Haleon plc

Good morning. Thank you for attending today's Hellion 2025 Part 3 Trading Statement. My name is Sarah and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, press star 1 on your telephone keypad. I'd like to pass the conference over to our host, Joe Russell, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Halion's conference call for our third quarter trading statement. I'm Jo Russell, Head of Investor Relations, and with me today is Dawn Allen, our CFO. Just to remind listeners on the call that in 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 filings for more details. including factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. Following Dawn's remarks, we'll take your questions. Those listening to our webcast who would like to ask a question, you can find the dial-in details on page three of today's press release. And with that, I'll hand over to Dawn.

Thank you, Jo. And good morning, everyone. We've made good progress in the third quarter, driven by strong in-market execution of and the continued rollout of our innovation pipeline, leaving us on track for our full-year guidance. We delivered 3.4% organic revenue growth in the quarter, with a good balance between price at 1.8% and volume mix of 1.6%. Looking across the regions, we saw consistent growth and sequential volume improvement across EMEA and LATAM and Asia Pacific. With emerging markets in both these regions up 7%, led by India and strong growth in a number of smaller markets, including Thailand and Malaysia. In North America, despite the challenging consumer backdrop on consumption, we have outperformed the market each quarter this year with particular strength in oral health, respiratory, and digestive health. Oral health was once again the standout performer as Sensodyne continues to drive penetration with strong growth in a number of key markets, including the US, India and China. In India, we are continuing to make good progress by expanding our reach through expert coverage, which is up 70% since the start of the year. And we are bringing new innovations, including Sensodyne Pronamel to market, Our Sensodyne offering for lower income consumers is now in over 500,000 outlets across 10,000 villages. From a strategic perspective, we are making great progress against our objectives as outlined at our Capital Markets Day. From a growth perspective, we continue to focus on driving category growth through Innovation-led premiumization with a number of new market launches in Q3. Closing the incidence treatment gap. An example is Otrovin Nasal Mist, which is seeing an over 80% repurchase intent amongst users. And expanding reach to lower-income consumers with household penetration gains in India and Brazil. We also continue to deliver against our value creation framework. Our supply chain productivity agenda continues to move at pace. We have made significant progress across service, cost, and inventory. And since the beginning of 2024, we have reduced the number of our SKUs by 19%. And we have improved overall equipment effectiveness by double digit. This improves both gross margin and results in better working capital and improved cash conversion. On A&P, we continue to invest at healthy levels, as well as making progress on effectiveness and efficiency, where we are focused on improving both contribution to revenue and ROI. We are also continue to be disciplined in our cost base and are on track to deliver the remainder of our £300 million target savings this year. All of this provides us with flexibility and agility in our P&L, enabling healthy investment in our brands and further strengthening our innovation pipeline to drive future growth. And finally, we are delivering on our capital allocation principles, having completed in the quarter the £500 million we allocated to share buybacks for 2025. Now let's look at the quarter in more detail. Organic revenue growth was 3.4%, balanced between 1.8% from price and 1.6% from volume mix. Volume makes a sequential improvement in the third quarter in EMEA and LATAM and Asia Pacific. Reported revenue grew 0.7% in the third quarter, impacted by the drag from divestments of 2.3% and 0.4% from foreign exchange. It's worth bearing in mind that this is the final quarter with a drag on reported revenue growth from announced divestments. Now let's look at the growth drivers, starting with our performance across the categories. Oral health continued to deliver strong growth, up 6.9% in Q3. Growth was underpinned by innovation-led premiumization and geographic expansion, The key drivers of this were penetration growth in more than 80% of our major brand market combinations, high single-digit growth on Sensodyne, more than two-thirds of which came from volume and innovations, including the Sensodyne Clinical Platform and Pronamel Kids, and continued double-digit growth on Paradontax, driven by innovation and our continued successful rollout in China. With exciting plans for continued innovations across our oral health business, the runway for future growth is strong. BMS grew 4.9% in Q3, with double-digit growth in Centrum. Key highlights were premium innovations, including Centrum daily kits in China and Korea, strength in Philippines from increased distribution of lower-income consumer packs, and expanding distribution of local brands such as Caltrade in Latin America. In pain relief, we grew 3.7% for Q3. Panadol was up high single digit, underpinned by outperformance in UK and Southern Europe. Improved consumption in Voltaren, supported by innovations including Voltamed, a new natural herbal product. Growth in these brands was partly offset by Advil. Whilst consumption continues to improve following the activation of new campaigns, performance was impacted by short-term supply constraint on liquid gels, which has now been resolved. Respiratory health declined 1.8%, lapping elevated COVID cases in Q3 last year. The impact of declines in smokers' health moderated in Q3 compared to Q2. Otrovin continues to perform really well. with nasal mist bringing new consumers into the spray category in markets including Sweden, Poland, and the UK. Ahead of the start of the cold and flu season, we saw the selling of cold and flu products in Q3 at relatively normal levels. And digestive health grew 2.1%, including growth in Tums thanks to innovations including Tom's Gummy Bites Plus, a strong performance in Benefiber from our Grow What Feels Good campaign, and an improved performance from Eno in India. This performance overall was partly offset by a decline in Nexium. And finally, therapeutic skin health and other declined 1.1%, with strength in Batraban in China, offset by a decline in Fenestil from a weak mosquito season in Europe. Turning now to the regions, starting with North America. In North America, we delivered organic revenue growth of 0.4%, driven by 0.7% price, with volume mix down 0.3%. In the quarter, we continue to drive market share with our consumption outperformance widening as we progress through the year. Organic revenue growth was driven by continued strength in oral health, driven by innovation, including pronamel clinical enamel strength and successful activations, including gum expert on parodontics. a better VMS performance with centrum growth, and a strong performance from Benefiber and Tums. All of this was partly offset by respiratory health, which declined due to the continued weakness in smokers' health and from pain, with growth in Voltaren offset by a decline in Advil that I mentioned earlier. As we shared at half-year, We feel there is more growth to be had from our North American business. We are focused on a number of initiatives which will drive stronger results. These include further strengthening our innovation pipeline, accelerating net revenue management through strategic pricing, price pack architecture and channel mix. and reinforcing our relationships with partners through key activations. And collectively, these actions, combined with our focus on ensuring inventory is in an appropriate level by the end of the year, sets us up well to return to growth next year. Turning now to Europe, Middle East, Africa and Latin America. Organic revenue increased 5.3% with sequential improvement in volume mix of 1.8% and price at 3.5%. Growth was driven by innovation-led premiumization across the clinical platform on Sensodyne, Pronamel Kids, and Otrovin Nasal Mist. A strong performance in VMS. with Centrum up double digit underpinned by a number of new launches, including Centrum Vital Plus Nutrient. And in pain relief, you know, growth came from higher consumption of Voltaren and Panadol from innovation launches like Voltamed that I mentioned earlier. Looking across the region, Europe performed well. with particular strength across the pharmacy channel, which makes up the majority of our revenue in the region. Whilst category growth slowed, we continue to outperform given our innovation and excellent in market execution. Latin America grew double digit, driven by Colombia and Mexico. This was partly offset by weakness in Brazil. given a softer macroeconomic environment impacting category growth. And finally, turning to Asia-Pacific, organic revenue increased 5.1%, with strong growth across India and Southeast Asia and sequential improvement in China. Across the region, volume mix, which was up 4.4%, and price was up 0.7%. With a relatively stable consumer market backdrop, we continued to drive category growth and expand our offering to lower-income consumers. India delivered double-digit growth. This was largely driven by strength in Sensodyne as we further increased distribution and drive penetration. We expect continued strong growth in the fourth quarter, driven by a Salesforce investment and an improving macro environment. Also in the quarter, China saw mid-single-digit growth with continued strength in oral health and VMS, supported by key innovations, including Caltrate for Kids, Voltaren 2%, and Fenvid Gold. Across China, consumers continue to invest in health and wellness, and we are well-placed to capture on this trend, given our focus on building trusted brands, closing the incident treatment gap and innovation-led premiumization. Our products are available across different channels, including pharmacies, hospitals, and digital platforms, ensuring we can effectively serve a wide audience with different shopping habits. Digital has been a particular strength, growing 20% with our online to offline platform growing 25% and representing a third of our e-commerce business. We have now fully integrated the OTC joint venture and are realizing the benefits of a more efficient route to market. We expect growth in China to improve further in the fourth quarter, helped by distribution and increased investment in the faster growing e-com channel. Turning now to our 2025 guidance, We expect organic revenue growth of around 3.5%, assuming a normal cold and flu season. In North America, we expect growth in the second half to be broadly similar to the first half, with Q4 reflecting further action on inventory at slower growing channels. We expect this to be completed by the end of the year. In Asia Pacific, we should see an acceleration in Q4 driven by strong growth in China and India. And in EMEA and LATAM, we continue to expect a good performance driven by Europe with market share gains offsetting a slightly softening macro picture. And in Latin America, we are closely watching the macro environments given the consumer pressures in the region. Finally, the pace of progress on our supply chain productivity initiatives provide a strong underpin to our expectation of high single-digit organic operating profit growth. So, in conclusion, we delivered a good performance in Q3 and remain on track to deliver our full-year guidance. We are pleased with the actions we are taking in the US, which sets us up to return to growth next year. We're continuing to invest behind our brands to build flexibility and agility in our P&L by unlocking productivity savings. Altogether, this should give us confidence in delivering against our value creation framework and our medium-term guidance. Now let's turn to questions. Operator, please can you open up the lines?