Ladies and gentlemen, thank you all for standing by, welcome to today's RB Half Year Results 2019 webcast. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star and the number while in your telephone keypad and wait for your name to be announced. I must advise you all that this conference is being recorded today, Tuesday the 30th of July, 2019. Without any further delay, I would like to hand the conference over to the Senior Vice President Investor Relations at RB, Mr. Richard Joyce. Please go ahead.
Good morning, welcome to RB's Half Year 2019 results presentation. Before we start, I'd just like to draw your attention to the usual disclaimers regarding forward-looking statements. Now, without further ado, I'll hand over to our CEO, Rakesh Kapoor.
Thank you, Richard. Good morning and welcome to RB's half one interim results presentation. Let me begin by introducing the RB team participating on this call today. We have Adi Hennah, our CFO, Rob de Groot, President, Hygiene Home, and Adi Sehgal, COO, Health. You have surely met or heard them before. It is also my pleasure to introduce and welcome our CEO designate, Laxman Narasimhan. He has literally been in the company for two weeks and is here to say hello and to let you know what he will be focused on over the next six months. He will not be taking any questions at this point in time. Laxman, welcome to RB. I know just how much of a privilege it is to lead this great company, and we are delighted that you have decided to join RB.
Thank you, Rakesh. I'm indeed delighted and honored to join RB and to lead this great business into the next decade. As Rakesh mentioned, I have been with RB for two weeks only. I'm going to keep this brief. I did, though, want to take this opportunity to talk about my top priorities and tell you how enthused I am to be taking on the role of Chief Executive from September 1st. I come to this company from PepsiCo, where my career covered running operations in developed and emerging markets and driving the global commercial functions. What has struck me in the short time that I've been at RB is the pride and passion for everything the company delivers, which is the lifeblood of this business.
RB's products and people play a critical part in delivering our mission of improved health and hygiene for all people across the globe. I am honoured to be taking over from Rakesh in September, and I'm looking forward to seeing the operations, meeting the wider team, and building on the strengths that we have. I will apply a laser-like focus on driving shareholder returns. To that end, I have three key priorities. Firstly, to deliver sustainable outperformance, especially in the health business unit. Consistent operational performance is clearly the immediate priority. Secondly, to drive RB two point zero. Thirdly, to create a level of engagement with our employees, our suppliers, our customers, our consumers, and you, our investors and wider stakeholders, which is open, transparent, and dynamic. I will provide a fuller outlook in February, along with the full year 2019 results.
I look forward to meeting up with many of you along the way and hearing your perspectives. I would like to thank Rakesh for his leadership. I look forward to meeting you all in due course, but for now, let me hand you back to Rakesh, who along with Adrian, Adi, and Rob, will talk you through the Q2 results.
Thank you, Laxman. Right, before we get on with the detail of this presentation, let me kick off things by giving you some key messages around what we have done over the last 18 months in particular. You might remember, I'm actually showing you a slide which I showed you around RB two point zero 18 months ago. At that point in time, we outlined three key objectives. First, to create a global leader in consumer Health. The second was to unleash the potential of our Hygiene Home power brands, and thirdly was to create two structurally independent business units. Let me take you through each of these in turn. On Health, it would be an understatement to say that I'm disappointed with our Q2 results. When I spoke to you during our Q1 trading update, we knew Q2 would continue to be tough.
There are some pockets which have turned out to be somewhat tougher than we thought, like some of our developing markets for our Health BU, particularly for brands such as Dettol and Durex. However, there are some areas where our progress is quite encouraging. For example, our innovation pipeline on Mucinex. We are launching Mucinex Nightshift and Enfa with the launch of Enfagrow Grass Fed in China. We are increasing our capabilities in medical sales, new city expansion, channel expansion, digital and e-commerce. Make no mistake, RB has created a global leader in consumer health. We have a relatively young history as a consumer health business. Just eight years ago, 20% of our business was consumer health, and now it is over 60%.
The creation of a separate business unit focused on health and the integration of Mead Johnson in such a short period of time has been unprecedented, and people have worked very hard during this time. We have strong plans for the rest of the year and beyond. I do see some important green shoots and signs of better momentum returning. For example, the IFCN business is seeing strong share and growth momentum in the U.S., and the recovery in China, which Adi will talk you through, bodes well for the H2 . Our OTC power brands are performing well. We expect a H2 in health which is strong and are further increasing our investment in brands and capabilities to support this growth. The second objective of RB two point zero was to unleash the potential of our Hygiene Home brands.
I'm very pleased that in the short space of time, this business is performing at the top end of our market, medium-term expectations, and that too with consistency. I'm thrilled to see the passion for innovation and increased investments in this business and remain confident that it will continue to deliver a strong H2 . The third and final objective of RB two point zero was to create two structurally independent business units by mid-2020, and as we have stated in our release, we are fully on track. Before handing over to Adrian, I'm pleased to say that important progress has also been made in reducing uncertainty. A leadership change always brings uncertainty and disruption in the business, and I'm delighted to have someone of the caliber of Laxman joining us.
I've already spent a significant amount of time with him as part of the transition process and will continue to do so in order to make this as smooth as possible. Whilst he will be CEO from 1st September, I will, as I committed to you in January, be available to support him as he wants until the end of 2019. And then I'm also pleased to say that we've drawn a line under the long-standing Indivior-related matters. Eight years ago, I said RB is not a prescription pharmaceutical business. The business is non-core, and this is why the board took the decision to de-merge it in 2014. With this, I'd like to hand over to Adrian to take you through the detailed financials. Adrian, over to you.
Thanks, Rakesh. Turning then to the first financial slide nine, these are the reported numbers for the group as a whole for the H1. In subsequent slides, we focus on the trading performance. In other words, the top two rows here for each business unit. We will deal here with a couple of the items lower in the P&L before turning to trading. The adjusting items that you can see are the cost of integrating the Mead Johnson acquisition, the associated RB two point zero restructuring costs, and the amortization of MJN intangibles. They are in line with guidance, and we have, as usual, included an analysis in the appendices to this presentation. The reduction in the net finance expense to GBP 144 million in half two reflects a changing mix of debt. We repaid $500 million in bonds in September 2018 and $1.2 billion of term loans since June 2018.
There are also about GBP 16 million in benefits in interest income, mainly associated with RB two point zero restructuring, which we do not expect to be repeated in half two. The ongoing cost of net debt remains in line with our guidance of about 3%, excluding the tax-related component. We cover later the movement in net debt during the half and the composition of debt at the period's end. The tax rate on adjusted profit for the half year was 23%, our expected rate for the full year, and in line with guidance. This is the same as the rate in half one last year. Discontinued net income includes the $1.5 billion cost of the Indivior settlement described in our RNS on the 11th of July. The GBP 867 million charge represents the sterling equivalent value of the increase in the provision from $400 million.
GBP 750 million has already been paid, and we expect to pay a further GBP 650 million during August. Total adjusted EPS growth at actual rates was 4% in the half year. On the next slide, we set out the sources of this EPS growth. If the exchange rate in June were to continue to end 2019, the net translational impact on currency movements would be a 2% tailwind for the full year and also a 2% tailwind in quarter three. Turning then to the next slide. The half one 4% adjusted earnings growth comprises the components set out on this next slide. As you can see, 1% from net revenue growth, a negative % decrease for the 10 basis points decline in margin, a 2% increase to the lower interest cost. We expect about 1% benefit from normal operational de-gearing.
This high number is due to the temporary benefits noted on the previous slide, which we do not expect to recur. There's no effect, obviously, from the flat tax rate and a 2% foreign exchange tailwind. Turning then to the next slide. This slide shows the revenue gross margin and adjusted operating profit numbers for half one and the revenue numbers for quarter two for the group as a whole. Like for like, net revenue was flat in Q2 and grew 1% in the half. Gross margin declined 20 basis points in half one. Operating margin declined 10 basis points. BEI spend for the group increased 10 basis points as a % of revenue. Total SG&A spend was aided by a reduction in variable pay expense due to the weak performance this year. We expect this to last for the full year.
We'll return to the business unit operating margins and to a closer look at the drivers of margin change in a moment. Turning then to the next slide, and now looking at just the RB Health business unit. In headline terms, you can see that RB Health had a poor quarter, declining by 1%. Adi will give you more color on the dynamics behind these numbers in a moment, but a few comments and a few more numbers from me first. The flat Q2 revenue in IFCN comprised continued strong growth in the U.S. with continued incremental execution improvement. A flat position in China as supply issues were largely resolved and the focus returns to securing new consumers, including to replace those lost during the supply outages, and declines in Latin America and ASEAN.
The 1% Q2 growth in OTC reflected a return to growth for Mucinex, though in a low seasonally weighted quarter. Solid growth by all the OTC power brands, despite a strong comparative, but a slower performance by the smaller OTC brands. The disappointing 3% Q2 decline in other health reflected increased competitive pressure in Dettol and Durex, and the continued rebalancing of the Scholl portfolio. Turning then to the next slide and the price mix and volume data for health. Across the business unit in Q2, the negative 1% growth, 1% decline comprised a 5% volume reduction and a 4% price mix increase. This is, of course, not the balance between volume and price mix that we target. We do not see real price increases any part of sustainable growth, and Adrian will cover in a moment the reasons for this temporary imbalance.
On the next slide, you can see the geographic progress of health revenue. The 4% Q2 growth in North America reflects the strong infant nutrition and improved Mucinex revenue performance mentioned a minute ago. In Europe, revenue declined by 2%. Strong Nurofen and Gaviscon sales offset by weaker local OTC brands and the Scholl refocus. Within DVM, revenue declined by 3%. The flat IFCN revenue in China and decline in LATAM and ASEAN weighed negatively. DVM's next two largest brands, Dettol and Durex, both faced a more competitive phase. Turning to the next slide. We have set out here a quantification of each of the moving parts of the 120 basis points margin reduction in health in half one. Firstly, 140 basis points gain, as most of the rest of the Mead Johnson cost synergies were delivered.
We have delivered these cost synergies faster than originally planned, and we'll return to this briefly in a moment. Secondly, an additional 30 basis points cost of the RB two point zero changes. We see here the expected full year effect of the RB two point zero costs, which were largely fully in place by the end of 2018. Thirdly, the trading margin change. This was a net 230 basis points reduction, and there were a number of factors determining this reduction. Firstly, investment in increased production capacity, R&D systems infrastructure, and very much channel capabilities in China. This total is somewhat over 100 basis points. An increase in BEI spend of 30 basis points. Extra freight costs in resolving the China IFCN supply position. We estimated around 50 basis points. The negative leverage from lower volumes going through the factories and lower revenue and some negative mix, also around 50 basis points.
An increase in input costs, some specific to ingredients and products in our portfolio, exceeding the benefit of price increases, also around 50 basis points, offset by around a 50 basis points reduction in variable pay expense. If we turn to the next slide. Here we show progress on achieving the Mead Johnson cost synergies. You can see that we achieved an incremental GBP 55 million in half one for a total of GBP 233 million to the 30th of June. We have therefore slightly exceeded our original targeted synergies ahead of the planned timing. We expect to realize a small number of further synergies, which we will reinvest in the business. What does all this mean for our expectations for Health margin in the full year 2019?
Well, some, but not all of the categories of the negatives seen in the half one margin will continue for the full year. We expect capacity and capability investments to remain a headwind for a while. We expect the extra freight costs to end and the volume deleverage to diminish. We expect the net input cost headwinds to diminish. We expect the benefit on margin of lower variable pay to be sustained during 2019, but to be a headwind in 2020. We expect higher efficiency improvement in half two. Importantly, in half two, Health will be lapping the costs of the supply disruption to infant nutrition last year. A couple more general points on the Health performance. We continue to expect the markets that this business unit serves to grow at 3% to 5% in the medium term.
We saw market growth towards the top of this range for much of 2018. Growth has declined to the middle of the range this year, due principally to slowing China infant nutrition demand as the number of new births declines and by the weaker flu season in the Northern Hemisphere, but nothing to change our medium-term expectations. However, our performance against the market has been disappointing, and we are losing share. It is our medium-term expectation to outperform the market. We have built a synergistic set of consumer health brands and capabilities to which we are applying the usual RB energy and drive and an evolving operating model. We are clearly seeing substantial progress in improving the business, which we would not have seen if the same management teams were still covering all brands from Mucinex to Vanish.
You will hear from Adi in a moment a lot of specific initiatives which are moving the business in the right direction. We expect half two to be stronger. Accelerating this progress and improving performance is the number one priority of the group. Turning to the next slide and focusing now on the Hygiene Home business unit. Rob, who of course, runs the Hygiene Home business, will give you more color in a moment. A few comments from a financial lens. We see the market served by this business unit as continuing to grow in the top half of the 2% to 3% expected medium-term growth. The sharper RB two point zero focus and a good stream of innovation reversed the share decline of the previous years during 2018. We have seen some tough competitive battles this year.
The current underlying cadence is in line with our medium-term base goal of the upper half of 2% to 3%. You will hear from Rob that we have a good stream of innovation in the pipeline to grow the business strongly into the future. You can see here the reported 3% growth rate in Q2, the same rate as in Q1. Growth was broad-based across the brand portfolio. The five largest brands, Finish, Air Wick, Lysol, Vanish, and Harpic, all grew in quarter two. Turning to the next slide, and the price mix and volume data for Hygiene Home. The Q2 growth rate comprised a 1% reduction in volume, a 4% price mix increase, the same pattern as in Q1, and for the same reason.
Half one last year, as you can see from this chart, had strong volume and weak price growth, which I hope is lapping in half one. The two-year picture, therefore, shows the balanced volume and price mix position that we target. On the next slide, we have set out a geographical summary of the revenue in this business unit. Revenue grew by 3% in Europe, stronger than in recent quarters, but it remains a tough market. Growth in North America was 2%. Growth in DVM was 3%. This was lower than in recent quarters as a tough Middle East market and weaker LATAM performance held back continued good progress in India. Turning into the next slide, we have set out here for the Hygiene Home business unit, a quantification for half one of the moving parts of the 190 basis points margin increase.
Firstly the additional 40 basis points cost of the RB two point zero changes. A similar absolute number to Health, with a slightly higher margin impact. The trading margin change. The next 230 basis points improvement comprises an increase in gross margin, reflecting the price mix increase, catching up for increasing input cost, and continuing good cost control. Investment in innovation, a small reduction in BEI, which is planned to reverse in half two, and delivery of a program to optimize cross-region costs, especially in Europe. We expect this margin increase to reverse in half two. We expect the balance of price and input cost to revert to a more normal pattern, we are planning to increase BEI. Our view on medium-term HyHo margins remains unchanged.
Turning to the next slide, looking very briefly at margins for the group as a whole, the sum, of course, of the margin progress of the two businesses that you have seen. We guided in February to maintain margins for the year. The net of the remaining Mead Johnson synergies, the remaining RB two point zero costs, lapping the costs associated with the IFCN supply difficulties, and the cost of investment in capacity and capabilities. Margin in half one has been a little stronger than we expected in aggregate. Stronger in HyHo, weaker in Health. Part of this is phasing between the halves, we had a tailwind from lower variable pay that we had not expected. Our view on full year margin for the group has not changed. Turning to the next slide and the balance sheet. We show here the usual slide on net working capital.
We continue to run the business with negative net working capital slightly better than our -9% target. We have seen further pressures on receivables in developed markets, and we have seen some increase in inventory from a focus on enhancing service levels. We have largely upset these pressures with payables efficiencies. Turning to the next slide on free cash flow. Free cash flow remains strong, but free cash conversion at 90% fell below the 100% we target. This is principally due to the exceptional spend on the integration in RB two point zero, which reduced conversion by 11 basis points, or excuse me, 11%. Capital expenditure GBP 152 million in half one was 2.4% of revenue. We continue to expect capital expenditure of around 3% to 3.5% in the full year and in the medium term. Turning to the last slide in this part of the presentation on net debt.
Net debt reduced by GBP 200 million in half one. The GBP 900 million of free cash flow generation was largely offset by GBP 700 million from the prior year final dividend. We pay out about 60% of the full-year dividend in half one. We have set out an analysis of the movement in net debt in the appendices. We will have paid the $1.4 billion under the settlement with the DOJ in the U.S.A. during Q3. We are funding this from cash flow and from additional commercial paper borrowing. We have increased our revolving credit facility to GBP 5.5 billion. With that, I'll hand over to Rob to take us through progress in Hyho.
Thank you very much, Adrian, and good morning to all. I'm glad to share the half year one results of the HyHo business with you. First, I want to bring us back to February 2019, when I explained what sets apart the HyHo business. First, potential. We are a business with enormous potential, operating in premium, high margin categories, with lots of opportunity to grow penetration in both emerging and developed markets. Second, purpose. We are strong brands with purpose at the core that are uniquely positioned to deliver value for our business while creating a cleaner world. Third, performance. We are a business with a performance culture. We strive to deliver competitive growth at best-in-class margins. Today, I will be focused on the last box and give you some color on the H1 performance.
We've had a strong start this year, delivering net revenue growth in the first two quarters of 2019 at 3%. This growth rate is in line with the markets in which we operate, which are highly concentrated in Europe and North America. On margin, we saw margin expansion of 190 basis points versus the H1 of 2018, driven by strong pricing and cost management. For the H2 , we expect a rebalancing of this, mostly driven by further investment behind our numerous 2019 initiatives. We expect margin for the full year to be broadly flat. Our growth over the past six quarters has been consistent and broad-based. I should call out that last year, half one was buoyed by a particularly strong cold and flu season in the U.S., and also the creation of separate legal entities and SAP implementation causes sometimes some quarterly deviations.
Hence, I prefer to judge the half year performance for the areas as a whole. In the half year, the regions grew in net revenue, developing markets at 6%, North America at 2%, and Europe at 1%. In half year one, there were not only all geographies growing, but the growth was driven by our power brands. I remind you that 80% of our net revenue is driven by the seven power brands that you can see on this chart. We saw the growth in half year one on five out of seven these power brands. I would like to give some perspective on the volume and price relationship since the formation of HyHo from 2018, as it gives context to our long-term composition.
As you can see by the right-hand side of this slide, which details the growth between price mix and volume, growth over the past 18 months has been well-balanced between volume and price mix. We did balance more volume-led growth in 2018 with a stronger price mix impact in half year 2019. In February, I discussed our three key drivers of growth, innovation, emerging markets, and e-business. I'd like to give you some updates on each of these. On innovation. Innovation is the engine of our growth and earnings model. As I said in February, the pipeline of initiatives for 2019 is 50% bigger than two years ago, and we are on track to deliver this. Emerging markets. Although they currently account for 25% of our revenue, emerging markets comprise 50% of our total growth. We continue to build our capability and go to market in key geographies.
Third, e-business, which I want to point out is an evolution from e-commerce. We see this as an opportunity to drive expansion to new consumers and geographies, leveraging new products, digital capabilities, partnerships, and different business models. In half year one of 2019, our e-business has grown more than 40% versus last year. I want to take a moment to focus on our e-business growth and share with you what we have done. A dedicated organization has been established to focus on e-business. This group operates in hubs in priority geographies, Europe, China, India, U.S.A., and they have full P&L responsibility and end-to-end capabilities from brand innovation, supply, commercial, marketing, distribution, and of course, data analytics. This team is generating results. In our e-hub regions, we saw impressive growth ranging from 25% to 75% net revenue growth in the H1. Whitespace expansion through hyper targeting.
Digital enables us to hyper target new consumers in new geographies. In India, for example, premium solutions like our Air Wick Essential Mist or Vanish are targeted to high-income consumers, both in digital media and in digital distribution channels. This type of digital-first hyper targeting allows us to surpass the traditional retail-focused, scale-led type of traditional brand building, using a more focused, future-fit e-business model. This will be a key way we will continue to unlock whitespace potential across markets. Now I would like to share with you our focus for the H2 of 2019 by highlighting some of our initiatives. Firstly, in February, we unveiled some innovation highlights that we were very proud of, like in developing markets where we launched specific dishwasher Finish Powerball tablets in China. We also innovated to deliver superior solutions on our big brands, like Air Wick Essential Mist Diffuser and Vanish.
I point your attention to Finish Quantum Ultimate, a superior technology product. In half year two, we will be rolling out this exciting new Finish product across more European markets. These big launches will be fueled with incremental investments in half year two. In half year two, we will complement these launches with more dedicated launches. We launch specifically for developing markets, Lysol in India. In India, where a significant proportion of the population has cement floors, we're launching a new specialist surface cleaner, for cement with superior tough stain removal. Vanish Oxi Action All in One. Vanish is one of our global power brands that consumers love and trust for their stain removal. We're adapting this product to meet consumer needs in developing markets, particularly the Asian markets, to simultaneously remove stains, eliminate bad odors, whiten and brighten colors in one wash.
SBP in Brazil and Harpic in Indonesia are launching market-relevant innovations. Of course, we continue to innovate with superior solutions on our big brands. Vanish Oxi Action Crystal White. Now consumers can truly experience the joy of whites by reviving their dull whites to 10 shades whiter in just one wash. For Air Wick Seasonal, we're launching a decorative range of Air Wick devices in the U.S. to bring some seasonal fun into the home. Lysol Laundry Sanitizer Sport is specifically designed to break down body sweat and mud odors in clothes at the molecular level. This contains 0% bleaches, is gentle on fabrics, and works even in cold water. Innovation is not just about products, sorry. It's also about our vision as a company, what our brands stand behind.
In February, I talked to you about our purpose and our vision for the future, creating a cleaner world. What does this mean? It means superior solutions through the products we serve to consumers. It means accelerating hygiene standards across the world, and it means delivering sustainable outperformance. We achieve this vision of creating a cleaner world using a differentiating purpose model. Whether it's preventing the spread of germs in flu season, or protecting families from mosquito-borne illness, or supporting access to sanitation, our brands are in a unique place to make a positive impact on the world. By tying our brands to powerful social cause, we create superior solutions that carry a premium price and margin.
There will be another time to go more in detail on all the programs for our brands, but I just want to reassure that more brands and more countries are activating the purpose agenda on which we have embarked. We're extremely excited about how far we've come, but we realize we're also only at the start of an exciting journey. As I did in February, I want to close with where I started. This is who we are as a business. We are a business with enormous potential, a strong set of brands which are uniquely positioned to have a greater purpose for consumers, and a unique performance culture geared towards delivering consistent broad-based performance. Thank you. I now hand over to Adi Sehgal to talk about Health.
Thank you very much, Rob. Good morning, everybody. Today, I'm going to talk to you briefly about the half one trading performance in health. But more importantly, I am also going to take you through our plans to return RB Health to growth to the H2 of the year, show you where we are investing for both growth and resilience, and run through a selection of our exciting new product pipeline for the H2 . Rakesh had mentioned that we had expected our growth to be half two weighted in 2019. Against this backdrop, our health business declined -1% in half one, driven by a disappointing performance in Q2 of also -1%. There were a number of expected components of the performance in Q2 and half one. Our IFCN business delivered our expectations.
We had seasonal declines in our OTC business in the USA and Europe in quarter one, driven by the weak flu season. We saw our OTC business come back to growth in quarter two. The disappointing performance in Q2 was mainly in our other health business in developing markets. Our IFCN business grew 2% in half one, with +5% in quarter one and a flat performance in Q2, which lapped a 9% growth in the same quarter in 2018, pre-supply disruption. We delivered strong growth in USA behind our NeuroPro innovation and increased focus on e-commerce and medical channels. We gained significant share. With our plan for half two, I expect to continue this strong outperformance in the H2 . This was balanced by a flat performance in China as we came back from our supply disruption in the H2 of last year.
I expect a strong half two with a tailwind of GBP 70 million in China as we lap our supply disruption and with strong innovation and distribution programs. In other markets, performance has been mixed, with weak performances in some markets in ASEAN and LATAM. Now that we are back on track in the USA and China, I expect to personally spend more time in these markets and for us to roll out our successful learnings from China and from the U.S. I will talk later about the first of these being rolled out in Latin America. Pre-acquisition, Mead Johnson had been losing market share for a long time. We have reversed this trend, and I am pleased to say that for the first time since the acquisition, we saw positive share gain globally on IFCN in June 2019, which is a clear signal of progress.
On China, the market is in line with our projections. It slowed due to lower birth rates as the one-time baby bump caused by the relaxation of the one-child policy in 2016 to 2017 works its way through the system progressively, stage by stage, leading to a more normal growth rate in future. At the same time, we see premiumization continue in China as mothers look for the very best products for their children. We continue to see strong growth in pockets like e-commerce, super high premium, specialty products, and mom-and-baby stores. We have worked hard to position our business to win in these specific areas.
On our brands, we did lose a cohort of mothers after our supply disruption in the H2 of 2018, but we ensured that we kept the equity of our brand strong by continuing to invest in BEI through this period of disruption. I am pleased that we are now at the same level of users as we were before the supply disruption with a normalized supply situation in the H2 of 2019. I expect an improved performance in half two as we lap our supply disruption, but also start seeing the benefits of our improved go-to market. We had announced a partnership with JD.com last year. We have now built availability in over 500 cities, and we expect to leverage this with the launch of our exciting new grass-fed innovation in this channel later in the year.
On OTC, we delivered a decline of minus 5% in the H1. As you know, quarter one was severely impacted by the poor flu season in the northern hemisphere. As expected, in quarter two, we returned to growth. We saw good mid-single digit growth on Mucinex. While we are not yet in share growth, our share losses are progressively reducing as we successfully lap the re-entry of the private label completely in quarter three. Our other major power brands like Nurofen, Strepsils, and Gaviscon also had a good quarter and are all gaining share in the latest read. Why was growth only 1% for the OTC portfolio in the quarter? Well, it was a weak quarter for some of our local brands, particularly in LATAM, India, and Europe, impacted by heightened local competition, seasonality, and stock movements.
Overall, we expect to be in strong growth in half two with a strong innovation in Mucinex, which I will shortly talk about, a weak flu season in the base, and more normal performance from our local brands in the H2. With that, let's turn to Other Health, which is where performance came in below expectations in Q2. Our Other Health business declined minus 1% in the H1, with a flat performance in quarter one and minus three in Q2. Dettol is our largest brand in Other Health and our second-largest brand overall. The brand has a long history of outperformance, but it was impacted in Q2 by intense competitive and pricing activity in some of its largest markets, Africa, Middle East, India, and ASEAN. The brand remains strong, and we have adjusted our competitiveness in a number of these markets towards the end of quarter two.
I expect the performance to improve in half two as these interventions take effect in market. Turning now to Durex. We have driven continuous value creation in Durex since we acquired the business in 2010. It is the world's leading condom brand and has a long track record of innovation-led growth. We did, however, have an unusually weak quarter as we saw a step up in competitive pressure in China in particular. We expect the performance to improve over the next 18 months as our planned innovations come to market. On Scholl, we discussed this extensively on our quarter one call. We continue to refocus the brand onto foot care and problem solution products. We expect volatility as we go through this refocus and expect it to have less impact on our Health performance in half two and as we go forward.
On VMS, we returned to growth in the quarter. We saw encouraging early results on our new brand, Neuriva, both from consumers and customers. That is a summary of our health performance in the quarter by segment. Disappointing in aggregate, not at all a reflection of the huge work done by our people. As we enter half two in February, we had said we expected growth to be half two weighted. One of the key factors driving better performance in half two are some very exciting innovations in our biggest category market units, IFCN in China and Mucinex U.S.A. We are launching a new version of Enfagrow in China designed specially for Chinese babies. It is made from milk sourced from 100% grass-fed cows and brings benefits in naturally enabled good digestion, plus the brain-building heritage of Enfa.
This is a launch specially focused on mother and baby stores channels and will be driven by our new go-deep distribution infrastructure and partnerships. I talked earlier about how we focused our innovation energies first on China and the U.S. post the acquisition of Mead Johnson. We are now rolling out our successful U.S. innovation, NeuroPro, to more markets with the ProMental launch in Latin America. Moving to another exciting innovation. For Mucinex, I'm excited to share a big innovation for the coming season, Mucinex NIGHTSHIFT. There is a well-established category for nighttime cold and flu and sinus relief. The way these products work is that some of the ingredients that provide relief from cold and flu symptoms can also make you sleepy. Some of these ingredients are still highly active in your body after eight hours, and therefore you wake up still drowsy.
Mucinex NIGHTSHIFT delivers the powerful performance that people expect from Mucinex to fight cold and flu. It also has a different ingredient that, in addition to being an antihistamine, is known to make people sleepy at night. This ingredient is metabolized faster. You can get the relief you need to sleep well and wake up refreshed and ready to go. We acquired this brand 10 years ago. This is one more example of meaningful innovation, which has fueled the brand to be the number one OTC brand in the U.S. We just launched a new range of personal wash products in India. Dettol partnered with mothers on how we make soaps, what we make them with, and how we communicate with mothers.
We co-created new products with zero talc, zero harsh residues, 100% natural oils and essences for fragrance, and with the same Dettol protection that families trust and love. It was launched in the end of quarter two with an innovative social campaign driven by celebrity moms, which is making big impact in India. We expect this to be a big builder of Dettol's equity and connection to the new generation of moms. Continuing on the theme of launching products that have historical trusted benefits, but in line with the times, we are upgrading our Durex Fetherlite range in China. China is a market which demands the very best products and experiences. We are relaunching our Durex Fetherlite range with the same great protection from Durex, but now reducing the thickness of the condom to 48 microns to give the same safety, but further improved experience for our consumers.
Over a fifth of our global Durex business is online. Our online consumers have additional needs versus our offline consumers. First, they want to ensure that the product and packaging is discreet, even though they tend to buy bigger sizes than offline consumers. Second, they want more variety and the ability to mix and match the products they want. We have reworked our consumer experience and product delivery for this new paradigm. Consumers can now mix and match various condoms or Durex products and receive their order in a discreet, customized package. Of course, it also helps us with better shipping costs, since the packaging is now letterbox size and e-commerce friendly. E-commerce continues to be a key focus for us globally, and we continue to see strong progress here.
Our e-commerce business in Health is now over 11% of net revenue, and if it were a country, it would be our number three country behind the U.S.A. and China, with over GBP 1 billion of retail sales value based on the half fund sales annualized. I have previously talked about the investments we are making and our plan on e-commerce. These are on track, and we expect to have over 1,000 people working in e-commerce by end 2019. We currently have 32 direct-to-consumer sites globally, up from 14 last year. We now have strong e-commerce businesses, not just in China and the U.S.A., but across most of our markets around the world. It is not just about e-commerce sales. To be competitive in future, we are reinventing how we do business and marketing in a digital-first world.
We need to win both in lower-funnel conversion for e-commerce, but also upper-funnel demand generation for our brands. As we do this, we need to set ourselves up so that we are as advantaged in the digital-first world of today, where over 40% of our marketing spend is already online globally, as much as we used to be in the TV-first world of yesterday. To embed this new way of marketing, which we call 21st Century Marketing, into the company at all levels, we have already retrained all our brand marketers and then enabled them with the right tools and skills. Our brands live in a world of data, and we are in the process of creating AI-driven tools that help to identify better consumer insights faster and to strengthen our communications planning.
We are creating 10 agile in-house content studios, so our teams have access to more agile and real-time content. We have also built one tech stack that goes across our company, fully integrated with e-commerce. This enables us to move from the world of mass media to more highly customized and personalized one-on-one relationships. Before I hand you back to Adrian, let me summarize. We expected growth to be half-two weighted, and that is exactly how the year has unfolded so far. While IFCN is in line with expectations, we are behind where we wanted to be in OTC and in other health. This is largely due to the weak flu season in quarter one in OTC and due to our heightened competition in other health. This is disappointing.
We are, however, well poised to deliver a strong H2 and have clear visibility of the key building blocks, which are, first, a strong innovation pipeline focused on some of our biggest businesses, including Mucinex NIGHTSHIFT and Enfagrow Grass Fed. Second, I expect the actions that we have already taken on Dettol will drive the business into growth in the H2. Third, a less material contribution of Scholl's to our results. Fourth, we continue to see progress on e-commerce and digital with our e-commerce contribution increasing every quarter. Fifth, the lapping of our IFCN supply issue from last year, which gives us a GBP 70 million tailwind. Sixth, a weak flu season in the base. Very importantly, we are increasing investments behind our brands and go-to-market capabilities both in half one, but also in half two 2019.
As we continue on our journey of building a global consumer health business that is both resilient and fit to compete in the rapidly changing consumer landscape. And with that, I'd like to hand you back to Adrian.
Thank you, Adi. Turning to the penultimate slide, a few words on the progress with RB two point zero. This slide is taken from the investor presentation of July last year. The program that we described in some detail then is on track. The seven work streams we described and are set out on this chart are moving fast. Countries covering around 80% of revenue have had the core RB two point zero implementation. That is, distinct legal entities in place under their business unit TopCo, incorporated into their BU's trading arrangements, and into their own BU's shared service arrangements, and with their IT applications logically separated. We are on schedule to deliver Project Gemini, as we call it, for each BU by mid-2020. Turning to the last slide, 2019 guidance. As you know, we targeted in February like-for-like net revenue growth of 3% to 4% for 2019.
The Hygiene Home business has progressed in line with our expectations. The Health business has made slower progress towards our medium-term goal of growing at the top end of a market growing 3% to 5% than we had expected. We are reflecting this weaker half and the slower progress towards delivering the potential of the Health business, as well as the expected improvement in half two, by reducing the targeted revenue growth for the group for this year to 2% to 3%. We continue to expect to maintain the 2018 level of adjusted operating margin in 2019. And with that, we will now hand over to Q&A, and you, Richard.
Yes, thanks, Adrian. Right. We've got a list of people on the line. The first is Richard Taylor from Morgan Stanley. Richard, go ahead.
Morning, everyone. Firstly, I wanted to give a very warm welcome to Laxman, and also wish Rakesh very well for the future. On to questions. Back in February, you collectively spent quite a bit of time at the presentation explaining why margins are sustainable in both business units. Roll forward to today, it looks like you have more pronounced price elasticity issues in some parts of the business than perhaps you were expecting. I'm very interested to hear Laxman outlining his first priority as focusing on sustainable outperformance. It seems very similar to the line one of your competitors used ahead of resetting earlier this year. My three questions. In the light of the price elasticity issues, are margins still sustainable? If not, why didn't you reset the margins today?
And then finally, how much of a lag do you assume for investment in health to drive a growth response? Thank you.
Well, listen, Richard. I suppose a couple of things. One, I think just go back to the February presentation that you were referring to. Of course, among the presenters there was our chairman. The chairman was expressing the view of the board, and hence continuously through a CEO change, about the board's comfort with the balance of margins in this company. There's nothing that's changed about that. Yes, certainly we've seen, actually, the margin in the H1 slightly higher than we were expecting as we signaled. Nothing fundamental has changed since that statement by the chairman in February last year. That said, we clearly have a new chief executive, and as you heard Laxman very briefly say in his introductory remarks, he has a brief to look over the next six months deeply into the business.
If in the course of that, he comes up with a view that more investment will deliver more value for the company, then we'll hear about that in February. As we stand now, there is no change on the view about margins in the business, Richard.
On the investment in Health driving a growth response.
Well, yes. It is very clear. Call it margin reset, call it what you will, but more investment has gone, in particular for Health, but not just into the Health business, also the Hygiene Home business, since RB two point zero. You've seen that progressively over the last 18 months. We were calling out again today in explaining the margin movement in Health. There was 100 basis point-ish of reinvestment in a variety of things, from capacity in the factories through to R&D, through to underlying systems, and very much go to market in China. Those things are coming through. Clearly, different types of investment have different lags and lead times. I think importantly, Richard, this is all happening in the course of a tremendous amount of change in Health.
As you've heard us saying over the last 18 months, an awful lot of people moving to an awful lot of roles in integrating Mead Johnson alongside the RB Health business. An awful lot of change. Frankly, that has had a somewhat bigger impact on the health business over the last 18 months than we expected. Therefore, I think in terms of when you get return on investment, that's something that realistically has to be taken into account.
Thank you.
Thanks, Richard. Okay, moving on to the next question. It is Marion Boucheron from MainFirst. Marion, go ahead.
Hi, everyone. First question will be on RB HyHo. How do you look at H2? Volumes have quite fallen in H1, and you'll be lapping a bit tougher price mix. What are you expecting the division to go for on the other half of the year? Just going to margin also, but it seems like the synergies are now done for the Mead Johnson integration. How should we look at RB two point zero incremental costs for the remaining of the year? Thanks.
On the HyHo expectation for the H2 price mix and volume.
What I've explained is that in the first 18 months, you actually had two different periods. The first period of 2018 was largely volume driven, 5% in the H1 and -1% on the pricing, and that's the index that we are seeing now in the H1, where it's actually the reverse. If you do the aggregate of that period, actually we come to a very balanced growth between volume and price. Which is also in line with our guidance and our strategy to have a nice balance between price mix and volume. As you have rightly seen, in the H2, there was already a pricing effort in 2018. We also expected a more balanced mix between volume and price mix.
Where should volume pick up? Where would you expect it to pick up? Is it just the easier comps or the innovation launches or?
It's a combination of these things. Definitely the innovations will play a significant role in the penetration strategies that we have behind our purpose programs.
All right.
Marion, on your question on margins. Yes, the synergies are done. There'll be a little bit more coming through, but we'll wrap that into the normal margin reporting. On the RB two point zero incremental cost, yes, essentially these were in place at the end of last year, and what you're seeing in the H1 of this year is a year-on-year effect. That will tail off to nothing.
Okay. Now it's just normal business related to margin movements.
That's right.
Okay.
Thanks, Marion. Okay, now we've got Iain Simpson from Barclays. Go ahead, Iain.
Q2 was clearly significantly weaker than you'd expected. More generally, you have cut guidance quite a few times in recent years. Is there a reason that you just don't seem to have much operational visibility in your business? Is there a case that you need to reexamine your infrastructure cost base or how you do your planning, perhaps put back in some of those overhead costs you took out with Project Supercharge? I'm just trying to drill down to why the numbers and the guidance seem to bounce around from quarter to quarter a lot. Secondly, hopefully a slightly more cheerful question. Are there particular learnings that you can take from U.S. IFCN, the share gain there, the recent recovery in Mucinex? What have you done right with those brands? What can you roll out across the rest of health? Thank you.
Hi, Iain. Let me take the less cheerful question first. I would say to you, the first thing is that when we stood in front of you all in February together, we pointed to a growth profile for this year, which was going to be H2-weighted. Our Q2 has come in weaker than expected, but not materially weaker, as you just said. In fact, back in Q1, I had said, in the Q1 reporting, I said we should expect Q2 to be of similar nature to Q1. If you can configure Q2 towards Q1 results, it is not materially weaker, it is somewhat weaker. I don't believe that we are materially worse off than we expected to be. We always expected growth to be H2-weighted for the factors that both, particularly Adi has described to you why we expected it to be like this.
It's a combination of a stronger pipeline and the phasing of that pipeline towards the H2 of the year with Mucinex, Enfa, et cetera. An increase in investments behind the H2. There's something to do with the comps of the previous year, where we had a softer flu season last year, but also a supply disruption, which were material, GBP 70 million. You can do the math of how much they add to the growth over the balanced half. There were a number of reasons why we knew back in February that the growth is going to be H2-weighted, and Q2 has fallen short of our ingoing expectation, not materially, but they are definitely short, and this is the reason why we have revised our guidance downwards. That's the first one.
In terms of the second question, I think in aggregate, when I look at two years of infant nutrition and not just one quarter or the Q2 , but I look at in two years, what have we achieved? This business was declining at -three when we took over, and it was +three last year. It is +two for H1 . Again, in the H1 , we still see the carryover effect of the supply disruption. Quite importantly, actually, the amount of work has been done on bringing innovations in a two-year period, but also expanding into 500 new cities in China, completely changing our e-commerce profile on these brands. Then I think when I think about the work that has been done to improve our U.S. business, but also the Chinese business, is quite significant.
It's true that the U.S. business has turned from very negative growth rates in terms of both revenue and market share to both positive in both sides. We are, as Adi pointed out, taking on many of these learnings and applying them in many other parts of the world. It sometimes does not happen overnight, simply because of the way the product registrations work and the innovation pipelines work. Also, of course, to be very open, our own focus has been on our two biggest markets, which we have definitely improved materially versus two years ago. As Adi said, he will focus progressively much more on the H2. I think it is indeed the case that the IFCN business is a very, very different business than we had two years ago.
On Mucinex, actually, the H1/H2 is also to do with a normal season in Q2 versus a very, very bad season in the Q1. I think you are seeing Mucinex is not just a victim of competitive issues, it is also there is a seasonality index. Over the last term, if I go back to 2017, Mucinex had a good year, a very, very good year, actually. 2018 was tempered by private label and in aggregate was okay. I do expect at the end of this year, Mucinex to have a much more normal good year, both as a result of this very, very interesting innovation that is being rolled out now, but also this indexing out of this re-entry of private label, which happened progressively towards last year and I think will go off progressively towards the end of this year.
Okay. Thanks, Iain. Right, moving on to the next question. We've got David Hayes from SocGen. Go ahead, David.
Thanks, Richard. Hello, all. Two areas, maybe one on Durex and one on Dettol. Just on Durex, I wonder if you can give a bit more detail about the intensified competition in China. Is that coming from Ansell under the relatively new ownership? I guess related to that, in the release, you talk about a new portfolio brand being launched in 2020. Is that quick enough for a business that is trying to be agile and you hear of your competitors getting to market much quicker? What kind of delays that launch for another circa six months? Secondly, on Dettol, you obviously talked about the pricing up and then having to roll back those prices.
Is that a symptom, do you think, of a company that's too focused on gross margin delivery, and not so much about or not so much in touch as it could be with competition? Does that mean that there are other brands that maybe there's a need to rebase those prices to make sure they're aligned and competitive and therefore that volume growth steps back up? Thanks so much.
Thank you very much for the questions. Let me start with Durex. Our Durex business globally and in China has a very long and steady history of growth, which is driven by both execution, but also by very strong innovation historically. What is happening in China is that we have a whole bunch of competition, most of which is local, which is launching interesting new products, and there is a lot of competitive pressure. Durex as a brand stands for durability, reliability, and excellence. One of the things about Durex is that we hold ourselves from a quality point of view as the number one brand in the world, which really stands on those three pillars to a higher standard than even the regulations require.
This means that as we bring our innovations out to market, we want to make sure that these are fully tested, in many cases, clinically tested. This therefore means that we are not going to roll out innovations until we have fully made sure that they are fully on our brand footprint and deliver the level of safety and the level of performance and the level of security that our consumers need. This means that sometimes there is a trade-off between speed and perfection. In the case of Durex, we really are very much focused on perfection and trying to get it right absolutely. If this means that the innovation pipeline rolls out over the next 12 to 18 months, that's what it means, but we are absolutely going to get the product right. As far as the question on Dettol.
Dettol is also a brand that has had. It's a loved brand. It's a brand that is fully part of the fabric of the societies that it operates in. It's been there for dozens of years in most of these markets, and people have grown up through their lives with Dettol. It's an iconic brand with iconic markers like the smell and the blue and so on. What has happened with Dettol is that Dettol has always been a premium brand, and Dettol has always maintained a very significant premium against most competitors. In spite of that premium, Dettol has a strong history of gaining share and gaining share consistently over the years.
In this case, there have been incidents of heightened competitive activity over a quarter, which actually perhaps got the price and the level of premium a bit out of whack from the premium that we would normally expect. We have taken note of that, and we have actually addressed it within the quarter. In the markets where we addressed it first, we can already see the brand coming back. I would not be so conscious in the long life and the long history of a brand like Dettol, I would not necessarily worry about one quarter, and I'm sure this is something that we will see coming back in the H2 because we have already made the corrections in market.
Thank you. Thanks, David. Now we move on to John Ennis at Goldman Sachs. Go ahead, John.
Good morning, everyone. A couple of questions from me. The first is on infant formula. You said you expected the China performance to improve in the H2 of the year. I wondered if you could better explain the drivers here, split between market growth, market share, or whether it's predominantly driven by the GBP 70 million tailwind that you referenced. My second question is coming back to, I guess, the prior conversation on the other health business. I guess, what makes you confident that growth can improve here for the H2 of the year, given that the comp becomes more challenging, competition, by the sounds of the answer to the previous question, remains elevated, and a number of the new launches are more focused on 2020? I just wanted to get better clarity on why you think 2H will be better. Thanks.
Can I answer the second one really quickly? I don't think we are going to give guidance by sub-segment, by business unit. I think our overall targets for the year are reflected in the H2 of the year, too. We said there are some favorable comps in some areas, maybe, as you point out, maybe less favorable comp in others. I think our overall guidance incorporates the favorable comps, for example, in IFCN because of the disruption or a flu comp, et cetera, with the less favorable comps that you described, and therefore that guidance is in aggregate on the business as a whole. Adi, you want to take the first one?
Yeah. Talking about China and IFCN. Let me start with the market. First, the growth in the market is exactly what we expected at this point of time and is completely in line with our models. As I said earlier, there was a bump in the market as the one-child policy was relaxed. As those cohorts move out of the system, the market is going to move to more normal growth in future. Right now it is exactly where we thought it would be. In general, the market in China is driven by premiumization, and that compensates for the weakness in volume in the overall market at this point of time. When you think about what we have done in China, I think we have made tremendous progress in a number of areas.
We have really strengthened the equity of the brands that we inherited from Mead Johnson. We have focused on driving Enfamil even through the period where we had a supply disruption and kept strengthening that equity. We are focused on rebuilding the cohorts that we lost through our supply disruption, and I'm happy to say that at this point of time, we are back at broadly the same level of users that we had before we faced the supply disruption. We are focused on rebuilding our supply capabilities, and over the H1 of the year, we have actually normalized our supply as we've built those cohorts up. We have also built up significant capabilities in e-commerce. I had mentioned in the last call that our e-commerce contribution in China is up significantly since the time when we did the acquisition.
We have built go-to market capabilities where we are now in 500 new cities. Cumulatively, when you look at the market share situation in China, in the latest period, we actually see very good progress in market share. Relative to our international peers, I would say we are in a good place in terms of market share at this point of time. As we enter into the H2, we are entering in a situation where our supply disruption is over. We have a very strong innovation, which is going to go into the most important channel, which is the MBS channel. We have our e-commerce platform fully set. I really expect that between innovation and execution, we will drive strong growth in the H2. Of course, we are also helped by the tailwind from the supply disruption that we had last year.
Great. Thanks.
Okay. Thank you.
Right. Now we move to Guillaume Delmas at Bank of America Merrill Lynch. Go ahead, Guillaume.
Good morning, gentlemen. Two questions for me. The first one is on portfolio management in Health and whether you think you might be spreading yourself a little bit too thin there, particularly since the acquisition of Mead Johnson. It seemed that every quarter, the list of underperforming sales keeps on expanding. It used to be just Scholl, now we've got Dettol, Durex, some small brands in OTC. My question here is, do you think your portfolio of brands in Health is optimal, or are there opportunities for some divestments in order to help unleash the full potential of the division? My second question is on RB two point zero. When you announced it in October 2017, Health had good momentum. HyHo was clearly lagging behind.
You fast-forward two years later, and we have the exact opposite picture with HyHo quite strong and Health, to quote you, "being disappointing." My question on this is, doesn't this contrasted development is evidence of the benefits of diversification and of having these two businesses under one single roof? In other words, would it be fair to say that having two separate businesses by mid-2020 looks now less critical than it was two years ago?
Okay, let me take the first one, Guillaume. The way we look at it is that this business has been on a trajectory towards consumer health for a very long period of time and has been assembling a set of brands, which we believe is a fantastic set of brands for a consumer health business. Mead Johnson was the latest step in that, clearly a very big step in that. In aggregate, we believe the set of brands we've got is a fantastic core set of brands for a leading consumer health company in the world. That is the sort of broad answer to your question. There is no doubt, and this perhaps talks in a more particular way to your question, that the diversity across our range of consumer health brands is more than the diversity across the household brands.
One of the challenges in getting the consumer health business to operate optimally is to manage that complexity, is to have the appropriate operating model and the appropriate cadence. There is no doubt that has taken somewhat longer than we expected when we put these businesses together. That is essentially the reason for the divergent performance that you're highlighting also in your second question. Is that to say that in the long term, every brand we've got is perfect? That's not what we're saying. In the round, we believe we've got an excellent portfolio of consumer health brands. In terms of your second question, where are we in RB two point zero? We are where we said we'd be, which is to deliver by the middle of 2020, two structurally independent business units and strategic optionality.
As you can imagine, with a new Chief Executive coming in, the board is putting its mind how to use that optionality, and your observations are noted, Guillaume. Thank you.
Thank you very much.
Thanks, Guillaume. Right, moving now to Martin Deboo at Jefferies. Go ahead, Martin.
Morning, everybody. Martin Deboo at Jefferies. The question's around the moving parts of Health margins. Adrian, thank you very much for your very forensic discussion on the bridge chart, which is very helpful. The question is the relationship of mix on the top line to mix on the margin line. You had 4% price mix in Health in H1 and Q2, i.e., strongly positive, and I would imagine that there has to be a material mix component of that price mix. Yet mix on the trading margin line was a negative factor. The question is, how do I reconcile and understand that? A separate question, just a very technical one, is can I just understand how price mix and volume is measured in the business. Is your volume measure tonnage, or is it something more sophisticated that would also help to understand that? Thanks.
I'm not sure that I fully understood your first question, Martin, because in fact, within the health business, mix was negative in the half. Why? Because of the Mucinex, which is a relatively high margin product, being materially lower. I'm not sure I do fully understand, and maybe if you want a really technical question on mix, we can take it offline, because I think that's a danger of going into a morass there. In terms of how we technically measure volume, yes, we're actually in a transition. We have for many years had a stat cases based approach, i.e. setting a standard for each type of product that essentially weights different things in volume according to things that are broadly comparable.
We are moving that to have a measure that is in line with our market research provider, which is essentially dose related. It replaces a value based stat cases with a sort of usage base. We are in that transition. Either way, it's aimed at weighting SKUs, so they have a broadly similar or a broadly sensible weighting when you look at volume.
Okay. It's helpful. I'll take the mix offline with you then, but thank you for the second answer. That was really useful. Thanks.
Thanks, Martin. Okay, next question from Alan Erskine at Credit Suisse. Go ahead, Alan.
Good morning. Just three very quick questions from me. One is on infant formula. China was flat in Q2, North America strongly up. Could you maybe just go into a little bit more detail about what happened in the other bucket? My second question is, if memory serves me, a lot of the GBP 70 million sales loss in Q3 came back in Q4, I think 70%. What is the actual easy comp in H2? Thirdly, to go back to February, it wasn't just the chairman who was talking about margin sustainability. I think, Adi, you said that the reason the gross margin was so high, that it was built around some very structural drivers. We've heard a lot today about some price resets on the recovered raw material prices, higher BEI. Are you still as confident that your gross margin is structural? Thank you.
You do the first one, Adi, and I'll do the second two.
Since we've acquired the Mead Johnson business, like I said, we focused very much on our businesses first in the U.S. and China to get these businesses back on growth and to also, frankly, generate the right models, which can then be taken on to the other market. As you rightly said, we had a strong performance in North America, and NeuroPro innovation continues to do well. Also in China, given that we were coming back from our supply disruption, delivering a flat performance this quarter on the back of a 9% growth in the base last year, was also in line with how we wanted to grow. Like you rightly said, the performance in some markets in Latin America and also in Southeast Asia has been mixed. While we've had some markets that are growing, we also have challenges in some markets.
As we go forward, we are focused on taking the learnings that we have from the USA and China so that we apply these learnings in those markets. As you can see, we are starting with the ProMental launch in Latin America, which is taking the NeuroPro learnings from the U.S. into these markets. We are strengthening our medical sales force, and this is again, a learning that we got very much from the U.S., which is being rolled out to the rest of the world. As we go forward, like I said in my statement earlier, I intend to personally spend a bit more time in some of the important markets here to make sure that these learnings are well embedded and we get these markets back to growth as well.
Alan, in terms of your question on lapping last year. You may recall last year, we did have a GBP 70 million hit, which we called out in Q3. What happened in Q4 is we were essentially living hand to mouth. We were able to get from the supply chain into China, the equivalent essentially of what was being consumed. There was no recovery, if you like, of the loss that was there in GBP 70 million. The GBP 70 million, we then did in Q1 have some recovery of that, which is one of the reasons that the Q1 China number was quite strong. In Q2, we're essentially seeing demand pull through now in China. The short answer to that is yes, we do in half two, have a GBP 70 million hole, if you like, to lap to our benefit.
In terms of your question on margin, it wasn't just the chairman in February. You're dead right, it wasn't just the chairman in February, and you heard both Rob and Adi, and indeed all of us pointing out the sort of gross margin underpinning of our operating margin. Nothing changes in that. We do believe we do not just have, we have had, and will continue to have because it is our model, structurally advantaged gross margin, advantaged products. There's nothing changing in Q2. Obviously, there are challenges always for that, always competitive challenges, but there's absolutely nothing structurally happening that alters that positioning.
Okay, thanks, Alan. Moving now on to Jeremy Fialko from HSBC. Go ahead, Jeremy.
Hi. Jeremy Fialko, HSBC here. A couple of questions. The first one is on the, I'd say, organizational capabilities. Clearly you are putting more capacity in. You've got the separate infrastructure for Health and Hygiene Home. You're trying to, I guess, upskill the employees. Could you talk a little bit about, I'd say, how far along that journey you think you are at the moment to having the organizational capabilities and the capacity that you think is appropriate? Then a second, much smaller question. Within the OTC part of the business, the power brands did very well, some of the smaller brands did less well. If you could talk about that in a bit more detail and what the outlook for those in the H2 is. Thanks.
Let me just take the first one, Jeremy. Hello, how are you doing? A bit on, and then maybe hand over to Adrian and Adi to fill in some of these. I think if you look at since the inception of RB two point, we've been investing in the business even more so. For example, investing in creating two end-to-end focused agile business units comes with, I think, broadly defined as incremental investment of about 100 basis points in margin terms. We've also invested actually beyond this, in incremental capabilities in e-commerce on both sides of the business. We call them e-commerce, but actually inside the company, we call them e-business units because they are more than just e-commerce. It's about creating digital capabilities. It's about creating new business models which e-commerce brings to you.
That is not just about marketing, training, and digital tech stacks and infrastructure, but also about getting the right skill sets and people. Of course, we have invested behind innovation. You've seen innovation capabilities being built up across both these business units, particularly on the IFCN side in health, I would say, and the hygiene home side in aggregate. I would say finally, we saw investments in go-to-market also. Here again, much more so in some pockets like China, where we felt that our go-to-market capability, particularly addressing major channels and emerging channels like mom and baby stores, was weak. Here we found innovative partnerships with companies like, but not limited to JD.com and to transcend the normal time it takes to build new cities to a very, very short frame of time of about 18 months and 500 new cities.
I think the investment has been broad-based across these kind of pillars. I would say the last one I would say was supply, because we learned actually in 2017, actually in the half two, that there were areas that in supply itself, we had to in 2017 and 2018 both enhance our capacity planning, diversify our supply chain even more, and infant formula, we knew this from day one, with the in-stream of the Australian facility, but also on RB Health. I think if I look at the amount of investment made in creating these two business units, plus also infrastructure related supply, go-to-market, e-commerce, and digital, we have been on this journey for quite some time. I don't believe that we have short-circuited this in any one way. As we approach the H2, some of these are continuing.
Also actually to support our brand in the H1 also, actually, we put more BEI behind our brands in aggregate. The H2 you will see further investment in BEI versus the previous year to make sure that we continue to get our brands in good shape and with the right momentum as we approach the end of the year and beyond. I think it is quite a broad-based effort. It's been quite an effort across the various pillars, and we have not once blinked at the idea of investing where we felt it was absolutely the right thing to do.
The second part of the question was regarding OTC. Again, on OTC, like Rakesh said, we have a long history of performance. We had essentially across our portfolio broad-based growth over a number of years. Yes, as we've had seasonal ups and downs, for example, in quarter one this year, the numbers in Mucinex can go a bit up and down. As we know, one year's headwind could be another year's tailwind at some point. We also have had the issue of private label in Mucinex in the U.S., and that's something that we expect to lapse. We really think that our overall power brands and Mucinex and all of the others like Nurofen, Gaviscon, et cetera, are doing relatively well.
As far as the local brand is concerned, we did have a quarter of weakness in a number of markets, and there are localized reasons in different markets, but I wouldn't really focus too much about one quarter, and I would just look at the long-term trajectory of these brands, which is extremely positive. We do expect our OTC portfolio to be back in growth in the H2 and for the reasons that we talked about before, and that's what I would focus on.
Okay. Thank you very much for those answers.
Thanks, Jeremy. Moving on now to Celine Pannuti from J.P. Morgan. Go ahead, Celine.
Yes. Thank you. Good morning, everybody. My first question is trying to come back on the outlook. You revised your outlook down on top line by and large because you were disappointed with Q2. We had a weak Q1 season in OTC, and this has a high mixed impact. This doesn't seem to have an impact on the margin. How do I reconciliate that? What has done better, so to speak, for you for the year to offset this shortfall in top line and the shortfall in profit? With that as well, could you give us a bit of an idea of how raw material is panning out? I was surprised to see that gross margin, even with the mix, was so good or seemed to be so good in HyHo. My second question, just to coming back on China.
Thank you for all of the details you've given. You said that premiumization is driving this market. Could you give us a bit more detail about how much of your business is in premium versus ultra-premium? I presume the innovation is going to be in ultra-premium. Also, could you give us an idea of how much is in e-com and mom and baby stores as a % of the total? Thank you.
Celine, I'm afraid I didn't understand your first question. Could you just have another go at it?
Yeah. Sorry, I'll repeat. Basically, you lower the top line if you don't lower the margin.
Yeah.
At the top line, you have still a shortfall on total sales, but as well because the mix should be negatively hit by the fact that it was OTC driven. It seems that you're still happy to deliver the margin. I just want to understand what has done a bit better, so that you don't think.
Okay
that you have to lower the margin guidance.
I see. How can you overcome the negative leverage from a lower top line and still have the same flat margin in the bottom line?
Yeah
we did give quite a lot of detail of the drivers of margin, Celine, and there are a lot of them, and they do go up and down. I think it's a question of the net of them that gives us comfort, because there are, within what has given us a better margin position at the half year than we expected, there are a number of items, some negative, such as the negative volume leverage, some positives, such as the lower variable pay, frankly. I think it's a net of those when you look through to the full year, it's hard to call out any one.
On the second question, Celine, I would just say that back in mid-2017 when we took over the Mead Johnson business, our China business was not doing very well. Part of the reason was that we had failed, apart from innovation, we had failed to capture the massive changes in channels that were happening, particularly in e-commerce and mom and baby stores, and the Mead Johnson business was just behind the curve on those. Over the last two years, I would say at this point in time, I would modestly say we have caught up on mom and baby stores. Our business in mom and baby stores is roughly the same as what the market is. It's not over index, but we were behind the index, and now we're at the index.
On e-commerce, frankly, we have also I think around 10%, Adi can correct me if I'm completely wrong, but that was around 10% of our business was e-commerce. As we said last time we were there, we said more than 25% or a quarter of our business in e-commerce. Clearly we have invested, like I said, in making sure that we were where the consumers were. That was not the case. We are obviously not going to disclose very much what we plan to do in the future, but in terms of being very specific and for very competitive reasons, I'm quite happy with the fact that where we focused, we've actually made very rapid and important progress. In terms of premiumization, by and large, Mead Johnson is at the premium end of the market.
Within the premium tier, we clearly have a ultra or what you call super premium and premium. I'm not, again, going to disclose to you the exact ratios there and how our plans evolve. Clearly we want to make sure that whatever we launch addresses consumer needs and consumer preferences. Consumers want the best quality and they want the best product and ingredients with trust and authority, but also at the right price. We are going to make sure that with the grass-fed formulation also, which comes at a premium versus the previous ones, we have the very best product, 100% grass-fed sourced versus some corn-fed sourced products, natural, but also at the right price. I don't want to more disclose in greater detail than this, again, for commercial reasons.
We are very pleased with our channel developments, although more needs to be done, and we want to make sure that that happens, but also our innovation focus in the right tiers of the consumer segmentation.
Thank you.
Thanks, Celine. Next question from Karel Zwijnenburg from Kepler. Go ahead.
Yes, good morning. Thanks for taking the questions. Two quick follow-up ones. The first is with regards to Dettol. You've highlighted the more intense competition and you lowering prices. Which markets are particularly more competitive and who? Are it the international players? Are local players better? That's the first question there. The second question is with regard to infant formula. In the U.S. market, you've been gaining share now or doing quite well for some time, partly driven by the Enfagrow innovation, which you will start to lap. What visibility do we have on continued good momentum in your North American market? Yeah, those are the two questions.
Okay, let me take the second one first. As we said earlier, we have clarity, and we've said that we expect our good performance in the U.S. to continue, in the H2 of the year. I think you should not read more into that. The H2 is clear at the moment. Moving on to Dettol in terms of, again, I'm not going to get into specific competitors by specific markets. In general, let me just say that there may be different competitors in different markets.
It's a number of markets.
It's a number of markets.
A number of competitors, exactly.
Okay, thanks.
Last question. We're conscious of time here.
Last question. All right. It's Jeff Stent at Exane. Go ahead, Jeff. Jeff, are you there? There we go. Do you want to start again, Jeff? Sorry, you've just come on now.
Yeah, sorry. Glaswegian is bad at the best of times, but when I'm away from the mic, it's even worse. Anyway, just a very quick one. I see that you called out Argentina as being a growth driver for IFCN. Now, obviously it's a relatively small part of the business, but clearly the growth there could be very high. Are you able to quantify the contribution from Argentina to IFCN in the quarter?
Well, Jeff, what I can tell you is that if you took Argentina, I know this is a perfectly legitimate question, is that because 50% inflation there, is this somehow distorting your numbers? If you took Argentina out of our numbers, it would not change the rounded numbers that you've seen published. That's about what we can tell you on Argentina.
Okay, that's me. Thanks.
Okay. Thank you very much, everyone. I think we'll end the call there. Bye.