Imperial Brands PLC
Q1 2015 Earnings Call Transcript

Published: 12 Feb 2015

[Executives:]

Alison Cooper - Chief Executive Officer Oliver Tant - Chief Financial Officer

[Analysts:]

Erik Bloomquist - Berenberg James Bushnell - Exane Adam Spielman - Citigroup Fulvio Cazzol - Goldman Sachs Chas Manso - Societe Generale David Hayes - Nomura

[Operator:]

Good day, ladies and gentlemen, and welcome to the Imperial Tobacco IMS conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Imperial Tobacco. Please go ahead.

[Alison Cooper:]

Good morning everybody and welcome and thank you for joining us for today's call which accompanies the release of our Interim Management Statement earlier this morning. I’m Alison Cooper, Chief Executive. I’m joined by Oliver Tant, Chief Financial Officer; and Matthew Phillips, Corporate Affairs Director. Before I handover to Oliver to run through our performance in the quarter a couple of headline take outs from me. Firstly we've continued to progress our strategic agenda, our actions with all brand portfolio mean that our key brand equities our growth in specialist brands are up now to 60% of our revenues from around 50% two years ago. As we continued to strengthen our market position a stable market share with higher quality, with more shares in all growth and specialist brands. It continues to be a tough environment but one, where we have clear priorities for success in our returns and growth divisions. And secondly our progress in the quarter is in line with our plans and confirms my confidence in delivering in line with our full year plan. Looking at price mix in particular this is softer in Q1 but this is largely timing related with around three quarters of our pricing now embedded and will be in line with our plans for the year. In terms of U.S deal our integration plans are well advanced in readiness for completion which we still expect to be in the spring. So two main headlines for Q1 from me, continued strategic progress and confidence in our full year delivery. I'll now handover to Oliver to put a bit more color on our performance.

[Oliver Tant:]

Thanks Alison. You all have noticed from the release that we continued to present performance on an underlying basis consistent with last year's disclosure. We were clear last year that we will continue to do this for FY15 to a transparency removing the effect of stock optimization from comparative numbers to give you a clear view of our underlying performance. As Alison mentioned we've continue to strengthened our brand portfolio in the quarter. Growth brands again performed strongly supported by our brand migration program. We've now completed 10 migrations and have a further 12 underway, with the opportunity to start several more over the course of the year. On an underlying basis growth brand volumes grew by 11% with net revenue up 15% on market share ahead by 70 basis points driven by JPS, West and Parker & Simpson. We also grew our specialist brand net revenue by 5% with growth from Golden Virginia premium cigars and Skruf. In total, our growth in specialist brand net revenue is now up to 60% of reported tobacco revenue demonstrating the improvement we're making to the quality of our portfolio. From a market perspective there has been a continued moderation in the rate of decline within several markets such as Spain, Morocco and the UK. Moving the other way we have seen a deterioration in Russia as expected given the current macro-economic environment. Overall the market volume decline across our footprint was broadly similar to last year at a little better than 4% which remains aligned to our expectations for the year. Our underlying volumes declined by similar level in the quarter with market share stable, underlying net revenue declined by 1% driven by three key factors; first the timing of the pricing activity in the quarter versus last year has impacted us. The majority of pricing is now embedded and broadly in line with our plan expectations for the year, the phasing of which favors the second half. Net revenue has also been impacted by the phasing of a portfolio change in our mass market cigars business where we re-launch our Dutch Masters range in the second quarter, resulting in lower sales in the first quarter, a pretty small change within the context of the full year results where the impact has been amplified in an isolated quarter. Finally as expected we've seen the volatile markets environment in Iraq result in a lower trading level versus last year. We've continued to progress opportunities to enhance our position in the number of growth markets. In Japan and Egypt we’re expanding distribution and building our presence and we've continued to grow share in Italy. We're encouraged by the performance of Maxim in Russia while we're maintaining share in an economically challenged market. Our focused approached in the U.S is enabling us to grow volume of USA golden key states and we continue to grow share and net revenue in Scandinavia through the ongoing success of Skruf. In or returns market we've further grown our share in Australia with JPS now firmly established as the number one brand in FMC. We've also grown share in Ukraine with the roll out of Parker & Simpson and a strong performance from West. In the UK the flexibility of our broad portfolio is enabling us to compete strongly and we're achieving success at the value end with players L&B Blue and Gold Leaf which has continued to grow share. We've continued to see consistent net revenue growth in Germany and remain focused on the enhanced activation of Gauloises following the brand re-launch at the start of the year. The industry dynamics in our return South markets remains difficult and our share of dark tobacco particularly in France held back performance. In Spain, we’ve seen a slower rate of market decline and we’ve strengthened our brand portfolio with the migrations of Brooklyn to West and Ducados Rubio to JPS, which are all progressing well. The actions we've taken to strengthen our brands and develop our footprint continue to build a stronger growth of platform for the business. We also continue to make good progress with our cost optimization program with our plans to deliver a further incremental saving of 85 million this year firmly on track. Our ongoing commitment to capital discipline and debt repayment remains the key priority. We've continued to focus on a sustained improvement in cash conversion through improvements in working capital management as well as continuing to review our other opportunities across our balance sheet. As I am sure you all aware, our proposed acquisition of assets in the USA received strong approval from our shareholders at our Annual General Meeting last month. The deal will transfer our U.S. business significantly enhancing our portfolio and making us a stronger competitor in an attractive and profitable growth market. The deal remained subject to regulatory approval which we expect to receive in the spring. Before moving to take your questions, I’d just like to touch on the impacts of currency. Movements in exchange predominately the euro and ruble continue to have an effect on both assets and earnings. Movements since the full year based on the current rates, we expect the impacts on FY15 reported earnings to be circa 4%. In summary as Alison commented earlier, we have continued to progress against our strategic agenda this quarter and are confident in delivery for the full year which includes growing our dividend by at least 10%. Thank you, I’d now like to hand over to moderator to facilitate Q&A.

[Operator:]

Thank you. [Operator Instructions]. We will take our first question from Erik Bloomquist of Berenberg. Please go ahead your line is open.

[Erik Bloomquist:]

Firstly, I was wondering if you could talk about the evolution of the Australian market and the success of JPS. And why you're still gaining share? Has anything changed there? Has that accelerated, decelerated in terms of the competitive environment? And then if you could comment as well on the outlook for profit growth from Australia on a constant currency basis?

[Alison Cooper:]

On the Australia as I commented at the full year, there has been a lot of uncompetitive activity in that market with a number of launches at the bottom end of the market. But I think what we’ve seen in recent months is the fact that the equity we built in JPS is really very evidenced with the continued success and share progression of that brand. So yes, it’s quite a competitive market. It's been -- I know referred to particularly by competitors in some of their releases. So we continued to drive very successful business there and positive around our growth trajectory for the full year in Australia.

[Erik Bloomquist:]

And then, secondly, could you discuss the efforts in Japan. Is this primarily a price-based offering, selling somewhere in the JPY300 range? And then could you update us then on how much you're spending there, broadly, and the share progression of those brands in Japan.

[Alison Cooper:]

The portfolio offering at the moment is focused on West, albeit we have plans for Davidoff as well. That is more the value end of the market, but we’re looking at really developing steady progression here. Some of the progress -- I mean last year’s numbers, we continue to make progress with a moderate level of investment I would say in that market, but we don’t disclose the specifics of the amount we’re investing.

[Erik Bloomquist:]

And what's the share of West in Japan now?

[Alison Cooper:]

It’s just moving up slightly from still below 1%, but it’s just moving up slightly from sort of 0.5% level that we had last year. So its steady progress, it’s not doubling its position, so we’re looking for in that market.

[Operator:]

We will take our next question from James Bushnell of Exane. Please go ahead. Your line is open.

[James Bushnell:]

So, I had two questions, please. My first one was, you mentioned the market footprint volumes are down around 4% or slightly better than that. But clearly there's been a lot of disruption in Iraq. So I just wondered what that number might be if you were to strip out or normalize Iraq and how that compares to last year. You mentioned moderating trends in some markets.

[Alison Cooper:]

Yes, the number in both years doesn’t include Iraq because there’s one piece, I think we’ve highlighted previously we don’t include the overall number just because of the -- the data isn’t as robust as other markets. So we actually don’t include Iraq within that number. So if you want like-for-like comparison actually around our underlying volume decline, if you exclude Iraq from that is actually slightly better than the 4% to compare with our footprint. So we are actually doing better against the footprint than it might be seem on the surface but just slightly better.

[James Bushnell:]

And in your release you mentioned you've grown net revenues in Germany, Ukraine. You don't mention the UK and Spain in those terms, so I guess we can assume that that didn't happen. You also mentioned that volume declines have moderated in those markets. So I just wondered if, in turn, you could talk through the dynamics specific to your business in those markets, why your sales might not have grown in Q1 and what you think the outlook is for the year?

[Alison Cooper:]

So UK and Spain in particular?

[James Bushnell:]

Yes please. Yes.

[Alison Cooper:]

When we look at the UK in particular year-to-date I mean we're basically focusing on some of the more significant trends I suppose in some of the commentary we're doing. I mean UK overall is broadly flat year-on-year in terms of revenues, but for the year I mean clearly we're looking at some an overall dynamics of the UK that we see and improving trend. For Iberia again some slight improvement on an underlying basis we're seeing but again slight improvement, so we tend to pick out the more significant movements in the release.

[James Bushnell:]

And in terms of your share trends in the UK, are you happy with where they are now and indeed how do you see that progressing through the year?

[Alison Cooper:]

Yes it's a returns market for us, so the priority and strategic priority in the UK is around managing share, but making sure we also focused on profits within that market as well. There's some pressure on our market share, but that we're focused on the economy segments and as we highlighted I think Oliver highlighted again as well in the script. We're seeing some very positive progress around the brands and positioning we have, we're focused behind our brands in the economy segment, so overall given the strategic row, we're very much managing the UK in that context.

[James Bushnell:]

And if I could be cheeky and slip in one other question which is, your gross market sales are down 4% in the quarter. You've clearly flagged Iraq and the U.S. cigar drags. I just wondered how it would look if you were to take out those two more one-off factors?

[Alison Cooper:]

We're still seeing good progress in a number of our gross markets in terms of the overall growth of revenue progression but also the quality of that growth in the brands that are growing as well, but we haven't specifically disclosed an underlying number stripping out those two impacts, but in number of markets we continue to see a very positive trajectory for the growth markets and share results.

[Operator:]

We will take our next question from Adam Spielman of Citigroup. Please go ahead. Your line is open.

[Adam Spielman:]

I've got one sort of major question and a couple of very minor follow-ups. So I'll start with the major one. You mentioned you're progressing plans about the integration in the U.S. And I guess the question is, how are you thinking of balancing the investment you'll need to make to improve the trends of Winston and the cost synergies? And are you able to sort of talk in any degree of detail about the timings you think of the closure of Fort Lauderdale and also the integration of the plant -- of a manufacturing plant, which I guess is a slower process? That's the first question. I'll come back into some minor detailed ones afterwards.

[Alison Cooper:]

Well our overall investment plans in the U.S. I mean we've worked on over I mean they were landed I suppose and been refined since when we actually came out with the announcement in July. So we've continued to work on those. As you might imagine we can't work on those jointly because of competition issues, but we've had some appropriate constructs to be able to continue to look at the opportunities we see with the portfolio. And that plan continues to have considerable investments baked into it. Part of the reason I think I highlighted at the time we announced the deal of not focusing on the synergy numbers, this deal isn't really about the synergy story. There are synergies to be had, but we see those very much going back behind the brands within the U.S. market. The synergies around the head office in particular, I do think are fairly quick to realize relative to the factory, the only real constraint there in terms of any factory consolidations around FDA type requirements around substantial equipment manufacturer so that we arrived. That will take a little bit more time and I'm looking at opportunities on the manufacturing side, but the rest is more achievable more quickly.

[Adam Spielman:]

And just very quick follow up again on things you've said specifically. You said JPS in Australia is number one brand. Can you give us the market share for that?

[Alison Cooper:]

Of the top of my head I think it's around 11%, I'll double check and come back to you.

[Adam Spielman:]

And the final question. I'm still slightly confused about really the size and importance of Iraq to your business. I mean, clearly it's a very difficult market, but is there any way you can help us understand how material it is?

[Oliver Tant:]

Well do you want me to take this one, Alison. So I mean in practical terms it's more relevant in the context of volume than it is in the context of value. So in value terms it's sort of 2%, 3% of our overall business, but actually the per unit value of the sticks is much greater. So when we talk volume numbers, it rises to sort of above 5% in aggregate. When we talk value number it's in significant in the context of the overall trends and number to be frank. So you’ve that sort of the metric going on whether it's more significant in volume term, less significant in value term.

[Alison Cooper:]

I'm sorry Adam I'd just like to do the UK JPS share, nearly 20% now in Australia.

[Adam Spielman:]

And just to be absolutely clear about this, it's gone from zero to 20% in about two years?

[Oliver Tant:]

A bit longer.

[Alison Cooper:]

Longer than that within the market, I think about four years ago a much smaller brand we chose to focus on it ahead of the plain packaging introduction.

[Oliver Tant:]

And it's being continuing to take market share over the last quarter noticeably.

[Adam Spielman:]

How -- when we're talking about Australia, that's obviously an extraordinarily successful market share performance. But it is a market where there's been severe down-trading. I guess it is the only market in the world where there is plain packaging. And I guess, I always thought, and I think most people thought plain packaging wouldn't have much impact on volumes, but it would reduce brand equities or it potentially would. So the question is, to what extent do you believe the down-trading in Australia, has been caused by plain packaging? Obviously tax has some influence, but is it 75, 25? Are you able to give any intuition? It's obviously not scientific.

[Alison Cooper:]

No it's very, very difficult Adam to separate the impact of things like excise and plain packaging. And we had various series going into plain packaging around we did think volume will be impacted because one of the aspects that we were concerned about was the growth in illicit trade. We also thought there maybe some further down trading in the market, albeit we were looking at the market already given the excise increases in regulation as a number of years that has already been a significant degree of down trading in Australian market. So we're seeing that increase slightly but that was always an angle that we anticipated happening, when we went into the plain pack environment. I think I will point out that we really feel, we've evaluated clearly our success in Australia extensively to get the learnings form that is really around getting a number of things right. And we did have a singular focus on the JPS brand at an attractive price point, but I am always at pains to point out this it's never been sitting at the bottom, right at the bottom in the market. JPS also had a lot of focus with the trade as well, we've done work with customer engagement to drive health on the retailers through what was a very, very difficult time for them around plain packaging in terms of the transition and serving customers. So we've looked to really a singular like focused on portfolio approach, it's an attractive price point and we've looked customer engagement really as being the key aspects of our success. And therefore those are things that we got learnings undertaking into other markets but it is not a one trick pony around here, just get us a brand in as cheap, bottom of the market price that’s not the strategy that’s worked within Australia, it's been very much a mix of our sales growth drivers that we've applied to really get a good result with our brand.

[Oliver Tant:]

But if you want to evidence that you just have to look at the fact that there have been cheaper brand introduced into that market and yet JPS continues trade market share on grow. The reaction of our competitors over the last three to six months has been to put in brands below the processing point of JPS and yet JPS continues to grow.

[Operator:]

We will take our next question from Fulvio Cazzol of Goldman Sachs. Please go ahead. Your line is open.

[Fulvio Cazzol:]

Just a couple of questions from me relating to cash flows. On the working capital improvement, Oliver, you've made a mention that there is continued progress there. On a full-year basis, where should we expect it to come in relative to last year? Do you expect a similar improvement to last year or has the bulk of it already happened? Yes, we'll start with that one first.

[Oliver Tant:]

Well I think I was clear, that I perceive that we should be operating with cash conversion rates in 90s and we had indicated and achieved in the early 90s in FY14. And I think you should make the assumption that that’s broadly an acceptable performance for us in the context of year-end year out cash conversion targets for this business. So that’s what we're aiming for best of breed might be a bit more than that but there are number of investment issues that we'll have to deal with the UTPB and others where we'll have to make some investments and that’s for the 92% roughly that we have achieved last year is broadly what we're targeting on an ongoing basis.

[Fulvio Cazzol:]

And then just as another question on the snus in Scandinavia. Obviously, you've performed quite well for a number of years with continued volume growth. I was just wondering, can you give us an update on what your capacity utilization rates are there, i.e., do you need to make further investments in that market to continue to grow? How should we think about that?

[Alison Cooper:]

We've actually been building investment all capacity, I think we triggered I think it was two or three years ago now. Where we expanded and put some capital investment behind expanding the capacity and we've continued to keep on top of that. There maybe a little bit more to do but the amount of CapEx you are talking for this process in the context of the group of a relatively small but it’s quite -- if you’ve seen the volumes have really progressed very well first there and we continue to make sure that we have no capacity constraints.

[Operator:]

We will take our next question from Chas Manso of Societe Generale. Please go ahead. Your line is open.

[Chas Manso:]

I have some questions on your brand growth rates and brand migration program. So if your growth brands are up 11% and specialist brands up 5%, does that imply that your tail brands are down something like 20%? And could you say how much of that is down to your brand migrations? And if your brand migration program picks up, as I guess it's going to, then will that actually amplify the differences that your growth brands will grow faster and your tail brands will contract quicker?

[Alison Cooper:]

I think what you’re saying is the inevitable consequence of some migrating brands, and yes it provides a boost to the growth brand growth. And in Q1 in particular you can see that’s quite considerable given you’re looking at quarter-on-quarter and the migration programs we had at the backend of '14 running into '15. And therefore yes, the corollary of that is that there is a significant impact on some of the portfolio brands because they clearly no longer exist. So, yes, that trade will continue as we see more and more progressions towards our 80% target over the next couple of years.

[Chas Manso:]

And could you say what the margin implication is in that time? I mean generally speaking, our growth in specialist brands higher margin than your portfolio brands or is it that because you're not really investing behind the portfolio brands, they've actually got higher margins?

[Oliver Tant:]

Well it’s a general rule Chas, yes, I mean part of the reason for us focusing on consolidating around the series of growth brands as it gives us the opportunity on part of our cost optimization program to drive a whole series of efficiencies through our business and hence the targeting of 300 million by FY18, because if we have a much more limited portfolio product, we can make manufacturing easier, few levels of complexity driven by a more complex product. So we would expect margins to improve but it’s not as simple as to simply assume that those volume goes up, we would expect margins to improve because there are different markets where we’ve got different brands with different margins, you’ve got different markets in which actually the level of margin will be different, and it’s big mix issue which will influence any period-upon-period shift in margin activity across our both brands depending on what we're shifting at what particular time and what the brand is and how that effects the mix of the population as ours.

[Alison Cooper:]

But for specific brand when you’re actually migrating that brand, it’s very -- it’s highly likely that is going to be at a similar price point. So it’s a not question of that you’re migrating to a lower price point. Those aspects Oliver's just been highlighting around that would be efficiencies around manufacture all those sorts of things and the efficiencies of the marketing spend as well the more pertinent point really rather than the specifics of a particular brand migration.

[Chas Manso:]

And the shift to the priority brands, the very specialist brands are meant to help stabilize and grow your market share generally. You pointed out in the script that your growth in specialist brands have gone from 50% to 60% of your revenues now. Can you remind us how sort of your market share dynamic has changed in those two years? I mean obviously, you've said today that it's relatively stable this time round. How does that compare with a couple of years ago? So as your growth in specialist brands become increasingly important, how does that impact your market share dynamic?

[Alison Cooper:]

Our overall market share as we said in this release is broadly stable, but what I was trying to say in my opening remarks is actually the quality of that market share is improving. And that will be -- the portfolio brands clearly we’re not focusing behind, so they will actually have a drag on the market share as you’ve highlighted earlier. We've got more of our share in those growth brands and therefore the quality that market share has improved and that’s really been our first quarter call in terms objective is to make sure that we get the quality of that market share and getting the growth through in the growth brand. And I think that was up 70 basis points in terms of market share, but clearly there will be a drag from the lack of portfolio brand focus as we progress the migration and the portfolio prioritization in market.

[Chas Manso:]

The last question. Now you've said 20 brand migrations currently happening or something? Could you just say what percentage of your volumes are now under migration?

[Alison Cooper:]

Under current migration initiatives.

[Oliver Tant:]

I am not sure I've got that number immediately to hand, Chas.

[Chas Manso:]

Is it like 5%?

[Alison Cooper:]

There are various stages as well, so, yes maybe we'll follow that up.

[Oliver Tant:]

We’ll come back to you on that afterwards.

[Operator:]

We will take our next question from David Hayes of Nomura. Please go ahead. Your line is open.

[David Hayes:]

Two from me if I can, just firstly on stock optimization, you clearly, as you talked about at the beginning backed out the impact that you had from last year. And I know it's not kind of a formal process any more, but I guess the question is, was there any renewed stock optimization that you did in the quarter? Because I think you did mention previously that there would be some pockets of that ongoing. I just wonder whether that was something you saw in the period? And then secondly on pricing. Obviously, we're well into the quarter. You called out some of those impacts in terms of U.S. cigars and so on. I just wonder whether you can give us an indication of what the visibility you have on the pricing for the second quarter or the first half, what the improvement is in the second quarter effectively versus the 3% in the first?

[Oliver Tant:]

Let me just deal with the first one David to kick off with, just to reiterate what we said in terms of stock optimization. We had a program in place last year where noticeably we had indicated that we would be adjusting our guidance around earnings based on the desire to destock levels of stock and trade through our distribution channels in our distribution channel. This year we're not looking for any forgiveness in the context of earnings expectations. And there is and I said at the end of last year that we have substantially completed all that we wanted to complete, but there would further bits and pieces that we would do as we move forward. And in fact in many of the one-to-ones I had, I was clear that one of the things that has become clear to us as management team was that we need more focus on the management of levels of stock and trade because of its significance around things like our migration activity, so it had much greater profile within the organization. What we've in practice done in the first quarter is we've taken the opportunity and particular in the U.S. in advance with our transaction to focus on levels of stock and trade within our retail network and we have taken further our quantities out in the first quarter.

[Alison Cooper:]

On the price mix point, should I take that one up? As we highlighted we're now sitting in mid Feb, we've got the majority of our pricing for the year embedded in line with what we're anticipating when we put our plans together for the year and that's we are expecting better price mix in Q2 that will come through although overall I think pricing will be more H2 biased.

[David Hayes:]

Just to come back on the stock optimization, just to be clear on the underlying volume number, the minus 4. Does that include that U.S. inventories adjustment? Or is that excluding that that makes sense?

[Oliver Tant:]

So the minus 4 being?

[David Hayes:]

The underlying volume change that you're giving in the release.

[Oliver Tant:]

It includes it.

[David Hayes:]

That includes it. And then finally, just one last one on stock optimization. Obviously Iraq I think was a lot of that last year. Looking at the full-year adjustment, I think volumes were down 3 or adjusted by 3 percentage points and the sales were adjusted by 3 percentage points, which would effectively suggest that the average pricing for the volume on stock optimization was as the same as the group broadly. Clearly Iraq, as to your points earlier, is a lower average price point. I just wondered were other markets were in that number last year? And I guess which were the more expensive markets? If you like high average price, was it UK, was it Europe? Just trying to understand what the market…

[Oliver Tant:]

David that's a level of detail which I think is probably more easily answered offline. I mean we did quite a substantive program in the first quarter we took out near on 5 billion sticks and it covered a large number of territories, large number of territories. I guess the most significant of which in the first quarter other than Iraq was Russia.

[Operator:]

We will take our next question from Fulvio Cazzol of Goldman Sachs. Please go ahead, your line is open.

[Fulvio Cazzol:]

Yes a follow-up question from me. I was wanting to ask you about plain packaging in the UK. Obviously, we've heard a few headlines about the government wishing to press ahead before the next election with this measure. I was just wondering, if it does pass parliament, how should we think about that? And from your experiences in Australia, what are some of the similarities and differences that you would highlight between the UK market and the Australian market? That would be helpful.

[Alison Cooper:]

More from an operational commercial perspective is that your focus Fulvio?

[Fulvio Cazzol:]

Yes exactly, exactly.

[Alison Cooper:]

I mean to look at some of the similarities -- a lot of the similarities around our approach to customer engagement in the UK market versus Australia, you may not be aware but actually the guy who now looks after the UK business is the guy who ran Australia during the whole plain packaging transformation piece. So very experienced in terms of what was successful there, but also not complacent that the UK is identical and the same as the market. So the customer engagement focus is very much there and we see that as a very critical part around the approach, but also portfolio wise we clearly have a very different portfolio and different market position in the UK and those things there are very pertinent on the transfer from Australia to UK, but also some things we need to think about differently. So overall though some excellent learnings from Australia which we can apply but some things that we will look at in a slightly different way given the different market dynamics.

[Operator:]

[Operator Instructions]. And we'll take our next question from Adam Spielman of Citigroup. Please go ahead. Your line is open.

[Adam Spielman:]

A very quick follow up really to Chas' question. As your portfolio quality improves, with a high percentage of growth brands, does that mean to say that your marketing spend as a percentage of sales will increase, I guess is the question.

[Alison Cooper:]

Has increased over the last few years as we've been talking about further investment behind the brand portfolio and initiatives we've been doing. But I think more importantly here is that we're focusing to spend more. So rather than spreading the marketing spend over a wider portfolio we've got some very clear priorities in market, each market has two primary brands, two secondary brands that’s being aided and abetted by the migration program that we have to get the focus therefore of the marketing efforts not only in terms of A&P spend which as in most market is quite limited. But in terms of the focus with the trade our point of sale and all those activities in the market as well. So it's very much a focus strategy for the portfolio improving the quality of the market share and then you get the benefits of that and focus in market as Oliver highlighted earlier as well throughout the supply chain from a supply agility but also supply effectiveness and efficiency perspective as well.

[Operator:]

As we have no further questions in the queue. I would like to turn the call back to the speakers for any additional or closing remarks.

[Alison Cooper:]

Thank you very much for joining us this morning. The key headlines I highlighted at the beginning around the progress we've continued to make in the quarter with our strategic agenda and our confidence in our full year plans and delivery of those. So thank you for joining us, and have a good day.

[Operator:]

Thank you. That will conclude today's conference call. Thank you for participation ladies and gentlemen. You may now disconnect.