Ladies and gentlemen, thank you for standing by, and welcome to the RB half year twenty twenty Q and A session. At this time, I must advise you that this conference is being recorded today. Tuesday, 20th July 2020. I would now like to hand the conference over to your speaker today, John Dawson. Please go ahead, sir.
Thank you, Heidi, and welcome everybody. Thank you for joining us on our Q And A conference call for our half year results, 2020. With me today, we've got Lakshman now Siman, our Chief Executive and Geoff Carr, our CFO. Before we kick off with the Q and A, I'm just going to ask Lakshman to give a few opening comments, and then we'll go into the Q And A session after that. Lakshman, over to you.
John, thank you. Thank you all for joining and I hope you and your families and friends are safe. There were 4 key messages I will quickly recap from today's presentation. 1st, consistent with our messaging on our Q1 trading update, RB is off to a stronger than expected start for 2020. Importantly, in addition to the demand tailwinds from COVID 19 on several key brands, we are pleased that our underlying sales trends are also performing above our path.
2nd, RB is making good progress regarding the strategy outlined in February designed to rejuvenate sustainable growth. I believe we have made significant strides in improving our execution. We're also making good progress building an organization with the right capabilities and culture to realize the long term opportunities for the company. 3rd, COVID 19 is having a profound effect on consumer behavior, not just for a few months or quarters. Our research suggests that the increased interest in hygiene and health is likely to be sustained over time albeit at more moderated levels.
And our portfolio is well positioned to benefit and navigate the additional macroeconomic challenges we expect. There is no question that our purpose and size, which we announced the end of February 2020 are even more relevant in these times. 4th, we plan to leverage our strong outperformance in early 2020 by increasing the level I'd like to hand this back to John, and we'd be glad to take your questions.
Thank you very much, Lakshman. What we'll do is we'll open the call now to questions. For those of you participating, I know you lock your calls. When we open it up and ask Saline to kick off with the first question.
Question is about the acceleration in underlying sales growth utility valve plan. I noticed in your presentation strong market share gains. So I wanted to understand why do you think it's such a short period of time this has been delivered? And or whether you have seen also the underlying growth coming from a better demand in some areas? And also if you could, on that front, talk about the white space opportunity and quantify it, the you see in a professional hygiene?
My second question is on nutrition, and I noticed that you've seen that more positive about the underlying performance in China in the second half of the year. Can you talk a bit about the Chinese market where the growth opportunity is and how you have developed in terms of lower tier cities as well as understanding the performance, you said that you had a local project product I heard that in your presentation. So I would like to understand in terms of innovation and production capabilities where you stand on local production. Thank you.
Well, thank you very much, Salim. Let me talk to the first question around the acceleration. There's no question, first of all, that we have benefited from COVID 19 overall. But if you look at what has happened over the last year or so, there have been six areas that the focus has been in terms of driving much better execution. The 1st area of supply chain I think if you recall, in October last year, we talked about some of the challenges we faced in the supply chain, something I amplified in February when we spoke.
We've been working on this since September itself, improvements in planning, improvements in forecasting, improvements in customer relationships. And, while we did have some challenges with our fill rates through September, October, November, what we've seen since then is a steady improvement in that. And coming to the end of February, we actually saw material improvements in the, in how we were serving our customers. Clearly, post February, and the demand has been quite excessive, we have seen a drop off in that. But overall, I would say underlying the supply chain has done very well.
And even in the time of the pandemic, you're seeing evidence that the team has really stepped up in the way they performed on the supply chain. So I feel very grateful for what they've been doing. While ensuring our people are safe. The second area is in sales execution. I mentioned this briefly in February, But one of the big skills and capabilities that RB had before was in a way that it actually drove sales.
Unfortunately, over the last few years that had been cut back, we've been investing in this since September, and our sales execution program, our sales stimulation program, has now rolled out to over 50 countries. The 3rd areas marketing spend This is still work in progress. We spend, healthily in the area of marketing. One of the things that we had said in February was it would be good for us to adopt some of the more advanced tools in terms of really embracing marketing spend optimization. And that has happened in several markets.
It hasn't happened all over. There's still work to be done. But I feel good about the progress we're making in marketing spend as well as the establishment of our marketing excellence capability, which is housed in our hygiene business. And will be scaled up over the course of our entire company. The 4th area is productivity.
If you look at productivity, we had announced the fact that we were tapping up productivity. And we did, in the first half of the year, we're about plan on productivity. And this despite the fact that we had to resequence some of the programs in productivity, in order to ensure that we can make things happen at a time of the pandemic and the challenges that it actually, you know, produces in its own way. The 4th area is really the organization, the purpose and the fight. We evolved to the new organization structure of 3 global business on July 1, The purpose will be articulated.
We exist to protect heal and nurture in the relentless pursuit of a cleaner and healthier world is something that our organization has truly embraced. The fight is deep inside the company. The level of engagements that we have in the company is at an all time high. Pride in the company is about 11 points higher than the peers, you know, based on surveys that we have done and benchmarks that we have done. And so the purpose fighting organization has taken hold.
And the final area of step up is really in e commerce, something I'll touch on as well in the case of the infant formula business. That our e commerce business is one that we have invested in capabilities over the last many years. And as we came into September January this year, we am top the investments even more in e commerce, and you see that in the performance of the business. So consequently, when you start looking at the underlying forms of the business of the acceleration, it is driven by what has happened along those 6 fronts. On your question on the white space, with professional.
Clearly consumers are anxious. They want to feel safe, not just at home, but also where they go. 2nd is our brands are a large trust mark at this time. And, we try to highlight for you just the scale of some of these brands. The retail sales of just Detol and Lysol are over GBP 4,500,000,000.
And then on top of that, your brands like Saagrothan, in Germany and Central Europe, Yuba brands like Nabi Sun in Italy, Australia, Houston, Japan. So our brands are the large crossmark at this time. Our partners like this, we've been very selective, with whom we partner, and we are moving with speed. Some of our partners independently done work on which brands are the right trust mark in this time, and they have highlighted they have highlighted that death hole in life saw are very strong dustmarks. And so if you look at the partnerships we've announced with Delta, which we did yesterday, or Hilton Hotels, started with the U.
S. Then of course, the rest of the world, including China, the Avis Budget Group or Grab, which is a shared service or shared writing service across many markets, Uber in some countries, or PVR cinemas in India, what you see is the breadth of the different sectors, they're bringing this kind of trust mark really matters. Other companies have talked about this business being a mid single digit part of the overall portfolio. We see that. What we are thinking very much of course is that this is about front of house appeal.
We are building supply for this business and ensuring that we have partnerships and logistics capability for this business. So we see the headroom, and we are approaching this and approaching this of course with usual caution, ensuring that the execution of this is consistent with our brands, the standards of our brands, and the trust mark that they deliver to our consumers at this point in time. On nutrition, which is your second question, to go to the underlying performance, let me just touch on China and your question there. Firstly, let me talk about the challenges. Hong Kong, the Hong Kong market has been a challenge for us.
We didn't expect of course, the situation to continue like it has. And, And so that has been a negative drag on our business. Now we've offset this with the performance in Mainland China. And I feel positive about the performance in mainland China, in the way that we have grown this business, grown the our market share and customer acquisition as well as the way we've been expanding the business and the way we're executing offline in stores as well as online and it has grown with a combination of what we're doing with e Commerce, as well as what we are doing as we look at offline distribution to those different cities. With regard to your question on local production, we've introduced a brand that has made in our factory in China, and that is the transition that we have been going through.
Early results are or early interest is good, and we're looking to see how this brand does. It clearly is a compliment to what we have with Infinitas, which is our super premium brand that continues to do very well and that continues to grow and take share. Thank
you. Thank
you very much, Selene. Thank you Let's take the next question from Richard Taylor, Morgan Stanley.
Good morning, everybody. I've got 3 questions from my side. And they're on professional penetration and profitability. So they're three p's So on professional, can you give us a little bit more color on how big size wise, you think that opportunity is? And also should we assume that it's margin neutral?
And then secondly, on penetration and distribution, you said in the past, the opportunity is huge can you give us an idea of the progress you've made on this? And then on profitability, you said in your own slides and that the operating leverage in the first half was 360 basis points. If we take your full year guidance of 8% to 10% for the full year, that implies another 4% to 6% top line in the second half. So broadly, that should be another 150 basis points of operating leverage. And then you'll get more from raw materials and lower media rates.
So if we add all that up together, that 750 to 800 basis points of investment that's implied for the second half. So can I clarify that you're spending over 1,000,000 in P and L investment in 2020, please?
Richard, let me take the first to the second question and leave a third question for Jeff, if that's okay. Right. So on professional, We have, we clearly recognize the fact that our brands play very well in areas where they need to communicate a trust mark to our consumers. So we're approaching this business, cautiously and building it out steadily. We have moved with speed though with some pivotal, partners and feel good about the type of arrangements that we have set up for them, these are not sort of short term contracts.
These clearly are longer term contracts. And given our focus, which is really on front of house brands and front of house propositions, And given the different mix of costs and brand building that we have, these businesses are largely margin neutral. And again, that gets back to how we're trying to build this business. On your second question on penetration, the sales execution program that I mentioned earlier is now in over 50 countries. There is a very clear focus on, the different points of distribution what SKUs are available and what store, how we're executing at point of sale, challenging, by the way, in these times with the pandemic, And what you are seeing is actually an increase in the points of distribution.
If you look at India, we've seen increases in points of distribution, and the overall India business grew high single digits, in this time. It's further complemented by the fact that with this pandemic, you are seeing shifts in consumer behavior. There are more consumers entering these categories. You saw that with a brand like Lysol in the U. S.
Where we gained over 600 points of share, that is driven by a combination of increase in penetration well as an increase in frequency with our core consumers. And so penetration is an area of great emphasis for us. Because at the end of it, what we have to do is drive category building. And, we believe that this is an area that the entire company is very focused on. On your third question of profitability, let me hand this over to Geoff.
Geoff?
Yes, thanks, Lexman, and thank you for your question, Richard. Yes, look, I can, confirm. We're making considerable investments in 2020 even though as we've said in our statement, those investments to date are a little behind where we expected them to be and there'll be more heavily weighted to the second half of the year. And some of those investments will actually cross over into 2021. So we will be making significant investments in the key areas in terms of, price and investments in price.
We'll be making investments in marketing execution, opening up new white spaces and new categories like professional we'll be making investments in commercial fixed costs, which run into many areas, but there are areas which are focused on developing the muscle for long term sustainable innovation and top line development, areas such as R&D, regulatory investments in sales, execution, investments in digital And E Commerce, which you're already seeing. Success from. So we'll be making investments well over 500,000,000 I'm not going to get into the specific number, but well over 500,000,000. And you can see from the the margin bridge that we provided in the presentation that the we had significant leverage in the first half of the year Now in addition to the investments, which come from both the productivity program, which we're reinvesting, which is delivering on schedule, slightly ahead of schedule in the first half of the year. And then also in terms of the transformation cost of the margin reset, But against that, we also have significant COVID costs.
We incurred around 69,000,000 of COVID related incremental charges in the first half, which is around 100 basis points. We talked in February about the headwinds that we have on margin, these are a little higher than we anticipated. This is largely variable pay, running at around also 100 basis points. And then we have the impact from various one off costs, which partly include the margin effect of the revenue recognition adjustment, but also as I mentioned in the, in the trading statement, some legal charges and various one time charges, which we've incurred in the first half. If you sum that together, yes, we have room to invest well over 500,000,000 this year, and that will be stepped up with significant investments in the second half of the year as we invest to make sure that we capture the growth opportunities and build increased confidence in delivering mid single digits in the medium top line growth in the medium term, which is in line with our guidance.
Thank you, Richard.
Thank you.
So let's take the next question from Ian Simpson, please.
Thank you very much. A couple of questions from me, please. Firstly, I'd be interested to understand the phasing of the step up. In Detle and Lysol. I think manufacturing not end demand has been the limitation there thus far.
And just to help us think about Q3, What was the shape of your second quarter for those brands? Was June stronger than April as you ramped up demand or anything along those lines would be very helpful? Secondly, just think about your margin guidance. You've talked about 350 bits of investment versus 2019 for 2021. Now given your commentary around COVID-nineteen, it's pretty clear you're going to have a bigger business in 2021 than we would have assumed 6 months ago as consumer behavior has shifted.
So how much of that 350 bps of investment could be offset by operational gearing? And then sorry to get overly detailed but thinking about variable pay now top line is presumably coming in well ahead of expectations this year. So variable pay is likely to be more than the 100 basis points of headwind that you previously guided for. But then thinking about 2021, your top line guidance is pretty disappointing. So presumably an element of that variable pay unwinds.
I just wondered if any commentary on what you're doing there and how should we think about that as a moving part? Thank you.
Lachman, would you like me to take on a couple of these questions? So thank you, Ian. Let me take on your question about 2021 being larger and what does that mean in terms of the 350 basis points? We're committed, as we say, in the guidance, to deliver the full 350 basis points of investment. And what we've also said is we'll increase the investments by reinvesting available leverage this year.
So what that message is, it's clear that we are we see opportunities to invest in growth. We have real potential at this point and we don't want to constrain our businesses. So we will be making the full investments of the 350 basis points. We'll be monitoring that very carefully to make sure we'll make the best investments and we're getting the right returns for those. But within the areas that we described in terms of professional in terms of the white spaces, clearly, we see significant opportunities.
And of course, with the economic outlook and the uncertainty around health, we need to be cautious about what that will be what that can deliver. We'll get into that in more detail as we go through later. As we have some more quarters under our belt, I think we'll be able to have a clear understanding, but clearly, we're in strange times. So putting together more, changes to the forecast other than what we're giving, I think, would be unwise. In terms of variable pay, we accrue based on expectations and for 2021, We'd expect variable pay to be at a mean level.
That's how we start the planning for each year. Obviously, we're below the mean level last year and we'll be above it this year. So yes, there'll be a bit of a giveback in 2021. And the way we organize obviously, as we outperform, we accrue the variable pay to a high level. In terms of the first question, which was how the run rate is, the disinfectant franchises, we continue to see a strong performance.
So for example, again, in the presentation this morning, we mentioned that debt all was around 60% for the half, but it stepped up to 80% in the 2nd quarter. So clearly there, you can see a step up in the second quarter. Now, we're making estimates of how that going to play out for the second half of the year and for 2021 the same as everyone else. It's clearly very uncertain times. And we need to have a level of caution about our estimates of how that's going to play out.
But clearly, we see an opportunity to continue to develop those brands And that's where we'll be investing as we go forward.
Thank you. Just very quickly, how did June compared to April for Detle?
As I said, the 2nd quarter, The run rate in the second quarter was higher than the first quarter. I'm not going to get into month by month, interpretation of individual brands, but clearly the second quarter and where it was higher than the first quarter. As we look to the 3rd and 4th quarters, we have to have an element of caution about us. And we we I'm not going to get into quarter by quarter I think it's clear in our full year guidance that we expect the total franchise to be at high single digits that takes into account not just the disinfecting brands, but also how we see the development of areas like OTC where we're predicting there's going to be quite a weak cold and flu season.
Thank you very much, Sheehan. Let's take the next question from the line of Tom Sykes.
And just firstly, on the supply side and your use of co packers that you contract manufacture that you mentioned in the presentation, how should we think given the demand potential volatility potential second wave, how will you be maintaining your flexibility at the same time as is looking to bring on additional capacity? And is there any sort of number we should think about in terms of how much you may be internalizing externally produced revenue at all? Or, and the degrees, which should be internalizing co pack of reduced product? And then in terms of the SKU reductions, that you spoke about in the presentation. Those obviously were relatively meaningful at points.
Will you be getting behind a fewer number of SKUs going forward? And how does that square then with the innovation cycle that you have and how important may of the tale of SKUs being historically when people were trading down in a cycle at all, please?
I mean, it's a very good question, Ian. Thank you. Sorry, Tom, thank you for it. On the supply side, we're being clearly, approaching this in the short term with arrangements that help us bridge the demand supply gap with partners that we have worked with over years. And by the way, at the same time, investing in lies, simplifying what we do in order to increase our own throughput, from our, from our own manufacturing factories.
So we're doing both. If you look at the CapEx guidance that we had given, in February, And you look at what we are telling to say now, we are clearly looking at increasing the CapEx from February by about GBP 100,000,000. And what that'll do for us is give us some flexibility around where we believe it's the right for us to make it on our own versus, how we think about partners and others in order to get supply with the flexibility that it also brings. So We're watching this very carefully and balancing both, recognizing, of course, that there was demand to be met and quality standards to be kept. And so given all of that, that's the extent to which I can give you a sense of how we're thinking about it.
So it's clearly an area you could focus for us. On your question and skill rationalization, give you an example, in the factory in Wuhan and China, we actually eliminated 80% of the dental skills, when we were at the peak of the pandemic, largely to, increase capacity. Or to increase the throughput of some of the core SKUs. We're now up to, only a 20% reduction. And we've been very cautious about things that we bring back in order to ensure that they meet consumer demand, they have the right terms, and their innovation that actually works.
We also have a whole pipeline of innovation that we need to overlay on all of this, And we're working that. Some of that has been delayed to the back half of the year, to the early part of next year, just as we focus on eating the core. And your point about the Taylor SKUs is correct. We are focused on them. We understand the cash contribution of the SKUs.
We also recognize the complexity that some of these SKUs bring. And we also understand your point about, the role of these SKUs in meeting, in a lower price points or pack sizes for channels. As the case may be. So we're balancing all of that as we look ahead.
Thank you very much.
Good morning, gentlemen. And thank you for taking my questions. So two questions for me. The first one, going back to your medium term like for like sales growth expectations. In the press release this morning, you talked about the increased relevance of your categories, that will remain at a higher level than pre COVID-nineteen.
You also talked about incremental investments of $100,000,000 sterling to accelerate growth in disinfectancy professional services. So basically putting all that together, it seems you're talking about higher category growth a higher level of outperformance going forward led by this additional opportunities. So should we then conclude that you now see some upside relative to the medium term like for like sales growth outlook you provided back in February, and particularly when you were talking about reaching 3% like for like sales was by 2023. And my second question is on e commerce, I expect it very fast in the first half now 12% of yourself and it seems like a clear priority going forward. How should we think about the level of profitability of your online business today.
And I appreciate this is not a homogeneous business but overall is e commerce at least today accretive to your gross margin. And I guess more importantly, how do we should we think about the profitability of e Commerce going forward. Thank you.
Madrien, thank you for both questions. Let me address the first one. Because it is obviously the big question. You are correct. We are reporting better than expected performance of the underlying business We do see structural shifts in consumer engagement in hygiene And Health that favor some of our categories.
We are expanding investment And so your question is correct. Why aren't we increasing our medium and long term growth expectations? As I said in the presentation, the answer to this question really has three bars. We unquestionably have greater confidence in achieving our medium term growth and margin goals. And second, in a while we feel confident, even perhaps leading towards, if I might say, be more bullish, We recognize that we are operating in a highly uncertain time.
There are significant public health challenges out there that could be economic dislocations, that happened and happened, frankly, with very little notice. And we're only 6 months into the implementation of our strategic plan and transformation. I'd like to tell you that, hey, it's all done, but the reality of this is this is early progress, and we are pleased with it. But we do not want to get ahead of ourselves. And so what I'd like to do is to suggest to you that we will update you next February on our journey So that's the first question on guidance.
The second question on e commerce. As I said in February when we talked about our growth agenda and what we would invest in. We had highlighted in February that e commerce was in fact a important area of growth for us. In the 1st 6 months, our gross merchandise value GMV for e commerce was around 1,000,000,000 in the 1st 6 months. Now this business has multiple models in it, therefore, it's actually very complex.
And as you rightfully put it, it is not homogenous. We have, be big. Finally, we have be open. Which essentially includes as well, several of the rocket brands will be incubating, including the partners. As we look across the mix of those 3, What I would tell you is that if you look at the gross margin level that we're able to achieve, particularly with mix, and particularly if you look at categories like sexual well-being, which are very sensitive to e commerce, given the privacy concerns.
And if you look at the assortment that we have, what we have over here is a mix that on the gross margin side is not diluted. We watch that and manage that very carefully.
Excellent. Let's take the next question from the line of Alicia Fobi.
Hi, good morning, everyone. Two questions from me. First, on the underlying 3% to 4% like for like growth. Can you give us some indication how this breaks down between health and hygiene. Are they running at similar rates than health, ex, COVID?
And then secondly, I wonder if you could dig into India a little bit more, especially now that it is out of lockdown. I think you said it was up high single digits in H1, which is quite impressive. Is there any further detail you can provide on how that business is performing?
Let me give you a little bit around the 3% to 4% and then on to India. The underlying 3% to 4% at the end of the day is a judgment. We run multiple analytic models, 3 different analytic models to try and understand what the underlying growth is. To recognize that we have certain brands that are benefited from this, certain brands that have not. We're also dealing with lack issues certain parts of the business.
And, if I were to therefore look at it across the board, We've ended up with 3% to 4% as being the right judgment in what we believe is happening in terms of the underlying. If I look at the operating part of this, us. The hygiene business is clearly, doing well. No question about it. And I think health is improving, but is not at the same level as hygiene.
So we're clearly working to improve that. And it goes back to the things I talked about about the things we're doing in an underlying level to improve it. But there's really been improvement in health, but it's going to take more time. So that's the underlying 3% to 4%. On your comment in India, let me give you a couple of things.
First of all, it did perform, it did grow high single digits, in this period. Gethole as a brand is a power brand in India. And in fact, achieve the number one share in soaps in India for the first time. It boils down certainly to the fact that, there are tailwinds that you get from COVID, in India, but it also boils down to some of the execution improvements we're seeing in both the health business as well as the hygiene business. What we are seeing there is focus on distribution.
A focus on ensuring availability, which hasn't been easy given all the lockdowns in India at various places and at various points. But I really compliment the team for resilience. Working through all these different challenges and achieving the result that they have. It also gets down to brand building. I think you've seen some of the work we've done on brand building at the Detall, TikTok, campaign in India is a great example of it.
We had 124,000,000,000 views of this campaign And so what we are doing there is not just a focus on financial results per se in the short term, but also building the equity of the brand. And the debt haul brand equity is at one of its highest points. We're also heartened by the progress we're seeing in leasehold, as well as in Harpic in India and the continued scale up of that business. I also feel good about the fact that we're doing this in the right way that some of the investments we have made as well with the public health authorities to communicate the lessons of hygiene in India, the product donations that the team has done, we've donated 10,000,000 units of soap in India with that hole. We've also donated over a million meters of lease oil and harpich in the market.
It's a pretty holistic view around how we're committed to India. I do recognize, of course, that, it is a country that is going through a lot right now. And, the team is focused on ensuring that we're as supportive as we can to the country, it is clearly an important market for us.
Thank you. Very impressive.
Let's take the next question from Martin Deboo at Jefferies.
Yes. Good morning, everybody. My question actually, good morning. My question relates to what you just said in response to Alicia's question. I think the estimate of 3% to 4% of the underlying momentum of the business is clearly crew sure to understanding the way the business is going to trend in the medium term.
So I need to push it a bit. Now, Lakshman, gave some very useful detail just now, Roger, to Alicia, but I think I have to ask in a business that is clearly so net positively geared to COVID, how can you have any confidence about what is COVID and what is underlying. Maybe the precise question I could ask you just as a litmus test is how are you accounting for Decile and Lysol sales relative to COVID or underlying, just to try and understand how you're coming up with a calculation? That's the question.
Sure, Bonnie. As I said, we ran 3 different analytic models and it's one that we keep updating all the time. We do look at countries that are in various stages of progression. And therefore, it does have an impact on the underlying demand. We looked at, sales that were pre COVID, particularly around February, January, February, versus what has happened since.
To get a sense of the underlying trends. And we look at some of the operating metrics, as we start looking at things like availability, service levels, how we feel about brand equity, which is really in some ways the qualitative overlay that we have, to try and understand how we ended up with a 3% to 4% underlying growth for the business. It's frustrating me the industry. I mean, I'd love to tell you that it's, it's completely precise recall that hygiene was already growing. At, at more than 3%, at the end of the year last year, right?
And so as you start looking at that and you look at some of these other businesses, the step up that we are seeing, that's where we've ended up. We're also offsetting some of the laps that we see. Some of these businesses have lapsed from the previous year, One example would be the inventory build in the infant formula business. As you look at the inventory build from 2019, the first quarters of 2019, And to now, it has had an impact as well on the underlying performance of the business. So we're putting all that together and there is judgment involved.
That's very clear. Thank you.
Let's take the next question from Chris Pitcher.
Thank you very much. A couple of questions for me. To go back to the Professional business, are you able to give feed contribution in the first half from professional for Detol and Lysol. And you mentioned that you have long term contracts. Do you have visibility through first half of next year's services.
Following on from that, your customers are consumer facing professional businesses who are obviously using your brand to build trust. Is the more raw sort of business to business opportunity still something where the margins are a bit too low for you to compete in? And then secondly, in terms of Vucinex, on presentation, you mentioned that you've done a lot of work to improve the supply chain. Do you think you'll be able to run with lower channel and retailer stocks from Usenex to improve visibility on that brand because historically, it has been one of the more volatile.
Great. The answer to your first question is very simple. There is no contribution to the professional business at this point in time, the first half. It starts ramping up only now on. 2nd, on your question about B2B, and the margin piece of it.
We have said very clearly, we are a front of house business. Where our brands play a big role. We don't have a backup house business. And, we would you would have partners that would probably do that. But that is not a business, that is us.
It's service intensive. It's people intensive. It is something that at this point in time, we wouldn't consider that, but we would certainly have partnerships that we would consider and we clearly have them in a few places. On your third question on Nucinex, and the supply chain, it is been a volatile business because of two reasons. One is because it is dependent on the flu season, and we expect the flu season in the back half of the year, as Jeff pointed out, to be weaker given what we're seeing as early returns from Australia and some of the Southern Hemisphere countries.
But at the same time, it has also been volatile because of the way that we have dealt with the supply chain. And the investments we are making, both in customer relationships as well as supply planning, and what we're doing particular inventories in the system to ensure that we're able to respond to whatever may happen, essentially will help us better deal with the volatility that Mucinex inherently has given the fact that it is a seasonal business.
Thank you.
Let's take the next question from Alan Huskin at Credit Suisse.
Good morning, everyone. Three questions from me. First of all, a very simple one. It possible, could you tell us what percent of your e commerce sales were direct to consumer from your own websites? My second question is on gross margin.
It was up 70 basis points in the first half. And I appreciate that, probably positively impacted by, OTC performing better in the first half than it's likely to do in the second half. And I'm, I think that, dental and Lysol, particularly the sort of big selling SKUs are probably below group average gross margin. So I wonder if you could just give us any indication at all as to whether you think gross margin will be up for the full year. And then my third question, and apologies for this, but I'm going to go back to this 3% to 4% on the line growth calculation because I am intrigued as to how you did it.
To help us, could you tell us what within that 3 to 4, you assume the underlying growth rate was for death toll and lysol or the disinfectant category, if you like. Thanks a lot.
Thank you for your questions. I think if I go back to your first question on e commerce, now we normally don't break out, by type of channel, it's not what we normally provide. But let me just tell you that if I look at our underlying performance or if you look at the performance of the e commerce business overall, we have had a real uplift in this business. And our direct to consumer business which, as you know, has both Enfamil, it has DUX, it has a bunch of other brands and it, too, that go direct to consumer, we will be opening literally in the second half of the year, another 15 new direct to consumer side. I mean, we run a whole bunch of our own stores and various platforms that have our brand on it.
As you can imagine, the brand like Durex, it's, it's something that consumers really appreciate. We've had a doubling of our direct to consumer business in the 1st 6 months, just in terms of, of, what we have seen. Let me just address the 3% to 4% underlying growth and then hand over to Jeff so he can talk a bit about the gross margin piece. As I said, on the hygiene part of the business, we've had a business that last year delivered 4% growth. And so if you start looking at the underlying piece of the business overall, we think it's in the 3% to 4% range And again, it's proven by some of the analytic work we have done.
Now clearly over time, this can have an impact, but the reality is what we see at this point in time is 3% to 4% growth as the underlying growth in our business overall. Let me hand over to Jeff so he can touch on the gross margin question.
Yes, let me just if you don't mind, I'll just come back on the 3% to 4%. One of the methods that we look at is we take the undisturbed market growth and market share development from pre COVID impact and we extrapolate that analytical models the best we can. And we do that country by country, obviously, depending on where we've seen bigger uplifts or smaller uplifts. And that's one of the methods that we get to the 3% to 4%. We're not going to break it out by by brand, but clearly, as, as, maximum mentioned, health is a bit lower.
IFCN, for example, is lower. And hygiene and hygiene is at the highest size. So that's one of the methods that we use. In terms of gross margin, it was we had a favorable mix in the first half. We expect mix to be slightly unfavorable in the second half, probably coming in around neutral year on year.
So we do expect to have a slightly unfavorable mix in the second half. You're right to point out with the strong Mucinex performance and obviously some of the strong performing brands in the second half such as Detol and Lysol wipes have a slightly lower margin. So we do think it'll be a slightly negative margin, gross margin in the second half. And that should come
Thank you.
Hi, good morning. So I've just got a couple of questions for you on the 5% to 6% headwind you talk about for 2021. So So logically, you take the 2023 to 4 underlying and then your high single digit growth, which you're expecting, I mean, effectively you're reversing that for 2021. So I guess the two related questions to that are first of all, to what extent the sort of ongoing pet of that 5% to 6% reversing? 2nd thing is you're logically there would be some areas where you might have easier comps, say, for example, in OTC cold and flu given the low season you're expecting this year, that might reverse next year.
So particularly on the first part of that and then to the second part, just a bit more perspective on kind of what's actually implied in that 2021 commentary?
Okay. Thanks, Jeremy. It's Geoff here. Yes, the 5% to 6% obviously is a difficult want to get into too much detail projecting 2020 the rebalance of 20202021 in this uncertain times is difficult. But the way we've looked at that, yes, we do factor in the pluses and the negatives to get to that headwind.
So for example, if And we also factor that in in the 3% to 4%. So if we've had a brand negatively impacted by, COVID, that's factored into the 3% to 4% and obviously then that gets factored into the unwinding in terms of the function increases in penetration and the various brand initiatives that we have to develop and expand our portfolio. That's not factored into the 5% to 6%. So clearly, If we're moving into new white spaces or increasing penetration, that's part of our organic growth and that's not part of the headwind If I
may just add one thing, Jeff, I mean, this is, a reflection of the high degree of uncertainty that we all face. There could be significant public health challenges. There could be economic dislocations. And as I said earlier, we're 6 months into the implementation of the strategic plan of transformation. We are pleased with the progress, but we do not want to get ahead of ourselves.
And so you can expect a better update on this from us next February. Yes.
I mean, again, just to come back, clearly, we are expecting some increased level of use of hygiene products going forward, but we're not going to be at the level of the months of March, April, May, June, as you feel at the peak of the COVID issues. Now what happens in 2021 is anyone's guess, but we're not assuming there's a major second wave in those numbers.
Excellent. Let's take the next
question from the line of Karlzout, please.
Yes, good morning. Thanks for taking the questions. I have a couple of questions left. The first one is value offerings. So you mentioned This is something you, you're going to expand into more.
At the same time, certainly in the health portfolio, you have a fairly premium proposition So, what are the plans here? What is the value portfolio today within brackets? That's the first question. The second one is on, you mentioned a couple of times you kind of boost or have additional investments in e Commerce, but what are your specific investing in? Is that more search?
Is that people capabilities? Is that more marketing? And the third question would be on the environmental commitments. I think you've now showed them the new ones.
Can you
share anything on that? Will those be included in the management markets, etcetera. Thank you.
So you could re clarify the 3rd question. Is that did you say environmental targets? Is that what you said?
Yes, are those new indeed? With regards to head greenhouse gas ambitions and being a net carbon neutral in 2040. Can you confirm those are new targets And will those be implemented in the compensation packages for management as well?
So on your first question on the value offering, we have gone back in time and looked at how we have responded to, economic downturns. And if you look at our business, our business, particularly price pack architecture by channel is a very big lever for us. And so we have teams working across our brands ensuring that we're getting the right SKUs, the right price pack across different channels, so that consumers have a whole range of offers available across various price points across various channels. So clearly, it's an area of emphasis. It's part of the learning that we've had before, and it's part of what we've scaling up.
In terms of e commerce, what are we investing behind? Well, there's no question we're investing behind people. We've made a large number of, people moves internally into this business, but also through targeted external hiring. We are investing in that capability building. Third, we are investing in marketing And what we have done as part of our new organization is we have set up ERB, which combines both our digital capabilities, as well as e commerce capabilities under one roof.
And so we've done that too. And the 4th is we're investing in supply. And ensuring that our supply is ready to meet the kind of specific needs for e Commerce. On your final question on environmental targets, We did make public our targets around our commitment to hitting the the commitments of the Paris corn and doing it 10 years ahead for when it was necessary. That was new for us, and we did this over the last 6 months.
It is being built into our business plans. And over time, we'll be working with our board as well as with our remuneration committee, to talk about what this means in terms of targets for management.
Excellent. So we have time for maybe a couple more questions. So if you do wish to ask question, don't please press star 1 on your phone and the operator will put you in the queue. In the meantime, let's take a question from David Hayes at SocGen.
Good morning, all. Thank you, gentlemen, and thank you for this new format. Very good, gives us more question time. So thank you. So just two areas for me.
Firstly, on the infant formula and secondly a bit more of a softer question. So infant formula wise, just keep coming back to just 3 to 4, sorry, my nose a bit sort of very specific, but just in terms of the Brazil Hong Kong informal effects about 60 basis points in the first half impact Is that included in that 3% to 4% or is that if you make that adjustment as well, are we talking about 3.5% to 4.5% rather than the 3% to 4 And then related to input formula, you're still down a couple of percentage points. I think if you make, again, that adjustment of the GBP 40,000,000 you talked about China. One question on China is the new product introductions. Have they been approved for market entry?
And then just a little bit more on what's happening out side of China in the U. S, that's obviously been a tough area to those markets. But what's being done differently there, the second half that gives you this confidence of the momentum picking up in infant formula second half? And then the soft question is just around the new structure in July. Obviously early days, only 4 weeks in, but can you just talk briefly about what impact that's having in terms of change of approach in decision making with the new structure.
And in terms of then the staff impacts, you obviously probably do these staff surveys quite frequently. You talk about what's changed in terms of the output of those? What's better, what's maybe worse over the last 6 to 12 months of the changes that have been put in place in terms of employee feedback? Thanks so much.
Well, Brett, I think the first and second question are linked around how you want to think about the underlying growth in this. Rather than break it out by specific categories, look to see what they're lapping what we believe, the underlying performance was pre COVID, as Jeff said, what we see as the operational improvements that we are seeing And we came to the conclusion across the mall because there are things that are positively impacted and there are things that are negatively impacted for a variety of reasons. Like I've explained before that ended up with us being at a 3% or 4% range. If I go to your question on China, the new products have been approved. In fact, they've been launched, and, they are the initial, traction we see is good.
I mean, there was there was a live event that happened in the last couple of days and large number of people watched the live event for one of our new products. So I feel good about that. But to give you a tour across the infant formula world, I'm pleased with the performance of the U. S. Business.
It has improved and it is doing well. If I go to Latin America, the issue was not Brazil per se, by the way, was the dryer in Mexico. Again, it was planned. It has been done. And factory is up and running and the supply is being ramped up.
Market share evolution in the early part of the year felt good to us. If I go to ASEAN, the performance is mixed, there are some places we're doing well and some places we are not. I think Thailand is one example. It's hotspot. Not doing well, and we've got to find a way to fix that.
If I go to Hong Kong, it's a challenge. And again, you've reflected that in the numbers that you just mentioned. As far as mainland China goes, I feel good about the progress. It is a competitive market. We have invested in price competitiveness in that market.
And at the same time, you do have local Chinese players, we respect, who are doing well. What we're doing in that mode is have done well. I mean, our shares are increasing. The real focus on offline execution, the real focus on e commerce execution, again, much stronger than it was before. And with the innovation that's in the market, we expect that this will be in line with the growth expectations that we have for that market?
Want to touch a little
bit on the new structure and its impact on the business side?
Yes. So the second question on new structure, we've been working on the new structure since March. So for March 1st, some to July 1st, there was an effort internally in order to make that happen. We announced the details sequentially. And over time, we have now moved into the new structure.
And as you saw with the organization chart that we had put up there, Chris Smith is running our our health business, and he's a global chief customer officer. Hal founded Brooke and internal, who's been in the company for a while, who's elevated me to run the hiding business and Adi Siegel is running nutrition as well as the ERB part of the business. From what we have seen early days, but the feedback has been strong. The reason for this is we have got business units that are focused end to end on ensuring that they deliver. The hygiene business had that level of focus But if you recall what I said in February, we brought focus to hygiene, but the health business became incredibly bloated.
What we have done with the creation of these 2 business units out of the previous health business is we have created dedicated, units that focus on health and that focus on our nutrition business, the broader definition of nutrition. What has happened as a result of this is we have dedicated innovation teams for health, as well as for nutrition. There's no sort of diffusion and focus that clearly happened over the last few years. Particularly on our base health business or what is now our health business. And so there's work going in in order to ensure that we can fix But what we've seen with Glint surveys is that, the level of support for the direction, for the purpose for the flights is very high for the pride in the company.
Is, is very high, higher than what we see, the benchmarks from that survey. In the areas of what could be better, There's no question that as you look at what we're doing, we're working remotely. I mean, this is a company that has an incredible amount of agility and very proud of its agility. This is a very entrepreneurial company that moves at speed. And so that is clearly happening.
But at the same time, what you do have is we do have certain hotspots where people are, in fact, working very hard, and we're finding ways to ensure that we can pace what happens in those places supply being one example, by the way, you can well imagine why as to what is really happening. So we're working on that and ensuring that we are streamlining the work working remotely. But again, what it has done for us, it has just further unleashed the focus of the business on the business versus and other things. And it has unleashed the entrepreneurial energy inside this company at a level that I'm very impressed by. So real thanks to my team and to the people out there in terms of what they've gotten done.
So we're going to need to finish the call there. Thank you very much for Erody's participation, it's been hopefully a useful and engaging hour for you all. We have a couple of people left in the queue. Apologies just call me and we'll go through any questions that you might have. Separately, it'll be my pleasure to deal with those.
Thank you all once again for your participation. Keep well. Keep safe. And we'll talk again in the near future. Thank you.
That does conclude our conference for today. Thank you for participating. You may all disconnect.