Reckitt Benckiser Group plc

Good morning, everyone. Welcome to Rekord's Q3 Trading and Strategy Update. Today, we're joined by Chris Licht, our CEO, and Jeff Carr, our CFO, for a Q&A session. And we also welcome Shannon Eisenhardt, our CFO Designate, who's here with us today. Chris will open with some very quick messages, and from there, we will go straight to Q&A. Over to you, Chris.

Good morning to everyone who's dialed in. This morning, we shared with you our Q3 Trading Statement, and my strategic update on the business. I hope you've all had a chance to watch the presentation over the last few hours. On Q3, we have delivered a strong third quarter. Group like-for-like net revenue growth was 3.4%. Our hygiene and health portfolios delivered a very strong 6.7% growth with improving volume trends in our hygiene business and continued volume growth in health. Our revenue growth was broad-based across our key categories, including OTC, disinfection, auto-dishwash, intimate wellness, and fabric treatment. Nutrition is rebasing as expected. The good news is that we have maintained market leadership in the U.S. as the supply situation is normalized. We remain firmly on track to deliver our four-year revenue and margin targets, whilst recognizing that we face tough comps in both U.S. nutrition because of the continued normalization of supply and in OTC, given a record quarter for the cold and flu season last year. With respect to our strategic update, Brackett today is a strong, well-invested business with a culture and purpose fit for the future. We operate in attractive growth categories. Our portfolio of brands is excellent and positions as well to deliver sustainable mid-single-digit like-for-like net revenue growth over the medium term. We will continue to invest in product superiority and to sharpen and improve the consistency of our in-market execution, and our cost base. We see a clear runway for sustainable growth with superior gross margins, and we will extend our productivity program to focus on fixed costs to fuel both growth and earnings. We are well positioned to grow adjusted operating profit ahead of net revenue in the medium term. Our strong free cash flow generation and a healthy balance sheet enable us to enhance shareholder returns through both sustainable dividend growth and our new share buyback program, which will total 1 billion pounds over the course of the next 12 months, commencing imminently. We expect this share buyback program to continue in the coming years. consistent with our capital allocation principles. I firmly believe that our strong, competitive, and resilient business is poised to deliver sustainable, profitable growth and leading total shareholder returns. Jeff and I would now be happy to take your questions.

All right. So the first person we've got on the line is Bruno Montaigne from Bernstein. Bruno, go ahead.

Hi, good morning, Chris and Jeff. Now, I'm mainly going to focus on the kind of strategy update. The first kind of surprise for me is the maintenance of the mid-think of digital organic growth. I'm going to consider that 5%. When you sort of agree that your categories are 3 to 4, so I'm going to make that 3.5%. Now, I think it's quite hard to agree on your category when you're the biggest brand in most of the regions where you are. You're typically the dominant number one brand. So, We don't often see evidence of the biggest brand outgrowing the market by that much. So I'm very surprised that, you know, how can you keep outgrowing that? And why, as you change your strategy, Chris, wouldn't you have tried to focus on getting into better categories rather than trying to defy gravity and persistently outgrow your own market by that much when you're already the biggest dominant brand? The second question, Chris, is really when I listen to that video, you talk about the culture of records, but you know the culture of records also had quite a lot of one-offs in the past and some bad memories of culture of pushing things too hard. And you're talking about the increased cost focus as well. But all of that sits very badly with me with the recent FDA letter you had on the U.S. Infant Nutrition. I know probably the lawyers are telling you to say it had nothing to do with actual quality and all of that, but when we read in detail that letter, it was a pretty damning letter. about some of the standards and the process you were reading. So how do you sort of reconcile the history of one-offs or multi-offs and blow-ups in record, still the ongoing issues in the FDA letter and thing, and then saying you're going to focus heavily on increased cost-cutting? Doesn't that put you at risk of more accidents and probably investors would love record to be a nice, boring, fantastically cash-generating company instead? Thank you.

All right, thank you. Let me tackle those two questions in turn. So firstly, about our categories and our ability to outgrow our categories. I think what I shared with you this morning is we do feel quite confident that we can outgrow our categories. We've done that for the prior three years, and we are category creators. That's our role. We compete in extremely attractive categories, and we have exposure to very high-growth markets. including a thriving business in China, a thriving business in India, and really strong growth in our core markets in the US and Europe. So I think that we have reason to be confident that we can grow and grow faster than our categories. And it's what we should be doing as premium manufacturers that exist really to expand our categories. I spoke a lot about the opportunity to drive household penetration and to premiumize our categories. And that's absolutely what we're here to do. So Now, in terms of mid-single digit, we have operated with a range of four to six. What I said is I think that's a pretty good range for us. And sometimes our categories will grow fast. Sometimes they'll grow a bit slower. That's why I think it's appropriate for us to have a range. But we are definitely striving to grow faster than our categories. And so all I can say is we have a track record of doing that in the majority of our business. And And we intend to continue to do that. That's why we've invested so much in innovation and in our supply chain and in our distribution networks so that we can do that. The point on culture, look, I wanted to start with culture today in my update because I think our culture is a source of advantage. There's no doubt that we have things in our past that didn't go well, as you referenced some of them. But I don't think that is a function of a culture and certainly not a function of our culture today. As I said, we have evolved our culture and we have put doing the right thing always at the very heart of our culture. And that is not just words. That is how we act and that's how we lead at Wreck-It today. And I'm really encouraged to see how we've evolved the culture. And I think today it is, as I said, future fit. That doesn't mean that everything will always go extremely well, but I think there's not that many companies like ourselves that can truly say that they have a culture that is a source of competitive advantage, and I think that we do. Now, you mentioned FDA. Actually, the situation in terms of the regulatory environment in infant nutrition in the U.S. is something we're paying a lot of attention to. Obviously, we will do the right thing always in this case as well, and we do work very closely with the FDA to meet the evolving regulatory framework in that industry. We will not hesitate to make investments and to strengthen what we already do, which, as you saw in the letter, the FDA says does not in any way present a consumer safety risk, but we will definitely not hesitate to So do the right thing here and make the investments that are needed for this to be a very resilient supply chain.

Bruno, if you don't mind, it's Jeff. I just want to add a couple of things. We've stepped up our capital expenditure significantly in the last three years, and we'll continue to maintain that higher level of capital expenditure as we continue to invest in our manufacturing facilities. Additionally, We're now talking of a fixed cost base, which is significantly higher than 2019 and before, as we've made significant investments in areas like quality, R&D, and supply resilience. What we're now looking at today in terms of the opportunities are driving efficiency through the systems, automation, simplification. What we're not looking at at all is cutting into significant areas, important areas, which support the quality, the safety programs, and our innovation pipelines and such forth. So there are significant efficiency opportunities, and that's where we're focused.

Thank you.

Okay. Thanks, Bruno. Next on the line, we've got Guillaume Delmas from UBS. Go ahead, Guillaume.

Thank you, Richard, and good morning, Chris, Jeff, and Shannon. Two questions for me. One more about the fourth quarter. So what are your expectations for Q4 like-for-like sales growth? Because it's not looking like you will have two particularly strong headwinds in nutrition and in OTC. So nearly a third of your business that could be reporting marked negative like-for-like sales growth. So my questions on this would be at this stage today, how much visibility do you have on the quantum of both headwinds, and what do you see as the main offsetting factors in Q4? And could current consensus, I think consensus for the year is now 4.8% like-for-like sales growth, could it turn out to be a bit too optimistic? And then my second question, it's on the nutrition business. Based on today's strategy update, I mean, it seems that you remain absolutely fully committed to this business. So it would be good to hear why you think you are still the best owner of this nutrition asset. And I guess how confident are you that nutrition will not prove a consistent drag to boost your like-for-like and operating margin ambitions? I mean, basically that you will be able to bring nutrition's performance in line with the health and hygiene standards. Thank you.

Let me start. It's Jeff here and answer the question on the fourth quarter. You know, we've been delivering strong, consistent quarters of mid-single-digit growth for health and hygiene, and you see that in the current performance. But clearly, when you look at the nutrition numbers, we're down something like 12% like for like versus a 25% increase last year. The number one, previously number one leader in the market, now number two, is fully back on shelf. So I think we are pleased that we've held on to 50% of that revenue growth in this quarter. And we've said we're not looking to change guidance at all for the fourth quarter in terms of consensus expectations, with the exception that we've said we expect on nutrition growth. those sort of levels to continue into the fourth quarter. Now, if you look at our fourth quarter last year, we were just under 20% in terms of nutrition, so we expect to give some of that back. So I think we're being quite consistent that the only thing I expect people to look at is the nutrition number. Health and hygiene will continue to track very strongly, and we're happy with where we are.

I'll take the question on nutrition and its fit in the portfolio. So this morning, I spent some time re-articulating the logic of our record portfolio and what makes it excellent. And I set out three principles. Those three principles were businesses belong in our portfolio, they have a long-term runway for growth, they have an attractive earnings model, and a source of competitive advantage that gives us a great vantage point that we can compete from. Those are the three principles that we will apply to our portfolio for organic capital allocation and inorganic capital allocation. And it is a test that all brands and businesses have to meet. Now, we will go through and assess how we feel about the portfolio. But at this moment, I think we can say that nutrition certainly satisfies some of those principles. I don't think that we should judge nutrition as an asset based on how it's trading right now versus prior year, because as Jeff said, this is in the context of an entirely unusual circumstance last year. I think what we have demonstrated and what our team that's running the nutrition business has demonstrated is that we know how to run this business. We understand the unique characteristics of it, and we can drive performance in that business at the moment. But listen, I think I'm committed to applying the portfolio logic and the framework I set out for years to come, and we'll hold it up against anything in the portfolio. And when we draw a conclusion that something doesn't fit, we will share that if we draw that conclusion. But at this moment, it's too early to say what parts of our portfolio does and does not fit. I think what was really important about today was I wanted to let you know how I think about the logic of our portfolio and what belongs and doesn't, and to make a commitment that we will be quite principled about that.

Thank you very much.

Thank you. Next on the line, we've got Rashad from Morgan Stanley. Go ahead, Rashad.

Hey, good morning, guys. Thanks for taking my questions. A couple from me, please. The first on fixed cost optimization, clearly a big focus. Can you guys talk about the size of the opportunity you see and how much more runway you think they're going forward in optimizing that cost base? And then my second question is, you know, when I look into 2024, I guess how confident are you in hitting that mid-single-digit target for next year if you exclude the dynamics in nutrition? And if I can squeeze one more in on nutrition, I know you've mentioned some of the in-market challenges you've been facing in ASEAN specifically. Can you talk about that a bit more? Where do you see the ASEAN business going to over the next few quarters and how its growth there in Q3? Thank you very much.

Okay, let's take these in turn. So on fixed cost, yes, fixed cost optimization is a key focus going forward. It will be a focus for years. What I shared this morning is we think that this could be in terms of the size of the opportunity in the range of 200 pips of net revenue. But we're not going to lock ourselves in to one number. We're going to look to build the best record that we can possibly build. And anywhere we can become more effective and more efficient, and anywhere we can free up funds to invest in growth, we will do that, as well as ensure that we hit our earnings ambition. So I think, you know, fixed cost optimization will be an enduring element now for years to come. We will get after this opportunity through the expansion of our quite successful productivity program, and we will fund any one-time costs that we need to fund from within the P&L, and that means that these benefits will build over time. It is not... a quick hit. It is a sustained source of improvement and reinvestment in the business. In terms of mid-single-digit growth, ex-nutrition in 24, I wanted to see, first of all, that we finish this year strongly. You can see the momentum we have in health and hygiene at the moment. notwithstanding the comps in Q4 that we just talked about, I think it's safe to say that we have strong momentum and we see real improvement in the hygiene volume performance and continued strong performance in health volumes, which are positive. And that gives us faith that we can meet our ambitions for these businesses going forward. In terms of specific guidance for 24, that's not appropriate for today. We will get back to that at a later time, given that this is a Q3 trading update. But we will provide those answers as we can. In terms of nutrition in ASEAN, look, we are improving the performance there. We had some interventions that I think we spoke about at the half year, and those are proving to be effective. It is a focus area, and the business is improving sequentially. We also had a couple of missteps that we were also transparent about as it related to debt sold in a couple of our markets in ASEAN, and we have also made interventions there, and we are seeing gradual improvement, although, frankly, I think we will see the full impact of that in 2024. I fully expect our ASEAN business to have a very strong year in 2024.

Good. Thanks, Darshan. Thank you. Next on the line, we've got Ian from Barclays. Go ahead, Ian.

Good morning, everyone. A couple of questions from me, if I could. Firstly, a sort of short-term question. You talked about not wanting to provide 2024 guidance, given it's the Q3. Fair enough. But can you give us some Q4 guidance, perhaps? In particular, how should we think about volumes, especially given the tailwind from Clorox disruption? would it be reasonable to expect volumes to turn positive in Q4 or is it too soon to get comfort around that? And I noticed that for the last few quarters, consensus looks to have been a little bit in the wrong place on volumes. So just trying to get some help as to how we should think about that. And then a kind of longer term question, I guess, which is we've been talking about BEI stepping up in this business for a very long time, it feels like. But we're still hearing about BEI needing to step up, albeit I appreciate that that's going to be largely funded by fixed cost activities elsewhere in the business. So how should we think about that? And how does it seem to be taking so long to get that number in the right place? And linked to BEI investment in terms of innovation step up, again, it feels like we've been waiting for innovation to really rubber hit the road for a fair few years now. How should we think about the phasing of when superior innovation starts landing in market and starts helping drive share outperformance? Thank you.

Ian, let me start with Q4. And let me just repeat a few of the things that we've said in terms of, first of all, we're comfortable with guidance for Q4. with consensus for Q4, sorry, with the exception we've talked about nutrition, which was up over 20% last year, given some of that back, and we expect it to be in the same sort of therapy as we saw in Q3. You mentioned volumes. Volumes in health, let me repeat, have been positive all year. Year-to-date volumes are positive in health. So I guess you're talking about specifically volumes in hygiene. Volumes in hygiene have sequentially improved from Q1, Q3, minus 10, minus 7, minus 3. I expect that I would like to see that volume continue to sequentially improve, but I'm not going to get pulled into a specific volume target for Q4. With respect to the problems at Clorox, We had a relatively small benefit in Q3. I expect to see a bigger benefit in Q4, but it's not of an order of magnitude to change consensus. We do expect to see a bigger benefit in the fourth quarter. The third quarter benefit from the problems in other stocks was in the single millions. I expect it will be double digitized. course, will help volumes in hygiene. But clearly, nutrition volumes are declining, which is to be expected. It would be crazy not to expect that, considering Abbott is fully back on shelf and fully operating as normal. What we're happy about is keeping something like 50% of the revenue upside that we saw last year back in our numbers this year and maintaining leading market share in the US in terms of infant formulas. So we're pleased about that overall performance. But of course, that means we'll see negative volumes in nutrition in the fourth quarter. I hope that clarifies the question on the fourth quarter. On BEI, let me just say, we're not, no one has stated, nor are we saying that we've underinvested in BEI. But what we think is a healthy state is to continue to increase our BEI investments as we can afford to do so to help drive innovation and to help drive mid-single-digit top-line growth. We're already seeing the innovations come through. We're seeing it come through in hygiene in terms of finish the ultimate plus all-in-one, the best ever clean that we have in the dishwasher. It's pretty much fully launched in Europe. Lysol laundry sanitizer has been very successful in the U.S. We're currently launching and we're very pleased with Lysol Air. We've talked about innovations that we've seen in Airwick with Airwick Vibrant and Active Fresh, which means that although volumes are down in that category, we're actually showing Airwick growth in the quarter, which is very pleasing. So innovation is very much, and we talked about in OTC, for example, Mucinex Instasuites, very successful innovation in that category. So innovation is coming through the system. We're very pleased with the innovation performance, and we will continue to increase our BEI. Again, not because we've underfunded, but we think it's a good thing to spend more money supporting our brands.

Yeah, I would just add to that, look – Innovation is very much the lifeblood of our business. And the only maybe slight issue I would take with the way you asked your question is that it's not currently happening. It is very much currently happening. The platforms that Jeff just talked about are very sizable, permanent new additions to our portfolio, and they help premiumize, and they're quite accretive and attractive for us to invest behind. So it's not to say that that work is done. That work is never done. We always want to strengthen innovation. our innovation pipelines, and they are much stronger today than they were in the future. What I think we want to hesitate to do going forward is to talk a lot about the size of those pipelines or future innovation that we might launch. I would prefer to talk with you all about things we have actually done, successes we have actually created in the market. And the examples that Jeff mentioned just now and I referenced this morning are indeed sizable examples of just that.

That's very reassuring. Thank you.

Next on the line, we've got Alicia Fari from Investec. Go ahead, Alicia.

Hi. Good morning. Just one quick technical question and then two bigger picture questions if I can. Just on the technical one, you mentioned that you'll provide clearer FY24 guidance at the full year stage. Can I confirm that you intend to provide annual guidance as a matter of course? going forward, having established this medium-term guidance. That's the first technical question. Then a bigger picture, you mentioned in your presentation 75% of your revenue, I think it is, is covered by your net revenue management tools. Intuitively, that feels, I guess, a little further behind than I might expect at this stage. So I'm just wondering, you know, how you feel about that and what are some of the main barriers and perhaps investment required to increasing that coverage as it's probably a key driver of growth going forward. And then the second big picture – sorry, dropped out for a minute. The second big picture question is – There seems to be a bit of a mixed picture with regards to the consumer at the moment, obviously under a lot of pressure and bearing in mind the premium nature of much of your products. Could you just give us an update on how you would characterize the health of the consumer in your categories at the moment? Thank you.

Look, it's Jeff. I'll just take the first question on guidance. Yes, it is our tend to give guidance in the February full year results for the coming year, and that's what we've normally done. I'm not going to get into the specific nature of the guidance, but yes, that's when we would traditionally guide to the upcoming year.

On your question on RGM, Revenue Growth Management Tools, which by the way is a great question. Thank you for that. I would say to you that we are not going to be happy until every one of our employees have access to state-of-the-art tools in this important area. This is really an absolutely critical area to deliver sustainable, profitable growth and to optimize the investments in the P&L. So it is a main focus. The reason why I spoke about it this morning is because it highlights that we have opportunities to continue to sharpen and improve how we execute, This is a key priority. It's been an area of investment and capability building for some years now at record, and we are doubling down on those investments, and we're going to see that through. I expect to be at 100% coverage within a year or two of today. So this will continue to improve. And by the way, it's not just access to these tools, but it's the level of sophistication that our people work with them and it's an ongoing capability-building exercise to make sure that we are as strong as we possibly can be in this area, which is of great strategic importance. Turning to your other long-term question in terms of the health of the consumer, look, first of all, I would say part of the reason why we operate in attractive categories is because there is a very high level of consumer interest in consumer health, in hygiene, and the link between hygiene and health and keeping your health. COVID obviously put a bit of an exclamation mark on that connection, and we continue to see a very high level of consumer interest. I think that's part of how we can explain that even during an environment where there's been significant inflation and where consumers in different parts of the world have felt the pinch, that our volumes keep growing in consumer health. You see OTC as a vibrant category still, and I think it tells you that especially players at the premium end, like where we sit in our categories, we enjoy a high level of consumer interest. And when we premiumize and when we launch new innovation, we're seeing a lot of consumer interest and engagement and a willingness to pay more for real benefits. and more effective propositions. So we're quite encouraged by the overall consumer sentiment in our categories. Now, there's no question that it has been a tough time for consumers. And obviously, as we see wage inflation kicking in across industries, across markets, we hope that that means that consumption will get back into a more normalized environment. But as I said, we feel somewhat insulated from the worst of those dynamics that I think other categories have seen over the past couple of years. We are in a slightly more resilient place.

Good. Thanks, Alicia. Right next on the line, we've got Jeff Stent from BNP. Go ahead, Jeff.

Good morning. Two questions, if I may. The first one is, could you tell me when the medium term starts And the second one is on nutrition. You said against your three principles that the business meets some of them. If you could just elaborate on the ones that are not met, that would be great. Thank you.

Hi, Geoff. It's Geoff here. Let me take the first question. If you go back to 2020, we talked about setting some medium-term targets to get this company moving again. We had not seen... any real top-line growth momentum over the three years prior to 2020. We were in something like a 1% to 2% growth regime. So we initiated a transformation then to really get top-line growth going. And we talked about midterm targets of mid-single digits. We're now in the midterms. And what you've seen in the presentation this morning is our CAGR over the last three years has been about 8% growth. So we've actually been hitting high single-digit growth. And we've actually been outperforming our peers in terms of top-line growth. So we're very pleased with that. I would just take those midterm targets now to be ongoing targets. So I don't see it stopping. I just see it as ongoing. And that's the way I think we should look at it.

On your question on the principles, look, I think it's premature to get into a detailed conversation about any one part of our portfolio against the criteria. But, you know, a couple of observations. I think it's clear that we have a vantage point from which to compete in nutrition. Look at how effectively our team has competed in, you know, we have market leadership and we have the most trusted brand in the U.S. in this category. It's not a bad place to be. We've also seen very strong growth. Obviously, we have to set apart a bit the unusual circumstances of the supply crisis of last year. And so I think we have to judge the long-term runway for growth. And obviously, the earnings model is quite attractive on its own merits, but it is different than our health and hygiene earnings model. That's clear for all to see. So I think we'll continue to assess that question. And it's It's an abnormal time in infant nutrition in a lot of ways in the U.S., and as we see that settle out, we can give a firmer answer to that.

Okay, thanks, Jeff. On the line, we've got Celine Panutti from J.P. Morgan, so go ahead, Celine.

Yes, thank you very much. Good morning, everyone. My first question is on the mid-single-digit growth ambition. You said that your category exposure is about 3% to 4%, so clearly you need to get ahead in terms of market share gains. When I look at what has been achieved and the investment you made in the past three years, it seems that auto-dishwash is clearly coming out very strongly with encouraging share gains and premiumization, as you discussed. But I don't see a lot else elsewhere. I know you talked about some platform and innovation issues, So, Chris, maybe as you look into where you see opportunities, can you talk about areas where you think you're not probably delivering yet market share beating and where there is more where you can step up? My second question I think is quite typical about what you said today on the strategy. If I look at my model over the past years, Earnings have been at best flat, I must say, since 2019. And now you're talking about leading TSR performance. So that would be quite a step change in terms of EPS growth and total TSR announced by your Shabai back. So could you tell us what you think is leading TSR? Are we talking about loadable digits? Is that what you have in mind? Thank you.

Okay, let's talk about the growth ambition that we're setting forth. And really, we are reiterating a growth ambition that we have exceeded in the past three and a half years. So one thing that I want to just give you a little bit of a sense of is if you look at where this growth has come from, you know, and this growth that is ahead of our peers and ahead of our categories over this timeframe, it is really broad-based. And that's a really important thing to see. And frankly, it's important to us because it also tells us what these brands can do and what we can deliver going forward. And this is part of why we feel a comfort level with mid-single digit as a medium-term growth target. I'll just give you a sense of where this growth came from. Actually, the fastest growing parts of our portfolio over the last three and a half years have been OTC brands. And broad-based, really broad-based. I mean, every one of our large OTC franchises have grown double-digit CAGR. Some of them have little to do with COVID, okay? Like Gaviscon is an example. Durex has posted an 8% CAGR over this timeframe, which is really quite good and tells you about the runway for growth in that brand as we've innovated in PU and expanded the footprint of the brand in emerging markets. And as you said, Finnish has grown very strongly, but other brands in the hygiene portfolio have also outgrown their markets at a healthy clip. As an example, the Harpic business has done so. And then, of course, as we've talked about before, Detol and Lysol have had a very good run and are much bigger businesses today. So anyway, it just gives you a sense of the broad-based nature of this, and that broad-based nature is also true geographically. And we have exposure to very high growth markets that we think will continue to fuel our growth. I mentioned China and India. But frankly, even in the U.S., we have very attractive growth opportunities. So I guess all I can tell you is as we sit here today, as we assess our performance and we look at the excellence of our brand portfolio, we think we can do that. And is it stretching in some respects? Yeah, it probably is. But it also should be. for a market leader in these categories.

Let me just mention, Celine, I'll just mention about the earnings. First of all, let me just say, it shouldn't be a surprise to anyone that earnings have been flat during the last three years. And we talked about the margin reset in 2020. And we talked about then investing in our businesses, getting the growth moving again at record. And as I said, just said in the last question, Our growth pre-2020 had been about 1% in the three years preceding that, and we've been averaging an 8% CAGR in the last three years. So that's a real evidence of the success that we've had and the success of the margin reset. So it shouldn't have been a surprise that our EPS has been flat over the last three years. But what we've said is that we now expect to see delivering a return on those investments, which means that there is now more focus on getting EPS moving in the right direction and improving EPS as we go forward. Now, we're not setting a TSR target, but what we have done is we've now put TSR into the long-term incentive program for management. So that gives it a clear focus that we want to be in the top quartile versus our peer group in terms of TSR, if not at the top of that range. So that's why TSR is considered to be an important KPI, and that's evidenced by the fact that it's now a key part of our long-term incentive plan.

Thank you.

Okay, thanks. Next on the line, we've got Chris Pitcher from Redburn Atlantic. Go ahead, Chris.

Good morning. Thank you very much. Apologies for going back to the nutrition business, but in terms of nutrition, both the US and the underlying performance in Latin America. Could you give a bit more detail? You're saying that you've held on to 50% of the exceptional sales last year, which would indicate that the core business is in decline despite some quite significant price increases. Can you say how those price increases have been received and how your share has developed sequentially in the non-rebate business? And then I appreciate there are some in-market challenges in the Asian region. Could you give a bit more color into what those actually are Because the developing markets performance has been under what we'd expected this year. And LATAM to be flat in an inflationary environment again seems weaker. Can you just give us an idea of how you're looking to get that developing market business back into what would be that more normal high single digit growth rate? Thanks.

Yeah. So I think firstly, I just want to make sure I understand your first question. So we have taken pricing. We have been fairly successful in passing through that pricing. It has not caused any major issues. As you know, we did not price right away in North America as we were impacted by the inflation. We did that only this year. And as we said, we're holding on to market share leadership. So I don't think that there's anything about that that gives us concern. You know, Mexico is a very important business for us in infant nutrition. That business is performing exceptionally well. Market share gains, business performing well ahead of our planned expectations. So I think, broadly speaking, we are not concerned with our execution of pricing in this business, nor the ongoing trading. We actually think it's good. Now, in ASEAN, a couple of things that we're doubling down on is our medical sales efforts, where we had an opportunity to sharpen, to be honest. It just wasn't strong enough, and it's an absolutely critical element of our business there. And we're adjusting some of our marketing messages and the advertising and the product proposition. But these are kind of tweaks around our commercial proposition. We think that is going to make the difference And like I said, we are executing on that at the moment, and the signs we're seeing in terms of momentum are encouraging.

Let me just summarize. In the developing markets, we had like-for-like growth of 5% in the quarter. We're not happy with that, but it's an improvement in terms of our performance in the first half of the year. So we're pleased with the overall development of the developing markets. 5% in those markets isn't where we'd like it to be, but it's shown signs of improvement versus the last quarter.

Sorry, Jeff, can I just confirm, you said the developing markets were plus 5 in Q3, because you said LATAM was stable, and it read like Asian markets were negative, so actually the Asian markets must have been... Sorry, I was talking about the total...

number for the group was plus five.

Thank you. And maybe one last clarification on medium-term targets. You were talking about them being ongoing targets. Does that effectively mean that the margin outlook isn't really a change? You could still get to mid-20s in the mid-20s. It's just it's become an ongoing target rather than anything specific.

I think that's a good way to interpret what we're saying. This is meant to be an evolution of our margin guidance and not a departure. I mean, it's just that It is better for us, and we can do better, I think, in terms of serving shareholders if we have the flexibility to invest in profitable growth when we see it. We have a lot of operating leverage in our P&L, and we have fixed cost opportunities. And with those, we're confident that we can expand margins over time, and we will do so. But we also recognize that we're sitting at the high end in terms of margins of our peer set. You probably saw some of those stats this morning, and obviously you have access to all that anyway. So, you know, it's clear that we are already at high margins, and we want to continue to do that. That's part of who we are as Reckitt, and we're very proud of it, and we'll grow and expand them. But it's really an evolution, and it's nothing more than that.

Thank you, Chris.

All right, next question is from Jeremy Falco at HSBC. Go ahead, Jeremy.

Hi there. Okay, so my couple of questions. So the first one is just looking at nutrition from a kind of a volume perspective. So last year, your volumes were up seven, and then this year, they were down almost 16. So that would imply that your volumes in the nutrition business are considerably below where they were two years ago, despite still having some of the benefit from the recalls. So can you talk about the business through that lens? Then also, what perhaps was more difficult in Q3 in this division than you'd expected, given that I guess you were not flagging such weakness at the H1 stage. And then secondly, if you could just go into more detail on Dettol, more detail on some of the interventions you've taken, where the price gaps have now been closed. and what sort of market share trends you're seeing and when you think that gets back to growth? Thanks.

Well, let's start in terms of looking at overall nutrition position. Volumes tend to be obscured not just because of WIC and non-WIC, but also because of the different performances in different regions. Overall, in North America, our volumes are slightly down versus a year ago. But as we mentioned, we've taken pricing this year and our overall market share in terms of price, in terms of net revenue market shares, a significant head. Now, we took price at the beginning this year, which reflected the fact that we had not taken any price in 2022 during the crisis, and that reflected a catch-up in terms of pricing. It's true to say Abbott hasn't yet priced. Whether they continue to hold their pricing or not is to be seen. But our expectation is they will have to price at some stage with the cost inflation that we've seen over the last two years. And volumes, we would expect, would be impacted once they do price. how that develops.

You want to mention Dettol? Yeah, on Dettol, look, I think it's a stable business at this point. As we've talked about before, it's a very competitive marketplace. We were transparent about the fact that we stubbed our toe in a couple of places in ASEAN in the first half, and we have intervened both in terms of price gaps, as you talked about, and made a couple of other tweaks as it relates to the assortment and where our team is focused in terms of the commercial execution. And we are seeing improving trends. As I said, some of those things take a little bit of time to shake out in the marketplace, and so I fully expect Dettol to have a good year next year in ASEAN, but we are seeing improving trends in Q3 in that region. Actually, other parts of Dettol's footprint is doing really well. So we are in very strong growth in China, as an example, which is a really important part of this business. It's actually twice the size of ASEAN, if you look at the footprint. And Dettol had a really, really strong quarter in Q3 in China. So look, overall, we're still looking to grow this business. We think we have been through the normalization post-COVID. And we have an exciting innovation pipeline and we have good momentum in places like India and China, which are really, really the heart. I mean, those are heartland markets for debt. So and incredibly important that we do well. And it's a very competitive environment. You know, and as commodities fluctuate, we we see, you know, competition reacting and we will stay very vigilant. We don't intend to stub our toe any any more on this business.

Thanks, Jeremy. Next one on the line is James Edwards-Jones from RBC. Go ahead, James.

Thank you, Richard. Two financial ones, if I may. First, restructuring costs. Should we expect restructuring costs to increase as the fixed cost reduction programme ramps up? And secondly, working capital always used to be a big part of the record culture and the record financial model. It's not been such a big element in recent years. Is there an opportunity there?

Let me take those, James. We are not going to be charging any one-time below-the-line restructuring charges as we go forward. The way we see the cost optimization program, it will be self-funded within adjusted operating profit, and we will take those charges as we go along. So it's not a big bang program, but we do see significant opportunities to optimize that cost, and that's why we're pulling it out and talking about the potential for 200 basis points of improvement in that fixed cost base.

So just to be clear, Jeff, are you saying there will be no restructuring charge or just that they'll be charged as incurred?

No, they'll be charged as incurred, within our adjusted operating profits. So we're not pulling them out below the line as one-time costs.

Okay?

Correct. Is that clear? Yeah. In terms of working capital, it's fair to say our working capital, it remains a key focus in the business. It's fair to say we're not at the levels we were two or three years ago. And I'm not sure we'll get back quite to those levels, but we will see we are now in a position where we're starting to see some improvements in working capital, and we will continue to have industry-leading networking capital. We run high single-digit negative as a percentage of sales on networking capital, and I'd expect us to show improvements as opportunities to improve as we go forward. So there's no lack of focus on networking capital in the group. It's a key part of the remuneration structure for all of our people, including Chris and myself. and we'll continue to focus on it. And I would expect to see stable to slightly improving network capital as we look forward.

Thank you. Thanks, James. Final question is from Karel at Pemblik. Go ahead.

Yes, good morning. Thanks for taking the question. I have two questions. The first one is basically a follow-up on Chris' ones on the emerging market. They already gave us parts on ASEAN, on LATAM, IFCN, but the overall picture is not super clear to me. Why are volumes down 2.5% and what are the big drivers in your big markets that basically explain the emerging market performance? The other question is a bit more longer term. What are the ambitions for the VMS segment? It's a fragmented space. You have some local jewels, but also local positions. You're quite focused. Do you see opportunities for these brands to travel further or are there M&A opportunities? So that's basically the question on VMS. Thank you.

Can I maybe take the emerging market question? As I said, the group number was 5% growth in emerging markets, developing markets, with minus 2.5% volume. That's a significant improvement on the first half of the year. And it's not a number we're satisfied with. We're still showing negative numbers in terms of Dettol, in terms of volumes. But it's improving significantly, and we expect to continue to see that improvement as we implement the remediation programs that we talked about. So pretty much the biggest impact on the developing markets number has been the impact of Dettol. But that's an improving number. while we expect to continue to improve.

Yeah, I would just build on that and say, you know, obviously this is, if you look at the last 12 months, we're going through this unusually sharp inflationary spike and we're passing on, you know, very significant pricing like the rest of the industry is. And so this is not, I think this is a point in time phenomenon. As I shared this morning in my strategy update, we have been very successful in emerging markets and we have grown both volume and revenue significantly And, you know, as an example, a place like China, we have a thriving business, which incidentally connects to your other question about VMS. We have a thriving VMS business in China, and we think that will continue to grow and grow well. And that's absolutely volumetric growth. That's category creation that we are engaged with there. So I would just say emerging markets, we have really strong businesses across China. Latin America, India, China, and a number of other markets. And this will be a source of really strong growth for us going forward, I fully expect. And the trends point in that direction. I mean, I don't think we're far away from seeing the volumetric growth swinging positive. So your question on VMS, look, I think VMS is, first of all, it's a pretty big space. There are very attractive places within VMS. And they're also more commoditized, perhaps less interesting parts of EMS. I expect this space to continue to grow. As an area, it's a bit different than, say, our OTC business. It's a little bit more trend-based. And so it's important to have the right proposition at the right moment that catches the consumer interest and is sort of timely. The good news is, like I said, we have a thriving VMS business in China, and I see a lot of runway for growth. As you consider expansion of that, what you have to appreciate is that VMS markets around the world are actually quite different. Some have a lot of room for premiumization, some don't. Some are very well-developed, some don't. So we are looking at that, and we will be selective about our expansion of VMS. That's not to say that there aren't interesting opportunities. There's a few that we're looking at, but I wouldn't say that that is the main area where we're looking to expand our portfolio. We have a lot of other categories like OTC, intimate wellness, and auto dish and disinfectants that have significant runways for growth and for category creation.

Thank you.

Okay. Well, that's all the questions. Thank you very much for dialing in and say goodbye there. Thanks a lot.