Ladies and gentlemen, thank you for standing by, and welcome to the RBQ3 2019 trading update. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I must advise you, the conference is being recorded today, Tuesday 22nd October, 2019. Now I'd like to hand the conference over to your first presenter, Richard Joyce. Please go ahead.
Good morning, and welcome to Avi's Q3 trading update. As usual, we're going to start with some prepared remarks and then we will move on to Q and A. So without any further ado, I'm going to turn over to our new CEO, Lakshman Narasimin, over to you, Lakshman.
Thank you, Richard. Good morning. Welcome to RB's Q3 trading update conference call. This is my first update as CEO. Given our trading performance, and the resulting change in expectations.
It is important that you hear directly from me. I'm joined by Adrian Henna, our CFO, Before we proceed, I wanted to mention how grateful I am to Adrian for all the support that he has provided to me since I joined RB. I would also like to thank him for his leadership and strong commitment to RB. Over the past 7 years. You will have seen the announcement as the Chief Financial Officer replacing Adrienne Henna effective April 9, 2020.
Adrian will be remaining with the company until his retirement date of 21st October 2020 to ensure a seamless session. Let me begin by outlining the 4 topics we intend to cover on today's call. First, I will start by giving you my perspectives on our 3rd quarter results. 2nd, I would turn the call over to Adrian for a detailed discussions of our third quarter results. 3rd, I will provide some perspective on our updated full year guidance for 2019.
Finally, I will give you some of my initial observations and detail the process we are taking in reviewing our business and determining our optimal long term strategic and operational direction. Will then open the call to your questions. Before commencing, I would remind you that this is a trading update only, not a strategic update. As I mentioned in my brief comments in July, I will update our strategic outlook and in particular, how I intend to restore long term sustainable performance. Along with the end of year results in February 2020, after I have had an adequate opportunity to perform a comprehensive review of our businesses.
I joined RB7 weeks ago because I admired the company and what it stood for. I admire the performance of the company. I've been impressed by what customers have said about the company to me over the years. Its brands have played an important role in my life. I have admired the company's entrepreneurship.
The company's creativity in innovation and the company's communications. And I have admired its sense of ownership. So many of our employees are owners. As I said in July, I have come in with a laser focus on creating long term shareholder returns, while building a purpose driven responsible company. Nonetheless, I realize our performance over the last 3 years.
And once again, in the just completed third quarter has been unsatisfactory, both to us and to you. Simply put, our hygiene home business is stable and performance is consistent and improving. Our health business continues to suffer from integration related disruption and execution missteps. We've had too many negative incidents, consistently gaining market share is an opportunity for both business units. On my tour around the RB world, I have heard from customers, consumers, many employees, and other stakeholders.
RB has many positives, but it is clear. Much needs to be done with urgency to improve execution overall. So on to our Q3 2019 results. Performance in Q3 was disappointing. We grew at +1.6 percent like for like.
When looking at end. We are currently using slight share, but trends are improving. The business unit currently is around a 3% trend growth business. This is a material turnaround We see growth in This equates to our run rate for a business of around +1 percent. This business has had significant disruption and change, stretching the management team.
Focus pacing change and execution are opportunities for this business unit, which we are beginning to address. With around 60% of our business, which is health, growing at around 1% and around 40% of our business which is Hygiene Home, growing at around 3%. You can see that the underlying cadence currently is between 1.5 to 2% for the group. Our execution missteps in Q3 are particularly visible in the U. S, a part of our health business is seasonal.
We have a global supply chain despite improvements in systems which has led to improvements in customer service, our processes in the health business to manage the seasonal business with a global supply chain need to significantly mature. Otherwise, we will seek volatility in quarterly reported results due to fluctuations in both consumer offtake, which was good in Q3 in U. S. Health. And customer inventory levels.
Similarly, we see heightened competitive activity in China, in the infant formula business. While we continue to focus on premiumization and on ensuring product availability across all channels, Our recovery with consumers from last year's supply outage is taking longer We see this reflected in our Q3 revenue numbers, which I will now ask Adrian to take us through Adrian?
Thank you, Vaxman. So turning to the specifics of our Q3 performance. First, the hygiene home business, Our Hygiene Home business is delivering consistent performance each quarter. We have seen a slight improvement in our performance in Europe, The USA remains competitively tough. The DBM growth benefited from a favorable decision in a quite longstanding legal case in Latin America.
The 4% growth comprised 1% volume, 3% pricemix, reflecting the stronger year on year volume growth we expected in half 2. All our power brands showed solid growth. Good progress continues to be made in defining the purpose of each brand. And in developing the new product pipelines and the brand equity of each brand in support of its purpose. The work with Finnish in Turkey on water conservation and with Lysol in schools around breaking the chain of infection, our current visible examples.
We also see the competitive environment stepping up the market has a number of quality participants and we need to continue to up our own capabilities and market presence to realize the strong opportunities in the markets we are in and in new markets and channels. Turning then to health. It has clearly been a difficult quarter in a difficult 2021 months since the business unit was created. You heard from Lakshman on the root cause of this weak performance. Not to the markets we serve, market growth remains strong at around 4%.
Not the quality of our brands, they are strong rather it is the quality of execution. We underestimated the scale change undertaken emerging Mead Johnson and RB Health. In defining the detailed operating model needed to manage a portfolio comprising infant nutrition, over the counter medicines, VMS products, and wellness products, and in the work to create a separate HyHo business unit. We have also, of course, been working through a period of catching up on some infrastructure investment in production capacity, some systems and similar. Taken together, this has particularly stretched the management of the health business unit.
This has led to 2 negatives. Firstly, market share loss some 50 to 75 basis points over a sustained period, meaning an underlying growth in consumer offtake, as Laxmann mentioned, of around 1%. And secondly, volatility as we see in the inventory fluctuation in the United States in this quarter. So going through the main elements, of the negative 0.3 percent health revenue reduction in quarter 3. First, we are lapping of course the around GBP 70,000,000 manufacturing disruption in one of our infant nutrition plants last year.
The impact of this is around 350 basis points on the health business unit growth. This means an adjusted reduction of around 4% in like for like revenue for health and about 3% for the IFCN part of health. There is a 5% difference between this negative 4% and the trend plus 1% in consumer offtake that we've referred to. Our U. S.
Health business accounted for around 2 thirds of the difference. The other third comprised regular inventory and trade spend variation across a number of markets. In the United States, we saw our health business deliver a negative 12% like for like revenue reduction, while market data shows a small increase in consumer offtake, The large difference was channel stopping, impacting mainly seasonal products, especially Nutanix, but also to a small extent the infant nutrition business. There is always volatility on retailer inventory levels as they prepare for the flu season. And much of the bill happens around the end of Q3.
As you know, the tail off in the flu season in December last year contributed to high retailer inventories at the 2018 year end. This in turn has contributed to higher retailer caution on buying patterns this year. This variability is understandable. We have seen it in previous years. Unfortunately, we did not sufficiently anticipate this year's channel stocking pattern, It points to the execution issues to which Lakshman has referred.
As it happened, we implemented our new ERP system in the USA in September across both our hygiene home and health businesses. The system is in many markets already and the implementation here went well. The associated learning curve caused around a GBP 20,000,000 delay in shipment from Q3 to Q4 across both businesses around 1 half in health. In itself, this is of course a small number, but it unhelpfully added to the channel inventory reduction. Will this inventory shift come back in Q4?
As part of the focus on executional excellence, we are not planning on it. Our management teams are focused on working with customers to effectively and efficiently deliver the season and maintain consumer availability with optimal total inventory in the system. And of course the season is uncertain. Outside the USA, IFC in China continues to be a tough marketplace. Market volumes have slowed with the birth rate and competition as intensified as all the players battle for share.
We are making progress, but it is hard fought and will continue to be tough We have programs in place to broaden our premium offerings to consumers to improve our presence in channels and locations where we have been less present. We expect to maintain investment levels in the phase both of the loss of revenue from last year's supply disruption and from the tougher marketplace. As noted, total IFCN revenue declined by 3% after adjusting for the supply disruption. Within this USA Consumer Allstate continued to be strong that was also noted slightly reduced by inventory and trade spend fluctuation. ASEAN and LatAm continue to be mixed and China revenue decline reflecting the tough operating environment.
Within other health, Dettol and Durex returned to growth after the weak Q2, but the causes of the Q2 weakness will, especially for Durex, of course, take some time to remedy fully. VMS revenue was weak impacted by the destock while consumer offtake was steady. Across health as a whole, pricemix continued at 3% similar to the level in recent quarters and to the market. Volume declined 3%, reflecting the factors we have just talked through. This hopefully gives you an understanding of the dynamics behind a disappointing set of Q3 numbers in aggregate.
And a better basis for turning back to Lakshman to talk about expectations for the rest of the year.
Thank you, Adrian. As Adrian mentioned, I'd like to turn my attention now to guidance for the rest of the year. A few things behind our thinking here. Firstly, the weaker than expected Q3 health needs to be reflected. Secondly, We are working more closely with our retail and distribution partners to serve consumers more effectively and more efficiently through the season.
3rd, while there is much room to improve HIFO over the long term, it is executionally in a much stronger place than health today. Finally, I'm keen on setting a tone for guidance. In the full year 2019, which reflects a range of what day by day, month by month, quarter by quarter for the long term. To be clear, I am not discussing today's guidance beyond 2019. On top line, we are reducing our full year 2019 target to 0% to 2% like for like growth in the year.
Arithmetically, with a 0.9% year to date revenue growth, This could cover a range from a minus 3% decline to a 5% growth in Q4 2019. We do not expect either extreme. While Q3 is a trading update, I also want to talk about our adjusted operating margin for 2019. Stronger top line delivery. Keeping in mind, the underlying solid consumer uptake and the heightened competitive environment, We believe our businesses are best served by continuing our already planned investments behind brand equity building programs, in building a more resilient business and in enhancing our frontline capabilities despite the current weaker revenue growth.
And the associated de leveraging impact on margins. You should therefore expect there to be some modest margin decline in 2019 as against the broadly flat margins we had previously been looking at. Lastly, and ahead of the fuller analysis and direction that we will bring to you in February, I thought it would be helpful to now give you a few observations after 7 weeks on the job. I admired its performance history. As I began here, I embarked on a learning and listening tour across our business.
Meeting with many key stakeholders. I visited our top 4 markets in North America, India, China and the Middle East. I have gone selling with our frontline in India and the US. In each of these markets, RB in great operational detail. I've reviewed our brand and category plans and immersed myself with consumers in market, both in stores and with our e commerce teams.
I visited hospitals in China and the U S. Visited large format mom and baby stores in China pharmacies in the U. S. And in the Middle East as well as traditional trade and modern trade stores in India. I've spent time in some of our factories and interacted with our frontline in the heart of our operations.
I've also met with our people, our employee owners across multiple levels I have spoken to several RB alumni, and I've also met a number of our key long term investors. Additionally, I have commenced a full diagnostic of the business to better understand the drivers of operating performance, the competitiveness of our portfolio, our execution, our capabilities, talent and culture, where we are strong and where improvements need to be made as well as what we need to do to realize the numerous opportunities ahead of us. This understanding will provide the foundation for I am not yet in I look forward to doing is what I have seen or heard to date has confirmed the reasons why I joined the company. We have a good house on a great street. The underlying global growth of the hygiene and health businesses is mid single digits.
Secondly, our brands are in advantaged positions. Around 60% of our business is in category market combinations, RV brand shares are 1 or 2. We have significant developing market presence, nearly half our business is exposed to developing market growth. Our brands are anchored in purpose and they impact the lives of consumers around the world. Of the Dettol Banega Swatch India campaign is a terrific example of a brand that makes a material difference hygiene and cleanliness in India.
We have strong capabilities across our various geographies. Our innovation is strong in many markets, including lysollaundry disinfectant in the U. S, the new Mucinex night shift launch in the U. S. The harpich bathroom cleaners in India, and the dental co created bombs in India.
I have seen strong frontline execution, including Vanish in Mexico and the launch of Move Active in India. We have strong e commerce capabilities across our business units, particularly health where it now contributes over 10% of the business. Our annualized total e commerce run rate in September reached over £1,200,000,000 for the company. We are also an active manager of our portfolio adding new capabilities and reach and exiting non core brands. I see both the benefits of focus through the business units as well as the benefits of scale through capabilities in market presence and areas like procurement as we work to restore long term sustainable performance.
And from a people perspective, I see an organization full of owners who embrace the freedom to succeed, our purpose driven, who have pride in our brands and in our execution and in delivering sustainable outperformance. I really love the can do attitude that this company has. And the speed at which it moves. And yet, things have gone wrong over the last 3 years. We ran the engine too hot in place We had some innovation failures.
We did not make the capability of capacity investments in some places, We have had significant disruption in the business from a large integration as well as from organizational changes. In my view We are still digesting several of these changes and it has taken our eye off the ball on execution. We've lost the consistency in performance delivery. Yet there is nothing I have seen mixing this business. I know we start from a good place with strong brands in growth categories and an organizational culture that can get things done.
I'd like to specifically frame 5 themes that the anchor my interactions with our management and our people. But you will see that the themes are fundamentally focused on improving the operational performance of our business. First, restore performance credibility. As evident in our results, no excuses. We are not pleased with where we are and we must consistently deliver.
2nd, simplify and focus. Clearly, the creation of 2 business units was a way to do that. The change, however, has particularly impacted the health business unit. That business unit needs to rely on the collective strength of the company as it restores greatest stability and consistent operational performance. 3rd, drive execution through effective and efficient purpose led brand building.
Through incremental innovation through frontline execution and by eliminating waste. 4th, unleash the potential of our people, build talent and culture for the future, making RB a responsible purpose led company. And 5th, deliver a strong sustainable financial model with consistent performance. As a better business driving long term shareholder returns through like for like revenue growth profit growth, cash and return on capital. All of this, while having a positive impact on I am prioritizing execution and operational performance as a matter of urgency, and we are making decisions and taking action to stabilize the business.
With operational performance being my top priority, I have made it clear within the organization that any activities that detract focus and attention from improving our operational performance be pause. I will therefore conclude with 3 key messages. 1st, RB is a terrific company. 2nd, our performance in Q3 was disappointing. Restoring RB to performance credibility and outperformance is what my management has taken on as a mission with me.
We know the challenges we have begun the journey and importantly, we have the building blocks to succeed. We operate in good structural growth categories, We have strong market leading brands, and we have people running the business who are owners and have a passion to deliver. And third, we are building the business for the long term and mobilizing the organization and the talent to make it happen. Over the intermediate term, as we fix the business, you can expect full transparency regarding our progress and a commitment that we will be good stewards of capital and focused on long term shareholder returns. I'm confident we can, and we will restore the company to sustain consistent performance.
I look forward to sharing more of this with you along with our full results Thank
you.
Your first question comes from Richard Taylor of Morgan Stanley. Please go ahead. Your line is open.
Good morning, everyone. Three questions from me. The first one around the comments about pausing a additional activities. I just want to clarify, does that mean that any further work to spin out, hygiene home has been paused? Secondly, you've said previously yourselves that after a weak flu season, the buying pattern for retailers for the following year, tend to reflect the weak season from the prior year.
So it'd be really grateful if you could give us some color on the execution and kind of what exactly happened. I suppose if you've said previously that these buying patterns happen, it's tough to understand how it's happened again. So I know you said in your prepared remarks, you need to be closer to the retailers, but some color there would be very helpful. And then finally, I suppose related to that, You've now missed 13 out of 14 quarters for various different reasons, but the large majority have come from execution issues within the health business. So how should we think about that in terms of accountability, leadership incentives and organizational structure?
Let me first start with the first question. I'll get Adrian to comment on the second and then I'll take the third. As I said earlier, the priority for the organization is operational performance. And ensuring that we are executing what I believe the organization is capable of doing. So as a consequence of that, initiatives that impact execution and impact operational performance and enable it are continuing.
Anything else that detracts focus and attention from improving the operational performance is pause. On your third question, just in terms of 13 out of the 14 quarters, I represent the change that the company is beginning to see. And I think that if you look at the people out in the organization, We clearly have a lot of great people who are focused on driving performance. One of the things we have to do as leaders is ensure that we bring focus and we bring simplicity to what they do. And so over time, I think what you will see is you will see continued change in in the organization, reflecting both internal talent that we will continue to promote, as well as attracting outside talent to continue to build a bench that we have.
But I represent the change of assuring there's a difference in trajectory going forward on consistency and performance performance delivery. Adrian, do you want to take the second question?
Yes, thank you, Ashwin. So, yeah, Richard, on the second question, there's no doubt that the, that the stocking levels of our seasonal products in the United States was the overwhelming reason for the missing of our own expectations when we were filling our feet in July. So what happened? Why was this? Well, partly it is an inherently difficult judgment.
The retailers usually start to build inventory ahead of the season in September and the numbers of this are big relative to our total, but big and absolute sense and big relative to our portfolio in the U. S. And many judgments go into the timing and scale of this buildup? How strong will the season be? How responsive will the supplier be to to reflect fluctuations in demand?
I mean, how much can a reset outsource back to the flyer, the fluctuations in demand. What are the financial pressures on the retailer? What's the retailer's own inventory policy? So a lot of judgment go into what is what you think of as a graph, quite a big inflection point in the curve. And so clearly, clearly get understanding that and making judgments around that is inherently difficult.
But what has happened this year and it is abundantly clear is we were not close enough to all of those retailers get a good reading on what was going to happen. And therefore, there was simply a mess. It is what it is Richard. It's not pretty, but it is what it is. What is, of course, remarkable or noteworthy is that managing inventory levels is a key part for all consumer goods and one we spend a great deal of effort in around the world.
Particularly in distributors and traditional trade. Here, of course, we were talking about some of our biggest and most sophisticated customers And it is clear that we weren't quite close enough to it and it did come as a surprise to us, Richard.
Richard, one other thing, just to also, address it. And this is on RB2.0. RB2.0 is a project name that was given to the creation of 2 business units in order to, bring focus but also to drive our performance. Where we currently stand is we have created the 2 business units, and you do see the benefits of focus. What you also see though is if I go back to the criteria of our performance, what you have is one business that is stable and that is performing.
And you have another business unit, that is not stable and that is not performing. And so the priority therefore, for us, is ensuring that we bring stability and we bring performance, consistency in terms of what we do. And therefore, any activity that's beyond that is paused for now.
Very clear.
Thank you.
Thanks, Richard. Now next on the line, we've got Celine Panuti from JP Morgan. Go ahead Celine.
Hello, Celine.
Yes, sorry. Good morning. My first question on IFCN. So, two parts here in China, you noted that this in growth rate, though those who are playing in the super premium still see strong demand. So could you give us an update of where you are in terms of super premium and whether you think that you have enough innovation and, investment in the supply in the route to market in order to grab that opportunity.
On IFC and again, on the U S, I don't understand this talking. What is this relating? And can you confirm that your sell your retail sales are still tracking well. And then my second question, you said that the Consumer Health business, on the market, is tracking at 3% to 5% growth, and maybe I and a bit below. So which categories are doing a bit better?
If you could give us a bit of a broad view of the pocket of growth in this category. Thank you.
Yes, surely. Let's may take the second of those first, Celine. The U. S. ISN is perhaps more straightforward So yes, the underlying market demand remains strong.
We continue to take share, a little bit of share against stable marketplace as you're well aware, so nothing dramatic, but So no changes in those trends. There was a bit of destocking and essentially that was to do with the anniversarying, the launch of NeuroPro, where there was sort of double stocking that was going through. It wasn't big. And in the scheme of things, not enormous, but enough to slightly affect the IFCN sell in in the quarter, but the underlying sell out no change in the trend, Salim. In China, lots of moving parts, clearly.
Market moving parts where well understood the lower birth rates. Premiumization continuing to go on at the moment. And hence, I suspect you'll reference the super premium where we're also seeing that phenomena that you described out as well, but not just super premium. I mean, in terms of you've asked about our innovation, it is not confined to super premium, very important actually as one seeks to address the various consumer niches in China and the various channels in China that one has lots of different brands. And so I think we mentioned that Q2, the launch of our grass fed product for the mom and baby store channels.
And that's early days, but going fine. The, but the locks on, and it is a tough competitive environment, China, there's no question and you're seeing, I say, a lower market and tougher competition. The, and then for your last question, Celine on the overall market. Yes, I mean, we still we talked for a long time about 3% to 5% as being the range of growth for consumer health marketplaces and it does have segments in we have said historically that we see the OTC segment as being trend slightly lower growing 2 to 4. We see it comfortably within that range at the moment.
ISCN is a little bit lower at the moment. Of the other segments, VMS continues to be strong, although our performance in it at the moment is just okay and a bit lighter because of the but okay. That is one of the stronger ones and wellness in general, although it's a fairly amorphous market is also growing well as a total market. But in the round, the market is not our easily. The RSUs are clearly ones of execution.
Right. Now move on to Guillaume Delmas from Bank of America Merrill Lynch. Go ahead, Gail.
Good morning, Alexman, Adrian, and Richard. A couple of questions for me. The first one is on the reason for your margin guidance cut this year. So You mentioned current investments you're making in brand support, frontline capabilities and building a more, I quote, resilient business model. How should we read into this?
I mean, does it mean that you think the business has been under invested or built in a way that left it very vulnerable and prone to accidents such as the cyber attack a couple of years ago or the manufacturing issue in IFCN. So any color on this would be very helpful. And my question is on IFCN again, but this time on the ASEAN LatAm markets, which I think account for roughly a third. Of IFCN because performance there was subdued again in Q3. You indicate that this is an area of focus going forward, but this is not first time we've been hearing this.
So how confident are you? You can fix this complex and fragmented operations. Because it seems that part of the issue there is that you like critical mass in some of these markets where record had virtually no presence or very limited prior to the MJN acquisition
Yes, good questions. Guillaume, the on the margin guidance, And I think the heart of your question was, have we underinvested in the past? We've acknowledged that there have also a degree of underinvestment in the past, Guillaume, and you've seen reinvestment going in over the last couple of years. I mean, our you've seen margin decline in the sense of not delivering some of the synergies on the Mead Johnson through to the bottom line. As we talk to our length with our Q2 numbers investment, a number of things that we called out there, production capacity, R and D systems infrastructure channel capabilities in China, and I'm now quoting from what we talked about in Q2.
So yes, there's no doubt that that is a theme. And it is also very much coloring, as revenue has proved to be a little weaker than we had expected, obviously a bit of a deleveraging effect. And when you find that and as you move towards the year end and it's against the background wanting to maintain investment in these areas, that's essentially why you've seen the change in margin guidance. I would also say though, and in fact, this is a theme that very much Alachman has been pushing out as been doing is diagnostic. While there has been under investment in some of those, what you might characterize as longer term ROI things where our sort of culture did make us a a little too cautious to invest in things like production capacity when thresholds were met or in ERP systems, where will the short ROI items brand equity investment, particularly innovation, they have been fine.
And so there's no question that the result of brands are strong and and the pipelines are strong. It is in this longer term stuff that we came to the conclusion a couple of years ago, we need to adjust it doing so progressively. And the early diagnosis work for the Blackman is also very much confirming that. So that's really behind the thinking on the adjustment in the margin guidance. Guilla.
In terms of, of IFCN, as the end LatAm, yes, you're right. It's about a third of the taken together. It's about a third of the infant nutrition business. You're right. It is another mixed quarter.
There's a lot of countries across across LatAm and Azyanne, and we do tend to see the volatility see sometimes good sometimes not so good results in individual countries. You pointed to a question 1 of critical mass. It is correct that in many of those countries Mead Johnson had a bigger presence than RB Health. So they're actually putting the 2 together hasn't massively increased total scale. The but when we look at what's going on, the issues are not really ones of mass, they're ones of execution.
And there's no doubt that in those areas, which did have are characterized more by XME Johnson Management because of the history that you were pointing to. Those executional challenges have been particularly strong. So the theme that Lakshman called out remarks is one we see particularly at Q3 in some of those countries. So resolution is going to be exactly the theme that Lakshman pulled out, the step by step element by element, a sweaty way of doing it, do not expect it to be immediate, but we don't really see it may want to scale. We are not many of those Latin America and Asian countries, we are not smaller for nutrition players.
In fact, we're pretty big players, often the number one player.
Moving now to David Hajde from SocGen. Go ahead, David.
Thanks, Richard. Hello, everyone. They're keeping me firstly on margin and secondly on China in for Formula. So on the margin side, just following up on Guillaume's question, I guess, to some extent, you seem to outline in the remarks that the margin guidance changes because of the deleveraging, the operational deleverage effect, rather than being any kind of specific plan to invest in any areas over the next few weeks, few months. I just wonder if that's the right way of interpreting it.
And if that implication, is there are there no areas you can invest in straight away to try and improve performance? If you are getting an investment, which areas are going to be likely to be invested in first? And the second question, just on China from formula end for mill obviously seems to be struggling perhaps alongside some of the other brands in that sort of mass market premium, but not your premium at 26 of Nestle was called out by them, for example, last week. I just wonder whether you feel MFA Mill as a brand positioning in China still hasn't got mats. Quality edge to it that it needs, particularly if you're going into these new channels and new markets.
And is that something that needs to be addressed and how do you address Thanks very much.
Yes. So on the first one, David, yes, in terms of the margin, the the actual areas for really focusing investment on and the balance between that and savings elsewhere are for February. And that will be something National will talk about at length in February. What you're hearing from us here is that there has been investment going on. And we do face some de leveraging pressure with a lower revenue.
And we are responding to that, not in a way that consciously maintains those investments. It is not yet articulating how Laxmann is going to conclude our areas of further investment and so on come February. That is for February. All we are now just reflecting is we're not going to reduce investment in the with the short term pressures of lower revenue. In terms of China,
if I could just add one you go to China. I think, David, one thing, as I said in my comments, what is particularly attractive about this business is the fact that we have 60 percent of our business in category market combinations where the RB brand shares are 1 or 2. I think what has particularly been positive in the initial look around the business is the fact that we have continued sustain our investments in Brand Equity And Brand Building, and that is foundational to the strength of this company and is a commitment, a consistent commitment that we hope to keep making as well as we go forward So I think it's a very important question that you're raising, but I think on Brand Equity Investments, we are continuing to sustain that investment much like we have done in the past. Very good.
And then in China, in terms of strength of our different equities, I think one of the strongest equities we've got for nutrition in China is Mead Johnson and Mead Johnson sits across infinitas and it sits across the infamil brands, both the imported infamil and the locally manufactured So I think there is the reach of that equity is very strong. The we have also, I think we mentioned it with the half year numbers, launched another Infamil brand, grass fed, particularly to address the mom and baby stores. And that is going essentially going into the channels now and will be an important way of giving you energy to our portfolio in the slightly non super premium, still premium, whatever the exact terminology is less super premium category. So we feel pretty, pretty good about that. And gross fit is an important addition to the portfolio in order to give us brand strength behind the efforts in the channels in the mom and baby stores, which are hugely important to share.
Just do small comments from my trip to China and the meetings over there with, with customers as well as in the hospitals. It's clear that the key opinion leaders truly respect me, Johnson, and what it stands for. Vita is viewed as a prestigious brand. It's a brand where science is at the heart of it. And I think there's a lot of positive feelings towards the brand and all the other elements sort of build towards Mead Johnson.
I also think that when you talk to customers, which I have on the trip, they also like the Mead Johnson overall umbrella positioning as well as some of the brands that feed within it and some of the new innovations that are coming in.
Great. Thanks very much, David. Let's move on to Ian Simpson from Barclays. Go ahead.
Thanks very much. A couple of questions for me, please. Firstly, can you talk about how Enfamil is doing in China sequentially when we think about cohorts? So I understand that you've lost a cohort of mothers with your third quarter 2018 supply chain disruption, which is kind of working its way through. But could you talk a bit about how your stage one share, with your China RCM business is doing compared to where it was 6 months ago, 12 months ago, 18 months ago.
I'm just thinking there might be a bit of a lead indication. I'm interested to see if that's started to recover stage one stage from the disruption? And then secondly, could you just talk a bit more generally about Latchman about how you see innovation in the health business. Clearly, there's been massive disruption in health over the last few years. I have a sort of qualitative sense that innovation there has been a bit weaker, but I'd be fascinated to hear whether you are happy with the quality of the innovation pipeline and what you found there?
And if not, what steps you can take to improve R&D and what the lead time on that is? Thank you.
Okay. On the first one, I don't have every bit of detail in response to your question at my fingertips, Ian, but by and large in the at the super premium in Finitas, we are doing well in getting back the cohorts that you're rewinning, as you say, post the disruption now that supplies back they're doing. It is more of a struggle at the lower end in terms of the infill brand that you specific which is again an important, why grass fed is an important addition to the portfolio.
On your second question, Ian, on innovation, It's a big question, a very important one. Clearly, we need to further ramp up our innovation in health We know that the play we have is a combination of our deep consumer knowledge as well as our science capabilities. In February, when I come back to you with the overall view of the business going forward, I will address this question more fully.
Okay. Thanks, Ian. Now we have Jeremy Fielco from HSBC on the line. Go ahead, Jeremy.
Hi, good morning Jeremy Falco HSBC here. Just one question. When you look at the sort of businesses where it stands today, what do you think the, let's say, the quickest wins are likely to come from in terms of improving the performance. Are there some sort of relatively obvious things that you see that the company is doing wrong that can have some sort of effect relatively quickly? Or do you think it is a much broader and longer term question of sort of building the some of the capabilities and disciplines back up?
Thanks. Great.
Well, thank you for that question. I think if I just would focus as on some health, what you see there with the degree of change and disruption that this business has faced with an acquisition and the integration of the acquisition, the creation of another business unit, where we're talking of a lot of change that has impacted this organization. And what is interesting as an observation is that As a result of that, some of the disciplines that RB traditionally has been very strong in has frankly been lost because we've taken our eye off the ball on execution. Let me give you a specific example. Sales execution in health.
6 years ago, 8 years ago, you would say that the kind of operating rhythm, drumbeat the performance orientation, the tools, the disciplines that RB would have in terms of driving sales execution, were frankly the best in the industry. As I have gone selling with the frontline in India, as I've gone selling with the frontline in the U. S. What you realize is that some of these things that were traditional strengths of RB are being inconsistently delivered at the point of sale. That's unacceptable, but also what's interesting is we have the collective expertise inside the business to quickly reinstate that, which is what we are doing with urgency.
So I just want you to be aware that there are things that we can do on fixing the fundamentals that we can do right away. We're not waiting till February. We're starting now. There are other things that we will need to talk about in February about things we need to do for the intermediate and longer term, but nothing is stopping us from moving on the short term now.
Great. Thank you very much, Jeremy. So we now move on to Fulvio from Berenberg. So go ahead, Fulvio.
Yes, good morning gentlemen. Thank you for taking my questions. I've got a couple. The first one is on ICN China. You talk about the competitive pressures.
Just wondering if you can highlight any change of dynamics there versus the second quarter. Are you perhaps seeing more competition coming from the locals or is it sort of more broad based including the multinationals are putting the pressure up And then my second question is regarding the destock, which is happening right across your health business, I was just wondering what visibility do you have on retailer stocking levels? And if this visibility is good, can you comment on where you see stock levels being broadly today versus historic levels please? Thank you.
Yes. The so changing the competition since Q2, I mean, I think 1 quarter to the next, it's a bit difficult really answer that question meaningfully. But a slightly longer term, since yes, I mean, you referred to the local players, there's no question that the larger local players have been the significant winners over the last couple of years from the shakeout of the smaller brands of the fallen away for a whole set of reasons. So But I think that theme remains the case. And I really don't think there's any material delta since the last quarter for us to call out in the nature of the competitive landscape.
In terms of stocking in general across, well, the health business, but indeed the whole business, yes, it is clearly something that every FMC company has to play a lot of attention to. The fluctuations in inventory levels in particularly in markets where there are distributors pay a large part of the channel are very important. And we pay huge attention to that, including incorporating it in plans for management because you do not want to have incentives to fill channels when that isn't in the interest of the long term incentive of the business. So we pay huge attention to that. One is that I say, as we mentioned in response to the first question from Richard.
One of the, particularly remarkable aspects of the destocking we've seen here, it's not it wasn't in a in channels, which are, which are likely managed distributor channels. It was in the biggest, and arguably among the most sophisticated customers we have in the world. So it was a very different phenomenon from that where you normally see inventory fluctuation. In terms of where is our inventory, it in terms of scale, it goes up and down in different times and for different reasons in different rounds of the world. There's no material difference on average now from where it has been for a significant period of time of the full year.
Okay, great. Thank you.
Okay. Thanks, Julio. 25 past 9, so we've got that 5 minutes left. Next question is from Martin Deboo from Jefferies. Go ahead, Martin.
Yes, good morning everybody. Martin Deboo, Jefferies. Laxon, you laid out the growth algorithm really well in your prepared comments. And it would seem to me that the critical number is closing this market share drift in health of 50 to 75 basis points, which is you've hopefully broken out. I just want to understand exactly where that's coming from.
The inference from the release is that you feel you are not losing share in OCC because you point to stabilization in Muken and share gain in Eurobank, Gabby's gone on strepsil. So are you saying that the share loss in health broadly defined is an IFCN/ other health issue. I just want to be crystal clear about that. And the second question is more of a sort of procedural one, lacks when you're going to lay out your plan at Q4, you've been very consistent in saying that, but the handover to Jeff doesn't occur until April after that. So I guess the question here is how between you, Jeff, and Adrian, are you going to ensure that there is a Q4 plan around which you and Jeff, in particular, are totally aligned in which the market can have confidence in?
Okay. Let me do the first one and thanks for moving to the second one. The so yes, you actually reflect that, Martin, the, how we see the total share progression and that, that is absolutely pretty making that thing add up. And you're absolutely right that within OTC, we are doing fine. The OTC market continues.
We've always said it would on average, expect to be slightly lower growing on the average, but it's certainly growing within that range. And we are essentially flat in that a little bit of share loss that in Mucinex, although the degree of loss is closing as we expect it to do as the private label sorts and doing fine the other power brands. The you're right, we are losing share in in aggregate, in infant nutrition. And we are losing share in the other wellness degrees that cover wellness and Durex and SHOLL and so on. Those are the principal areas of loss.
Well, we are gaining share in ICN U. S.
In ICN U. S, specifically, yes and
Martin Johnson, your second question, this is of course a reflection of notice periods and the like. And clearly, as we think about the plan for February, this is something that the board and I are deeply engaged in, And, clearly, there will be a process where we bring Jeff on board and Adrian is very kindly offered to, to be around to to October 2020 to ensure that the transition is smooth.
Thanks Martin. I think we've got time for one more. So the last question we've got is, Alan Eskin from Credit Suisse. So go ahead, Alan.
Hello, good morning. Yes, two questions, I guess, directed at Locksmith. I mean, You seem to have diagnosed the major problem here as being execution. And I just want to go back to an earlier question. Are you happy that the innovation pipeline that you have in health?
Because I think with HIFO, you can get quite a quick response from stepping up investment in innovation, but in health, that pipeline is is much longer. So can we interpret from your comment that the issue is primarily execution that you are comfortable that that pipeline is well filled and there's plenty of product coming down. And then my second question is on Mee Johnson, I mean, the message seems to have been that turn 2 has barely equaled 4 on that acquisition. And given that you've said that it made sense to create a separate unit for, RB Hai Ho to give greater focus and ownership, would it make sense to do the same for for Mead Johnson given that it's a very different product going through very different channels and ending up in a very different consumer. Thank you.
Well, thank you for your question. Let me first address the question on innovation. First of all, I have focused in the short and medium term on ensuring that the fundamentals are fixed. At least fundamentals, spread across all aspects of the business, including in the way we land innovation for 2020, and how we get the biggest bang for the buck from what we have in plan. I don't think you should walk away from this as saying that the only issue is operational execution.
What I've said before is the diagnostic that is underway is looking at a better understanding of why we are performing the way we are how competitive our portfolio is. It is also focused on execution and on capabilities as well as talent and culture. So, when I come back in February, it will be a more holistic representation of what I believe we need to do. To fix the business for the intermediate and long term. So that is something that I think you should take away.
I don't think you should take away that, therefore, I'm pleased with the level of we have in the pipeline. Clearly, that is something I'll make comments on in February. My aspiration through all of this at the end of it is for us to be boringly consistent. And I think that when I come back in February, we will talk more about So good observation. It's clearly something that we will reflect on, and I will come back to you in February and give you my view on how we should think about it going forward.
Great. Thanks very much, Alan. I think we want to finish just by last one, reiterating some of the key messages.
Well, thank you, Richard. And thank you all for joining the call. In closing, I would like to reiterate 3 messages. The first one, RB's terrific company with great brands and great categories. We are a good house in a great neighborhood.
2nd, While our performance in Q3 was disappointing, we have begun the journey with urgency to get better. It will take time but our people own this company own this challenge and have a passion to restore the performance credibility of RB on the journey to outperformance. I look forward to sharing our strategic and operational roadmap for the business, along with the year end earnings update in February. Thank you for the time today. Thank you.
Bye bye.
Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.