Kenvue Inc.

Hello and welcome to the ChemView fourth quarter and full year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star one on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tina Romani, Head of Investor Relations for ChemView.

Good morning, everyone. I'm pleased to be joined today by Thibault Mangan, Chief Executive Officer, and Paul Roux, Chief Financial Officer. Before we get started, I'd like to remind you that today's call includes forward-looking statements regarding, among other things, our operating and financial performance, market opportunities, and growth. These statements represent our current beliefs or expectations about future events and are subject to various risks, uncertainties, and assumptions that could cause our actual results to differ materially. For information regarding these risks and uncertainties, please refer to our earnings materials related to this call posted on our website and our filings with the SEC. During this call, we've also referenced certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. These non-GAAP financial measures should be viewed in conjunction with the most comparable GAAP financial measure. A reconciliation of these items to the nearest U.S. GAAP measure can be found in this morning's press release and our presentation available on the IR website. With that, I'll turn it over to Thibault.

Thank you, Tina, and thank you to everyone for joining us today. 2023 was a year of transformational change for our company and for 22,000 CanViewers around the world. Our teams accomplished a tremendous amount, successfully standing up CanView as an independent public company while continuing to drive profitable growth. While we accomplished a lot in 2023, we know we have areas where we need to increase our focus and improve. So as we enter 2024, we have identified three key priorities that will enable our continued transition as an independent company while continuing to grow the business. This year, we will reach more consumers with a stronger focus on our 15 priority brands, free up resources to invest behind our brands, and foster a culture that rewards performance and impact. In 2023, we delivered on our long-term value creation algorithm centered around profitable growth, durable cash flow generation, and disciplined capital allocation. Our 5% organic growth was broad-based across all three segments, all four regions, and all eight product categories. SelfCare delivered another banner year of 8.4% organic growth, sustaining the momentum we have built over the past several years, resulting once again in strong revenue growth and share gains. Essential Health grew ahead of our long-term expectations with 3.6% organic growth, while continuing to execute our strategy to drive gross margin enhancement through successful value realization and premiumization initiatives. And in skin health and beauty, organic growth was 1.8%, less than we expected, mostly due to specific missteps around in-store execution in the US, which we are actively addressing. I'll give you more details about that in just a moment. We continued our successful multi-year program to expand gross margins in 2023 with 30 basis points of expansion through thoughtful revenue management initiatives and relentless supply chain optimization. This further demonstrates that we have the capabilities and the strategies in place to drive profitable growth even in a dynamic and uncertain macro backdrop. And finally, we utilize our strong free cash flow to initiate our dividend program, delivering on our commitment of returning cash to shareholders. Pivoting to Q4 specifically, let's now have a look at the performance of each one of our segments. And I'll start with skin health and beauty, as our disappointing fourth quarter's performance on top line clearly fell short of expectations, both yours and ours. Looking by region, it is evident where we have strength to leverage and where we need to improve. EMEA and Latin America ended the year strong. In EMEA, organic growth improved sequentially quarter over quarter on positive consumer response to innovation launch earlier in the year. In Germany, for example, Neutrogena HydroBoost has fuel growth ahead of the category. In Latin America, where we continue to grow double digits, Neutrogena faced double sales in the quarter, supported by the successful launch of HydroBoost refills. In China, weaker consumer demand continued to pressure the overall category and our skincare brands. However, it is our performance in the U.S. that did not meet our expectations. As we have talked with you about, we had an ambitious fourth quarter recovery plan for the U.S., but frankly, the execution of this plan was disappointing. Restoring Neutrogena to the level of growth we know the brand is capable of is a priority for me and for the team. So over the past several months, I spent significant time with our team in the U.S. and engaged with our customers, and the diagnosis is clear. We know our brand equities are healthy and our products resonate with consumers in the category. However, we must improve our in-store executional capabilities to drive stronger demand for our brands, better communicate our value proposition to consumers, launch innovation successfully, and finally support our brands with a robust level of marketing investments. In early December, we shared that Jan Murer, previously our Chief Growth Officer, would assume the position of Head of North America. With Jan's deep knowledge of our portfolio and our growth strategy, he has already outlined with his team the focus roadmap that they are executing to strengthen their capabilities and stabilize the business. Specifically, the recently redesigned North America Skin Health and Beauty Leadership Team is taking action in three areas. First, we are strengthening in-store presence and prominence through better planning with customers, enhanced packaging that clearly articulate dermatological benefits, and more prominent in-store brand activation. Second, we are enhancing consumer engagement through distinct and consistent brand experiences delivered with the appropriate level of reach and frequency and supported by a revamped marketing effort. And third, we are amplifying innovations to bolster demand generation activities with consumers and healthcare professionals. So this will not be an overnight shift. It will take time for these actions to generate impact on our results, which we expect to occur in the second half of the year. But we are confident we have correctly diagnosed our weaknesses and are making the necessary changes. Additionally, we believe our strong partnerships with retailers, coupled with increased investment and a higher level of precision in our execution, will enable us to stabilize the business in the U.S. and deliver stronger growth in 2024. So now turning to the rest of the portfolio, in self-care, our largest segment is a very different picture. We ended the year in line with our expectations, delivering organic growth of 8.4% in 2023 on top of 10.9% growth in 2022. We continue to demonstrate our leadership in the fourth quarter, reading the season accurately and activating our brands with precision. Adult Tylenol continued to gain share in the U.S. with 78 consecutive weeks of share growth, Even as category volumes declined as expected, with roughly 15% lower incidence levels in this cold and flu season compared to 2022. And again this quarter, we strengthened our leadership positions with relevant innovation, premiumization, and leading healthcare professional endorsement. So looking to 2024, we intend to continue to deploy this winning formula around the world. And finally, in essential health, performance was led by oral care and women's health, while baby care shipments were less robust this quarter. Oral care grew 8%, with organic growth in all regions, including the U.S., where Listerine, despite being around five times bigger than our next competitor, remains the most productive brand in the category and has now delivered 21 weeks of double-digit consumption growth. The launch of Listerine Gum Therapy has done extremely well as the largest innovation in the U.S. mouthwash category in 2023, reaching one point of share in under 12 months just for this code, and we have more great innovation plans in 2024. Which brings me to our priorities for this year. 2024 will be our first full year as an independent company, and you will see us starting to operate differently than what we have in the past, which will enable us to unleash the full potential of our portfolio. As I shared earlier, we have three priorities. First, we are going to reach more consumers with a strong focus on our 15 priority brands. We are strengthening our plans to build attractive, consistent brand experiences for our 15 priority brands, which represent two-thirds of our growth. With strong retailer partnership, we will bring to market relevant innovation across our segments, driving mental availability, but also ensuring physical availability where and when our consumers need us. We are also raising our bar in terms of activation excellence in our focus markets, starting with the U.S. So you are going to see our top brands with a higher level of activation in 2024 as we fuel growth. In self-care, we have strong plans to bring forward science-based, category-leading innovations to meet the needs of consumers, maintain category-leading healthcare professional recommendations, and ultimately drive continued share gains. And in skin health, we will stabilize the business in the U.S. with a plan I outlined today. Outside the U.S., in China, we will monitor consumer sentiment and thoughtfully calibrate our investment accordingly, while in the rest of the world, we will continue to fuel our growth in Europe and Latin America. This requires investment, and we have plans to invest more in brand activation in 2024, both with consumers and with healthcare professionals. Continued margin expansion and efficiencies across the business will fuel this investment. Which brings me to our second priority, which is to free up resources and invest in our brands. We expect growth margins to expand at an accelerated pace compared to 2023, which will fund increased investment in our brands. You've heard me say that over the past several years, we have been going to the gym on gross margin, and through this work, we will continue to strengthen this muscle, driving efficiency across our supply chain, managing our mix, and implementing thoughtful revenue management initiatives. In addition, as we exit our transition services agreements with Johnson & Johnson, we are not simply replicating legacy processes, but rather intentionally reinventing our ways of working. And this includes implementing modern systems designed specifically to meet the needs of our new company and enable speed, agility, accuracy, and a lower cost base. For example, we are implementing a new integrated business planning process that will improve our demand forecasting capabilities and service levels through better integrating and automating retailer data and demand sensing. This plan will be implemented throughout the next six quarters, with a majority occurring this year. And all of this will be enabled by our teams around the world, which leads me to our final priority, fostering a culture that rewards performance and impact. In 2024, we are deploying our new CanView performance management plan with clear goals and a heightened sense of accountability for every CanViewer. The plan introduces new incentive programs for all leaders, encouraging and rewarding impact on the four drivers of shareholder return, top line growth, margin expansion, earnings growth, and free cash flow. Further, we are streamlining decision making across the organization, including in my own leadership team, And most importantly, we are creating a culture based on our Canview values where everyone has a strong sense of purpose and belonging, an opportunity to grow, and is rewarded for impact. So in closing, we made significant progress in 2023, and while we still have a lot of work ahead of us, our priorities are clear in 2024 and give me confidence in our ability to deliver our plan for the year. I'm deeply grateful to our talented teams for their energy and passion to work together as one team to build our new company. It is inspiring to see 22,000 CanViewers rally behind one purpose, helping people realize the extraordinary power of everyday care, and I know they will make us successful this year and into the future. And with that, I'll turn it over to Paul.