Haleon plc

Good morning, everyone, and welcome to Hylian's conference call for our third quarter trading statement. I'm Sonia Gabriel, Head of Investor Relations, and I'm joined this morning by Tobias Hessler, our Chief Financial Officer. Just to remind listeners on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans, and expectations. Please refer to this morning's announcement and the company's UK and SEC guidelines for more details. including factors which could lead to actual results to differ materially from those expressed in or implied by any such forward-looking statements. Today we plan to run through some slides before opening call for Q&A. For those listening on our webcast who would like to ask a question, you can find the dial-in details on page 2 of today's press release. As you know, whilst the focus today is on revenue performance, we've also provided a group offer in margin details on both the reported and an adjusted basis. with a full reconciliation, including for organic revenue growth, in our appendix. For information, we do not intend to provide quarterly profit data on an ongoing basis, and will only do this for as long as FISA reports our results as part of its financial statements, and until our registration rights agreement with FISA and JFK terminates. With that, I'd like to hand the call over to Tobias.

Thanks, Sonia, and good morning, everyone. As we first start with our first quarter highlights, As you will have seen from our release this morning, we had a good third quarter with 5% organic revenue growth, 6.6% price, and a 1.6% decline in volume mix. This performance was underpinned by continued share gains across our business. Across the quarter, growth was driven by a number of categories, including continued strength in both oral health and pain relief, and it's encouraging to see EMS being back to growth. Respiratory also had a good quarter with normal seasonal cold and flu sell-in. Digestive health saw good consumption growth, but our results were negatively impacted by one of the inventory movements from some U.S. retailers. The latter was the primary driver for the volume mix decline in Q3. Equally important, we saw continued good operating leverage with inflationary cost pressures more than offset by price and efficiencies across the business, resulting in operating margin expansion of 90 basis points. On the back of today's strong numbers, I'm pleased to reiterate that we remain firmly on track to meet our full-year guidance to grow organic revenues by 7% to 8% and operating profit 9% to 11% constant currency, resulting in margin expansion. Finally, it's worth highlighting that we closed the sale of Lamisil in the last couple of days, earlier than we expected. We'll recall that we announced the sale of the brand with our happy results. This demonstrates our commitment to optimize the portfolio to active brand management. Now turning to our third quarter results. Revenue of 2.8 billion reflected 5% organic revenue growth. Successive operating profit was up 8.8% constant currency, resulting in a 24.6% margin of 90 basis point constant currency. As expected, the adverse impact of FX was more pronounced in the third quarter due to year-on-year strength in sterling against the U.S. dollar and the movement in a number of emerging market currencies, which negatively impacted Martian and actual rates. Looking at the drivers of revenue growth in more detail, we delivered 5% organic sales growth in pricing, 6.6% price, and a 1.6% decline in volume growth. Pricing in the quarter included some incremental price, as well as the carryover of pricing taken over the last 12 months. As I have said previously, we will continue to take prices needed and remain confident in our ability to do so, given the strength of our innovation and brand and market positions. However, going forward, this will be at a lower level than it seems so far this year. In Q3, We also had a one-point benefit from high inflation economies, Turkey and Auschwitz. We saw continued volume mixed growth in APAC, our health business, although overall, this was offset by two factors. One, anticipated decline in emergency, where the category has reverted towards pre-pandemic level, which has now stabilized. And two, one of retailer inventory stock adjustments in digestive health in North America. We had an inventory build last year following a temporary supply shortage, which we have now left, and we saw some U.S. retailers reduce their inventory this year. Importantly, consumption in digestive health continues to see good growth. Including both these impacts, volume mix would have been flat across the group, and I would expect improved volume mix in the fourth quarter compared with what we have reported from Q3 today. Turning now to our performance across the categories. Looking at the quarter, I was particularly pleased that our health revenues were 9% with healthy growth in price and volume mix. Sensodyne was up double digits underpinned by continued share gains, benefiting from innovation and strong growth across a number of markets, including India, Japan, as well as good performance in the US. VMS is back in growth with continued strong performance of Centrum, which more than offset the expected decline in emergency. The double-digit revenue growth of Centrum was driven by positive price and volume mix, helped by geographic expansion and activation in a number of markets. Indreleaf also delivered good revenue growth, up 6%, with Panadol driven by strength in Middle East and Africa, and Voltaren growth underpinned by performance in Europe from new innovations. Advil declined mid-single-digit, largely due to more competitive market conditions. Respiratory revenue was up 4% and strong growth in parafluid robitussin from selling ahead of the cold and flu season, which more than offset both the lower out-of-season news of cold and flu products and a decline in flow names following a weak adduction season. Altogether, this demonstrates the strength and the diversity of our portfolio, delivering 5% organic growth for the group. And we now move to look at geographic segment performance. Looking across the region, we saw slightly differing trends from one region to another, with strong growth across EMEA and Latin America and Asia Pacific and a slight decline in North America. Our emerging markets saw 11% growth, which included the benefit from pricing taking in high inflation economies. Emerging markets made up a third of our revenues and included double-digit growth in India, and broad-based growth in other emerging markets. Developed markets grew 2%. Looking at each region in more detail, starting with North America, organic revenue declined 1.5%, with a 2.6% price increase and a 4.1% decline in volume mix. As I mentioned earlier, this decline in volume mix largely reflected two factors. First, a one-off reduction in digestive health brand inventories from retailer stocking movements, and second, an expected decline in emergency. Including both students' impacts, the volume mix would have been slightly positive. Across the categories, we saw mid-Singleditchy growth in oral health led by Sensodyne, underpinned by consumption and new innovations, including pronamyl active shields. EMS increased low signal digits, the strong performance of Centrum that more than offset the declining emergency where demand has now stabilized. Centrum benefited from the activation of cognitive function claims on Centrum Silver and the launch of our prenatal blend. AID relief declined mid-single digits driven by Advil. Respiratory health was down low single digits with growth in cold and flu, offset by a decline in allergy products due to weak seasons, resulting in inventories being run down to normalized levels. Finally, digested health and other fell in single digits, largely due to a double-digit fall in digested health revenue, as I already explained. Turning to Europe, Middle East, Africa, and Latin America. Organic revenue increased 10.8%, split 12.7% price, and a 1.9% decline in volume mix. As you will recall, this region is the most exposed to higher inflation economies, Turkey and Argentina, which had a 3% impact on organic growth. The decline in volume mix was driven by Latin America, where volumes declined double-digit from weakness in Colombia and Mexico, which was more than offset by strong pricing. Looking across this segment, there's strong growth in the Middle East and Africa, helped by Canada. In Europe, Revenue was up mid-single-digit with broad-based growth, including strong results in Germany. Across the categories, oral health saw double-digit growth, largely driven by Sensodyne and VentureCare. We're seeing good consumer uptake for a number of brand innovations, including Paradigm Tax Active Gum Repair. In BMS, the region saw a low single-digit decline, driven by some local brands. In fed data, central was up strongly, helped by continued activation and strong execution in markets across the region. Pain relief revenue was up double digits, connecting strong growth from Panadol and a number of successful campaigns, featuring our specialist ranges and growth in Voltaren. Respiratory sales increased in the mid-single-digit range, driven by price and the selling of cold and food products ahead of the season. We continue to drive innovation in this category and recently launched Otteroo Nasal Mist, which delivers an improved consumer experience in both comfort, ergonomics, and efficacy. At Best of Health and Other, saw sales up double digits with good growth across most of our brands. Finally, turning to Asia Pacific. Organic revenue increased 5.9%, with 2.9% from price and 3% from volume mix. China, our second largest market overall, was up mid single digits after a very strong first half following the easing of COVID-related lockdown restrictions, leaving China up mid for the nine months. Elsewhere, India grew double digits, and Australia and New Zealand was up low single digits. Within the categories, our health saw high single-digit growth, underpinned by strong growth in methadone, particularly in India, Japan, and China. In VMS, we saw low single-digit growth, helped by successful consumer campaigns for Centrum, partly obsessed by declining culture. In pain relief, old parents saw strong growth, particularly in China and Australia. As expected, 10-digit revenues declined after extraordinary strong growth in China during the first half, and this ensured inventories have returned to a more normalized level. Respiratory revenues were up double-digit, driven by strong growth in Teraflux. Turning now to our operating performance. Adjusted operating profit was up 90% constant currency driven by positive operating leverage. Looking at the bridge in more detail, standalone costs were tenderly lower than last year as we run down our TSH with GSK. at least to report strong execution with pricing and efficiencies offsetting inflationary cost pressures and negative volume, resulting in positive operating leverage. Importantly, short continued investment in consumer-facing ANP drew ahead of organic growth. Finally, as expected, about 100 million pounds or 140 basis points had been for material movements and foreign exchange on a translational basis, which particularly impacted the quarter. Even together, this resulted in a 5% decline in adjusted operating profit and actual exchange rates and a 24.6% margin. As a reminder, Q3 is typically our higher margin quarter in the year, given advanced sales of cold and blue products ahead of the season. This takes our year-to-date adjusted operating profit constant currency growth to 9% and a margin of 23%. 10 basis points constant currency. As I mentioned earlier, we're pleased to reiterate our confidence in our full-year outlook. We continue to expect to achieve organic sales growth of between 7% and 8%. We see another year of positive operating leverage and expect the adjusted operating profit to grow between 9% and 11% constant currency. This will therefore result in adjusted operating margin expansion on a constant currency basis. So, to sum it up, Hadeon has delivered a strong third quarter performance, demonstrating the strength and diversity of our portfolio and execution across our market. We live at 9% adjusted operating profit growth at constant currency and strong positive operating leverage across the business. As such, we have reiterated our full-year guidance Given the momentum across the business, in what remains a challenging market environment, we remain confident of delivering on our medium-term guidance, as we stated in this morning's results release. With that, I would like to hand back to the operator to open up for questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Richard Kawan, Morgan Stanley. Please go ahead.