Good morning, welcome to RB's Q1 trading update. I hope you've all got the brief presentation we'll be talking through this morning. It's on the website and has been emailed to our investor and analyst distribution list. Before we start, I just want to quickly draw your attention to the usual disclaimers regarding forward-looking statements, which is there on slide two. Without further ado, I'll hand over to Rakesh Kapoor, our CEO.
Thank you, Richard, and good morning. I will take you through a summary of today's announcement. Then Adrian Hennah, our CFO, and I will be pleased to take your questions. Let me remind you that this is a trading update only rather than a full set of results. Let me start with the three key messages for you today. The first one, we made a solid start to the year in Q1, now operating under our new organizational structure, RB 2.0. As I said in February, we got RB 2.0 off the ground in January 2018 to ensure we minimize transition risk. I'm pleased to say that the new teams are embedding well, and we expect to see benefits to materialize over time. Second, our Q1 performance saw some parts of the business exceeding ongoing expectations and some parts not.
In true RB fashion, I will first take what is not meeting expectations. The health business is very attractive and with strong secular growth rates, but the Q1 performance was mixed. Whilst we grew 3% on a pro forma basis in both this quarter and Q4 last year, Scholl continues to be a drag. We are working hard to address our problems in Scholl, which I will come back to later. On the rest, we have made strong progress. It has been only three quarters since we acquired Mead Johnson and the first as an integrated part of RB. I'm really pleased that we are starting to see further improvements in this business. Hygiene Home also made a strong start to the year. The third message is we remain well on track to achieve our full-year net revenue targets.
A bit more detail on each of these three messages. You would have seen from our Q1 trading update that we made a solid start to the year overall at 3% pro forma growth and 2% like-for-like. As I said, Health had a more mixed performance with 3% growth in pro forma and 1% in like-for-like. IFCN delivered strong pro forma growth of +6%, demonstrating that Mead Johnson is progressing well. This is a great business, and I remain excited about the future growth opportunities. Hygiene Home made a strong start to the year with 4% like-for-like growth. This is, of course, the first quarter in which we are reporting under our new, more focused and agile structure, RB 2.0. For reference, in Q4 2017, we delivered 3% pro forma and like-for-like growth in Health and flat in Hygiene Home.
Let me give you some additional color around our performance. Let me start by reminding you of our portfolio architecture. We have a very coherent portfolio under the umbrella of health, hygiene, and home. Under RB 2.0, we have clubbed our health relief, health wellness, health hygiene, and infant and child nutrition brands under one combined RB Health BU. The Hygiene Home and Home Care brands form the new RB Hygiene Home BU. As a reminder, again, RB Health is around 60% of the business, with the base health comprising 40% and IFCN about 20%. The remaining 40% is Hygiene Home. Let me talk you through how each of these parts have performed in Q1 2018. Let me start with base RB Health, excluding IFCN, which comprises of health relief, health wellness, and health hygiene.
The next slide shows the performance trends over three periods: half 1 2017, half 2 2017, and Q1 2018. As you can see from the right-hand side of the chart, the performance trends over these three periods for RB base health have been broadly similar. Growth has been flat in half 1 2017 and 1% in the aggregated periods thereafter. On the extreme left of the chart, the core relief portfolio, which represents about 15% of the total business, has been performing well over all this period, with around mid-single-digit growth rate. Lastly, the health, wellness, and hygiene part in the middle of this chart. This represents about 25% of the total business, and this has been more challenging. Let me describe this in some detail and take each of these parts in turn.
In the next chart, you will see the health relief, which includes brands like Mucinex, Strepsils, Nurofen, Gaviscon, and they have been strong. Mucinex certainly benefited from a very strong start to the season, although the return of private label meant its growth rates have come down materially from the double-digit levels of last year. We expect this private label re-entry to continue to impact Mucinex this year. Private label competition is a reality across the industry, and we have dealt with this successfully with one key weapon, innovation. We've always had a very strong pipeline of innovation on Mucinex, and we expect to launch more in half 2 2018 in time for the next season. Turning to health wellness and hygiene. First with wellness, which has brands such as Durex, Scholl, and VMS. Health wellness.
Firstly, Durex and our VMS brands were again in growth, with Airborne brand particularly strong benefiting from a good season. The issue here again was Scholl, which suffered a significant decline. As we said in the February call, we are not fully out of the gadget decline, and some of our display space losses are impacting the brand. I'm very unhappy with this performance, and let me tell you some data points and some color on the corrective actions we are taking with Scholl. In the next slide, you see that over the last three quarters, we have seen a relatively stable level of absolute sales. You can see it from the slide that Q3 2017, Q4 2017, Q1 2018 are in about the same territory. At the stable rate, Q2 will still be negative versus Q2 2017, but thereafter, we should see our comps ease.
Gadgets, which were almost three-quarters of the total Scholl sales at their peak, are now down to a quarter of the total category. Given that these gadgets are high-priced items, the gap fill from more normal priced innovations we have launched has not been enough to fully stem this impact. We are working very hard to reinvigorate our performance. Many of the steps include accelerating our pipeline. We have three innovations coming down the track, spread across the portfolio, from insoles to foot aid treatments and other treatment products. We are also streamlining our range to make it stronger, to make it more appealing, and to enhance our on-pack claims and education.
To summarize on Scholl, I would say we will see weakness in the near term, but sales in absolute terms have been stable for the last three quarters. Therefore, we would expect to see a materially less of an impact from Q3 this year. As I said, I am very unhappy with our past two years of Scholl performance. I also am reminded that in the long run, this is a category with strong potential. The category itself is important and under-penetrated. We spend 60% of our waking time on our feet, and we walk three times around the world in a lifetime. Good foot health is an enabler of our overall health through movement, fitness, general well-being. Yet today, over 80% of the people suffer from some foot condition at some stage, and less than 20% of these people treat.
Let's not forget also that we have doubled this business since the acquisition, but there is much more to go for in the medium term. Let's now turn to health hygiene. Health hygiene includes our brands of Dettol, Veet, and Clearasil. Dettol is by far the largest brand here and has been a very successful brand. We had a weak quarter in this segment, particularly driven by macro weakness in Dettol. We have seen some share improvement in the quarter as we continue with our penetration programs, particularly in emerging markets, but we also continue to see very challenging market conditions in parts of Middle East. Dettol growth is down significantly in this region versus a year ago, but I expect the performance to improve in the second half of the year. Now let me come to some positives, starting with IFCN.
As you can see here, the progression over the last 15 months shows that we are turning this business around. The business was in decline in half one 2017 with key challenges in China, in U.S., and a number of other markets. In Q1 2018, which has been the first quarter under our integrated RB Health BU, we have made a strong start with a 6% pro forma growth. In China, we are strengthening our presence in the e-commerce channel, which now represents already about a quarter of our Greater China business. An increase of 50% from a year ago. In the mom and baby store channel, we still have work to do, but the trends are promising and improving here too.
We are also working very hard to accelerate the innovation pipeline. In the U.S., the launch of NeuroPro innovation more than offset the tailwinds from weak contract losses. Although all this was also some of sell-in. Net, although we are seeing good early success, I want to temper this with the fact that the market growth in China is currently very strong, and we are benefiting from this buoyancy. We have much more to do, but this is a very nice start, and I remain excited about what it can do and bring to RB and our shareholders. Last, and certainly not bad, is Hygiene Home. Hygiene Home delivered a strong performance, and this is a business where three quarters of the turnover is in developed markets.
You may have seen from public market data that we have seen some decent share improvements in a number of our categories, which is encouraging, and I love seeing the renewed energy and focus this business is getting. Clearly, the strong seasonal trends on Lysol have played a role in the results as did superior innovation launches, such as the Lysol Daily Cleanser and the daily cleansing wipes. Harpic grew well behind the early success of our Color Power Six innovation. Finish had a good quarter following the sell-in of our new Quantum Ultimate innovation. While there is a stocking benefit to this launch, the product has been well received by consumers and customers. Air Wick had a good quarter in the U.S. and Western European markets behind the Essential Mist innovation.
Vanish, while weak, also saw improving trends, aided by some innovations that we've launched, including the latest and most innovation efficient formula behind both Vanish wipes and the Pink Range. Overall, notwithstanding the seasonal tailwinds and innovation launches, Hygiene Home had a strong performance in the quarter, beating expectations and giving us real confidence that RB 2.0 has given the business the new buzz it needed. Let me come to the final message for this call, our targets for 2018. As you know, our priority remains organic growth under our new focused organization structure, RB 2.0. As I said, I'm very pleased to see such energy focus and a strong start by the teams across the BUs. It is also good to see that our turnaround of Mead Johnson is progressing well.
I'm very happy with the Mead people we have retained, and I'm delighted at how quickly they have embraced the RB culture and our way of working. We see a lot of value creation opportunities here, and we are only still at the very beginning of this journey. On RB 2.0, it is early days, but we worked very hard at the back end of last year to enable our people to have a clean start in 2018 in their new roles. We've only been living it for a quarter, but already we feel established, energized, and focused. Whilst we still have a significant amount of work to do, I believe this is the right platform for RB to deliver long-term growth and outperformance. To conclude, I would say it has been a solid start to the year, a lot of moving parts and more work to do.
We are firmly on track to deliver our full-year targets of 13%-14% growth at constant rates, implying a 2%-3% like-for-like growth and remain very focused on our priorities of improving our organic growth rates. With that, Adrian and I will be pleased to take your questions. Can we have the first one, please?
Certainly. As a reminder, please press star one to ask a question. The first question comes from Iain Simpson from Societe Generale. Please go ahead. Your line is open.
Good morning, all. I just wondered if I could dig into the health performance a bit as that seems to be causing some concern this morning. You called out health relief as having grown mid-single digit. Health wellness ex Scholl looks to be growing mid-single digit. Base health as a whole ex Scholl is only growing 3%. I'm guessing the swing factor there is health hygiene, which previously wasn't part of the health division. Are you able to give us any color at all as to what the mix headwind from you now including Dettol and the rest of health hygiene within health is? Secondly, looking at Scholl, you've called it out as having been flat first three consecutive quarters sequentially now. Presumably if that continues, Scholl ceases to be a like-for-like headwind in the third quarter 2018. Just checking if I've got that right.
Thanks very much.
Iain, I think you are right on both counts that when you look at the old reporting structure of RB Health, the impact, we would have reported, I think 3% growth, versus the 1% we reported, and the impact has been from the Hygiene Home side. This has been a problem that we called out from Middle East headwinds. We have talked about Middle East, so that is the key impact. On Scholl, again, you're right. We have had stable sales from the last three quarters as we've shown today. If these trends were to continue, we do expect some drag in Q2, but thereafter, there should be a materially less of a drag for the overall company results.
Thank you very much. Very clear.
Thanks. Next on the line, we've got James Edwardes Jones from Royal Bank of Canada. Go ahead, James.
Morning, Richard. Morning, Rakesh. Two questions, please. First on Scholl. I have to say, at the time, I had no idea that Scholl's sales were so heavily weighted towards gadgets. Are there any other brands where the shape of the business has moved materially away from Reckitt's traditional high volume, low ticket offering? Secondly, on the negative price mix, and others have seen a big slowdown in pricing, most recently Nestlé and Unilever yesterday, but your 1% is quite a lot lower than they're talking about. Why is Reckitt being disproportionately affected here?
I think the answer to the first question is, I think the weight of gadgets in Scholl is by far, of the recent launches we've had, the most. I want to remind you that our Air Wick business had, for the last 15 years, a number of gadgets. We have electrical gadgets which have refills. We have reshmatic gadgets which have aerosol refills, and that has been a constant feature. The big difference, actually, between our gadget launches of the past and this one has been the refill stream has been a material part of the previous gadget launches. If we launched a gadget, and most of the gadget launches were in less than the GBP 10, $10, EUR 10 range. The gadgets were less than EUR 10, and the refills were, let's call it, half of that price.
Over a number of years, you would have refill sales being far more than the gadget sales. In this particular case, the gadget price has been materially higher, $40, EUR 40, GBP 40. The refill uptake also, the amount of refill you need to make these gadgets work, has been also a very low material part of this business. I think we've had gadgets in the past. We've been very successful with gadgets. They form a very strong and stable part of our Air Wick business. I think the Scholl one has been a unique example, and that is why we are calling it out the way it is and explaining how it has impacted. It was nearly three-fourths of our business for Scholl at its very peak, and now it's at one-fourth, that's where it is.
On the other side, I think you asked a question on pricing. Why is the pricing impact as low as 1% or something in our like-for-like numbers?
I think you said price mix was minus 1% in the quarter, and others are talking about low but positive pricing. I was just wondering why Reckitt seems to be being more affected.
Well, they're not more affected, James. We can only talk about ourselves. I think whether it's more or less, you'd have to make your own judgments on, depending what other people have called out. Let's just spend a minute on the pricing environment that we're seeing. First of all, no significant change from what we experienced in the second half of last year. We have called out for the group as a whole that the pro forma 3% growth was 3% volume and flat price, and the 2% like-for-like was 3% volume, and therefore minus 1 price. That minus 1 is, of course, exactly the same level that we called out in Q4 last year and Q3 last year. We've also given a little bit more color in the release, as you'll have seen, as to how that price movement has impacted between the two BUs.
In particular, as we've been saying for some time, the price pressure has been felt more heavily within the Hygiene Home business, as well as being more heavily within the developed markets, Europe in particular. This time we said that within the 3% pro forma health growth, about a third volume and two-thirds positive price mix. Whereas conversely, within the 4% growth in the Hygiene Home business unit, we've seen strong volume growth and negative price mix. I think there hopefully is nothing surprising there compared to what we've been talking about over certainly the second half of 2017, either in terms of the magnitude on the group as a whole, James, nor us between the split between the two parts of the portfolio.
Brilliant. Thanks for both those. Very helpful.
Thanks, James. Right, next on the line, we've got Martin Deboo from Jefferies. Go ahead, Martin.
Yeah. Morning, everybody. Morning, Rakesh, Adrian, and Richard. Two questions. Just again on health and health relief. You call out Gaviscon and Strepsils positively. Just given the importance of those brands and the fact they seem to keep managing to grow, I just value some color on where the growth is coming from. Is it geographic rollout? Is it SKU extension? Just color there would be helpful. Second question on foot care, just coming out of the conversation you had with James just now. Rakesh, you said you've learned many lessons from foot care, and I wonder, given what you've said about the balance of gadget versus refill, is there an argument going forward on gadgets that you go to a licensing model rather than take the total revenue risk on these products?
Do you think that foot care was just a one-off and lessons are being learned and you're comfortable with the gadget and refill model? Just interested in your thoughts on that.
Yeah. Thank you, Martin. Listen, the first thing is our health relief portfolio has been performing steadily since as long as I can remember. I don't think there is a specific reason to call out one brand or the other. Now, clearly, when you have a portfolio of, let's say seven, eight brands in health relief, it's obvious and normal that in some periods, one will do a bit better than the other, and that can be a combination of innovation, some tailwinds like seasonality, but also rollout. I would say our health relief portfolio has been a strong, stable, steady part of our portfolio. It continues to be so. In some years, Mucinex has done fantastically well. Last year was one of them, with double-digit growth rates on Mucinex.
In some years, like this one, we might have some headwinds from private label, which we will deal with obviously very strongly, and I hope well. It has been I don't want to call out one brand, Strepsils or Gaviscon. You asked me a question on whitespace. We have rolled out Gaviscon. I think in previous calls, we've talked about rollout of Gaviscon into parts of Asia, in the Middle East. Over a period of time, when they start, they start sometimes with, I'm calling them behind the counter, so not necessarily only prescription, but pharmacy recommendations are required, and only pharmacies can give them away.
Over a period of time, as they settle in the markets, when the regulators are happy with their efficacy and safety profiles, we get, let's call it over-the-counter status, which is you can advertise them and so on and so forth. For example, right now, Gaviscon has earned the over-the-counter status in Thailand as we speak. As soon as that happens, that market does materially better, because suddenly you start advertising and so on. I don't want to call out one market like Thailand or a whitespace launch, which is a normal ongoing feature. Whitespace launches normally do not add materially on one year. Over the number of years, they can be a part of the growth model of our portfolio, and it has been.
Net, I would just say that health relief portfolio have been generally very steady and very stable and very good in all the years that we've had them, with some years being better for one brand or the other. That's the first thing. On gadgets, I would say we have been badly burnt. I would be open about this. It's been a terrible part of RB. I have to say that, if you think about how small Scholl is to the whole company and the amount of time we've all spent talking about Scholl as if it's the one thing that matters, which it has, of course. It has been a huge success for a number of years, and we have done very well.
I wish I could take away the gadgets from the last six years or seven years and show you that we've still grown the underlying brand. Like I told you from the time of the acquisition, which was basically from 2011, we've doubled this brand still. I think it has been a terrible part of our discussion. I think one of the key lessons here is when we have a portfolio of products which are generally in the 5 to 10 range, we could become a little lower also in different parts of the world. Well, in that kind of thing. I'm taking infant nutrition out of it because infant nutrition obviously are high-ticket items, too.
When you think about our normal innovations, if you have a GBP 40, GBP 40-pound innovation, which from the time of launch with the sell-in that happens, with the consumer uptake that happens, the penetration we can drive does so well, and the refill sales don't follow, they can create these peaks and troughs. I think the number one lesson here is the significant delta between the price of the gadget and the repeat rate of the refills and how frequently those frequency and repeat rates. I can tell you, we've learned a very, very tough lesson that we are not going to forget. I'm now double skeptical about gadget launches. I've said no to many of these, obviously, because I'm not confident that we fully understood the gadget refill model.
The next time we do it, we probably will have to test our way before we roll those out. To walk away completely is also not the right thing. To keep our messages intact and lessons intact and use those every time we look at these is what we are going to do. That's how I would summarize it. A painful lesson, one we will not forget. Equally, as we've shown in air care, over 10 years, 15 years, they've been a fantastic part of our business. By the way, as we all know, refills are very margin accretive. They are stable sales, very margin accretive, and they can be a very good model for the future, but not the one that Scholl has demonstrated. Definitely not.
Okay. Thank you.
Okay. Thank you, Martin. Let's move on to Marion at Raymond James. Go ahead, Marion.
Hi. Good morning, everyone. I was wondering if you could give us some colors on what you're expecting in the upcoming quarters in emerging markets, whether you see some improvements there or not of the Russia, or what's your outlook for the Middle East? Then also on innovation, it seems like it boosted a bit Hygiene Home in Q1. What would have been an underlying growth rate, maybe excluding the sell-in of the innovation, or are you confident you could then sustain such rates in the full year?
Well, let me take the second one first, Marion, in terms of can we quantify the effect of the stocking behind the new launches on Air Wick and Finish. They're material enough to us to want to call them out, so you get a sense of what's going on behind that 4%, but they're not so material that they're distorting the trend greatly here, certainly not something we're going to quantify. In fact, something that's quite hard to quantify exactly. Big enough for us to want to call them out in understanding not just the 4% growth in Hygiene Home, but actually the 6% growth in the U.S., and therefore also, by the way, the NeuroPro launch in health, but not so as material as to be distorting trends.
On the first one, you're asking Russia, Middle East, what's the prognosis? Well, I'm not sure we're that qualified to give views on what's going to happen in Russia and Middle East more broadly. In terms of stuff that's directly affected us, they are slightly different. The impact in Russia is more specific to the company, indeed, it's more specific to the health side of the company, and is connected to the really very extensive pharmacy channel we have in Russia. Basically, as we went through towards the end of 2017, in making calls about what the strength of the season was going to be in Russia, because of our very close relationship with most individual pharmacies in Russia, we made sure that there was plenty of stock in, and that plenty of stock turned out to be a bit too much.
As happens from time to time, we had it coming out or running down in Q1. That was a more company-specific thing, which will pass. The Middle East is clearly an effect of all the stuff going on, not very much for us economically centered in Saudi Arabia because of the size of the country and the size of our business in that country, where there are obviously some very profound things going on. Your knowledge of the place I suspect is at least as good of ours in terms of giving a prognosis for the Middle East.
Okay.
Okay. Thank you, Marion. Let's move on, we've now got Robert Wolderschmidt from Liberum on the line. Go ahead, Bob.
Morning, guys. Just two questions if I can. With respect to Mucinex, clearly private label is a reality in the market. I was just wondering if you could illustrate for us how much of the portfolio of Mucinex in the U.S. is now covered by private label entry, and potentially therefore, how much is potentially still at risk of further entries. Secondly, you mentioned lower display slots for Scholl, which would point to something a little bit different than just the gadget. Can you give some more color on what that is about, how long that might persist? Thank you.
Yeah. Listen, Bob, on Mucinex, just to remind you, Mucinex is two parts of the portfolio. One is the 12-hour range, which is one we had patent protection on, and the other one is the normal four-hour range, what we call the Mucinex Fast-Max range, which never had the same level of patent protection and always had private label. The first thing is to call out is Mucinex has two big ranges, the four-hour ranges, what we call Mucinex Fast-Max, and the 12-hour range. The 12-hour range is one that has been subject of private label re-entry. Private label has been in and out of the 12-hour range. You would have heard private label launch a few years ago, too. What has happened is 12 hours has been a notoriously difficult product to make.
It's very unstable, because when you combine the various ingredients, I don't want to get into technical details, not so easy to make. That's why they've had trouble, and that's why they've never had a secure supply chain. Now, after so many years, they have managed to secure that supply chain. It seems to be the case where they now have launched it with full flow. I do expect the very bulk of the impact to happen in 2018, the very bulk of the impact, provided they continue to obviously have the same supply chain that they've shown in the first quarter.
Okay, thank you.
Okay.
And-
[Slow and Scholl].
Yeah. Sorry, you had a question on the Scholl. Actually, you're seeing that reflected somewhat in the last three quarters of our sales. You can see already that the sales are down, what we are trying to tell you is that there is a gadget impact, definitely, clearly, the gadget impact was positive for a number of years in getting the whole range and the whole display space, now it is a bit of a negative, it's a bit of a negative on the range, but gadgets still form quite a large part. Clearly, as I've said, it's something that we are very aware of, and we have been working to counteract that. It's just that when we launch several innovations, the mathematical impact of those innovation launches, given the lower ticket size, is not enough to offset what we have to gap fill.
We have three more coming over the next periods. Hopefully, after getting a stable base of Scholl sales, we can find a positive way of talking about Scholl in the future. I hope to do that.
Good. Let's move on. Right. We've now got Jeremy Fialko on the line. Go ahead, Jeremy.
Hi. Morning. Jeremy Fialko at Redburn here. Two questions from me. The first one is, I know that this is a just a quarterly revenue call, you don't normally comment on these things, but just in view of how the share has moved today, is there any way you can give us some confidence in terms of the full year margins and your happiness or otherwise with where the consensus is on that? The second thing is, I guess you've gone through a collection of issues which perhaps helped your growth in Q1, but maybe greater drag in Q2 in terms of kind of stocking, maybe greater impact from Mucinex in subsequent quarters.
Besides the cyberattack, are there any things where you think there's a decent chance of seeing kind of improvements in, let's say, the ongoing run rate of the business as we go through the remainder of the year? Thanks.
On your first question, Jeremy, on margins. Yes, this is a trading update. We're not talking about margins. We don't feel any need to talk about margins. We didn't give, obviously, quantified guidance in the full year numbers. We did talk about the various drivers of margin, and we do feel the market's understood what we were trying to say there. Because this is a trading update, we don't feel the need to say anything. We're quite happy with the dialogue that was had and how it was received.
In terms of the ups and downs in the rest of the year, unsurprisingly, we're not going to go into quarterly guidance and so on, Jeremy. I think you're right to point out there is clearly a cyber positive in Q2 and Q3. Clearly, there are a couple of other things which we've called attention to, and you summarized back the Mucinex private label in particular, and a little bit of a watch-out from the new product launches and some channel building behind them which we've also called out. That's in the nature of the fact we're giving full year guidance here or maintaining full year guidance here. We're not giving quarterly by quarterly guidance. There will be ups and downs. We remain very comfortable with the full year guidance for revenue, Jeremy, and insofar as it was for margin.
Okay, thanks.
Okay. Thanks, Jeremy. Right. We've now got Guillaume Delmas from Bank of America Merrill Lynch. Go ahead, Guillaume.
Good morning, gentlemen. A couple of questions from me, too. Firstly, on Mead Johnson. You said last year that Mead margins were actually lower than you initially anticipated. We see strong like-for-like development in China, in particular in Q1, likely to continue into at least the second quarter. Dairy prices also have eased versus last year's peak. On a pre-synergy basis, are you not seeing a nice recovery in Mead Johnson margins in Q1, which would imply a less dilutive impact from the first-time consolidation of Mead in your first half results? My second question is actually on your full year 2017 results, because in the presentation, I can see in the appendix you provide the margins for RB Health and RB Hi Ho.
I'm surprised to see a 30 basis points decline only for RB Health last year, despite the dilutive impact from Mead Johnson and also the lack of organic sales growth in part due to the cyberattack. What was driving this nice underlying margin development in RB Health last year? Thank you.
Okay. Yes. Eagle-eyed, Guillaume. First of all, on Mead Johnson margins. Well, listen, yes, you are right. Clearly, when the top line grows well, life is easier further down the P&L. Yes, you are right. We see the same data on dairy prices that you see, and there was a peaking in the full-fat milk cost in around the middle of last year. As I think we said before, there is sort of a six to nine-month lag between spot prices of milk and it appearing in our P&L. That is sort of broadly coming in now. Those are both positive things, but we are not changing our view on the sort of economic model around infant nutrition that we had in our acquisition case.
We have been clear that notwithstanding the fact we inherited this business at a lower margin than we expected in the middle of last year, we still do expect to get back up to the margins we had been anticipating in the financial case and both cost synergies and these other developments all help do that. In terms of the second part, yes, we have included indeed as an appendix in this presentation and on the website, as we said we would, the 2017 and 2016 operating profit and margin analysis for the two new business units ahead of half one, when we will of course give that, and that does show the movements therefore between the two business units. You are right. We see a fall in both business units' profitability. Of course, within the health one, there is the arithmetical combination of Mead Johnson.
What is also going on there is both gross margin development, but also movements in BEI. I hate to mention the Scholl word again, but of course, you will have seen a movement in support from Scholl in one of those years. As that product was not succeeding, clearly, we saw a movement away from that, and it went not just to other health products, but also to Hygiene Home products. You see both of those effects in there as explanations of the movements in the relative margins, Guillaume.
Thank you very much.
Guillaume. Right, now we've got Pinar from UBS. Go ahead, Pinar.
Hi. Good morning. I have two questions. One is, could you please give us an update on where you are with Mead Johnson's rollout to the higher-growth e-commerce and mom and baby stores in China? What is the share of Mead Johnson Chinese sales coming from various channels, for example? You mentioned that the Hong Kong business is still declining. Could you please give us an indication of the rate of decline there? The second one, what do you think about the share price performance? What do you think the market's missing? Not sure if you can even comment on this, but I'll have a go anyway. Are you ready to personally buy Reckitt stock here as part of your long-term compensation plan? Thank you.
I think you asked a number of detailed questions, Pinar, about the data on various sales by channel, et cetera. Clearly, you can understand we're not going to give you all those pieces of information. All I would say is that China has been a focus for RB because clearly it is a significant part of Mead Johnson, a significant underperforming part of Mead Johnson, which impacted, I'm talking about Greater China, both Hong Kong as well as mainland China. We've put in a lot of effort, the effort has been on dialing up materially the e-commerce platform, which we were underweight there. Dialing also the mom and baby stores, which is a significant, more than 50% of the business now of categories trading in mom and baby stores. Again, we were underweight there.
The third part, of course, was the Hong Kong cross-border aspect. Now, on all these three things, I would see progress. On e-commerce, as I've already said in the call, our growth rate on e-commerce in Q1 versus the same period last year is 50%, e-commerce is now, in Greater China, a significant part of our growth and business. That part is doing well. On mom and baby stores, the real challenge is to penetrate the tier C, D, and E cities. I mean, going down the city levels. What we are trying to do is to figure out a really fast-track model of capturing these new cities that we believe that are important for growth and important for reaching consumers.
Without disclosing very much on what our plans are, we have a very innovative strategy using basically a new approach to fast-track our city launches. In Q1, we have reached a significantly more number of cities in the lower tier cities that I was just talking about, with plans to accelerate during the course of the year. I think mom and baby stores, the progress, like I said in the call, early signs, very promising and encouraging work already. On cross-border Hong Kong, this has become a very small part of the whole story actually. It was a big part of the story. It is becoming a very small part of the story, I would say Hong Kong is now not a big topic for discussion here.
We're doing okay in Hong Kong in terms of our business with some interesting plans, obviously. I think beyond China and Hong Kong, you've already seen from the U.S., we are working hard on the innovation pipeline because clearly innovation is the way through which we are going to make sure that we can bring long-term traction in the category. We believe we can apply our innovation skill sets to infant nutrition. Some of it will be fast, you will see this in the next few years, some of it will take time. Actually, the energy going behind innovation is incredible. I think I also see some very promising signs that we can actually bring innovations to market and make this good. Net-net, I think Q1, if you ask me nine months ago, would you take 6% growth?
I think all of you would have taken a 6% growth in Q1 this year. I know it was a soft quarter for Mead Johnson last year, it should not also take away the good work that we've been able to do over the last three quarters of our ownership. I think you asked some question on the share price. I'm on the call, I don't know what the share price is, clearly, I fully and I'm firmly of the belief that RB is a fantastic company with a fantastic opportunity to outperform in this market. We clearly have been weighed down by Scholl and one-off factors, that is clear. If somebody can see beyond that, you will see a fantastic company which is still running in an incredible way.
Okay. Thanks, Rakesh.
Okay, thank you.
Let's move on. Now we've got Rosie Wheble from Berenberg. Go ahead, Rosie.
Yes. Good morning. Just one question. Just on price mix. Are you able to say whether it was positive in health excluding infant nutrition? Give me some sort of color as to whether it was positive, negative or the like.
Yes. We can and as you've seen for health overall, well, the answer bottom line is slightly positive rather than my formulating a coded way of saying it.
That's fine. Thank you.
Thanks, Rosie. Right. Since we've got Richard Taylor on the line, I know it's Richard Taylor from Morgan Stanley. Go ahead, Richard.
Yes, good morning. Richard Taylor here from Morgan Stanley. Thanks for the color on Scholl. I do want to press you further for more specifics on this. It's obviously dragged on the business now for 8 quarters, and it's pretty tough from the outside to understand exactly what's going on. On our estimates, we think devices is now below GBP 100 million of sales. Last year, like for like, for the devices part fell 60% with the broader Scholl business falling 30% like for like. I want to understand more on that like for like performance. Are we right in terms of the shape? Also the leg down you show in your slides in terms of absolute sales, what exactly drove that? That's just on Scholl. Then the second part of my question is on Mead. Obviously a very strong performance in China.
Can you give us a bit more color on how well Enfinitas is going there? Secondly, outside China, you've obviously launched NeuroPro into U.S. Maybe you can give us some more color on your pipeline of innovation there.
Listen, with the blurb of numbers you just threw out there, Richard, on Scholl. Just let me recap the ones we're trying to do. You've obviously seen, we're trying to give a high degree of transparency on Scholl because it is obviously such a difficult issue. The Scholl brand in Q1, Scholl brand in its entirety in Q1, roughly 2% of group net revenue. Let me get this in perspective. Within that, as Rakesh called out, the gadgets were about 25% of total Scholl. Half a percent of group revenue, you can see. Rakesh also called out that at peak, which was in late 2015, gadgets were over 70%, I think Rakesh said 75% of Scholl revenue.
Just for completeness, so you can get a sense of the Q2 impact, because you've seen that graph of stability from Q3 onwards last year in absolute sales. In Q2 last year, we're talking about a revenue which was roughly two and a half times the gadget revenue in Q1 this year. It's roughly GBP 40 million-GBP 50 million. That will give you, I think, all you need to know around the headwind we face in Q2 and what should then pass. In terms of Mead Johnson, do you want to do that? In terms of China Mead Johnson, Enfinitas is a very significant part of the growth, and is going well. I'm not going to break down numbers for you, obviously, precisely, Richard, but it is an important part of the growth in China.
It was in line with the plan we talked about that we inherited from Mead Johnson when we acquired it. It is going well. It continues to go very well. In the rest of the world, just to remind ourselves, there's sort of four bits of geographies that there are in Mead Johnson. There's Greater China, there's North America, overwhelmingly the U.S., Latin America, and ASEAN. In the U.S., things continue to progress well. The market is obviously much more mature and stable than it is in China, so we're never going to see the big deltas of the sort you see in China. The sort of gestation periods, if you'll pardon the slight pun on changes you make because of the business model take a bit of time.
We're very happy with the way the operational improvements that have been being made progressively with our Mead Johnson colleagues since we acquired the business are playing through. We track, in particular, the market share of the non-WIC because they have a slightly different dynamic from the WIC, and we can see that progressing incrementally in the direction we expect it to be. Not dramatic movements in the U.S., but movements that are consistently in the right direction. Then, of course, we're very excited that the NeuroPro is now just reaching consumers, having reached the retail shelves during Q1. Very pleased with that.
Canada, by the way, continues to be an exemplary market with some excellent communication with consumers going on in Canada, and very much an example for not just the rest of the Mead Johnson part of our business, but actually lots of other parts of our business. The other two geographies, Latin America and ASEAN, do remain more volatile. There's several countries in those two markets, and there's ups and downs within them. We are getting progressively to grips at a deeper operational sense with those things. I wouldn't say by any means that we've got our arms fully around every part of the improvement we need to in those two bits of business. They will come. There's no doubt in our mind about that.
Thank you.
Okay. Thank you, Richard. You can go on. We've got another seven minutes. We've got six questions to get through. Now we've got Fahim from Credit Suisse. Go ahead, Fahim.
Thanks for the question. Can I come back to Hygiene Home? The reason being because last year you recorded -2%, and this time in Q1, 4%. What are the moving parts? Is 4% a good growth number for it to continue for the rest of the year? Secondly, can I come to India? How is Dettol progressing in India? Because it used to be a strong driver for RB. Has growth stabilized there? Just those two. Thanks.
Thanks, Fahim. First of all, Hygiene Home, as I've said, is the market basically, overall market is we expect the medium-term growth rates on this market to be in the 2%-3% growth rate. We have said that we were obviously, you saw from the results last year, we were not performing in line with the market. Clearly, when you see a 4% growth, we are definitely outperforming this market from a growth point of view. When we see the trends on our business performance from the second half of last year to now, we see an improving trend. We see an improving trend from the innovations we launched last year, also the innovations we're launching this year, both in terms of in-market results, our performance in share terms, also in terms of growth. We can see that happen.
4% is not an extrapolation we would like you to carry, obviously, because the market is not in that range. 4% also has a very nice impact from Life Sağlık, both from season as well as from innovation. I think there are a number of moving parts on 4. The key message here is that we were not performing in line with the market growth rate. We see progressive improvement, not a sudden improvement, progressive improvement to the market performance and a bit of market outperformance levels. We hope we can continue that in-market results and in-market performance, even if the 4% top-line growth rate is obviously well ahead of where the market is. On Dettol, I think Dettol has been a very good. India is a very fantastic brand.
They're one of the most trusted brands in India. We've always managed to outperform the market with Dettol, and we continue to do so. The Dettol brand is outperforming the market. The growth has been very good. Clearly, from one period to the next, a number of things have happened in India, demonetization, GST, all of these changes. To just look at the sales data in one quarter and compare it with the other would never be in India, given the volatility of what is happening in India, be the right way of looking at it. The brand is performing well. We are doing well there.
Great. Thanks, Fahim. Let's move on. Alex Smith from Barclays. Go ahead, Alex.
Hi. Morning. A question on your organizational corporate structure, please. I guess you've had a bit of time now to work under the two new business units, but I'm just wondering how you feel about running North America and Europe still effectively as one market under ENA. Can this work, I guess, in this sort of more decentralized consumer environment? Where you're trying to get to more bespoke innovation. That's one question. Secondly, on Hygiene Home, just wondering how you feel about the opportunity for geographic white space rollout under this new organization. My impression was under the old Reckitt structure, the household business was more about growing within your geographic strongholds. Just wondering if there's been a change in mindset there about geographic expansion. Thanks.
I think in the new RB 2.0, we are managing the business by business unit, actually. I think the business unit, let's say Hygiene Home, has North America, Europe, and developing markets. Within developing markets also, there's some number of regions reporting directly to the BU president. The same goes in health. We run North America, Europe, and several developing markets reporting directly to the BU president. I think the material difference actually, if you think about it, is that we are now running the company through the lens of the BU, and not the geographic lens. The geographic lens plays a role in the organization structure, clearly, because you need to have the organization in every key market. I think that is the material change that you will see.
White space.
The white space on Hygiene Home. First of all, I think the Hygiene Home brands actually are the, if I may say so, the legacy RB brands. What I mean legacy, I won't say it positively. Or let's call it iconic RB brands. They've been brands like Air Wick and Vanish and Finish and Harpic have been in the RB portfolio for a very long period of time. Unlike the health brands, some of them have been acquired over the last seven, eight, 10 years. I think they are far more naturally geographically present. Having said that, clearly there will be white space opportunities. If you ask me, the big opportunity in Hygiene Home is to apply that passion and focus and bring innovations like we are launching, have been launching over the last six to 12 months to a much higher level than we have.
I think you will see the energy and the passion that that brings into our business to be the most material difference. I've said, white space launches are important, but in one year to the next, they don't create the massive growth delta that you think they do. Over a period of time, they can be very important. That is the case for Hygiene Home, too. Hygiene Home brands, generally speaking, have a very good spread. Having said that, there are opportunities, I would call out Finish in China. Finish in China is still a very, very under-penetrated brand, and we are working extraordinarily hard to make it the big brand that it is in many parts of the world.
Great.
Thanks.
Thank you. I'll move on. Eddy Hargreaves from Investec. Go ahead, Eddie.
I wondered just quickly if you could dig further into the developing market growth, which was 5% in the quarter. Within that, you've said that Greater China infant nutrition was double digit. Brazil and India were growth accretive. We understand that Middle East was weak, the reasons that you alluded to, but it means that some other areas within developing markets must have had a quite seriously negative performance. I wonder whether you could just highlight what's going on under that +5 number, given the good growth in Brazil, India, and China.
Not really. The mathematics add up. We've highlighted the ones doing well, particularly China, particularly India. We've highlighted the ones not doing so well, which is particularly the Middle East. I'm honestly not sure what more we can say, those are the numbers. They add up to the number you've got published here. I'm not sure what more color we can give to that, to be honest.
Well, how sizable is the Middle East?
Sorry, go ahead.
Yeah, how sizable is the Middle East within your developed markets then?
Yeah, the Middle East is a chunky business. We've been clear on that over a long time. You can see its materiality just in these quarters, but also the effect it has on Dettol growth, because it's a big brand in Dettol and a big part of the Dettol brand. Yeah, the Middle East in aggregate's a reasonably chunky part of our business.
Okay.
Okay. Let's move on. Thanks, Eddy. Now I've got Toby from Macquarie Bank. Go ahead, Toby.
Hi there. I guess this is just a couple of clarifications. Firstly, apologies if I've missed a number somewhere. You've quantified the scale of relief or health relief within the health business. Wellness and hygiene look still just to be lumped together. I wonder if you could quantify or give us the split in health between wellness and hygiene, just so we can sort of do some maths around those moving parts. Secondly, just a clarification around your commentary on margins for the year. You said that the market has understood what you were saying about margins in 2018. Can we infer from that, does that mean that you're happy with where consensus is at?
Look, on the first one, yes, we are obviously trying to give a better sense of the balance of the portfolio within health, and even within the group as a whole. We're not going to go giving you precise percents of each bit. Sorry, we can't give you the split between wellness and hygiene that you're looking for. On margins, yes, I just repeat, we didn't quantify guidance at the full year. We did talk about the moving parts. We do think the markets understood what we were trying to say, and we're happy with that, yes.
Okay, thanks a lot.
Okay, thanks, Toby. Second-last question, Jeff Stent, Exane. Go ahead, Jeff.
Good morning, gents. I sat down this morning with the release, I started to highlight all the sort of one-off comments, now my page is kind of covered in yellow. With that in mind, I was wondering, could you sort of quantify what your assessment of the underlying growth of the business was in the quarter? Thanks.
Listen, let's just go back to the sort of market references. We said that within the health business, the pro forma health business, in the medium term, we look at 3 to 5. We said the market is in the middle of that range, it's clear that we are underperforming that. You've seen that the biggest reason for the underperformance is Scholl. Frankly, we are also underperforming the market slightly in Infant Nutrition. Still, we're closing in on the market growth as the market growth goes up, having inherited a position which was quite weak, as you know. It's still a little bit behind, although it's closing fast. On the HiHo side, I think Rakesh has already answered the question.
We see a medium-term market growth of 2 to 3, we think the market is currently at the bottom end of that, i.e., around 2. We have, progressively over the last 6 to 9 months, been improving our market share performance to the point where we see slight gains. I think that's the sort of best measure I can give you of the underlying dynamic of the business.
Is it fair to assume it's less than the 2%?
Well, I think you should just replay what I just said in terms of HiHo and Health separately.
Okay. Thank you.
Just let me step in. Why did you come to the conclusion that it's less than 2%?
Well, I'm confused because.
Everything we've said.
for Health and, yeah.
Everything we have said is quite clear, I think here. The performance is exactly what you read. I don't think there is anything hidden under the performance. It's as transparent as we can make it in a trading update like this. The performance is what you read. I don't think you should take out any underlying here. If there was any underlying, we would have also called it out.
Okay. Thank you.
Thanks, Jeff. Finally, we've got Celine Pannuti from JPMorgan. Go ahead, Celine.
Good morning, everyone. It feels like it has been a long call, I just have one last question on your slide 18. By the way, I wanted to thank you for the additional granularity and disclosure you have given in terms of the moving parts in your release. On slide 18, you called out the differential in margin performance in H2 between Health and Hygiene Home. If I understood clearly, as a rebalance of BEI between Health and Hygiene Home. Fine. Just wanted to understand whether you also had a higher price mix hit or negative pricing in the second half of last year, higher raw mat, whether something that has as well been an issue for the second half. I'm just trying to figure it out, whether that's something I should take into account as I look into H1. Thank you.
No, Celine. When we look at the incidence of price mix developments in between the two business units, they have consistently been higher in HiHo than in Health. You've seen that in the current quarter, and that was the case as we look back through last year. It's also the case that in the second half of last year, 2017, as you saw from our aggregate group numbers, price pressure in aggregate got bigger. That too was disproportionately in HiHo. What you're seeing now in HiHo was also the case as you look back into the comparative data. Does that answer your question?
Not really. The 190 basis point decline in H2 in HiHo was also led by lower price mix. Hence, my question is whether we should carry this forward in the first half.
Oh, okay. Now you're saying look forward. What do we see as the dynamics of price mix looking forward? I think we'd repeat. We are still working on that perspective, Celine, where we were with our full year numbers, in the sense that we do not see this as being a long-term trend. Actually calling the moment when this price mix is going to change, and obviously this has been a subject of a lot of discussion with other companies too, is very difficult. Embedded in our guidance for the full year, as we said when we gave the full year numbers for 2017 a couple of months ago, it is an assumption of the price environment being broadly what it is now. Not that we think that'll last forever, but that is the thought we have essentially within our top-line guidance.
Okay. Sorry to insist on last one. I try another way. HiHo margin was down 14 H1 last year and down close to 200 in H2. How much of that was due for a BEI phasing change, if you can answer that?
No, I'm not going to quantify that precisely. What you saw in the half two, the minus 190, if we're looking at the same chart, has clearly got a significant element of the price mix in it.
Okay.
As well as the BEI, which we've already mentioned. Yes, exactly. Exactly. I'm conscious that we put these two slides out in the back, and people will not have had much of a chance to look at them. Obviously, we can't give any selective disclosures, but anybody that does want a bit more technical explanation about in there, you know where Richard Joyce is.
Right. Well, thank you. On that note, thank you, Celine, and thanks for everyone for joining the call. Goodbye.