Haleon plc Price & Performance (HLN)

Okay. Let's open it up for Q and A. Thank you, Brian.

We now have a question from Guillaume Dumas from UBS. Please go ahead. Thank you very much and good morning, Brian and Don. Couple of questions for me please. The first one is on your performance being skewed towards the second half of the year in 2025. So given the strong momentum you're currently seeing in emerging markets, I'm thinking India and China in particular, but also the strong momentum in oral health, I mean, would it be fair to assume that the soft start to the year will be predominantly attributable to mature markets, I'm thinking The U. S. Here, [indiscernible] also mostly your OTC divisions. And then [indiscernible] the second half what underpins your confidence in some reacceleration mean, is it mostly down to the current sell in sell out discrepancy that will correct? Any other factors you would mention? My second question is on oral health. How sustainable do you think the current performance of the division is? Mean, in particular, how far do you think you are in the clinical wide journey as in minimal opportunities of distribution expansion, geographical rollout, And maybe a tricky question for you, Brian, but you think you have another clinical white in your innovation pipeline that could be launched soon?

Thank you very much. Great. Thanks, Gil. Thanks for the two questions.

Let me Let me take those questions. I'll ask Dawn if she has any comments on top. First of Haleon the performance, I think a couple of things. Season Actually to give perspective in The U. S, the cold and flu category, the market was down 15%. It was also down 15% in the rest of the world. You may remember also that we're a little less exposed to The U. S. For cold and flu, which means we're obviously more exposed to the to the rest of the world. That's been a benefit, but both have been down 15%. So the dynamic that's created is the sell in [indiscernible] The consumption didn't happen to the level we were expecting it to. We assume an average season, which would not have been down. So as a result, we have higher inventory levels in the trade. That primarily impacts respiratory health, but it also has a lesser impact on pain release category and also emergency specifically, which is an immunity brand in The U. S. And that that is the that's where that impact is. What is the confidence on the full year? We are confident we start there with the 4% to 6% growth.

I think part of it is Gilm business underlying is performing well. 7071% of the business gained and maintained share. For the full year. We feel good about that. We feel good about the innovation we have we're launching this year. And we know that Q1 is off to a slow start because of that dynamic. And also in The U. S, there is a little bit of an inventory dynamic that's broader relating to some of the drug retailers, which are really struggling. Right now. On oral health, just to say, clinical white has been fantastic. We're going to roll it out in about 12 more markets this year. We've also launched clinical repair So clinical is really a platform for us. We've launched that in Germany and three other markets, We launched it in more markets this year. We just launched in The U. S. Clinical Enamel Repair, which launched in February in The U. S. So actually think about clinical as a platform for us on innovation. So feel great about our oral health business because it's not only Sensodyne, We saw Paradontax growing healthy double digits. We saw Denture Care growing healthy double digits. It's really underpinned by strong innovation.

Yes, I think that's fine. I think just maybe three things three specifics. Just to build on that in terms of what gives us confidence in half two Brian talked about innovation. And let's be clear, innovation is working really well across all categories, whether it's OtraVin, naval mist, whether it's things like Sentrim Silver, or the Daily Sachets that we've launched or Centrum Essentials Sensodyne Kids as an example. I think innovation, continues to drive category growth and results in share gains. So I think that gives us confidence. I think the second piece is route to market. So as you know, we're investing in India in terms of our own sales force, We've also obviously done the joint venture investment in China. To enhance our route to market. So building distribution is also a critical lever. And I think the third lever and you saw this in 2024, we increased A and P investment hundred basis points. And we continue to invest in expert both expert coverage and the number of samples. So I think if you look at the fundamental drivers in terms of the strength of the business and what underpins that confidence, moving forward, I would look to those three things.

Thank you, both. We now have a question from David Hayes from Jefferies. Thank you. Good morning all. So to couple from me, one on FX and one on I guess. So just on FX, so obviously you're indicating that there's still this FX headwind coming through in in 2025. I think when we were talking to you and you talked to investors, towards the end of last year beginning of this year, it felt like it might be a tailwind a small tailwind both in terms of top line and margin. So just to understand what may be changed the last month or two and whether there's some dynamic here that means that the visibility on the FX effects something that's difficult for you to forecast until you're kind of right on top of where going into the period And then in terms of balance sheet, you said 500,000,000 share buyback reloaded. Does that leave you scope for M and A? I mean, in a sense, I think with the investors is that you've been looking for acquisitions the other side of these divestments to tidy up the portfolio. Is that something that you'd say you are actively prospecting is to look at deals still even within that context.

And I guess to tie into Aeroxone, you saw Futura saying a few weeks ago that they were cutting their 2025 outlook. Could you give us your perspective on that commentary? Has it been a bit disappointing? And or in terms of M and A, is that a business that you think you could look to actually fully participate in and maybe sort of change the strategy and maybe improve that momentum? Is that something that needs to be done?

Okay. Thank you, Thank you, David. Well, I'll start with, Roxanne, make a comment on balance sheet and then pass it to Don to answer the rest. So So on Oraxane, we did launch in October. I've always said this is a new OTC category. With a new brand. A new consumer behavior. We always expect it to be a bit of a slow start up. There's no question that the early trial and results have been slower than we expected. So So we continue we believe this is a big unmet need for consumers. We're continuing to look at it and understand what happens, but there's no question want to be clear, it's a bit below our expectations Now that said, that's all incorporated in our 46% guidance going forward. So we're still very confident on the full year. Just one comment on M and A and balance sheet is, capital allocations are very clear. Investing growth bolt on M and A, return cash to shareholders, Obviously, we're quite confident in our outlook and our cash flow, hence the increase in dividend and the $500,000,000 of stock buyback, but we still have headroom to be able to do bolt on M and A. And the right thing comes on and then strengthens our portfolio.

We'll absolutely have the capability and ability to do that. [indiscernible] So if I just take your currency question first. Just a few things to say on this. So I think geographical diversification of the group represents a key strength for us and provides attractive growth opportunities. The flip side of that is that obviously results in currency impact and fluctuations And obviously, from a currency market perspective, that's something that we don't control. And I think if you look in the year, what we have whilst we don't guide to currency, we've tried to give our best view on the forecast And we've taken the Bloomberg forward rates which gives a headwind on the top line and the bottom line minus one. Minus 2.5% And the reason why we've included that as opposed to spot rates is because of the emerging market impact. So what you see in emerging markets is a higher level of inflation but also then that results in more a devaluation or the flip side in terms of currency. And if you just take the spot rate, the risk is you don't factor that into account. Now if we were still forecasting on a spot rate basis, that would be 0.5 impact negative 0.5 impact from revenue, a 1% to percent impact on the bottom line.

The other thing to say for this year, if you remember what happened in '24, we saw a large negative impact in Q3. If I look at the weighting of the ForEx impact this year, we expect a bigger drag in the first half versus second half. Having said all of that, look, we recognize the frustration [indiscernible] currency. And as I said, whilst we don't control currency, we don't control markets, We are looking at what are different options So how can we reduce this? How can we mitigate this? And this is around strategic choices. So things such as supply chain, [indiscernible] supply chain optimization, investment choices in different markets. Pricing strategy, with inflation and process optimization so that we can match more closely revenues and costs So that's kind of the currency piece. Probably just one other thing to say on the balance sheet. Obviously, every year every year we do an exercise where we look at what's the available capital that we have and what's the most optimal use of that capital. And actually, if you look at the track record over the last few years, it would be really good in terms of capital allocation obviously did that exercise this year.

We thought the most optimal use of that cash was to return €500,000,000 surplus cash to shareholders. And to Brian's point, given that we have strong free cash flow in the business and this remains a key focus for us moving forward, That enables us also that gives us optionality should there be an opportunity in terms of bolt on M and A. That's great. Great. Thank you.

As a reminder, We now have a question from Rashad Khorran from Morgan Stanley. Please go ahead.

Hey, good morning, Brian and Don.

Thanks for taking my questions. Just a couple from me. So first one, if I can ask about VMS. Obviously high single digit growth in 2024. How do you see the category from here? Do you feel like outside of the emergency volatility it's back to where you expected it to be a few years ago back at your CMD. Maybe talk a little bit about the innovation pipeline that you have there. Then second question, just again on the second half waiting point. I know you flagged inventory revaluation, I think, is part of the reason why maybe profit growth will be second half weighted. I mean, I don't recall that being discussed [indiscernible] what that relates to and how much of a benefit it was last year and how that impacts the base this year?

Great. Thanks, Roshad. I'll take the BMS question. I'll pass it to Dylan on inventory rebal and the phasing across the year. So yes, I do believe that the BMS category is back to kind of where we would have expected it to be when we initially had our capital three days after Russia invaded Ukraine and the entire world changed and inflation came in and obviously, there was other spikes in COVID and all that kind of stuff. So I think the category is back, you're right though that emergency is a brand, it's performed well for us. It's a great subcategory, but it does have a bit of a seasonal element to it. We certainly saw that with the extreme spikes in emergency during COVID and during the different variants. And stuff. So outside of that piece of seasonality, we feel good about that business. And as we've always said, we have a very unique asset in Centrum being really the only global VMS brand in the world and over 68 countries, fantastic footprint in China with Caltray and Centrum. So So we feel good about that category and we feel like it's in a more stable place where we would expect it to be outside of that bit of seasonality.

Don? Yes. So I think in terms of the first half, second half weighting, two factors on that. One, we've obviously talked about the seasonality impact in terms of cold and flu.

That's the first impact in terms of first half, second half on the bottom line. Second impact as you said, is the inventory valuation. And I think what's important on this is that we are confident in delivering the full year guidance as we've laid out. This year And any lapping impact in terms of inventory valuation is baked into that guidance. So that's the first thing to say. The reason why we're calling it out is because it impacts the phasing because it was a benefit in the first half of last year. And just to give you some context, we haven't done inventory revaluation since the demerger. So 2024 was the first year that we did it. If you think about where inflation has come from, in years 2022, 2023 inflation was higher. So obviously, it does have an impact. In the year. Moving forward, this is something that we will do annually And we have done in 2025 and there's a minimal impact. But as I said, I think what's the most important thing is that we are confident in the guidance for this year.

Thank you very much. We now have a question from Chris Pitcher from Redburn.

Please go ahead.

Thanks very much. A general question please. I mean, we are talking about retailer stock levels and things like cold and flu. But could you just give us a sense more broadly across the retail landscape in The U. S. Because we're hearing from lots of HPC companies that shipments are perhaps lagging underlying demand. Is there something a bit more deep seated in terms of your customers looking to save on cash? Have they become a bit more conservative on the consumer? And then a a question for Dawn. There's a nice good performance on working capital. Now that you've been there a bit, how big an opportunity do you see in terms of working capital efficiencies to drive out? I know this is the last year of the operating efficiency program, but is there more to go for there? And if there is, could you help quantify?

Great. Thanks. Thanks questions, Chris. I'll take the first question on U. S. Retail.

Environment and then I'll pass it over to Don.

Listen, I think, there are a couple of retailers that are struggling in The U. S. In the drug channel. Openly. And we do see some more pressure on inventory levels there. They have full year results in in at the February. They're managing their their full year results. So I don't think there's anything particularly deeper seated there or a massive shift happening But I think we just have a couple of retailers that are struggling a bit more and they're working to manage their cash. The bigger impact for us is the seasonality in fact versus that, but that is something that we're not immune to either. But ultimately, it's seasonality impact, which impacts those primarily respiratory, but there's a couple of other categories that I pointed out. [indiscernible] Yes. I think on working capital, I think we made really good progress in '20 we improved working capital by thirteen days And a portion of that is driven by reduction in inventory. I think the opportunity on working capital there's still a large opportunity whether it's around payment terms with suppliers whether it's around optimizing receivable days in terms of our processes around cash collection, And I'd say the biggest area is inventory.

Whether it's around optimizing our demand planning, our supply chain planning, processes, supply footprint, or whether it's around the number of SKUs and formulations I think there's actually a big opportunity across the piece and that's something that like we did in 2024, we will continue to focus on to unlock that opportunity. [indiscernible] We now have a question from Tom Sykes Deutsche Bank.

Please go ahead.

Yes, morning. Thank you. Couple of questions. One, just firstly, as you've taken over for ownership or increased ownership of the China JV, Is there anything in terms of accounting or oversight also that you would pick out as something different to when you had a lower level of ownership? At all [indiscernible] inventory reviles, can you say anything geographically? Is any of that in China, please? And then just on M and A and perhaps the innovation cycle that you have. Obviously doing very well in in oral and you're doing well in product, which is more a want rather than a need. And so therefore, when you think about your M and A, is it going to be focused and innovation? Is it focused on sort of health if you like? Or is it focused more on more regular purchase more regular consumer purchases such as oral maybe VMS functional nutrition, etcetera?

Okay. Thanks for the question. Maybe a couple of things. Let me comment on the China JV. You had a question related to China JV, I think on inventory evaluation. There's been an impact there. And then I'll just comment on and I'll ask Don to comment on that and then I'll come back on the on the question. First of all, on the China JV. So we've been just for perspective, the China JV was on 40% of our business in China, which was the OTC business other 60% of the business we ran. We owned completely, I should say, but we ran 100 a owning that business, obviously EPS accretive, as you've seen financially made a lot of sense for us, but also having 100% control of the business allows us to drive a much more efficient and effective organization. Because of the JV structure, for instance, we had two sales forces that were frankly calling on the same customers. We needed to keep that separate because separate accounting and things like that. So there's efficiencies that we can really we can drive in the business. And as you know, during these past few years and I continue to be optimistic about China and the opportunity we have with China and our portfolio of China.

Maybe just start with the Dawn. I Tom, you were asking about inventory revaluation and that had a specific impact on China or not?

Yes. I think maybe just a couple of things to say. I think you've obviously what I talked about in terms of historic impact of inflation remember the biggest impact of inflation was in Europe. So when I think about the inventory valuation piece, I think about that benefit more weighted to Europe.

Because that's obviously where the biggest inflation was. Clearly, from a China perspective, it's not that much. The other thing probably just to build on Brian's point from a China perspective, and accounting. To Brian's point, we've been running we've been running this business So I think in terms of knowledge of the business, the control environment, we've got a really strong team there, we've got a strong internal audit team, I think those would be the factors I'd highlight. [indiscernible] M and A question, just Tom, a chance for me to just talk about I know you use oral health because you use that example as a one not a need. I mean what we see is because these products are delivering real benefits. So we talk about clinical white we're getting dental recommendations, it really is incredible that we've seen in consumers really leaning into these innovations and new categories. And that's why been so successful. Listen, I probably won't comment anything we're looking at in M and A, but obviously, bolt on is something we said we're interested in. We'll evaluate things as they come. If they strategically strengthen the business, and they financially make sense, we would obviously move forward.

But we'll share more as if there's any if there's ever a moment where there's something imminent to talk about.

Okay. Thank you. [indiscernible] We currently have no further questions. [indiscernible] back to the team.

Okay, great. Listen, thanks so much for joining us. Look forward to catching up on upcoming roadshows and meetings and please feel free to reach out to our team with any questions and Have a good day.