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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's RB Q1 trading update webcast. [Operator Instructions] Please also be aware that this conference is being recorded today, Thursday, the 2nd of May 2019. I'll now hand directly over to your first speaker today, Richard Joyce. Please go ahead.
Thanks, Jenny, and I guess you said it all. Welcome to RB's Q1 Trading Update. We'll go through our normal prepared remarks and then go straight to Q&A. So with that, let's pass over to Rakesh.
Hi, good morning, and welcome to our trading update conference call. I am joined today by Adrian Hennah, our CFO; and Adi Sehgal, our COO of Health. After a brief summary, we will be pleased to take your questions. I would remind you that this is a trading update only rather than a full set of results. I have 3 key messages for you today. Firstly, Q1 was a slow start, it was expected. And we remain fully on track to deliver the full year targets we communicated to you in February. Secondly, the return to outperformance in Health remains our top priority. And I want to share with you some of the plans we have in this regard. And lastly, the work we are doing to create 2 fully separable business units remains on track. So let me give you some more color around these messages. You will have seen from our trading update this morning and as we flagged in February, it was a slow start to the year but as expected. As usual, there are a number of moving parts, so I want to address those directly now. And then if you have any further questions, we can deal with them in the Q&A.So let's take the negatives first in true RB fashion and then come to the positive. Our OTC business experienced a negative 9% decline in Q1. You will see from our geographic disclosures that the majority of this decline was driven by the U.S. where we sell both Mucinex and a smaller cough and congestion brand called Delsym. The weakness was due to 3 things. Firstly, as you are all aware, it was a very weak season. In the U.S., the incidences of cold and flu in January and February were down significantly on the prior year. Things improved in March, but this did not impact our net revenues as retailers used the pickup in incidences to reduce their inventory levels.And this brings me to my second point, which is about retailer inventory levels. As we signaled with our full year results, retailers had closed 2018 with relatively high inventories as they did not adjust to a season which relatively was weak in the last year through December. Then through Q1, as the season failed to materialize, retailers destocked. This impact was significant. As we ended the quarter, retailer inventories are now in line with consumption. Thirdly, and this is just for Mucinex, we saw, as expected, some continued modest share decline during the quarter as a result of the fuller availability of private label competition. We expect to lap the private label impact during 2019 and are ready with our plans to bring further innovation to this brand in half 2. Other Health had a flat quarter. There are a few moving parts here, too. On the positive side, Dettol performed well with good brand growth across both our developed and emerging markets. Our VMS brands had a slow quarter, particularly Airborne, which is also due to seasonality. The market for immunity supplements in the U.S. for the first 2 months of the year was mid-single digit negative. We do however believe that our VMS brands will be a growth driver as we progress throughout the year. And we look forward to the success in our new brain health brand, Neuriva. Scholl had a weak quarter as we made a deliberate choice to focus the equity of Scholl from gadgets to foot health, therefore putting more resources and in-store focus behind problem-solution products and foot aid segments. This transition is creating some further turbulence for the brand. Gadgets now represent just under 15% of our Scholl portfolio. We believe this strategic reorientation will provide a more sustainable growth platform in the future. Now coming to the positive and our IFCN business. We delivered a good quarter of 5% growth. Our U.S. business continues to see strong momentum and further share gains behind the success of our NeuroPro launch last year and strong success in our speciality brand Nutramigen. In China, supply will remain constrained until we get to the second half of the year. We are working hard to create a more resilient supply chain, and our Australian facilities are now up and running.From a channel perspective, e-commerce remains strong and broad-based across our multiple e-commerce platforms. I am pleased to say that e-commerce now represents around 10% of our Health business.Finally on Health, I want to address the volume versus price/mix performance in the quarter. On the volume side, we were impacted by both a very weak season and associated retailer destocking in our U.S. OTC brands. On price/mix, we took pricing in line with the market but also benefited, in addition, from a number of trade optimization initiatives. So it was slightly unusual price/mix quarter for us, but there is no change to our model or longer-term expectation where growth will come from a combination of both volume and price/mix. We do not see increases in real prices as a source of material growth in the long term. In respect of Hygiene Home, we saw another strong quarter despite a tough comparator in the U.S. on Lysol. Our business continues to benefit from the additional focus of RB2.0, and we are seeing some excellent performances, particularly in Harpic where we are addressing some very important social and hygiene causes and in Vanish where we have simplified the portfolio and improved the innovation. Again, the volume versus price/mix performance looks a bit unusual in the quarter. We are lapping an extremely tough volume comp from last year and weak pricing comps on the other side. There has been no overall change to our pricing strategy in Hygiene Home. We do not see increases in real price as a source of growth here, too. So what does all this mean for full year targets? We expected a slow start. The flu season turned out within but, I would say, at the lower end of our expected range. We remain confident in our plans for the rest of the year and our ability to deliver both our full year target of net revenue of 3% to 4% like-for-like growth and our expectation of maintaining adjusted operating margins in 2018.And whilst we don't give targets by quarter, I want to reiterate what I said in February that you should not expect this 3% to 4% growth target to be consistent across quarters or even in each of the halves. Half 2 and Q3 in particular will be a key growth driver for us in 2019, and from a margin perspective, this is also true.Now moving to my second message. And it is not a new message but it is a top priority, and that is returning our Health business to outperformance. I firmly believe that we are operating in the right categories, we have excellent brands and now have the operating structure under RB2.0. With the integration of Mead Johnson within RB Health now completed, our focus is very much about winning in the right channels, the growth channels. We are outperforming in e-commerce, and this is not just a China story. It is about investing in all markets and in all e-commerce channels, including direct to consumer. We are significantly increasing investment in e-commerce and digital versus 2018 and '17. It is also about innovation. Our future innovation pipeline is materially bigger than was the case 12 months ago. We should expect to see more new products behind existing brands but also create new brands over time. It is very early days, but our new brain health brand Neuriva has been well received by customers.And we are building a more resilient business. Over the past 2 years, our good growth across many brands and markets has been offset by one-off factors affecting supply of our products. We are investing to build even more resilient operations. For example, our IFCN business, we are working very hard to create a more resilient supply chain, and our Australian facilities being up and running is a symbol of that. And finally, my third and very short message, which is that the significant work we are doing to create 2 fully separable business remains but very much in progress and on track with the time line we have previously communicated, which is by mid-2020.So to conclude, we are on track to deliver our targets for the year. We know we have work to do still to get our Health business to where it needs to be, and we are on it. And we are also full steam ahead with creating 2 fully separable business units by mid-2020.So with that, Adrian, Adi and I will now be pleased to take your questions. So can we have the first one, please?
Thanks, Rakesh. We've got some people in the queue. So the first on the line is Celine Pannuti from JPMorgan. [Technical Difficulty] Celine, I think I heard you but it's very faint. The second on the line is Richard Taylor from Morgan Stanley.
Just 2 questions for me this morning, one very simple one to start with. What do you think the market growth rate was for baby food in China and in North America, please? So that's the first one. And the second one is a bit more of a broad question. I can understand how e-commerce works very well in Health, particularly for high-value items like baby food. But maybe you can give us a bit of color on why e-commerce works well for the Hygiene Home business where maybe the items are lower value?
All right. So let me just give you a very quick snapshot of what is happening in China, although I have to say that the position in China, as usual, remains very difficult to fully read. I would say that the -- in aggregate, the China business is materially slower in terms of volume caused by the birth rate declines in '17 and '18, but there is still an impact -- a positive impact of trade up or premiumization. And therefore, when you put this in aggregate, we are still seeing a growth, I would say lower than last year but still, I would say, in the low mid -- low to mid-single-digits level in China. In U.S., you don't have the same volatility in birth rates. It's a much more steady market. But there is very modest volume growth rate and also very modest price growth rate. So in aggregate, I would say, it's very low single digits in the U.S. We are definitely outperforming in the U.S. I mean I'm very, very pleased actually because when we took over the business of just, I would say, 20-odd months ago, the U.S. business was a material drag on the total business, and we have turned that around really over the last 6, 9 months. We can see positive share momentum, positive growth momentum, and I think we are really, really doing well in the U.S. In China, obviously, our very good performance in e-commerce, in rolling out our distribution to mom-and-baby stores, particularly Tier 3, 4 towns, with very innovative partnerships was going really very well. And then we had the setback in Q3, which obviously has put some kind of a damper on this. But we are recovering. We are working very hard to win back consumer choice, to win back our distribution, but we are still supply constrained. So I would say that, in aggregate, the results of Q1 in -- I have seen are good, are strong. And I think we have managed -- within the constraints that we have, we've managed the brands and the categories rather well, but we have still a lot of work to do. There is no question we can do so much better. I'm not talking about growth rate targets, but we can do better, and we are working very hard to improve across innovation, across distribution and so on and so forth. Then you asked a question, I think, on Hygiene Home e-commerce and how should you expect Hygiene Home. There is no question that there is a difference between the e-commerce salience in some categories versus others. So if you ask how -- premium beauty care is probably far more e-commerce-driven versus toilet cleaners. It's quite normal. There is a difference because per unit items and per unit costs and, therefore, the overall economics works differently. But the growth rates -- and no matter which level you start from, the growth rates on e-commerce, whether it's one category or the other, are still phenomenally exciting, and therefore, we are working hard, whether it's in Health or in Hygiene Home, across e-commerce channels. And that means we are working hard on marketplaces, we are working hard on bricks and clicks, we are working hard on cross-border and other channels as and where available across markets to fuel further momentum. There is one figure that I want to quote to you which I think tells me that, eventually, every category, irrespective of market, will have a substantial business coming out of e-commerce in the future. That might take some time depending on where you are, but that's what's going to happen. And that's China Dettol. So you would argue that Dettol in China should be like Dettol in India maybe or Lysol in the U.S. or Harpic somewhere else. In Dettol, in China, the contribution of e-commerce to total is, I would say, 40% to 50%. I mean it might change from one quarter to the other, but it's in that range. So can you imagine that 40% to 50% of our Dettol business in China is done through e-commerce? And therefore, when I think about e-commerce in HyHo or in Health, I do not set somehow limitations or ambitions which should be materially different even if the path might be a bit longer or different in one market versus the other.
That's very clear. Can I just have one quick follow-up, sorry, and maybe this is for Adi. Are there any new initiatives from the Chinese government that we should be aware of to stimulate the birth rate in China?
I think the Chinese government is doing a number of things to stimulate the birth rate, but we also know that as countries develop, birth rates tend to go in a particular direction. So it's clearly very much top of mind for the Chinese government, and we see more and more signs that the Chinese government is focused on balancing their demographic issues that will come up. And they remain focused on that, but this is not such an easy thing to move in the short term.
Okay. Thanks, Richard. We're going to the second question, James Edwardes Jones from RBC.
Two quick ones, please. The loss of share to private label in OTC. In the past, you've often made the point that when people are unwell, they turn to tried and trusted products, so your brand should be relatively insulated from private label competition. Does that argument still hold up? And secondly, back to China IFCN. You said you're still supply constrained. But what about consumer behavior following Q3 supply problems? Again, you said at times that you were worried that some consumers might switch away from the brand permanently if that was unavailable. How is that playing out?
Thanks, James. Let me take the first one and get Adi to take the second one. So in terms of private label competition, it is true that brands in consumer health tend to be materially more resilient than many other categories and, therefore, less susceptible to private label. But we are talking about Mucinex here, and in the case of Mucinex, we are talking about the entry of private label that is -- or reentry, I may -- to be very precise, that has happened over the last 12, 18 months. And as private label just comes and occupies more shelf space and occupies mix availability, there is a one-off impact that we are going to see just because a new brand, a new -- any new thing that comes in will definitely make an impact. I expect that to even out over the course of this year, because whenever something new comes and it doesn't come exactly at precisely the same point in time in every customer, in every store and so on and so forth, so there is a drag-down impact. And I would expect that to even out towards the end of the year. Indeed, there are signs actually that where private label has fully been present for over 12 months, our Mucinex share is resilient there. So we are not losing share in channels where private label has been fully there. It's just the fact that private label is not in the same place in exactly every store and therefore, this is it. In the grand scheme of things, in Q1, the impact of the share on Mucinex performance is materially modest compared to the other factors of seasonality and destocking, so I think you should take that in perspective. In the second one, I think, Adi, you want to say...
Yes. So on your question about the consumer impact of the issues that we had last year. We know that IFCN is a category which has been cohort by cohort, and these cohorts actually tend to travel over a period of time through the journey of the mother and the baby. And clearly, as we were supply constrained last year, we did not build as many cohorts that we would have done in a supply-unconstrained manner, and therefore, compared to where we were in the first half of last year, in the second half, we were unable to build the same level of cohorts in the same momentum to come into 2019, especially for our most premium and our best product there, which is Enfinitas. Now at the same time, as we ran into this supply issue, we were extremely conscious of where we continue to invest behind building our brand, building the equity and making sure that we retain our shelf space, which was critical in China. And we have data subsequently that tells us that equity has not been impacted by this at all, and actually, the work that we did at that point of time to continue to retain shelf space has helped us as the product has started to come back into stock. So while we still remain supply constrained and we are rebuilding the cohorts, and this is something that takes a bit of time, the -- I would say that the momentum and the direction is quite positive, and we are rebuilding a number of the lost cohorts that we would have built earlier otherwise.
And so just to be clear, why are you still supply constrained? Because -- I know it's 6 months ago now when all this was happening. Shouldn't it -- well, more than 6 months ago. Shouldn't it have all worked its way through by now?
So actually, we were running flat out at full capacity for Enfinitas before the issue happened. Then the issue happened and it's sucked out a level of stock from the system. And after that, we've been running at full capacity on those lines again and while we were waiting for our Australia facility to come online and take some of the pressure away from our Netherlands factory. So that has happened. And progressively, as our Australia factory ramps up, some of the volume is moving to the Australia factory. However, these are long-term movements in our supply chain, and it's a key part of making our supply chain more resilient as we go forward.
Thanks, James. Okay. Next on the line, Iain Simpson from Barclays. No, he's disappeared.Now we've got Marion Boucheron from MainFirst.
Yes. Just 2 questions for me, please. One, on the supply constraint coming out from this, what do you think was the impact that you had on IFCN from the supply constraints? I mean what proportion of sales are you missing? And then also, on the guidance for the full year, so I understand it should be even quarter after quarter. But on the flu season that was exceptionally weak this year, how do you expect really to catch up on that part? And also, for H2, what is coming from comps? Because you will be lapping the production constraint issue. Then what growth is going to be driven by innovation or improved performance?
I don't think we are going to -- we're able to quantify the impact of the supply constraint in the quarter for IFCN. Listen, we -- IFCN has produced a quarter of plus 5% growth. A number of things are doing -- performing really very well and some we can do better on. And what we just said was that we are not fully back in terms of our supply position in China, although we are working very hard to get as close as possible. But there is still some more to do, and I believe that in Q3 onwards, we should have a more -- a stronger supply position. So I think that's where we are. In terms of, I think you're pointing, Marion, to how we should think about targets for 2019 and half 2 particularly. So I would say, as we've said, that we have a very soft comp in Q3, and therefore, we have said in the release actually that half -- the growth will be half 2 weighted. I said actually, just to remind you on this whole thing of target setting because we do get sometimes quite worked up about every quarter and we want to make sure that every quarter come out very perfect in terms of what the full year target is. Our target is for the full year. The target is 3% to 4%. We are confident of getting to the 3% to 4% target. We are in Q1 where we expected it to be. Okay. So there is no change here. We also said back in February, and I'm only repeating, that you should not expect every quarter to be in that same range of the full year target. We should also not expect every half to be in the full year target. We can see already actually that in Q2 and Q3, we have different moving parts. In Q2, we have a very strong comp on IFCN, a very strong comp on OTC. On the reverse, we have very weak comps on -- in Q3, particularly on the IFCN side. So you can read whatever you want on each of these quarters, but I would say to you that, in aggregate, we remain on track with our full year target of 3% to 4%.
Okay. Thanks, Marion. Hopefully, we've got Celine Pannuti back now. Celine, are you with us?
Yes. My first question relates to the Health business. Could you give us, quantify -- you mentioned 3 different points: destocking, the flu season incidents and the sell-off. Could you quantify how much all of the -- each of these contributed to the decline? And also, what has been your exit rate in March? Since you mentioned that sales were running back to normal, maybe you could talk about sellouts possibly. That's my first question. My second question is with regard with your statement on Indivior. So you rightfully point out that the DOJ indictment is against Indivior, and there have been several U.S. judgment in favor of Reckitt group that cannot be liable for its subsidiary, Indivior. So could you explain what are the thoughts behind your provision and why do you still have those?
Yes. Celine, it's Adrian here. So on your first question, the sort of components of the OTC reduction in Q1. Of the 3 that Rakesh mentioned, so the reduction in consumption in the U.S. and Europe, the reduction in inventory particularly in the U.S. but a little bit in Europe and the Mucinex market share, around half was consumption. And you can see that in the incidence -- reduction in incidents, but this has been across the quarter, particularly heavily so in January and February. The -- getting on for -- or the bulk of the second half was reductions in inventory. And that was, as we said in the text, prepared text, the season relative to last year tailed off through December last year and a significant number of retailers went into the end of the year with inventory levels that were therefore in excess of the underlying consumption. So we saw a significant destocking through the quarter, both reflecting the high stock levels that went into the quarter and the low consumption in the quarter. So by the end of the quarter, so as we exited March, it very much looks as though inventory levels were in line with the level of consumption, so it all happened in the quarter. There was some loss from Mucinex share, loss to private label as Rakesh has already mentioned in answer to a previous question, but it was a modest contributor to the reduction compared to the other 2 elements, Celine. And in terms of the exit rate, the -- March is always a lower or typically a lower consumption season -- a lower consumption part of the quarter than January and February just because of the incidence of disease, and that happened normally. We tend to call it the shoulder of the season in the company, and the shoulder was actually relatively similar to last year's shoulder, although the head was significantly less. So actually, as the sort of year-on-year of the market effect balanced out in March so, actually, the share of Mucinex improved, which I think Rakesh has also alluded to. On the Indivior point, Celine, you're right in that a number of cases from the states have -- the judge have ruled out we should not be -- we, the RB group should not be part of this because it's not relevant to us. It's an Indivior matter. But we have had, since the beginning of 2017, a provision of $400 million in respect not just of state actions, which were the ones that were subject to those rulings, but, in general, the possibility that we might be the subject of some form of action in the U.S. And that is what that provision was in the early part of -- or half year 2017, and that is why it's still in our books, Celine.
Okay. Thanks, Celine. We now have Guillaume Delmas from Bank of America Merrill Lynch.
2 questions for me. The first one is on the Health division. Because in the press release this morning, you mentioned that, and I quote, you've got more to do to deliver sustained top of market level financial performance. Now if we put aside the unfavorable seasonal effects of Q1, which are the key areas under your control where you see a need for improvement? I mean, is it innovation, execution, more branch support? And related to that, you are now 18 months into RB2.0. You've got a lot of traction in HyHo, but Health continued to be a bit soft. So why is that? Why such a contrast between your 2 divisions? And my second question is on Scholl. Last year, you were showing us a chart which was indicating the new quarterly sales level of Scholl which, if I remember well, was in the GBP 65 million to GBP 70 million range. You've done further SKU rationalization in Q1 this year. So what's the new absolute quarterly sales level? And should we expect a continued drag for the next 3 quarters? And maybe if I can squeeze in a last very short question. Why is, Rob de Groot not in the call this morning?
Guillaume, this is like a business review, and how are you, I hope you're good. So let me just say to you that Rob is not here and Adi is here because of call calendars. And I would have happily welcomed him. It's just a calendar clash and sadly, we could not have him. But hopefully, you will see him on the road some time. Let me answer a few things at the high level, and then I'm sure Adi would like to chip in, too. First of all, we are not happy with our growth rates on Health. Last year, we delivered 3% in Health in total. And it's clearly not within the growth algorithm that we have set for this business unit. It's not in the growth algorithm. 3% is not what we expect the Health Business Unit to deliver, which is what we delivered last year in aggregate. I do not want to compare ourselves with every other company that is reporting results. Company A reported, well, minus 2. Company B reported plus 1 and so on and so forth. So if you look at the last 9, 12 months of reporting of other companies, I don't think we somehow -- that is a standard, that is the caliber of our business that we want to set for ourselves. So really, when we talk about our performance, actually here, it's our growth model. It is the growth model which is guiding and the growth model we already talked about. That is the 3% to 5% growth rate of the health market, and we want to be ahead of that growth rate. That is what our growth algorithm. I don't believe that there are companies that are sustainably in that range, but we want to be. So that's the background I want to say. I don't want you to get involved with the quarter and then say, "Well, okay, that's really where it is in the aggregate, when we saw last year was plus 3." And I know I'm not setting targets by Health Business Unit for this year, but clearly, we have ambitions to get to our growth algorithm, and we are not there yet. Why are we not there yet? I think you are asking some quite good questions. And I want to have a new voice to explain that to you. And maybe Adi, you should come in and maybe give your point of view.
Yes. So actually there are few differences between our HyHo unit, which has delivered very steady growth ever since RB2.0 has happened. And you can already see the benefit of that focus come through in the numbers. And in the Health Business Unit, also, I think you can see the benefit of focus come through, but at a slower rate. And let me try and explain why I feel that is. So first of all, we should just remember that RB has been playing for many, many years in the Hygiene Home categories. However, it is a relatively new player in Health. And Health is an area where we are building up a huge amount of competencies, a huge amount of capabilities. The transformation in RB2.0 was much bigger in Health than in HyHo because RB2.0, first, for Health meant an integration of Mead Johnson, which was a very significant thing to do. Then there was a reorganization with the split. So it was an integration and a transformation. And in the case of HyHo, it was a transformation alone. This meant that we actually ended up with lots of new people in the countries, in the markets who were looking at a wider business. So there were people from the Mead Johnson side who now had to manage the RB portfolio which they had not done before. People from the RB side who had to manage the Mead Johnson portfolio, and while I'm very convinced that we've done the right thing and we've put the right people, it does take time for people to build knowledge and relationships and just experience in the market. So because of RB2.0, the average tenure of a management team in Health is relatively short, and I can see as I go through the markets that the teams are shaping up very nicely and actually this experience is building. The second point I would make is just in terms of the speed and impact of roll-out of incremental innovation. In the case of Hygiene and Home, typically, it's quite easy to roll out innovation geographically very quickly. In the case of Health, it is a bit less so because there are many more regulatory complexities. And this takes time. Therefore, if you have great innovations, it takes a bit more time in Health to roll them out globally, which is a key strength of RB, which we've done before. The other point I would just make here is that our Health Business Unit actually has -- sorry, so our Health Business Unit also has additional -- sorry, just give me a second.
I think the points are quite clear, Adi. I would say that, at this time, how do I see the Health Business Unit? Let's come back to that. Last year, we're 3%. It was at the lower end of our growth algorithm. We want to be at the higher end of our growth algorithm. What Adi is trying to say is it's not going to happen in the short term. Why would it not happen, we have a major transformation and a major integration on our hands, but we're working extraordinarily hard to get the basics right. We have also been -- and that is unfortunate, but it is the reality. We've also been hit. Of a lot of our [ stuff ] -- last year, we produced plus 5% growth on OTC. I don't think any other company I personally remember has driven plus 5% growth on OTC, but we also got hit by several issues, which sadly, take back some of the growth. So I would say that avoidance of these issues is a positive tailwind for this category. It's just that, and I think building resilience whether it's in our supply chain or in our operations is very much a part of our investment strategy. Okay.
Sorry, is there still a question?
Okay. Sorry, there was a Scholl question.
Yes, Scholl.
So continue.
Yes, Scholl. Yes, I think -- listen, you want to take that, Adi?
So on Scholl, Rakesh had last year, segment, that there is a big change that we are making on Scholl, where we were moving away from this instant gratification, the right focus -- we focus much more on the therapeutic area of foot health. This is actually a complex and time-consuming task. It involves a number of things. It involves resetting the shelves, changing product registrations, complex supply chain management, a whole host of other activities. And given the complexity and the number of changes needed, this is always going to be a long run, our change is not a short-term change. So I'm pleased to say that we have now reduced our device contribution on Scholl to 15%, and we are well on our way to a much more healthy, pun intended, and sustainable business model. It will still take us some time to complete this transformation, but I look forward to the day where we can actually get back to the point where Scholl has been reset as a healthy brand, which is focused much more on the therapeutic side of the business and is back to growth.
Right now we've got Chris Pitcher from Redburn.
You've mentioned a couple of times on the call how you're working harder in China to win back in some child nutrition customers. Can you give us a bit more detail on what you're doing above and beyond your original plans prior to the supply constraints? And what does this mean in terms of cost implications, certainly in the first half, and whether these will likely carry through to the full year?
Okay. So there are a number of things that we continue to do to drive our business forward. So the first and most important point is that we continue to work very hard to drive our business for our super high premium product, Enfinitas, which is, like I told you before, back in stock. And we are, through the period, like I said before, of quarter 4 last year where we were out of stock, we had already continued to keep up our connection with consumers to make sure that when the product came in, we were actually able to continue the momentum and actually start rebuilding very quickly. So from that perspective, we've continued to invest even through the last quarter of last year, and I would not say therefore, there is that much significant incremental investment in the P&L because of that reason. The second thing is really about our continuous focus on e-commerce. In the last meeting in February, I told you that our e-commerce contribution in China had already gone from 15% to 25% during the time that we have acquired Mead Johnson. And I can tell you that, that e-commerce percentage has moved a bit further now, and we remain focused on driving our e-commerce capability. And the third big thing that we are doing is really driving our business into the lower tier cities, and that is absolutely critical and crucial because that's where a lot of growth is, specifically in the MBS channel. So we have a whole host of partnerships with mom-and-baby stores and also with key technology platforms like Alibaba and JingDong to apply our ability in e-commerce to actually drive our offline mom-and-baby store businesses in these cities. And I'm pleased to tell you that we have expanded to more than 250 cities through these initiatives. But the baby structure of these initiatives is that it is relatively virtuous in terms of investment because we are using a O2O model -- sorry, a B2B model, which is driven by technology rather than through the old way of doing it, which involved putting huge amounts of investment in feet on the street.
But it's also very transformational. It is just, Chris, for you to realize that what when we are doing these innovative models to reach lower-end cities. I mean I remember Adi was in China a long time ago -- no, long time ago, I mean, not so long time ago too. But I remember we took for -- going to 100 cities would probably take you 18 months to reach or 2 years to reach. Here, we are talking about reaching 250 cities in less than a year. So we have really truly transformed our approach to how we can go and distribute widely at lower cost and with greater speed. But there is still a lot of work to do, I mean there's a lot of work to be done here.
Okay. Thanks, Chris. Now on the line, we've got Alan Erskine from Crédit Suisse.
Yes. Most of my questions have actually been answered, but 3 quick ones. One, I mean you seem to be implying that we shouldn't assume that Q2 gets back to the 3% to 4% range for the year. I just want to better understand some of the moving parts there. And specifically, in Other Health, Dettol was growing. I think Durex was growing. So VMS was part of the flat overall picture, but that seems to have been partly to do with the flu season. So should we assume that Other Health recovers in Q2? And then 2 just quick clarification questions. One, did I understand correctly that Enfinitas is now being produced in Australia? I wasn't sure if that plant had been registered to produce Enfinitas. And then just to go back to the Indivior situation, just a point of clarification. As I understand it, you can receive an indemnification from civil actions, but can you be indemnified from criminal actions?
Yes. So Alan, on your first one, listen, unsurprisingly, the first thing I'm going to say, we're not going to go into quarter by quarter guidance. The -- I think I'd would repeat what Rakesh said a few minutes ago in response to an earlier question, which is back from last February when we could see the -- were on our feet with the full year numbers. And we could see the poor season, we very much signaled that this was going to be a year we saw stronger growth in the second half, partly for those season that we were sort of feeling in February, but partly also because we're lapping, when we get into the second half, the infant nutrition supply difficulties we had. So I think that's really what we'll say. We would repeat that rather going into quarter by quarter guidance, Alan. On your Enfinitas ex Australia, you're right -- or at least the implication of your question was right. It doesn't come from the Australia plant. The Australia plant is not approved for Mainland China supply. We are supplying from there to Hong Kong in order to take the pressure off the supply factory in Europe for China. And on your last point about the nature of the indemnity that exists between our RB group and Indivior. Just to remind everyone, this indemnity came into existence at the time of the merger in 2014. And in essence, the indemnity says that for liabilities that arise from the prescription pharmaceutical business, those accrue to Indivior; and for liabilities that arise in the consumer business, those accrue to RBG. So therefore, any liability that arises within Indivior for the prescription pharmaceutical business, we have no liability whatsoever to reimburse that. Conversely, if any liability came to us in respect to the prescription liability business, in certain circumstances Indivior would have an obligation to reimburse us. But you're also right in the implications of your question that English law is not -- it's a little vague on this. Not all forms of liability are subject to reimbursement. There are uncertainties, and it is because of that, that we made the $400 million provision back in 2017 and maintain it.
Okay, thanks, Alan. We've got 2 more on the line. So first, Iain Simpson, hopefully you're back. Iain, are you with us?
I am indeed, and hopefully, you can hear that. Apologies about earlier. So for me, firstly, digging into that minus 9 in OTC, are you able to give any indication as to how much Mucinex was down by, given that you sound happy with Gaviscon and Nurofen. So my sort of back of the envelope suggests 20% or so. But I'm not sure if you can give additional color. And then more widely, looking both at your supply chain issues and infant formula in China but also the WannaCry computer virus issues of a few years ago. RB just seems uniquely vulnerable to these sorts of issues. Other companies have accidents but it doesn't take them the sort of 6, 9, 12 months to recover from it that it does with you. I mean is this the wider the point that you just need more redundancy in your business? So you've got resilience to pay for this sort of stuff. And is that why we're seeing CapEx move up? Does it need to move up further?
Yes. On your first question, Iain, listen, we're not obviously not going to go in brand by brand. The -- but let's suffice it to say that your macro numbers are not a million miles from accurate. I mean you could see that from minus 9, I'm sure you've got a rule of thumb about how much is seasonal as opposed to nonseasonal, Mucinex within that. So yes, there were significant reductions. And as we said before, roughly half was to do with consumption, and you saw big year-on-year reductions in consumption. And the bulk of the other half was due to the geared effect on the inventory supply chain. So without confirming or denying any numbers, you're sort of [ unusual ] and not in completely the wrong direction, Iain. In terms of the, yes, the sort of resilience to the business and so on. I mean you have absolutely heard us over the last year taking lessons from some of the items that you'd highlighted. We do take lessons from the cyber. And the real lessons from cyber wasn't WannaCry, but the cyber NotPetya that we suffered from, were to a much lesser extent, technical cyber things. And they were indeed, the fact that it took us several months to get the supply chain back in line. And a lesson we took from that was that we did need to increase capacity in some ways. And you've seen in our numbers both in our CapEx and in our -- a little bit in our margins that we talked about for the full year and before that we are, we have invested in that direction. If you like, you could call it that. That adjustment is happening. So yes, we are clearly a learning organization and when things like that happens, we have learned and we'll continue to learn from that.
On the IOC in part, I think, Iain, I would say that we had already taken the decision to diversify our supply chain and to actually invest much more in terms of a much more resilient supply chain structure. Because obviously, to have a lot of your product in some of your key markets being shipped from a concentrated supply chain is never good. The fact of the matter is some of that decision that we took very early on in our acquisitions cannot be fulfilled overnight. So I'm in a way glad that we took that decision to go for an Australian facility, but we could not derisk completely our existing supply concentration particularly for China. As Adrian rightly said, these are big lessons we are learning. We are investing, absolutely investing for more resilience, and let's call it making sure that even if, and even when -- because accidents can always happen. We find much more resilient ways of coming out of them and much faster.
We've got one more question on the line if anyone else has got any more questions, please register. The last question we've got now is, on the system it says Chas Manso, but unless it's a relation to Chas, I assume it's you, Chas.
Yes, I think I've got 3 questions. The first one is on the consumer health care category growth rates. In the release you're saying you think it's coming in at the lower end of the 3% to 5% range on seasonality and the slowdown in China baby. Could you try and sort of tease those 2 out? I mean essentially, given the China birth slowdown, will it be more difficult now generally for the consumer health care category growth to get back to previous levels? That's number one. Number two, on China baby, I mean clearly, you're doing lots of things to drive growth there, but a question really on the headwinds. I mean, is it fair to say that the real headwind from the 11% decline in number of babies born, that the real headwind is yet to come given that China is more of a late-stage formula market? So basically, what are the risks that things get worse there before they get better? And #3, I know this is a sales release, but I guess I can't resist the temptation to ask the margin question. You've rebutted the margin reset concern quite strongly in the past. If you don't manage to get to the growth algorithm that you've set yourself, how long do you think you'll give yourself before you feel it's appropriate to spend more to help fuel that better top line.
So let me just say to you, Chas, that the consumer health category algorithm of 3% to 5% is still very much intact, and even if it is at the lower end in first quarter, it's quite seasonal. And I think you should call it -- that's why I don't think there is any -- I will not point to any changes. And this is including the impact on China baby where we've said that although there are some birth rate changes, obviously, as we see the birth rate decline, there is plenty of premiumization opportunity. And I think my macro position is that we should not also get too worked up about the China growth market even if there is some growth there, because we still have a huge runway for our brands. I mean we are still a modest share in China and when I think about the opportunities in China, they are just mind-boggling. They really, really do. So I would not like to feel that we are living in a world of constraints, we are living in a world of scarcity. This is a world of abundance, and I think the growth in China baby is massive, and we should really think about that and not look at Nielsen data on -- personally, I mean this is how I want to internally also talk about this. So this is how I see it -- maintain. And on the profit margins, I think, first of all, I want you to know that we have been investing behind, like I said in terms of CapEx, in terms of investments for more resilience in our brands over the last 18 months. We have -- if we wanted to move our margin needle up materially, we would have found a different approach to RB2.0. We might have found a different approach to Mead Johnson. And we did not. So I think this is a business which is working hard to create the right operating model, the right organization, the right investment profiles for the company for long-term growth. This is not -- so I think we are making investments where we need to. Adi already talked to you that even in a time when we were growth-constrained from supply challenges in China, we continued to invest to make sure that we did not lose shelf space. We did not lose our in-store, what we call, nutrition consultants and the investment that goes behind brands. Just so that when we got back, we didn't have all the catch-up which would have been even worse if we hadn't done. So I don't think -- we remain -- we've reiterated our margin targets for the year, which is to maintain our margins for 2018 -- 2019, and there is nothing more to add here.
Okay. Thanks very much, Chas. That's all the questions we have. So thank you very much, and we'll close the call now.
Thank you very much for joining.
Thank you, ladies and gentlemen. That concludes that conference for today. You may now disconnect.