple of questions please. On the integration of the brands in the ENA region, does that involve extra CapEx in the short-term and can you venture any opinion on what the savings might be?

Second question, on the FX transactional impact in the first half, is that something you can quantify please, say what element you feel you may have recouped via the pricing actions?

And third question, will we see any more disposals of minor brands in the near term?

Rakesh Kapoor

Right, let me answer the third one. I think we should constantly look at our portfolio and think about how we are going to augment it by doing both the right M&A but at the same time, clean up with the right disposals through discontinuations, through demerging strategies.

So it’s a constant process. And therefore I would not set any timetable to any of this except to say that we constantly look at it. I think your – the middle question was about the quantifying the impact of – I don’t think that detail and this we have some way – but – the detail of how much of the transaction impact have we’ve been able to offset with pricing.

Pricing and volume in the first half has been by and large half and half. Therefore there has been pricing, but you know what? Even if we can offset in all markets mathematically the impact of adverse FX, sometimes we choose not to do, if we believe that there is a volume impact to be had. So I think it’s a balance that we want to strike properly to make sure that our volume and pricing are moving in the right direction. I think, is that?

Unidentified Analyst

Three questions, on your MRI brand launch, I guess Ambi frustrated going to get the market opportunity. You are used to broadening similar products on the two brand proposition, Dettol, Lysol. Just give us a bit of an idea of the size of the opportunity of that in the Americas, because you don’t own a business there.

And are there any limitations of what you can do in that category given there is already an existing flair there? And my second question is, following kind of chances, your portfolio brands was – would have a 9% of revenues two or three years ago, it’s about 4%. It costs you about one point of organic growth, right as you are driving it down. What’s left in that business after the presence?

Rakesh Kapoor

So, we think the Ambi Pur launch in the US as a brand that we want to create in foot care and clearly there is a fantastic foot care brand in the US. Although, for those of you who know, Scholl in the US to Scholl in Europe will know that it’s actually got a very different product portfolio and therefore there are opportunities I believe that we have to think about how we can present to US consumers a range of foot care solutions that are genuinely interesting, are genuinely beneficial and therefore will create value.

So, I think we are quite excited about the launch of Amope. I would not pin a number in terms how sizable this is going to be and so and so forth, but we know that the foot care market in the US is a massive market because the US is massive market for particularly everything.

So we are very excited about Amope, but we are also conscious that there is a very strong brand in the US. But, we have strong brands in all our categories everywhere. So we cannot just sort of get walk down by where you have competition and where you don’t have competition.

We have a unique proposition in the market. That’s very important. We are going to US not with a me too proposition we are going with a unique proposition which we believe will be very interesting.

So that’s on portfolio what’s left. So, in portfolio what’s left is still laundry detergent, it’s medical gloves, these are the two major components I would say of our portfolio business. Laundry, stroke, fabric softness, that kind of laundry, and medical gloves. I don’t know how many people here been spoken to about medical gloves. This is a business which came to us as a part of the SSL acquisition of a company in Russia called Medcom.

That is a company we are in the middle of properly integrating with the right go to market strategy and I think we have alluded to the fact that that go to market strategy is in progress. But that business also came not just with great context in Durex brand but also came with a medical gloves business which operates predominantly in hospitals which is clearly not core to RB.

Okay, let’s take the last one and then we take a little break.

Rosie Edwards – Goldman Sachs

Thank you. It’s Rosie Edwards from Goldman Sachs. Just a question on pricing. Are you able to say whether each division has a similar contribution from price mix as the Group, i.e., half? And if not, what the contribution was?

Rakesh Kapoor

Right, I would not say each division has the exact same contribution to price mix because the – let’s face it, the impact of FX as a key issue is not uniform across the world. They are – for example, in RUMEA, you have a very significant headwind on price on foreign exchange and it’s less so in Europe and North America. Similarly, when you think about competition, when you think about your own brands, you want to make pricing actions which are congruent with your own strategies.

So I think, not in this half, but not in any half that I foresee no off where you have exactly same price volume relationships across the world. Generally speaking, you have more pricing, generally speaking, you have more pricing in emerging markets versus in a ratio point of view than more generally speaking than in Europe and North America.

Okay, so with that, can we just take a five minute break, Richard warns me. Five minutes and then we come back for RBP. Thank you very much.


Right, let me just open up the second half of our presentation today with first introducing the new members on the panel here. So on Adrian’s right is Shawn Thaxter who – some of you if not all of you have met before is the CEO or RB Pharmaceuticals. On his right, is Christian. Christian Heidbreder is our Head of R&D for RBP and he is going to talk to you about the pipeline and on the extreme right is Howard Pien, who again some you have met last time. He is the Chairman Designate of RB Pharmaceuticals.

So let me just start with a couple of words on this business, which is why do we believe a standalone RBP is the right thing to do. So, well, let’s start with the first thing. I’ve always said, I’ve always said from January 2012 onwards I have said that RBP is not core to RB. We do not want to be a prescription pharmaceutical company.

Yet, it’s very important to wait for a time when we will see the impact of generic entry into it heartland we will wait for the time to see what the impact of that will be in terms of market growth rate, in terms of sustainability of film and then make a determination 12 months or so after that what the right thing to do is.

Well, we now know nearly 12 months after the launch of the film of the generic tablet that RBP has actually created a global leadership position in the world of addiction treatment which is a fast-growing underserved market.

It has also got substantial I would say, near term cash flows, now mainly from a Suboxone film franchise. But although this franchise is under competitive pressure it still has strong defenses as you will see later, IP, patient and payout references. We believe we have demonstrated strong medium and long-term growth opportunities for this business and you will see today from Christian, the pipeline progress on what we have done with RBP.

But beyond the pipeline that we have developed in-house, we have also signed two very interesting and important licensing deals which we have announced recently. The nasal naloxone spray and the other one is in the entirely new field of alcohol dependence.

And finally, there are geographic expansion opportunities like the ones that we have used very effectively in Australia that we still believe we can go for. I believe RBP has created a sustainable basis on the back of which it can find its true potential. In terms of what we are planning to do is clear that the Board has recommended that we proceed with the demerger on the London Stock Exchange. This is a preferred option for our shareholders . We have approved the necessary work to deliver such a demerger within the next 12 months.

Now I have already told you why a demerger is the right option. It is the right option because we do believe that under a board that is focused on specialty pharma and not on consumer, that really understands this area that wakes up every morning thinking about how it can create value in this field, we will see the best outcomes for RBP shareholders.

Now we do know that it has its challenges. RBP has its challenges, but clearly the opportunities that we have in front of us are truly compelling. We are also often asked why are you not simply selling this business, are there no buyers? So, answer to which is very simple.

We are not ruling out selling this business. The preparations for a separation of RBP from RB are to a large extent common, whatever the form of the separation, it is necessary to deliver operation separation, it is necessary to prepare historic financials to be for the separate business, it is necessary to communicate the strategy, the strength, the weaknesses of this business.

What have been not sought by us? We do believe that a demerger is likely to be the root that adds most value for shareholders. We believe in particular that a standalone RBP will be a magnet for interesting business developments opportunities, particularly in the underserved fast-growing and large area of addiction treatment. This is the reason why we are going to pursue the demerger with full energy.

So, when do we expect, this is what we said we are going to do over the next 12 months. There are lot of drivers on this separation both from an operational point of view, but also from a financial separation point of view.

So, what I’d like to do now is to hand you over to Adrian, who is going to give you a snap shot of what kind of drivers we are working on from a financial and operations standpoint and then we are working on from a financial and operations standpoint and then he will hand it over to Shawn to address the opportunities that we see for RBP as a standalone business. So let me do that and hand over to Adrian now.

Adrian Hennah

Thank you, Rakesh. So, indeed as Rakesh said, I have a few more detail points really on the form of envisaged demerger before handing over to Shawn who is talk obviously about the business itself.

So turning to the next slide then and the probable form of the demerger. We are planning to demerge RBP to RB shareholders by way of dividend. We plan to arrange the demerged company to be listed on the London Stock Exchange. We have weighed carefully the advantages of a London Stock Exchange, a USA listing or both which will of course be important to attract new investors to RBP stock.

In this regard, we are aware that there was a deep of pool on specialty pharma investors in the USA than in the Europe, but also with the USA listing were potentially helpful to the margin it’s not essential to attracting investors.

We recognize also the importance of giving our current shareholders the maximum flexibility in deciding what to do with our RB shares when the company is demerged and when they were to do that. And in this regard, we are aware that a number of our current shareholders are not able to hold the stock that are not listed in the UK or Europe.

Accordingly, we have decided on a listing on the London Stock Exchange. We may keep initially a minority stake in the demerged RBP business. We will decide this as we work through the process.

Turning to the next slide, Slide 65, I can read this properly and some points on the capital structure we envisage for the demerged RBP. The demerged company will have as its top company a UK registered and resident legal entity. It will have a significant and strong cash flow.

But with some lack of visibility on the level of near-term cash flows, which we will describe in more detail in a moment. Regarding uses for this cash, we expect the company to be attractive to partners in the addiction area. We expect more product licensing deals for the type recently announced.

And as with the two recently announced, we expect these to involve typically only modest upfront cash payment. Broader acquisition activity is certainly possible, but not central to the equity case as the organic and licensing opportunities in the addiction area are significant.

We will balance these factors in assessing the level – the initial level of borrowings be held by the demerged company. The policy for returning cash to shareholders will be for the Board of the new company. But we expect it to make meaningful returns from the outset reflecting the strong cash generation.

Rakesh mentioned earlier that we have Howard Pien with us today. We expect Howard to become the Non-Executive Chairman of the Board of the demerged RBP. Howard is working on assembling a strong board with substantial expertise and experience in specialty pharma. The composition of the board will be announced in due course.

Turning to the next slide, this sets out the activities we are and we will be undertaking up to the point of demerger. No surprises here I think, the first box sets out the main activities necessary for RBP to become an independent operational entity. The second box the formal activities around the demerger and listing including a shareholder vote. And the third box the communication with you, our existing investors and also with prospective new investors about RBP.

Turning to the next slide, set out here our segmental financials of RBP within the RB Group. In addition to the numbers that we have routinely disclosed, we show here also the gross margin and the SG&A as well as the R&D spend.

As noted before the break, net revenue declined by 5% in quarter two. Shawn will cover this in a little more detail in a moment. Gross margin was broadly unchanged on half one last year at about 91%. We have continued to increase the level of R&D spends that’s on the pipeline is now just under 7% of revenue.

Operating margin has declined 53% due to the lower revenue, the increase in R&D spend and our commitment to maintaining a quality of our core infrastructure including the clinical age on staff to reposition as RBP transition toward the new pipeline of products. The profit statement does include charges that RBP receives from RB as a member of the RB Group the services received.

A demerged RBP will not incur these charges but will bear certain additional standalone costs. Work to-date suggests that the additional standalone costs will not be materially different from the current inter-company charges. We have also included as an appendix a summary of the main balance sheet items in RBP. You will see that it operates a significantly negative working capital and indeed total capital which underpins the business’s excellent cash generation.

Lastly before handing over to Shawn, this slides sets out the main areas in which we are aiming to give more information to investors in the course of this presentation. The prospects to Suboxone film in the USA including very importantly the strength of its IP protection, the content stage and strength of the pipeline, the potential for licensing and business development led growth and the potential for growth outside the USA.

These questions from the core of the agenda for Shawn’s presentation and with that I will wrap up and over to Shawn.

Shawn Thaxter

Thank you, Adrian. Well, good morning everybody and just to say what a pleasure it is to be here and to tell you about the exciting future for the RBP business. I am sure you are all familiar with the disclaimer that you have it in your packs while assume that you’ve read that or going to read it and I will press on with the presentation.

First of all, I am going to give you an update on the progress of our business since we last met two years ago. The last presentations that we’ve put out are included in your information pack, so with respect to the history and some of the background for the business, I am going to assume that you’ve read all of that and I am just going to press on with where the business is today and the performance since we last met.

First of all, one thing that’s been consistent in the 12 years that I remain in this business is that all patients around the world have unrestrictive access to high quality treatment services for the chronic relapsing conditions of addiction has been the driving force in the vision of the business.

The focus on the patient is absolutely essential. To have a leadership model that focus on the partnership with governments and all stakeholders to bring better quality treatments to patients is what’s driven the success of our business and will continue to drive the success of our business in the future.

The impact of bringing a patient out of addiction treatment into addiction treatment truly transforms the life of that patient and the people around them and their families and friends and therefore has a positive impact on the communities in which they live.

We know that the lead markets that we’ve been working in this the US where the majority of our revenues come from and therefore it’s the focus of my next few slides.

Two years ago, this is where the business was out. The blue star represents the Suboxone film share, the pink star was the Suboxone tablets business at the time the orange star represents the generic mono buprenorphine and the yellow star reads the recent branded competitor obviously haven’t launched at that time.

So, in the nine months following where we left off, we continue to drive conversion of patients from tablets on to the film driven by the preference of the patient for the film. They liked it, they preferred it, we given the data previously that physicians were observing a superior treatment outcome.

So we saw by March of last year that the film share has grown to 70% and the tablet business has come down to 15%. We then withdrew the tablet at the same time, we experienced the launch of two generic competitors to the Suboxone tablet.

So if you look at the bottom of the chart, you see our branded tablet disappeared and was replaced by the generic tablet. No surprise. What I think absolutely surprise to everybody is a level of resilience that the Suboxone film shows in the phase of this generic competition.

The next material event was last September when Zubsolv, a branded competitor, entered the market and again, we saw a relatively small impact in the first few months. We then have the announcement which is made public of the CBS formulary loss and once again the film share held up and proved its resilience even in the light of formulary adjustments.

And what we actually thought with the film was about half the level of loss from the CBS business that you would have expected to see have few models with the standard industry analogs.

So we now await to see what the impacts albeit. The recently announced third generic tablet competitor. This will of course bring new pressures upon us and we expect that we will continue to outperform analog as we move forward.

So overall two years ago, we had a film share of 55%, tablet share of 30% to no generic. And two years since then, when all the uncertainty over the future of the business in the US was in question, we have actually grown our film share from 55% to 61%. Not only have we grown it, but we’ve grown it in the context and presence of some pretty aggressive competition.

We have maintained our double-digit market growth. This is something we are very good at. We continue to invest in expanding the network of physicians who are actually providing treatment to patients and we continue to drive the communications to drive patients into treatment. And we are very confident that we will continue to be successful here.

There is a lot of headroom for growth in the market as proud as we are that 5 million patients have benefited from treatment since we have started business, there is still a lot more patients who needs to come in who haven’t been treated yet.

Our pipeline have moved on considerably. In the last two years we have met all of our KPIs that we set ourselves passed a number of regulatory hurdles since we last met, so we are very pleased with our progress here and we have also licensed in two new technologies which Rakesh referred to. One is our arbaclofen placarbil for the treatment of alcohol use disorders and the other is nasal naloxone, which is an overdose rescue medication which we'll talk a little bit more about.

Both diseases were on our target list that are in your presentation pack that we said two years ago in the areas that we were looking to focus and expand our business and there are more opportunities moving forward. We continue to look for opportunities and pertain specimen and addiction.

So what about the prospects moving forward for the Suboxone film? Well, the data has already demonstrated that it is very clearly the preferred product not only by patients, not only by physicians but also by payers. We know that patients prefer the medication experience, physicians are very happy that that patients are stable and doing well on their medication and all of this means that payers are getting a better return on the investment that they are making in providing the treatment to the patients and making that treatment available.

The physician treatment network continues to expand. There are over 25,000 registered physicians. They have excellent access over 91% formulary access. So there is no problem with patients being able to access physicians all the medication. And the film has strong patent protection, multi-layered protection that now extends to 2013.

We have just some specific data to share with you what patients and physicians have said about the film, but I think the resilience of the film and the market share performance is the best indicator of their preference. So not only do patients and physicians prefer the film so to pay in.

And this preference that the patient and the physician is very important to the payer, because the payer doesn’t want to disrupt patients who are stable in treatment. Well, if they want to provide access to other medications that might cost them less money, they don’t want to disrupt the patients that the patient and the physician are happy and that’s very compelling.

Not being in treatment has a high cost to society. Therefore there is a very compelling pharmacoeconomic benefit to payers if they can retain patients in treatment. So a stable happy patient is a good patient.

We continue to invest and I’ll talk more about this in a moment in abuse deterrents. Since we have launched each of our products, each product is being designed with the intent of being a lower potential for abuse and misuse than the previous products on the market.

And in addition to all these very important clinical benefits we partner the pharmacoeconomic story with the commercial rebate to make a whole package attractive to payers.

So I think this explains why we have 75% of patients can access this medication at tier-2 which means that the lower level of co-pay we obviously offer the patients coupons to help offset that co-pay so from a financial affordability aspect for the patient this is very attractive. It works well for the payers and that’s why we see about 90% of all prescriptions getting approved.

When you actually look at the economic argument, it’s well what the ratio here. Well, according to the WHO, for every dollar you spend on treatment, society saves $12. So this really is a very compelling reason for people who pay for treatment why they should pay for treatment. It’s very motivating for governments around the world and it’s also very compelling for commercial payers.

So in the short-term we can expect to continue to benefit from market growth a few weeks get better and better as the time goes on. We will see modest pressure in the near-term from our competition particularly from the third generic and we will continue to invest in our pipeline so that we have opportunities to accelerate our growth when they come to market.

Let’s just pay a few moments to look at the film IP. I think the level of protection around the film is obviously going to be incredibly important moving forward. Well, the good news is that in the two years since we last met, we have actually strengthened the patents surrounding the Suboxone film.

Last time we had protection to 2023, we have subsequently had two orange growth formulation patents approved which now extends the IP to 2030. We’ve got good process patents to support the formulation patent. And we are relentless in our pursuit of creating new IP and we have got 15 pending process on formulation patents at the moment.

Just to give you a little bit more detail behind the patent world. We’ve got the three formulation patent. Now we are currently in litigation with generic manufacturers who have filed an assertation with the FDA for a Suboxone film.

So these three formulation patents have all been asserted against the generic company. The process haven’t yet been asserted but only because we haven’t actually yet got visibility of their manufacturing process. So those may well be deployed moving forward.

The pending patents we are very confident will be granted, but just for transparency, I want to tell you that we don’t anticipate that they will be granted in time to be used in the litigation against the generic company.

I’ve given this numbers of the patents here and if you would like to look out at the detail of these patents of course, you can go to the US Patents and Trademarks Office website. So, focusing then on the formulation patents, that are then used to litigate to sue the generic manufacturers.

If you think of the Suboxone film, more perfectly though it is, it probably half the seats on the back of the room, that’s an very important policy about this film that is absolutely essential to get right in order to deliver the right product performance. First of all, the elasticity of the film needs to withstand the rigors of transport and yet, dissolve very quickly under the patient’s pump. That requires very specific polymer composition.

The second attribute is that you don’t make one film at a time in this slide, as you can imagine, you make a large roll of film and you cut out into small pieces. It’s absolutely critical that you got the uniform distribution of the active ingredients across the film so that each patients who take a film from whichever part of the world it came from is guaranteed of a consistent performance.

Thirdly, our other formulation patents not only the combination of buprenorphine and naloxone, but this has to provided at a certain TH within the tablet, within the film in order to ensure that the buprenorphine is absorbed but the naloxone is not and that’s absolutely critical to the performance of the product for the patients. So I think that we can be very confident and very critical attributes of the product are well protected by our patents.

So I am not going to get into detail of the litigation and I am sure you’ve already can anticipate that I won’t answer any questions you might ask me about the litigation, but I will give you an overview of where the whole process is at.

We received three Paragraph IV certifications under the Hatch-Waxman Act and this is a process in America, I don’t know how familiar you are with it. I am sure many of you are, but if a generic company files an abbreviated new drug application for generic product, it has the right to the company that owns any patents covering that product that are listed in the Orange book and certify that they either don’t infringe the patent or they believe the patent to be invalid. Then t the branded company sues the generic company, you go to court and that it all gets sorted out. So, we have three of those.

One of them was from a company called Alvogen. This was dismissed because the FDA did not actually accept their INDA for filing and they still haven’t. So there is now two companies Par and Watson.

The trial date is set for August 2015. All three orange book listed patents that I just highlighted to you have been deployed against them and because of the regulations under Hatch-Waxman, there is a 30 month stay-in effect from the time that they notified us about Paragraph IV filing. Put it another way, it means that Watson cannot launch before February 2016 and Par cannot launch before 2016 September. That is unless the outcome of the trial, conclude prior for those dates and in that favor. So it’s extremely unlikely that they are going to prevail.

So, that’s the overview of the IP. Let’s turn our attention now to our future growth platform. I’d like to highlight to you the next line what our approach has been to-date in the developments of our pipeline. First of all, we are in the business of search and development. We are not a discovery house. So we haven’t got hundreds of scientists spending millions of dollars pioneering and looking for new chemical entities. That’s a very tough place and low strike rate process.

Our preference is to stand the world for any compounds that may have shown any signal at all for potential in the treatment and the management of the neurological pathways that control addiction. We have done that a number of times and we have a list of 76 compounds that we have identified through this process.

Wherever they maybe whether they are in university laboratories or other companies, it doesn’t matter, we’ve got 76 compounds targeted. We have been through very, very rigorous scientific review with the leading opinion leaders in the world in the search of an addiction medicine and we have a shortlist of compounds that we seek to target through M&A and licensing when the time is right.

So one of the top of our list was our arbaclofen placarbil, and that tablet came to be within our portfolios. We taken an approach to trying to leverage the known. The more that is known about whatever we work on and in principle that helps to bring down some of the risks.

So we work with existing compounds and our existing technologies. If you think of our once a month injectable therefore, buprenorphine has been well established over 15 years. The technology platform that the buprenorphine is partnered with is well established. It’s used in the treatment of prostate cancer.

We always have to do was to put those two technologies together to see if we got the efficacy and safety we would expect. This is one of reasons why we’ve met all of our pipelines, KPIs because we are dealing with known entities.

In terms of the financial structure of our deal, we’ve done a sort of classic pharmaceutical model, small amount of cash upfront out the value we have created in the assets and so the payment cost related to the license.

This is an overview of our pipeline, three sort of areas of focus for our pipeline developments. Obviously life cycle management is our first priority. Secondly, other areas of addiction and then as we think longer term, we are looking for what is very, very close and adjacent to addiction and we have technologies in each of those sales.

The Suboxone film, we have talked a lot about, the – that’s the name for our once a month injectable product and this is a painless injection. It just goes into the subcutaneous fat here. It’s injected the patient has that and not carries them through for the whole month.

So that is going to be a grand break in transformational technology for the market. We also have a swallowable tablet. This is an oral swallowable tablet as opposed to the sublingual tablet and this is going to be transformational particularly in settings across Europe and other markets where it’s regulated the patient which has to be supervised in the dosing administration of that medicine.

Other areas of addiction, our nasal naloxone is an opioid overdose rescue product. This is a product that literally saves life and I am going to demonstrate that to you later not to save a life but just to show you the device. We also have a curtain over those rescue products.

This again is another life saving product that will be carried on the ambulance and enables patients to be saved at the point in which they have experienced the overdose rather than has to wait for let transported to hospital. The arbaclofen placarbil is the compound that is the most advanced and we believe it has a greatest potentials of any compounds that we have evaluated for the treatment of alcohol use disorders.

So you see that the earliest 2016, 2017, 2018, we’ve got new NPDs rolling out quite consistently from 2016 onwards. Risperidone is the Atrigel technology with risperidone in it. It’s a one-a-month injectable product for the treatment of schizophrenia.

Although schizophrenia sounds a little bit outside addiction, 50% of schizophrenia patients are also have a co-morbidity of addiction to either alcohol or opioid dependence. So it is actually quite adjacent to us.

So I am now going to introduce Christian Heidbreder. Christian is the global R&D Director and directs all masses related to the pipeline with our organization. He has got a long career of working in government research programs and leading technology programs at Glaxo and I introduce you to Christian.

Christian Heidbreder

Thank you, Shawn and good morning everyone. And so for the sake of time today I will mainly focus on the status of our pipeline products for the treatment of opioid use disorders and the treatment of opioid overdose.

So the very first product that is currently under development for the treatment of opioid use disorders is called RBP-6000. This is a once-a-month depot formulation of buprenorphine using the Atrigel drug delivery system.

As you can see, several clinical trials were performed. First of all two Phase I studies that aimed at characterizing the safety, tolerability and pharmacokinetics of the product in the single acting dose. A Type C meeting was then organized to list the Food and Drug Administration in order to design the remaining steps in terms of clinical developments and two phase II studies were then designed and were very recently conceded.

The first one as you can see is what we call multiple attending dose study. The goal there was to really characterize the pharmacokinetics of the product under four different dosage strengths and very importantly in this period understanding how you relate its closure to buprenorphine to receptor occupancy in new opioid receptor occupancy in the brain according to a very complex pharmacokinetic receptor occupancy model.

The second phase II study that which completed is what we call an – a study again, the objective here was to understand how the highest dosage strength of RBP-6000 can actually block. The objectives and objective effects of opioid agonist which shares is two dosage of strength of six and 18 milligrams.

The objective now is the next step is to merge the outcome of these two phase II studies in order to prepare and end of these two briefing package to engage DSVA in what we call an end of Phase II meeting that is going to happen later this year, third quarter or fourth quarter 2014.

The second product that we are currently developing is RBP-6300, this is an oral tablet of buprenorphine. The patients will be able to swallow and the product also has abuse deterrent properties. So again, you can see here the series of Phase I and Phase II studies aiming at characterizing the safety, tolerability, and the pharmacokinetics profile of this product, very importantly we did two additional things.

First, is trying to understand how you can actually transition patients from Suboxone sublingual to RBP-6300 and very importantly the second avenue of research was to define what could be the best abuse deterrent property to either chemical pathway or a physical abuse deterrent pathway.

Very recently we decided to opt for the physical abuse properties using a capsugel technology with a partner company called Encap. And the next step right now is to basically choose of the two formulations that we just identified. Secondly, to execute what we call the abuse deterrent Tier-1 testing that is mainly focused – focusing on extraction and the crushing of the tablet and last but not least, because buprenorphine is an entity. We are also performing clinical abuse liability studies.

Last but not least, at least for the treatment of opioid overdose and our treatment of opioid dependence franchise, the inter nasal naloxone spray. A very important product, life saving product and this is one of the reasons why we go to the fast track granted by the Food and Drug Administration in the early July. Basically one pharmacokinetic study was already performed by our partner.

The objective of that study was to really characterize the pharmacokinetics of this product and it was a comparative pharmacokinetic study looking at how the inter nasal naloxone behaves versus other roots of administration namely, subcutaneous intramuscular and intravenous.

Because of the fast track designation that was granted to us by the FDA we said on start of July this year, we are now required to do once single physical pharmacokinetic study prior to NDA submission.

This is what we started very recently and we are going to compare the pharmacokinetic profile of intranasal naloxone versus intramuscular naloxone. Also because of this fast track designation, we can perform a rolling submission and we are targeting a US launch in 2016.

Back to you Shawn.

Shawn Thaxter

Thank you, Christian and Christian has been leading our product developments program for over seven years now. So, very huge amount of experience within our organization. So, let’s look from a sort of marketing perspective of the nasal naloxone technology, so, it’s a statistics here are from 2012 where we’ve estimated 16,000 people a year in the US die from opioid overdose.

But opioid overdose is when you take too many opioids whether it’s prescription pain killers, and what happens is the opioid acts on the new receptor and one of the side-effects of this is it slows down your breathing. So if you take too much, then it slows your breathing down so much that you actually stop breathing and then you die. So that’s why, why you die from an overdose.

Now Naloxone is a well-known chemical. It’s an antagonist which means it sits on the receptor and it stops the receptor doing anything. What effectively naloxone does is it goes to the same receptor that the opioid is sitting on and it knocks it off the receptor.

So if you imagine this slide the opioid is on the receptor and the light is on naloxone comes along, knocks it off the receptor and the light goes off. So you effectively immediately revert the effect.

So the clever bit is once someone is in an opioid overdose situation, you want to get the naloxone into that blood stream as quickly as you can, because the moment it’s in the bloodstream it starts to knock the opioid off the receptor and you start to save the life, because the mechanism that is suppressing the breathing gets reversed.

Now I don’t know whether you have seen the film train is passing or any other of those movies where drug addicts appear to be dead, they are rushed into hospital they get injected with something and suddenly as if by magic they come back to life in an instant. I don’t know we appreciate being open up either they are in the middle of this wonderful drug and that’s just been thrown into severe withdrawal.

But notwithstanding that, the wonderful transformation that just happened is that the life was saved. So just imagine, if instead having to wait until you are on the trolley, going into the absent an emergency room, right, think of all the time from being lying on the street, someone calls the ambulance, ambulance arrives and the ambulance off to hospital, that’s all time. Imagine if the first person rising at the scene who found that patient, even if they weren’t medically qualified can take a device such as this out of their pocket, put it in the patient’s nose when the patient is unconscious and go like that.

That’s all you have to do to save the life of someone who is about to die from opioid overdose. Right, up the nose, you’d actually used to, you put one up each nose. But it’s really as simple. So this is a very, very compelling product because it will save a life you can see. It’s very easy to use. It doesn’t require any medical expertise. It’s low cost to manufacture.

So it’s a little bit like fire extinguisher, you want this everywhere, but you hope this they will never be used. But if they are used then are going to – could potentially save a life. So, that’s a very exciting product that we will be launching in 2015. What so innovative about it is it doesn’t involve a needle, it doesn’t involve any construction of any apparatus.

So if we look at our life cycle products which will be the next to be marketed. We got five generations of innovation here and which I think is very compelling indeed starting up with a monobuprenorphine tablet. Remember, we then put naloxone into that tablet to make it less attractive for diversion and abusability. Now these are sublingual tablets. They took a really long time to dissolve.

Let me bring the film out improve the pace and speed of this solution was important to get a better medication experience to patients so that they would be more likely to comply with it. So the film was a big step forward and we have seen the performance in the market.

The once-a-month injectable is going to once again transform the delivery of treatment to patients around the world. And so there is no other opportunity at the moment just to provide a month's treatment in a single dose. And then we have the low potential for abuse the swallowable tablet. This is yet another step forward in reducing the potential for abuse of the product. Now you may say, well, hang on a minute, we started a tablet we ended a tablet and you are telling this is innovation.

But, it is, because the first tablet was a sublingual tablet and the last tablet is an oral swallowable tablet. In many markets of the world, patients have to stand in the pharmacy and wait while that sublingual tablet dissolves with 10 minutes. Governments don’t want to pay the pharmacist to do that, patients don’t want to stand there and pharmacists don’t want them standing in their shops.

So to be able to administered instantly swallowable tablet will be transformational in those markets where that process is mandated by law. So if we think what are the benefits of a once-a-month injection. Well, it’s very typical to patients who are suffering from addiction. They have to decide every day, every single day, do I think my medicine my medicine and stay in treatment, or today do I relapse.

So we have a produced a number of decisions that have to take about whether to comply with or met and some 365 decisions a year to 12 decisions a year. And we know that doctors like to see the patients on a monthly basis. So this length of time fits the natural cadence of treatment. The benefits physicians should experience is improved compliance, because the product is in the body for a month. There is no choice not to take it. Therefore you would expect that you would comply with the medication.

You can’t take it out.

So there is less potential for diversion and abuse of the medication. And if you imagine this is very beneficial to physicians, imagine how cost-effective that’s going to be for payers. For the first time they can be sure that that medication is going to deliver the benefit for the patient every single day and there isn’t going to be any diversion misuse. So that will really give us a whole new physician with payers. The oral swallowable tablet we talked about, it normalizes treatment. The formulation is very clever that we are working with it extremely hard.

You can’t really break it with a hammer and if you dissolve the formulation in water it goes like a gummy bag, but it can’t be stuffed up an injected with a needle. So there are some very clever technologies available and we are partnering with third-partners to make the most of them. Again, reducing potential for abuse will be very compelling to society and to payers. We are very proud of our entry into the treatment of alcohol use disorders through arbaclofen placarbil.

This is a huge problem all around the world. There are so many people who are dependent on alcohol that don’t realize that they are. We are not talking about people sleeping under the railway office drinking mentholated spirits or cider out a brown paper bag. We are talking about people like us who go home and have three or four glasses of wine not us, of course, but people like us who may go home and have three or four glasses of wine a day or three or four beers a day, they are actually consuming levels of alcohol that’s very testimonial for the health.

But don’t really realize that and then actually find there are lot more dependent when they saw, this is a huge public health problem and just as we have heard about obesity and diabetes, alcohol dependence is going to be the next Tsunami that flows through the healthcare system, especially once we have an effective product to treat alcohol dependant ways.

We believe that this is a very good product. It was used and pioneered for the treatment of another disease, which means that it’s got very good safety profile that came out of the phase III safety studies. It didn’t meet the efficacy end-point and that’s how we were able to acquire the technology but for utility and alcohol dependence we have a lot of confident, because it’s a pro drug of baclofen.

Baclofen is a compound that has been studied for the treatment of alcohol use – misuse and has shown efficacy. So this is a very – nothing is guaranteed, but this is a very good opportunity. So again, the deal was structured small amount of cash up front and we will release payments to the licensor as the products grows in value as it passes through the pipeline. So we’ve talked about the US of course because it is the majority of today’s business.

But that really means that there must surely be a lot of opportunity around the world to grow and expand the business. We have a very successful market developments model whereby we can go to the market with a very – again tracing opioid dependence and other disorders they may have a punitive attitude. They may incorporate people who have found to be using drugs. And we can meet those market successfully through a phase or normalization and medicalization of the disease and ultimately to provide general treatment in primary care such as we’ve done in the US.

So we’ve deployed that model very successfully in Australia and I just like to share with one example because it’s also a market where have replaced the Suboxone tablet with the film. So the film is being rolled out around the world. We have it in the US, Australia, Malaysia. The film is coming to Canada, Europe, we are making good progress in China and in fact full credit for the Chinese government who have recently decriminalized opioid use.

Now not arrested and put in jail if you’re found to be using opioid by the Chinese government. You are found by the police and you have to go to the treatment which I think is a very, very progressive mindset and the big shift there. So, full credit for them for that.

Our once-a-month injectable is scheduled to come to Europe. It’s quite normal in drug developments that you do. The US launch and then you do your European regulatory filing. If you try and do everything in parallel, it can often slow things down. So it’s normal that you would do a US and then Europe. And our overdose rescue is targeted to 2016.

So very clearly, our opportunities to drive growth with our market developments model and new products around the world. So let’s have a look operationally how might we succeed and what our confidence as a standalone business.

Well the good news is that in many ways we have seen a standalone business for many years and that was very deliberately originally put in place by – and supported by Rakesh that all the pharmaceutical for those heavy-lifting the intellectual pharmaceutical intensity of is all separated and within RBP. So we have systems, we have processes, we’ve got some clients.

We have regulatory infrastructure. We’ve got our own sales force a very talented group of people all around the world who behave the clinical liaison and then partner with governments and have outstanding relationships with physicians to provide treatment for patients.

And that's been a key driver of our success. We do of course share some services with RB. We are very grateful for the support we’ve had from HR, Finance and IS and the product manufacture through the supply chain. Over the recent months, we’ve been working very hard to make sure that we have a standalone model.

So we can operate independently and to help us get that transitional services agreements are in place for all the areas of overlap. So as I said, our business is really driven by a patient-centric focus. That’s the passion. That’s the drive. That’s where we are going and the reason we are able to get that so successfully is because we have built that on a very, very, very, solid platform and the solid platform is the Reckitt Benckiser culture and the disciplines and the mindset that drives a successful business.

You know what they are. Can do entrepreneurial mindset innovative approach, I think that’s demonstrated through the speed of our market development and through the quality of the pipeline with highly vested management with skin in the game. And all of what that we do is some of the very, very tight control on cost to net working capital.

So you can be sure that moving forward, that’s something that is not going to turn. So what will change? Whys is a good idea? Well, addiction treatment is at the core of everything that we do and this enables us to focus single-mindedly in accelerating our business towards our vision in a profitable way.

We’ve been very fortunate to have the full support of the RB board for many years and in supporting us and pursuing our business and developing new technologies. But a new – single-mindedly, solely focused on creating value for RBP and that’s a sole job will enable us to accelerate even faster towards our vision. So, this will create a new opportunity therefore to create long-term value from everything that we do.

And something that’s very obviously changed only in the last two months since Rakesh announced that the business is under strategic review. It enabled us to attract two licensing partners and to tie-up with XenoPort and Antioch.

You can easily imagine that while this business is non-core while it’s not focused, while all the reports are posting about the shrinkage of the business, while there is a strategic review, it’s not a good environment to try and attract partners to come and trust their wonderful technologies here with a partner.

We have really seen that open up and free up over the last few months. So, we are already benefiting from that. So in summary, we are the global leader in the treatment of addiction. Addiction is a structurally strong marketplace. It’s a big problem all around the world and it’s growing all the time. It’s not going away anytime soon.

We’ve got a sustainable, highly cash generative business that’s going to enable us to focus our money in driving organic growth and driving organic expansion in accelerate and ensuring on-time delivery of our pipeline.

And I am able to say that with such confidence because, I am extremely proud of the management team that I work with. We’ve got over six years of experience which mean all of us who are working within RBP alone the business has a very good track record and we are very motivated indeed about the future opportunity that lies ahead. Thank you.

Rakesh Kapoor

Right. I think with this we – right, so, thank you for the clarification. So with this I think what we should do is to close the presentation and take Q&A. If you have a Q&A for Edwin, I, Shawn or anyone else here on the deck. Okay, why don’t you start, Charles?

Question-and-Answer Session

Unidentified Analyst

Yes, thank you. Just three questions, clearly, there's another generic entry into the US, and you said that that might put a bit more pressure on pricing. But I think even before they were three and they were two, I think the pricing wasn’t quite as negative as it could have been.

Any reasons why that’s been the case? And do you see the pricing environment might remain more resilient than in comparison with today? Second question is, on your chart there, where you showed, I think in Australia, there is no generics, any reasons?

Rakesh Kapoor


Unidentified Analyst

And I think on the third question was on, you mentioned repeatedly how strong cash generation this business is, I mean, look at the gross margin and you say, clearly you want to partner and you want to use some of the cash there. But what would be the other forms of cash returns, I don’t know, dividend policy?

Adrian Hennah

Okay, to start, the first point you said, well, what will happen to pricing in the future because it didn’t go – have such an impact that we thought it might in the past. So, I don’t know what will happen with pricing in the future.

But most likely thing that will happen is that will bring increased price pressure on our business. We hope of course that the business will outperform the analogs that would expect as a result of that pressure and the reason that we outperform the analogs in the past is because of the patient and the physician presence on the film.

The pharmacoeconomic value that this brings to table is co-pay from about three of two patients and the commercial rebate that we offer to payers. So there is a really strong multi-touch point strategy to in short that our business is sustainable even in the phase of increased price pressure. However, I do expect that it will impact on some areas of the business.

So, we say that we expect modest pressure on film share and pricing as a result of increasing competition and of course we continue to drive market growth and to see that with great enthusiasm as what might be the opportunity that comes from that. With respect to what the balancing ratio is one versus the other obviously you will have to decide that for yourselves.

Unidentified Analyst

Sort of on what you just said, with the injectable version clearly, on the tablets, you actually stop doing that because you said the same was far superior and safer and so on and so forth. I presume the injectable is even better than the film. So should we expect the same to happen to film using the two are likely to be sustained?

Adrian Hennah

Yes, but I think it’s important to recognize that we are not in the business of forcing the market or patients to do anything. I think that we thought that the film proposition out there for patients and physicians and we stated our case as to why we thought it was about a technology and it was really the rapid uptake by patients and physicians as far the preference.

So I can easily imagine that we will see a very high level of preference from patients and physicians moving towards the injectable product not necessarily all patients, because there is no one single product that really is kind of save everybody. We certainly think that that product will affect both existing patients and also an opportunity to attract new patients into the business.

Your other question was what was would we do with the cash? Obviously, my key focus is going to be to drive organic growth and value creation through geographic expansion delivering on the pipeline. We will take opportunity M&A opportunities as they come along, but our primary focus is on what we got today and with respect to dividend or anything that’s something that will be decided by the future RBP board that I am nor really able to comment on that.

Pinar Ergun – Bank of America Merrill Lynch

Thank you. It’s Pinar Ergun, Bank of America Merrill Lynch. I have two questions. One of them is on Atrigel. Do you have exclusive rights to this technology? Can you use it in other therapeutic areas outside of anti-psychotics opioid addiction like you did today?

Can you license it out? I just want to have a feel of what you can or cannot do with Atrigel where the limits are? That’s the first one. Second one is on litigation risks. When you were talking about litigation risk, you didn’t touch on the challenge by BDSI on your film patent?

Do you have any comments there? I guess one of the key concerns is, Par or Watson come to the markets with their products in 2016 and there is a period of time where you see declining film shares and injectable is not approved yet. What do you do then? Thank you.

Rakesh Kapoor

Okay, if I remember the questions, first question is what do we own with Atrigel. Well we have a full exclusive rights to buprenorphine. With respect to what else might you do with Atrigel, I’ll ask Christian to do that, would you have any comment on that?

Christian Heidbreder

Yes, we can use the technology for other APIs for other therapeutic indications as well. No specific areas.

Rakesh Kapoor

Do we acquire the QLP, know how the laboratory and all the people want me talk about business over in 2007. So then you ask about BDSI. Yes, BDSI have proceed to approval and they are talking that they will come to market across the minute they launch, we will sue them to patent infringement. So you are quite right to spot that we are going to be aggressive about that and not compromising.

Mick Cooper – Edison Investment Research

Mick Cooper from Edison. Couple of questions. First of all, regard to R&D the main competitor is a big pharma, even though it hasn’t the level of R&D compared to revenue which is very low. How high they are going to up to and secondly, with regard to the alcohol addiction product, they are either products in market already which has modest sales based the (Inaudible) that they needed. How big do you really think that product could be?

Rakesh Kapoor

The first question was to do with the R&D, the strength of R&D. Right, okay, we obviously set our R&D of what we can afford and what we need to actually drive the success of the pipeline than on spend money on R&D for the sake of expanding, spend the same as everyone else. We are very comfortable with the level of R&D investments that we have.

At the moment, you can expect some year-to-year fluctuation moving forward that causes as different products that are in different phases of developments. But on a going basis, we have a good order of magnitude as investment at the moment to deliver our current pipeline.

If we expand our pipeline across them and we will have to revisit it depending on the merits of the case and performance of our business at that time. And what’s the other question about alcohol treatment, did you say? So there is a product in the market at the moment, right, okay. So the products in the market at the moment, are generally not seen as having brought out vacation.

You tend to find when you talk to physicians outside, whether it’s a composite or one of the others, yes, it works with small number of patients and it’s not terribly affected. Instead of that nothing and I’d like to use it but I don’t really know who is going to respond well, and who isn’t going to respond well before I provide the treatment.

I also think that – so in addition to having improved efficacy from the product, I think that we have to offer is a decision and the development capability to take something that at the moment is not recognized and characterized with the disease. Little bit of a social disorder as people who drink too much who got into trouble. Actually, once you have long-term repeated exposure, you get neurological changes in the brain, that defines it as a disease and diseases require treatment.

What we are very good at as we have demonstrated in time and time again on our track record is that we can go to the government and we now have to talk about this group of people or patients and the recognition for patients and work with opinion leaders and treatment providers to develop a treatment model that we can then help push through the healthcare system and thereby grow the market through the 122 million people around the world that need us to advocate for them to make sure that they have the opportunity to access high-quality treatment. That's exactly what we are going to do.

We do have a question.

Adrian Hennah

(Inaudible) good idea into the P&L as a group and its balance sheet. So we have to split it out from a total group cash flow but for the sake of getting to understand the business are, we’ve probably got enough to do that.

Erik Sjogren – Morgan Stanley

Erik Sjogren from Morgan Stanley. I just wanted to – could you talk a little bit more about the international opportunity? You mentioned product pipelines there but are there any really any markets to be expect at the moment to change in the foreseeable future or?

Adrian Hennah

Well, we’ve got good success in Europe, it’s driving volume growth. You all know the European story however, governments are being quite draconian in pursuit of budget savings. In Europe, you are little bit for the three steps for a two steps back because of price cuts.

So your volume gains has generally mitigated by price cuts. We said very, very well that. And what we are doing to overcome that moving forward is to develop the opioid pain killer dependant segment, because that the heroine segment is fairly well – fairly static at the moment.

But there are many, many patients, again people like us who may well have been treated post-operatively that become dependent on opioid pain medication. So this is bit of an invisible problem at the moment. We’ve done the market research. We have networked all the opinion leaders.

We know this patient population is there. We have already brought about policy change. So there is now new language at the European policy level asking members they to identify and treat this problem and we are in the process of working through that. We got studies ongoing in China. At the moment, it will be a totally new geography. So there is a blend of existing markets to develop in new geographies to enter.

Rakesh Kapoor

Okay, let’s just take two questions now.

Toby McCullagh – Citigroup

Hi there. It’s Toby McCullagh from Citi. Just a quick question on the depot can you just be a bit more granular about talking through the next steps in the approvals process and likely the key date and as we exit Phase II and then formally go into Phase III and then can you describe how the profile or the probability profile of a successful launch changes as you progress through those next steps looking those might be?

Adrian Hennah

Well, we’ve completed all our Phase II work. We have seen all the clinical data and we are very pleased with what we are seeing and that’s all in the process of going into a final record to submission to the FDA. So we expect that certainly before the end of the year, we will have – had a meeting with the FDA, agreed our Phase III development plans and be in the initial phases of planning that out with an intent to launch H1 2017.

Rakesh Kapoor

And you asked the question in terms of how does the probability that’s moved from one case to the next, Christian, do you want to answer that, generically, basically?

Christian Heidbreder

Certainly, so. I think that the outcome of the two Phase II study is very positive. So I think that basically the design is set to an agreement with the Food and Drug and Administration. The FDA really asked us to perform these studies, this is exactly what we have done again as I said the outcome is very positive. So, I would say that the probability to move through the next steps that is a single pivotal Phase III study pretty high right now.

Adrian Hennah

Harold, do you have the final question?

Harold Thompson – Deutsche Bank

Thank you. I mean, Rakesh in his first presentation said gross margins were quite clear and clear 90% you are doing well. But I don't quite understand how the gross margin actually managed to go up, given all the moves that are going on?

Rakesh Kapoor

The 91.3% to 91.6%. The full credit to you, you are still looking to that, yes.

Harold Thompson – Deutsche Bank

No, but, I still can't understand how it's possible for it just gone up given all the moves on pricing and the dilution of the of film and so on and so forth. While as at same time, your R&D jump doesn’t – hasn't led to such a fall in the op margins. So there must be some very good cost control elsewhere. Just…

Adrian Hennah

Well, we are very proud of our gross margin performance and we are obviously very proud of the fact that as we needed to invest more heavily in R&D, so we thought to in a time cut savings elsewhere to fund that. So if you look on the line we are through that in savings on the SG&A line and an increase in the R&D. So, that’s probably why it doesn’t come down as far as you might have expected.

Rakesh Kapoor

Right. So, with that, can I just say thank you for a rather long day for you today and I hope you learnt quite a lot about RBP. We are all very excited about RBP. I hope you are too. Thank you very much for joining us today.

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