Good day, everyone and welcome to today's Colgate-Palmolive Company Second Quarter 2017 Earnings Conference Call. This call is being recorded and is being simulcast live at www.colgatepalmolive.com. Now for opening remarks, I would like to turn the call over to the Senior Vice President of Investor Relations, John Faucher. Please go ahead, John.

Thank you. Good morning and welcome to our second quarter earnings release conference call. This is John Faucher, Senior Vice President for Investor Relations. Joining me this morning are Ian Cook, Chairman, President and CEO, Dennis Hickey, CFO, Victoria Dolan, Chief Transformation Officer and Corporate Controller, and Elaine Paik, Vice President and Treasurer. This conference call will include forward-looking statements. Actual results could differ materially from these statements. Please refer to the earnings press release and our most recent filings with the SEC including our 2016 annual report on Form 10-K and subsequent SEC filings all available on Colgate's website for a discussion of the factors that could cause actual results to differ materially from these statements. This conference call will also include a discussion of non-GAAP financial measures, including those identified in tables eight and nine of the earnings press release. A full reconciliation with the corresponding GAAP financial measures is included in the earnings press release and is available on Colgate's website.

Good morning. This is Ian. I thought before John jumped into his customary division review, I'll just make a couple of opening comments. Suffice it to say as we said in the press release, this indeed was another challenging quarter and as I think we all know, the industry continues to face global market volatility and we have seen a further slowdown in consumer demand in several key markets, most especially the U.S. Southeast Asia and South Pacific. On the positive side, that pressure was offset someone by strong organic growth in Latin America with a good balance between price and volume and a return to positive organic sales growth at Hill's. My purpose in making the introductory comments now is to give you a sense of where we are focused going forward and going forward, we are focused, focused intensely on returning our business to growth over the balance of the year and improving bottom-line performance and our focus is heightened and will be heightened on four fundamentals. The first is increased advertising spending behind more impactful creative. The second innovation across our portfolio of businesses particularly, for personal care and oral care in the growing natural segment and especially naturals for toothpaste, which has a particular target of local brands in some key geographies in Eurasia and Asia. Third, greater investment behind our high growth eCommerce business and fourth, aggressively maximizing productivity up and down our income statement. Those are four fundamentals we are focusing on for the balance of the year and I be back later with more detail on each and turn the call back now to John to go through the discussion of the quarter, John.

Thanks Ian. As Ian said in the press release, the second quarter was another challenging one. Net sales were down 0.5% in the quarter due to 1% pricing growth offset by 1% volume decline and slightly negative foreign exchange. Organic sales growth was flat year-over-year in the second quarter below our expectations. Our categories in the markets remain volatile as the macroeconomic picture remains mixed. We've seen a further slowdown in demand in several markets including the United States, Southeast Asia and South Pacific. Looking at the cadence of the quarter, after a weak April, we saw improvement in organic sales through the first half of June. The back half of June was however, negatively impacted by retailer destocking in some markets and a reduction in shipments in India in advance of the implication of the new Goods and Services Tax. As Ian mentioned in the press release, there were also several encouraging factors in the quarter as compared to the year ago. We saw strong sales growth in Latin America driven by a balance of volume and pricing and we saw a return to positive organic sales growth at Hill's following two weaker quarters. We're also encouraged that our foreign exchange headwind have lessened over the past several quarters and raw material costs are increasing at a more modest rate. We believe consumer usage of our products have remained broadly stable in the vast majority of market, which would be the basic category takeaway should normalize going forward. While we have seen a small decline in purchase frequency in some markets we're taking steps to adjust price point where necessary to spur consumption usage. While we're pleased with these bright spots, we're attacking the headwinds with a focus you would expect from our company and a strong sense of…

Thanks John. So, let me come back to my introductory remarks and say that despite the recent category weaknesses we have seen, we believe a heightened focus on the full fundamentals I mentioned in essence, our focus on brand building and productivity will allow us to reaccelerate our top and bottom-line growth. So, let me talk a bit further about each of them in turn. The first one is you will remember increased advertising spend behind more impactful creative. So, we are as you know from the beginning of this year, committed to more consistent advertising investment sustained across the year with an increase on both a dollar basis and as a percentage of sales. The year-over-year increase in advertising investment is planned to accelerate in the second half as we lap lower levels of spending in the prior year. Obviously, part of this advertising will be digital, which is a growing percentage of our working media spend and when I talk about quality, we're talking about advertising that is tested to be motivating and persuasive with consumers using testing norms and what it sees is an increase in advertising behind what you might call the equity of the brand or the purpose of the brand advertising behind the base business sustained over time, while we use incremental advertising to launch new products. That the most immediate investment effect, but what I wouldn't want to forget is our increasing investment in building per capita consumption of toothpaste, which of course drives sustainable long-term growth, particularly for Latin America, Asia and Africa. Our Bright Smiles Bright Futures program is well on its way to reaching $1.3 billion children and teach them how to brush their teeth by target year of 2020 as you may recall, spending behind this program generates returns…

[Operator instructions] We'll go first to Dara Mohsenian with Morgan Stanley.

Hey. Good morning.

Good morning, Dara.

So, I am sure you guys are spending a lot of time analyzing the drivers behind the topline growth slowdown the last few quarters. My question is how much of the recent topline growth variance in the last few quarters versus your long-term forecast, how much of that do you think is due to factors that may linger longer term by consumer brand fragmentation away from leading brands that was sort of implied by your focus on natural and increased competitive environment or any other longer-term factors versus more of the shorter-term factors that mentioned and that's in both North America as well as emerging markets? And the background behind that is, is your long-term 4% to 7% organic sales growth outlook still reasonable? Why should we have faith in that given the magnitude of disappointment in the last few quarters, the fact that it sustained over a few quarter periods and has surprised you guys?

Yeah well, a lot in there Dara. First, I think as we -- as we came into this year and we've had the two quarters we have had, when we talked about the prior quarter the first quarter, we clearly said we would be below that range and now we are saying based on the first half performance that our growth this year will be low single digits. I would not offer a comment at this stage on the 4% to 7% range. I think that's something that we would come back and revisit once we gain more practical experience of how this year unfolds. I will say there have been a lot of one-time or at least volatile episodes in the last couple of quarters particularly late in the second quarter, which have been -- which have been problematic. And it would be fair to say that the continuing slow consumer demand is worrisome, but there's nothing that we see in the data that suggests that consumer behavior is changing in any way. As John said, we have seen pockets of length and frequency of purchase and we're addressing that both strategically with advertising and innovation and also some price point action on the shelf. The competitive environment is variable. It can be volatile and it can be particularly sharp and we saw that for example in June here in the United States across many categories, heightened, competitive activity. So, I think that's going to be a variable and our belief and I think the most important belief here is that the consumer behavior will see the categories come back. The only thing we can practically do to address that in the short term is to drive our market shares because then whatever the category growth is we will be getting the best return out of the category growth that exists. And in that regard, I can say that our global year-to-date market shares are better or even with the first quarter shares on all of our about priority businesses. So, we are beginning to see our market shares rise. But I think before one takes a view on longer-term growth rates, one would want to see this year play out and get more information on that consumer behavior, get some practical evidence that indeed the consumption patents do return to the norm. And then when we give guidance for 2018 that would be the time to have the conversation.

Great. Thanks.

We'll go next to Bonnie Herzog, Wells Fargo.

Thank you. Good morning. Hi, I just have a few questions on the stepped-up innovation that you discussed. First, could you give us a sense of the growth rates of the natural toothpaste category versus non? And then how much cannibalization are you anticipating of your exiting business from some of this new innovation? I guess I assume this is a premiumization opportunity. So, to some extent, cannibalization could be welcomed. And then finally, curious what you have innovated here earlier. Were you not sure of the growth of this emerging category would necessarily be sustainable, but now you are and I guess for me it's sort of begging the question, are there other emerging categories that are pressuring your existing business that you might need to move more aggressively in?

Yeah, well all good questions. It's suffice to say that the Natural segment is growing faster than the average growth of the category, which is what makes it attractive. We of course have participated in this segment for quite a while, particularly in markets where it's important Asia or even go back to now more than decade ago acquisition of Tom's of Maine here in the United States, which continues to grow very, very nicely. I guess the point is that the offering we are talking about now is different from the naturals offerings that we had thus far much more tailored to brands that now exist that didn't exist when we had our Naturals portfolio first in the marketplace competitive with those brands tailored from a flavor point of view and to the point you made at a meaningful premium price compared to prior offerings in the marketplace. So, it's more the tailoring of it than the existence of it because segments obviously more over time. So, I don't think it's a question of missed. I think it's a question of tailoring the product to the category as it evolves over time. And you know the question of cannibalization is a very difficult one to answer in the general. It varies market-by-market premiumization tends to reduce the cannibalization obviously with low businesses and we will of course be supporting our base businesses when we come with this premium innovations that we'll be working very hard to keep the cannibalization to a minimum, but regardless to the point you made from a cannibalization point of view this will be accretive from a pricing point of view and therefore favorable.

We'll go next to Wendy Nicholson, Citi Research.

Hi. Good morning. A couple things, first just to clarify, when you said your global eCommerce business was up 65% in the quarter, can you break out roughly how much of that was held versus for the core? And then just remind us off what base that is? Is global eCommerce still like 2% of your sales or is that number out to date? And then secondly, just kind of higher level, you talked a little bit in the prepared remarks about maybe taking some I think strategic pricing down a little bit in a couple of countries or categories and I wanted to go back to something that I had heard Noel talk about recently, which is a little bit more focused on raising pricing and revenue management and may be that Colgate's price points are below where the company would like them to be from a longer-term strategic perspective. So I get that you're doing things that are right tactical and strategic to recover some share, but how important is this concept of revenue management? How much it factors into your thinking of your growth algorithm going forward etcetera, etcetera, thanks?

Thanks Wendy. Well the eCommerce growth 65% is indeed for Colgate in totality. In other words, it is the Hill's business and it is all of the Colgate businesses and frankly we don't intend to break out the difference between the two, nor do we intend to break out the percentage of that business that is eCommerce suffice to say it is still relatively modest, but very, very high growth. And once it reaches a tipping point, we'll certainly bring that information to the marketplace. The pricing reaction is actually not mutually exclusive. When we talk about price point adjustment at retail it is to be competitive on purchase cycles and while it applies to all of our categories in promotional pricing, it is less focused on oral care, which of course is what Noel was talking about. So, they're selective, they're surgical and they're less focused on oral care point number one. Point number two, from an oral care point of view, just the prior discussion on the Naturals offering, we're also bringing innovation that is materially higher priced to that business and as Noel may have described, in some cases as we have relaunched literally tiers of our business, TIERS, of our business in different parts of the world behind that relaunch we found a way of elevating the value the consumer gets and the pricing of the line to increase the average life -- the average price of our entire portfolio. So, I guess that's the way to answer it and yes, revenue management is extremely important, the topic that Noel talked about remains highly relevant and what John was talking about was surgical activity less applicable to oral care on promotional pricing, not strategic pricing.

Can you just put those two concepts together? I know you said consumer behavior vis-à-vis, the oral care category is really changing, but clearly consumer behavior with regard to eCommerce is changing a lot. So, if you think eCommerce plus pricing, in your analysis so far, if I'm buying toothpaste on Amazon as opposed to in Walgreens does the consumer tend to be more price-sensitive, more brand loyal, this is a high-level question you guys do such great job of analyzing the business. I am wondering if you have any kind of high level takeaways about how to make sure that your shares are as strong online as they are in brick-and-mortar, thanks?

Yes, interesting Wendy, it kind of works the other way. What we observe on eCommerce thus far is that the consumer is actually -- tends to buy more premium and even if they're not buying the premium brands, they tend to buy in multiples. So, in fact the eCommerce behavior is favorable to us from a consumption point of view and if you look at the Hill's business, 15% of the Hill's business in the U.S. on eCommerce is subscription. So that means once they buy it one time, they're signing up to regular delivery of that diet over time, which is we believe a good business model for our brand.

We'll go next to Jason English with Goldman Sachs.

Thanks, this is actually [indiscernible] on behalf of Jason. Thanks for the question. Gross margin improvement has been impressive in spite of a softer topline growth, but guidance for the full-year was brought down slightly in spite of a good faith run rate proceeding. Now is this mainly due to the higher expected reinvestment you plan to make in the second half and would those continue into 2018?

Yes, well thanks for the question, the gross profit as John said in his remarks was behind our expectations for the first half of this year, largely because of raw material cost increases, which in fact was primarily in the area of fats and oils. Interestingly, the cost of fats and oils has ebbed since the first half of this year. So as John also said, we now moving into a more favorable raw material cost environment and of course for this year thus far and it gets easier against our projections over the balance of the year there has been less transaction headwind because foreign exchange has not been so negative as it had been in -- as it had been in previous years. So, we are looking at what we believe will be a multiple benefit of material cost easing and transaction costs lessening and as John also said, we therefore expect to see a sequential improvement in gross margin as the year unfolds. So, I think that's the answer to the question.

Our next question is from Stephen Powers, UBS.

Great. Thanks.

Hi Steve.

Hello a question to follow up on your advertising comments if I could historically if we go back your advertising was spread out pretty evenly quarter-to-quarter as a percentage of sales but over the last several years we've seen 200 basis point gap open up between first half spending and second half spending. And I know that directional you tend to close that just based on your comments but just say get back to 10% of sales in the back half which will still be 50 basis points slight of what I think you spent so far, this year that would imply 160 basis points of incremental spending in the back half than skew to Q4 if of my math is correct. I just love to get your sense if that’s the right order of magnitude to be considering and then if so what kind of ROI do you expect that's going to have will it contribute to the second half topline improvement that you're expecting or should we not expect the list to really show through until fiscal 2018 perhaps that answer lies in how much spending goes to new launches versus the things like Bright Smiles, Bright Futures but just in the context to how you think about what the magnitude of increase spending and then the unexpected ROI and when you see it flowing through? Thanks.

Yes. Good question. And I'm glad you got the scale thing on the table you're right for the last couple of years and I think we were quite express about this when we talked about 2017 faced with sharp foreign exchange negative impacts and with having no immediate to place to go. We reduced advertising and we said coming into this year we did not want to do that and but even if foreign exchange were going to run sharply negative for whatever global calamity reason that we would not go back on our advertising investment. And our intention at the time we said that and it remains our intention and our plan is to continue our advertising investment in the second half at approximately the same level in other words sustained advertising that we have seen so far across the first half. And yes, that will suggest a fairly meaningful set up in advertising investment. We think the ROI will be good this is now talking to the traditional advertising because as I said earlier we have a lot of advertising vehicles now developed that have tested extremely well. So, we know the advertising works very, very hard and is persuasive to consumers and interestingly it is good to have this balance between announcing what new and shall we say supporting and reminding of the reason consumers give trust to the brand in the first place. And so continuous advertising behind as we call it the base is an important part of that decision. And you're right obviously the Bright Smiles, Bright Futures investment is not a short-term investment but is again I tried to spell out we know the ROI on that is terrific we know we get good ROI on our media in general. And therefore, we are very comfortable with the investment decision and of course it is our expectation that this will be part of the reason to return us to growth as we work our way across the year. And again, Bright Smiles, Bright Futures we hope will be part of the reason why we will be able to sustain that growth in the toothpaste category out of the time.

We’ll go next to Jason Gere, KeyBanc Capital Markets.

Okay thanks good morning guys I guess obviously what we’re hearing the first half of the year pricing help to offset I guess the weaker volumes and the second half it sounds like volumes will probably offset price to get to that low single digit. So just wondering if you can just lay out maybe a little bit more some of the macro, micro impacts that you saw in the first half how that place in the second half so on the micro side talk about some of the distributor changes in Eurasia, the U.S. liquid I think in Europe there were some packaging changes. So, there were things that were within your control and I was just wondering how that plays out in the second half. And in the macro side I think you were talking – besides India and how that kind of plays on the second half I think you said that there was some destocking in the second half of June where that is and maybe a little more color so how we can think about that going forward? Thanks.

Good question Jason let me try and take it on. The U.S. dish reset, which I think we have well covered we now have the products fully in distribution there on the shelf where we want them on the shelf we were hit in June as we've said by heightened competitive activity very heightened. And we are responding to adjust our promotional planning on offering to jumpstart progress across the back half of the year. So yes, in our control and I think a plan in place to rebuild growth. On the decisions that affected customers I guess I would focus on of the three you raised you have decision to move broadly to e-commerce in the United States with our pet nutrition business which we continue to believe is absolutely the right decision. And we’re in equal opportunity believer in that space in other words we are just as happy to lean in aggressively with the retailer who has a brick-and-mortar offering and an e-commerce offering as we are with the pure play eCommerce company. We had a hiccup shall we say with a customer in the U.S. that hiccup is now substantially behind us and a return to normal promotional and other consumer engagement activity is recommencing and will of course build across the balance of the year. The European retailer matter I think John covered well we are seeing our market shares rebound quite nicely and growing sustainably and sequentially and we expect to see that continue across the back half of the year. In Africa/Eurasia we made those distributor choices that we again believe are the right choices for the business over the long-term and we will continue to lap those comparisons until the fourth quarter of this year. So, the third quarter will still be…

We’ll go to Faiza Alwy, Deutsche Bank.

Yes hi, good morning I just had broader strategic question because I think if you look at some of the per capita consumption trends it seems like the opportunity is really in some of these frontier markets like in Africa and India which can be pretty volatile from a macro point of view and may be geopolitical point of view. So, are you thinking about extending -- using your distribution network globally and extending it into other categories so maybe skincare you have a great brand in Sanex may be taking that global or another brand or just extending your overall reach into just these global markets where you a great set up?

Yes, I think that's a very relevant and pertinent point and yes, of course it is within our strategic remit. It's not and I know you know this but it's not a simple as simply taking a product and putting it through a proven distribution system when you bring products the people may or may not be familiar with in their entirety i.e. from a usage point at all or certainly from a brand point of view it requires a considerable degree of investment and patients over multiple years to build a position in the marketplace. But the answer is yes, it is clearly one of the assets we believe we have that we can leverage the question will simply be timing and pace so watch this space.

We’ll go next to Kevin Grundy, Jefferies.

Thanks. Good morning, guys.

Hi Kevin.

First question if you don’t mind just a housekeeping one in the past you’ve been kind enough to supply category growth rates by region U.S., Europe and EM so we get an update there. I think probably in aggregate category growth rates will probably come in about a point since 3Q but an update there will be helpful. And then the second question more broadly Ian would be around M&A and you talked a lot about areas of focus for the balance of the year which we well covered on this call so I appreciate that it's very clear. But the question is I guess given this sharp deceleration which we haven't seen your portfolio in a long, long time does this give you any pause with respect to M&A which is not been a big part of the company's portfolio strategy that's a nice tuck-in deals of course with Sanex and Hill's but said differently in a slower growth environment does this increase your appetite for M&A. And if so would you consider pursuing any businesses outside the current portfolio. Thank you.

Yes, well category growth -- frankly it’s reasonably straightforward certainly for the last quarter the emerging markets are still mid-single-digits in some countries with much more of a presence now on e-commerce China would be the obvious example. And in the developed world what we have seen is a Europe and a United States or North America were essentially flat I mean that's the way the world splits today. M&A do we have appetite we've always had appetite we’re just I would say very strategic in our appetites and when we look at M&A we look at it from the point of view of strengthening the portfolio of the company not meeting our sales requirement. And certainly not jumping into a new business that we don't know where too much about and mustard would have been a very expensive one to get into for example. So, I think you could see us buy on the fringes of the businesses we’re in we have with Sanex for example you know lotions and creams that we are now expanding in Europe. But if we were to play an M&A and we are very keen on expanding our portfolio with the light asset I think you would see it in the broader definitions of the categories we’re already in oral care, in pet nutrition and in personal care and that's the way we think about it we’re not going to do anything in an undisciplined way adjust for a tactical response we remain king.

And we’ll go next to Andrea Teixeira, JPMorgan.

Thank you hello good morning so can you elaborate more on your comment on the cadence of the quarter in North America and Asia it seems that June got worse from May and then the destocking was not only U.S. and China which obviously you mentioned in the last call as well as India. But I was just hoping to see if there is any other areas where you kind of recover from where we were in the first half. And if you can comment if orders are starting to come in faster now that we are probably six to eight months behind us in terms of the destocking mostly in the pantry and the retailer destocking. And related to that I mean in terms of the funding of your funding for growth you elaborate a lot on the sales perspective but is there anything that we can think of the SG&A I know you had invested a lot more in overhead over the past two months globally, but if you can elaborate if there is any other source of potential savings on that front that could allow you to continue to invest and faster further growth? Thank you.

Okay Andrea well let me start with the global growth and efficiency program and the SG&A idea I mean you were right we remain extremely focused on maximizing our opportunity in this final year of that program and I think you know that is reflected in the two actions that we talk about in the second quarter one of which reflected in the costs in our filing both of them are directly and meaningfully in the SG&A space. They will play out over time in terms of realizing the benefit that they will afford a benefit and we continue to focus on finding other areas that we could do like without in any way damaging the firepower we need to be successful on the ground. So yes, it's a very clear area focus and I think it evidenced in the actions that we took. It’s very difficult to come back to this cadence on the quarter again as John said in the U.S. actually the second quarter in aggregate was worse than the first quarter overall with the combination of a weak April and then a June that faded. In terms of destocking we have seen that on volatile basis I guess the only thing I can repeat is that we are seeing on a year to-date basis our global market shares in our priority categories are better or flat with the first quarter which gives us a sense that our underlying consumption driven growth is improving and we look forward with the four areas of focus I mentioned to capitalizing on that fully as we work our way through the back half of the year.

We’ll go next to Olivia Tong, Bank of America Merrill Lynch.

Hey thanks I guess perhaps can we talk a little about just the aggregate impact of some of these one-offs, like the dish in the U.S., France, GST etcetera. Just trying to understand what you think your underlying growth would be if not for all these things because it's still probably not at the end -- at below end of your long-term range. And then also given these one-offs and recognizing the comp differential in Q3 versus Q4 in the second half I was wondering if you could give a little bit more color there. And then just on naturals we talked a lot about specific for naturals and oral care and that was very helpful, but one category where naturals has also been taken disproportionate share is pet food and we've talked about that in the past but just wondering can you talk about how you think about that category and the growth potential there and interest in standing in naturals and pet as well? Thank you so much.

Yes, well taking it in reverse order in pet we think about it more in terms of the formulation of our products we are unabashedly a brand that provides proven clinical benefits to pets whether it's preventative or whether it's curative with our prescription diet business. And certainly, on the preventative health line we have reformulated our products to put proteins first and not give people a reason to switch out of our business and if they value a particular clinical benefit to not have a barrier to them trying the Hill’s the product and we think that has been quite successful and conceptually moving into a very, very almost homes like naturals is difficult to do. We have tried a couple of times with Hill’s and the heritage of the brand doesn't give you the bandwidth to go pure on naturals. So, we've done it by formulation to eliminate barriers. I don't think at this stage given the compounding effect of the slowdown in our markets trying to do the math on what is the one-off and how does it relate to the underlying category growth is going to be particularly helpful because the expectation is that the category growth will come back. So, the reason the way we’re thinking about it is to say over the year we expect this year now to be low single digits from an organic sales point of view and we continue to be very focused on the consumer and the consumer behavior. We've taken some actions that John mentioned to try and capture the frequency of purchase in some of our businesses and as we learn more will be able to respond more authoritatively is the behavior coming back or is there something else driving what we see in the categories and we think it would be premature and probably misleading to get into that at this stage.

We’ll go next to Ali Dibadj, Bernstein.

Hi guys so I have two questions one question is when we talk about those initiatives and that you laid out so eloquently around naturals local competitors, e-commerce, more ad spend, better productivity or lower SG&A. These are all things you’ve heard many of us kind of collectively push for and push you on the pass on these conference calls. I guess for a while I remember three years ago about eCommerce were only local competitors and all of us were kind of asking these questions ad spend has been an ongoing discussion. And now you're saying that we got to do something about these things. So, I guess my first question is I'm just wondering why it took so long to react what was turning point and now just still you’re behind. So, I guess why it took so long. And the second question, I lay it aside if it's related or not I guess, but there's a lot of buzz out there right now a lot of discussion and I think your stock performance today given the numbers would suggest there is a lot discussion in investor community that the numbers today are so bad the number last quarter are so bad that they are actually good for shareholders and activists will come an acquirer will come in and get involved. What do you think about that view certainly helps your stock recently, but what do you think about that view and how hard will you work to specifically prevent a bid or an activist in that context so thanks for those two hopefully the focus questions?

Yes, I guess on the first question I'm not sure I completely agree I think it's fair the criticism on the advertising spend and the lack of consistency of advertising but that we addressed coming into this year's budget and I'm just reaffirming that it is playing out the way we expected it to play out. On eCommerce, we have been very focused on e-commerce for a long time we may not have talked about it as eloquently as you find I did this morning, but we have been focused on it and I think that's why we have the toothpaste leadership positions in the markets that we talk about and the growth rate. And subscription levels on the Hill’s business that we talk about even if we took the pain of making those decisions in the marketplace which we’re now after almost nine months nearly a year just working our way out of. Naturals again we had been talking about the naturals for a while yes, it's only coming to marketplace right now when the local brands idea came up we were saying that that is our response. You can try this on the speed of getting it to marketplace and I won't fight that but in terms of the idea and that was accounted to the local brands we feel good about the offering that we're on. And on the efficiency, I'm not sure you were implying any critique of the productivity and I think the action that we have taken in this quarter that we have mentioned was evidence of our focus in that area. So, when we think about going forward would buzz is one thing and there seems to be increasing buzz in this world about virtually everything which can become an enormous distraction. So, the only thing I can say and I won't repeat the remarks I made at Bernstein, but I will say we are focused on the areas that I have mentioned we think these are the right areas to focus on to see a recovery in sales momentum across the back half of the year. We are focused on the SG&A line in our income statement to get us more productive from a reasonably advantaged base going forward. So, we have no blinders in terms of a need to focus on our cost structure and we will continue to do that and if we have more to say in that space we will say that in a way that we think is consistent with driving growth sustainably over time. And with or without buzz we are steadfastly focused on that. So, I'm sorry I can’t sound more energetic it seems to fail me, but I think you can rest assured but we don't have to rest assured I guess I'm saying that we very much our focused-on growth and on cost structure.

Our next question is from Jonathan Feeney, Consumer Edge.

Hey and just thank you for your comment earlier about the focus on innovation to address yeah, the local brands and particularly in Asia and Eurasia I know it’s other places, but you called out that specifically. And I'm trying to understand maybe why is it now versus any of the times in the past 10 or 20 years where you had really nice businesses in these places that local brands are gaining traction. And does it have to do with a change that is relevant to other markets is it technology driven and specifically does it have anything at all to do with I know it's some markets in Asia e-commerce is developed somewhat rapidly. Does the pressure that puts on your retailers and retail distribution have anything to do with the increase traction some of these local brand forms are having with consumers? Thanks very much.

Yeah, I think I don't think it's driven by e-commerce I think it's driven by shall we say business entrepreneurs who are local I think pleasingly for us it's driven by ideas that tend to be premium which are ideas we happy to compete with rather than perhaps in the early years ideas that were more pricing driven. In some cases, it's driven by affinities so the union by our brand in China was already a well-established wound healing brand in the country. You take it into the toothpaste category and say you stop bleeding gums well-known brand in the toothpaste category and they didn't do much advertising in the early years and the business started to grow. Patanjali in India takes a very nationalist view of his business so these are concepts in the local market. They tend to be premium price oriented and it means that you have to respond with a very specifically constructed offering that attacks the benefit the consumer is looking for. Hence the natural -- the natural reaction. So, I think it's more a function of entrepreneurs, concepts, affinity with the local, the market which is why we have innovation centers and technology centers in China to be close to the consumer on the ground in that country. And in the end, the winner over time in these clashes are going to be the companies that best understand the consumer and serve them offerings that they want over time and of course that's what we all resourced and focused on doing.

We'll go next to Iain Simpson, SG.

Thanks very much. Hello everyone. Couple of questions if I may, firstly just drilling down into advertising, this is a big picture stuff I guess. Your volumes are down 1.5% from the first half and that really does seem to imply very significantly with share loss. Yet your own -- your advertising is only up 10 Bps year-on-year and you're talking about marketing being about level in the second half as well. Is that enough up until 2014, your advertising was 10.5%, 11% of sales pretty much every year and recent years it's been more like 9% and 9.5% and we've seen your topline slow pretty meaningfully. So structurally where do you think advertising needs to get to medium term? And secondly, visibility on assets is pretty limited, but if you do get a big transactional FX tailwind be it in second half '17 or in 2018, what will you do with that? How much will you let through to the bottom line or will you reinvest it? What are the sort of key factors you'll look at; will you be in a position to make that decision? Thank you.

Well, let me start by saying you start with a great name, so that's a good place to start. Our point on advertising was not to do with the advertising in the first half. Our point on advertising and the numbers you referred to in the recent historical cost was to do with adjustments downward that we made in advertising in response to unfortunately foreign exchange very sharply going the other way, but your second question was suggesting And when came into this year, what we said was that isn’t what we were going to do. Advertising North of 10% is a good level of advertising and so what we said coming into this year is that we wanted to sustain our advertising across the full year, which means the comparison over the last couple of years is driven by a lower second half in those prior years and what will be a sustainable level over the back half of the year, which means the advertising will be meaningfully up versus the prior year. So, it's sustainability rather than a lack of in terms of -- in terms of investment and hey foreign exchange, you look at the last five years, I think the pundits have been wrong coming into basically every single year and if foreign exchange does turn positive, we will have a quick round of the applause and then we will bring it back to the business. Our general historical rule of thumb has been to reinvest some and to bring some to the bottom line. What we would actually do this time around would be a subject of internal debate but that rule of thumb has been our historical action.

We'll go next to Lauren Lieberman, Barclays.

Good morning. Okay. First is I have to ask the gross margin pressure as we won't have it is one. And secondly, maybe let's talk about Latin America for a second, where things turned very much for the better and I think about six to nine months ago now I got to spend some time with Thanos, and he talked about a broader innovation pipeline in Latin America where you were going to be bringing more news to lower priced tiers in your portfolio to giving the consumer more room to trade up at a lower level. And I was just wondering have some of that news flow started to hit the market because it was a pretty significant change in that volume, really dollar weighted volume metrics that we can talk a little bit about what's starting to work in Brazil that we've started particularly this term, thank you?

The gross profit roll forward, so prior year gross profit was $60.2. As you know we picked up 40 Bps from pricing between the restructuring, which is de minimis and funding the growth of positive 170 Bps, material negative 180 Bps, which was primarily the fats and oils as I said other 20 Bps and that takes you to the 60.7, which is up 50 basis points year-on-year. So that's the gross margin roll forward. I would say in Latin America it is a focus on the fundamentals. It is innovation. I wouldn't go so far as to say the lower end innovation is making the difference and I would say markets like Brazil. I'm afraid remain variable. So, we're very pleased with that bounce back, but we'll be watching very closely in terms of sustainability through the third quarter. But the fundamentals are the same fundamentals for Latin America across the back half of the year.

Okay. I understand that is the last call. So, thank you for being with us and we look forward to talking to you again in October.

And this does conclude today's conference. Thank you for your participation.