Perrigo Company plc

Good morning, good afternoon, and good evening. On behalf of Perigo's executive leadership team, I'd like to welcome you to Perigo's 2023 Virtual Investor Day. For those who don't know me, my name is Brad Joseph, head of investor relations and communications at Perigo. Today, you're going to hear about Perigo's transformation journey over the last few years and how the company is extremely well positioned to drive outsized growth through 2025 and solid long-term growth beyond. by continuing to focus on operational execution, integrating acquired businesses and achieving synergies, and by delivering on the tremendous innovation opportunities we see ahead. This next phase of our strategy is called Optimize and Accelerate, which you'll hear much more about in just a moment. But before we do that, I would like to remind everyone that during this presentation, participants will make certain forward-looking statements. Please refer to the important information for shareholders and investors and Safe Harbor language regarding these statements in our press releases issued last night and earlier this morning, and of course, our most recent SEC filings. We'll also be referencing financial measures that are non-GAAP in nature, and we'll provide a reconciliation of our GAAP to non-GAAP financial measures on the Perigo Investor Relations website. A few quick items before we start. First, unless stated, all financial results discussed and presented are on a continuing operations basis. They do not include any contributions from the divested RX business, which was accounted for as discontinued operations prior to its sale. Unless stated, all financial results discussed and presented for those years prior to 2021 represent CSCA, CSCI, and corporate segments only. Second, as a reminder, organic net sales growth excludes the effect of acquisitions and divestitures and also the impact of currency. We also discussed net sales growth excluding divestitures, which includes both acquisitions and internal growth. Now, on to the agenda. Kicking us off will be Murray Kessler, President and CEO, who will walk you through our transformation journey along with lessons learned and strategic questions from our journey, after which we'll take a five-minute break. Then you will hear from Spend Anderson, President of CSCI, Jim Dillard, President of CSCA, Allison Ives, Chief Scientific Officer, Rania Anish, Head of Global Supply Chain, Grania Quinn, Chief Medical Officer, and Eduardo Bezerra, CFO, and he will take us through answers to inform Perigo's strategic direction. Eduardo will also cover how we will translate our strategic direction into shareholder value, after which Murray will come back with closing remarks and bring the presentation portion of the day to a close. After the presentation, we'll take a quick 10-minute break. That break will be followed by Q&A session with the entire team. You have the ability throughout the presentation to submit a question in the Ask a Question section on the webcast. We'll do our best to address all questions asked. Before I turn it over to Marty, just two more quick items. First, we're going to make a survey available throughout the event and post the event. We strongly encourage you to fill this out and provide us with your feedback. Second, all the presentations that you hear today, including the full replay of today's event, will be made available on the Perigo Investor Relations website within the next 24 hours. And with that, it's my pleasure to introduce Murray Kessler, CEO and President of Perigo.

Thank you, Brad. I get the pleasure today of walking you through the journey that my team and I have been on for the last... four years. And if you're a new investor, it's been an amazing journey as we have transformed ourselves from a a consumer health care company that had both health care for consumer products, but it also had Rx prescription products. And we had gotten together and built the strategy that we introduced that we believed there was a major opportunity to change the trajectory of the business if we focused on self-care. And if you had been here in the original presentation, which I believe was around May 2019, You would have seen that the team and I walked into a pretty tough situation. It was a long-term declining trend. You had about four years of declining 2% in total, kind of a flat consumer top-line business, but a declining Rx business and an overall declining operating income trajectory, and the share price was declining, and the business was continuing to erode. So we said, look, how do we change this? And again, we went back to this idea of a transformation that was based on this concept that the company had 130-year rich history of and was almost the very first in the world to launch private label, over-the-counter products that didn't need a a prescription and that that self-care vision was on trend and nobody was really trying to own that opportunity. And it could be a place where Parago could really stand out and, and, um, differentiate itself versus other companies in the space. And with that, it would open up tons of opportunities. So if you follow me in my career, I always start with, when I come into a company, creating a vision statement. And I've never usually, or in any of my jobs, have ever walked away from that vision because I believe you have to work day after day and commitment in everything you do to make that vision a reality. And for Paragoe, That vision was and is today to make lives better by bringing quality, affordable self-care products that consumers trust everywhere they're sold. And every person in the Perigo organization needs to be able to see themselves in that vision and say, what am I doing to make lives better for the people that buy Perigo products all around the world? Now, the beauty of that definition is it went from a traditional everything must go through the FDA. It opened up all kinds of avenues for growth for the company. New categories we could play in as long as they helped go and take consumers beyond just treating illness to a broader definition of not just treating illness, but. preventing illness, promoting wellness. And when you do that, you'll see how that has opened up explosive growth for Perigo over the last few years. So job one that we introduced in that strategy, again, May 2019, was revenue first. We needed to get the top line growing again. That was the key job. We had done a a whole lot of work with advisors on what were the drivers of value creation. And the first thing they said is you need to get that revenue opportunity growing again. And second, you needed to stabilize in the beginning your operating income, even though you're going to be investing, Murray. And then third, you need to reduce uncertainty. And we had tremendous uncertainty on the business that were scaring some investors away. And then the second phase would then become towards the end of the first three years, that we would then get the bottom line growing. And our goal was to deliver on a long-term basis, 3% on the top line, 5% operating income growth, 7% EPS. So you'll hear me refer in this presentation. You've heard me in the past refer to 357. So 357 was the goal. Year one and two, get the three, get rid of uncertainty in the organization, then start delivering 5.7. In order to make that happen, it was taking a massive, massive reconfiguration of this company. We literally, in the last three years, we have done – we've sold our generic RX business, almost an 800 million revenue business. We sold our Latin American operations. We sold our Rosemont RX business. We sold Animal Health, and we closed down our India R&D. Those were all non-strategic businesses that, when you look at them in their own right, they were a multiple drag on the company. We bought Nestle's Gateway infant formula facility recently. We bought a spectacular company, a growing consumer company in HRA Pharma. We bought Rainier Oral Care. We bought Dr. Fesher Oral Care. We bought Steropod Oral Care. We bought the Prevacid brand. We bought a number of Eastern European skin care products, and we invested in a company called Casmira that is on the leading edge of developing clean CBD products. So that was the portfolio reconfiguration. And, you know, imagine the amount of work it took to pull up like 13, 14 transactions like that in the last couple years. And I truly believe that M&A capability and integration capability is a core competency of Peridot's. Second, in the area of business, we needed to get our pipeline growing, our organic growth growing. We built a half a billion dollar pipeline of new products. We launched over $600 million in new products during the three years of the strategic plan. We set a goal of $100 million in cost savings, and we've already delivered 80 of it. And we just completed an important project on the financial side of the business that will get us to the $100 million. We've launched new e-culture frameworks. We've built e-commerce platforms. We're part of the solution of the most recent infant formula crisis and on and on. It brought in talent and rationalized SKUs. And that was critical to building a great company. You know, we had to reconfigure, then we had to build a great company, and then the third element was reduce uncertainty. And we, you know... when I was standing up there in May, we had billions and billions of dollars of tax liability and litigation concerns that have been dramatically reduced. And we also strengthened our cybersecurity. We, you know, as I said, we divested the most volatile businesses. We had invested in DEI and ESG. And, you know, the point is that the perigo that we started with, was very different than the perigo today. And that's what I hope to show you and my team hopes to show you over the next few hours. I just walked you through all the things we did, which I believe if you look back to that May presentation, you'll see we did everything we told you we were going to do. And as a result of that, we completely reversed the trend on the top line. We went from a declining business to a business that has grown on a 7% compound annual growth rate on the top over the last few years. And we stabilized our operating income, had flat operating income during a period of time that we invested in IT, we invested in capacity, and we invested in people, and we invested in brands. And we were able, like I said, to hold that and not give back any of the bottom line while all those investments were made for the future. One of the most popular slides three years ago, three and a half years ago, was this slide where we had diagnosed and be able to show folks that were interested in investing or had invested in the company that, why the business had slowed down because Perigo had a great track record for many, many years and drove value and grew the top line and it had stopped. And if you look at the first two columns on this slide, you'll see, you know, what our diagnosis was. We went back and we said, hey, listen, the revenue growth components and revenue was first. acquisitions, RxOTC switches, new products, and sort of the base core business, including pricing, what impact were those having? And in our winning years, those all added up to about a 9% compound annual growth rate or a billion dollars worth of revenue growth. Then we had this period of time that I started with in the first slide that showed you declines. And when you look at what happened, acquisitions stopped. So what had been a $590 million driver basically went away. OTC switches remained. New products was a fraction of what it had been in the prior years. And base business erosion had gotten worse. So you went from a billion dollars of growth in that plus 9% to no growth, you know, you had about $20 million over four years, basically growth. a flat business. And now look at the third column that I have. What's happened since we began all these transformation activities? We reignited our M&A arm and have delivered $660 million of new revenues through acquisition for the 18 to 22 period. RXOTC switches are actually down But if you go back to May 19, I'd said that number was going to be zero. We couldn't count on anything. So that's green because it was actually an upside to a plan. And you'll see later in this presentation that it's even a bigger upside opportunity going forward. New products pipeline, major priority, was reignited. 430 million, and our base business declines were completely stabilized. So then you go from, you know, the 9% flat back up to a 7% compound annual growth rate. I find it amazing, and I don't know your reaction, but when we decided that we were going to sell off the RX business, that's a big division for us. You know, it's a 25% of our sales, a big piece of our operating income, even though it was declining, it was a lot to replace. In only a year and a half since we sold it, we are bigger today than we were on the top line than when we had RX. That has been completely replaced through bolt-on acquisitions and through strong organic growth. We also diversified our portfolio and entered into important self-care categories that we had more freedom to get to market faster. So not everything had to go through the FDA. We added an oral care business that's now 9% of our total business worldwide. We supplemented our skincare, basically doubled our skincare business. That's now 14% of our business worldwide. And we added a new women's health section, which you will talk about later. I'm so excited about this opportunity. It's only 3% of the business now, but I think it could be a major growth driver. And we added amazing brands like, you know, the number one foot blister brand, Compete, or the number one cough cold remedy in a number of countries in Europe, Enthusiamere. And we're the number one store brand supplier of OTC products in the United States by far. We're the number one flosser and floss pick brands and kids toothbrushes and toothbrush protection in the USA. We're the number one store brand supplier. of infant formulas in the U.S., and it just goes on and on and on. This is a company that's diversified with global brands and super opportunities going forward with an expanded base of different product categories. We also diversified our portfolio across store brand and national brand. That was a big question when I came into the company, can you be both? Can you be a store brand company and can you be a branded company? Most aren't. There are a few who do it successfully. And we believe the answer to that question was yes, and that we could continue to grow our store brand business, but accelerate and kind of charge up our branded business. And we've done just that. If you look here in 2018 sales to 2023 sales, Branded was 40% of our business. It's now grown to half of our business on a global basis, so 50% of the business. We have strong brands, strong national brands, strong regional brands in different parts of the world, and we continue to have the number one store brands. And all facets of our business is growing, and I'll show you more of that in a few minutes. We also diversified our portfolio across geographies. So, again, we had that global 9% compound annual growth rate in total. I mean, excuse me, the 7% compound annual growth rate in total, but that was 9% compound growth in Europe, and it was with 7% compound annual growth rate in North America, so both. And with the acquisition of HRA and especially the women's health products, we're in more countries than we thought. ever have been before. So, yeah, I'm trying to show you that, you know, Perigo is this unique company. We're not just one brand. We're kind of the biggest company that no one's ever heard of because of the private label business and the regional nature of the business. But this is a business that's very diversified, global in nature, branded in store brand, growing across various different areas. And today, Perigo versus where it was is completely transformed. We are a pure play consumer self-care company, one of the leading ones in the world with an opportunity to even more differentiate ourselves over time. And this company, because of that balance between store brand and premium brands and geography, has a very, very unique set of attributes that are on trend for consumers. Our products are accessible. Our products are affordable. Our products are reliable. Our products are sustainable. And our products are profitable. Every country, no matter where you are in the value chain, you want self-care to succeed. We help reduce health care costs around the world. We provide access. We make lives better. with our products every day. The other thing I love about Perigo, and I didn't fully understand when I joined the company, but I sure do now four years later, is the emote that the company's been able to build around itself through its massive product portfolio scale and ability to handle complexity. I call it internally, I say we have a high CQ. A lot of people talk about IQ or you know, or other kind of cues. To me, the CQ is the complexity quotient and Perigo handles You know, we distribute in 80 countries through 21 manufacturing and packaging facilities, over 200 bands, 2,200 formulations, 13,300 SKUs, 48 billion solid doses a year, 17 billion liquid doses per year, a billion infant formula feedings a year, and 7 billion oral care units per year as well. And you can see all the dosage forms and regulatory classification. Perigo is a very big and nimble company. So four years, the transformation. If you're a new investor, I kind of gave it to you in trying to explain it in charts and numbers. Let's take a look at a video showing you the new Perigo.

Parago is a leading global self-care company dedicated to making lives better around the world. A rapidly growing company that empowers consumers to take control of their health and wellness. And as individuals engage in some form of self-care daily through their choices, Parago is there. Through its multiple product offerings, including premium brands, value brands, and store brands, we are meeting the needs of consumers across the value spectrum, wherever and however they want, in-store or online. Delivering our unique and needed self-care solutions is a dedicated and motivated workforce of more than 9,000 strong, working across 30 countries to deliver billions of doses to consumers each year. Every second of every day, nearly 2,500 consumers use a Perigo product. Perigo is there when you need us, whether you have a headache, backache, stomachache, heartburn, blisters, or looking to take control of your decisions with oral contraceptive products. More individuals are taking control of their health and wellness decisions, and our products are more important than ever. So wherever you take the next steps on your self-care journey, Perigo will be there to make your life better.

While strategic objectives that were set out in 2019 were clearly achieved, there just can't be any argument before that. The truth of the matter is, you know, we got the three and we blew away the three in our compound annual growth rates and we got rid of the uncertain. But our financial objectives, the five and the seven, were delayed about a year because of numerous factors. When you add them all up and you put them on the page of what we went through and all consumer packaged goods companies went through, it's staggering. Whether it was the impact of the Ukraine war in this last year of 2022, the impact of currency translation, the COVID-19 pandemic, which literally made 20% of our business go away for about a year and a half, global supply chain disruption, inflation. Input inflation like, you know, that hasn't been experienced in my 35, 40-year career ever. and labor shortages. It's just been one thing after another. And if you add all of those up, they negatively impacted our company's gross margins by 500 basis points versus when I was standing up here originally giving the plan back in May 2019. And it affected adjusted operating income or The total increased cost associated with these factors on the screen was over $400 million. Now, to put that in perspective, a normal year for Parago is about $30 million of inflation. This was just staggering numbers. But it didn't, you know, one by one by one, our team was able to knock those things down, solve the problem, solve the labor issues, do what was necessary to crawl back and scrap back, all different types of activities that built gross margin again. And I'm happy to say that we are back on track and proud to say that through what was one of the most challenging years in my career, Perigo was able, as we showed you in yesterday's earnings release, delivered Fourth quarter, 10% top line growth on a constant currency basis. 13%, 13% top line growth for a consumer company on the net sales line on a constant currency basis. Adjusted operating income, again, fourth quarter plus 25% constant currency. Full year plus 11%, adjusted diluted EPS. Again, adjusted for currency, or even if not adjusted for currency, 25% U.S. dollars. 33% constant currency. And for the full year, back to growing again. And again, adjusted currency neutral, a double-digit EPS growth for the company. And that feels good. But what should really feel good about it is the quality of that growth. It wasn't just that we got growing again. We didn't cut a bunch of short-term costs or move volume around. This is solid quality growth. Profitable growth, which is what we work towards every day. So where does that start? It always starts with the consumer. And our demand was strong in the entire second half. It was especially strong in the fourth quarter. And what's on the screen now is if you look at the green bars, these represent all of the Perigo categories broken out. Into our divisions of CSCA and CSCI, if you're new to the business, Consumer Self-Care Americas and Consumer Self-Care International. And those aren't market shares on the left. Those are growth rates. So you're reading it right. It says that pain in the fourth quarter grew 19% and was a full SharePoint gain. And if you look on the right, if you say, you know, skin care, Perigo's skin care business in the fourth quarter grew 39.6%. So when you look at that chart as a whole, what you should see is a lot of green, a lot of growth. Almost every category we're competing in is growing, and we're growing share in almost all of the categories. And in total, when you add all those up, Perigo once again gained market share. So it's fundamental to quality earnings growth. is quality demand and meeting the needs of consumers. So we'll check that box. The second is folks were worried about our gross margins, and rightfully so. It's the one area I would give myself the worst grade on versus the 2019 presentation because we didn't forecast – COVID-19, we didn't forecast supply chain disruption. We didn't see that coming. And that's where we, the reason we got delayed in delivering on our earnings growth and has us about a year or so behind, but we reacted to it very quickly. And in the second quarter of 2022, so less than a year ago, you know, I made a pretty big promise that I believe by the end of the fourth quarter, we could recapture four to 500 gross margin points So kind of average that was like a 450 basis point promise. And in fact, we delivered, we're exiting the year with a 500 point basis point gain in the year. So if you look at it, Q1 of last year, Parago had a 33.4% gross margin, exiting the year with a 38.4%. Margin growth, fantastic to see 200 basis points of growth internationally. But I think where the street was worried, where management was putting its focus was on CSCA, which had a 25% gross margin in the first quarter, exited the year with 31.6. So, again, quality of growth comes from good fundamentals. Good fundamentals starts with good consumer demand, quality margins, which we've been able to build back. And as a result of that, when you look at Perigo, and you compare it to its consumer peers, we actually stacked up really well. In fact, if you look at sort of the companies that we measure ourselves against, we were in the top quartile performance. We were number two on net sales, raw net sales growth. We were number two out of our peer group on organic net sales. Now, adjusted operating income, adjusted EPS, adjusted gross margins, I'm not adjusting for currency. And you can see we are near the top of the chart on each of those areas. If you adjusted for currency, because some of my peers are just U.S., you would see we'd even be in the top two on each of those, and we also pay a beautiful dividend. So, you know, three years later, the company is growing. Uncertainty has been reduced. We were a year delayed, but we've got the financials growing, and we've delivered outsized growth against the promise of 357, and we expect that to accelerate again in 2023. And you'll get from our chief financial officer, Eduardo, later in this presentation, he'll walk you through specific guidance. But right now, if you just look at the numbers that we're putting out there, our EPS alone guidance is 250 to 270, call it in the midpoint, $2.60. That's a 26% growth rate. Recognizing what I told you last quarter, that that includes about a $32 million write-off to change from distributors to our own direct sales force in Europe. And if you sort of recognize that's a one-time item, our actual underlying growth rate for next year is 33%. So we're back to growing again. And the basis for that is the new strategic plan. So we are in a new phase. So phase one was transformation, get to 3.57, first two years, three, second two years, 5.7, late on a year, deliver outside growth growing forward, and then get back to an algorithm that continues on for the long term at 3.57, which is the median of the consumer peer group. And we will target to be at or above that over time. So if that adjusts over time for them, it'll adjust over time But it is based on a strategy that I'm going to walk you through sort of the learning from. And then my team will walk you through where we take that learning and how we drive our business. But it's got a couple of fundamental points you need to know. Point number one, our strategy is right. Self-care is a winner. And I'll walk you through that and why we are. believe more than ever before that we're on strategy and that's the right strategy. I've already told you we've transformed the business. I've told you that, you know, financially, we are back on track. So we have the right vision. We are back on track, but we can accelerate growth. And there are a number of initiatives you'll see in this presentation that demonstrate what we've learned and where we can accelerate our financial performance either further. And a big piece of that will be, a big driver will be integrating these great acquisitions that we've had in HRA and the Nestle infant formula facility that we just purchased. But another big piece of that is a global supply chain reinvention that I am extremely excited about and has the potential for us to deliver outside growth for a long time. But I will tell you that another part of the strategy that's important for you to understand is we're going to slow down on M&A. I showed you 13, 14 deals in the last three years. That's a lot. And it needed to happen in order to get the company into the right position. But we're going to take a breath from that. And now we will focus on taking all this cash that is generated from our business. And in 2022, once again, we converted over 100% of our cash. And we will use that to reduce leverage with a goal of being back down to three times or below by 2025. So, you know, self-care, deliver the financial growth. integrate those great companies we bought, pay down debt, deliver outsized growth. How did I get there? How did we get there? Let me talk about our lessons learned, and then what I'm calling strategic questions from our journey, just so you understand the format of what I'm about to go through. I'm going to tell you what we learned, and then I'm going to tell you what either whether it would be our board of directors or it was us in the beginning or it's what I hear from investors often. What is the key question they ask when they hear about that learning or they're thinking about Perigo? So I'm going to set that section up, and then my team is going to come back and answer those strategic questions in the next section. So let's push on. Five key lesson areas. First one is on strategy and that self-care is correct and it should be maintained. The second one is that our bolt-on M&A has been very successful and provided us access to new and growing segments while we were reigniting organic growth. The third one is we've got tools available for the company to not only recover to the margins that we have now but continue to grow margins in years to come. That ESG for us has become embedded into our culture, and it is important, and it is not just something we're doing because it's the nice thing to do. We believe it will help make us more successful and can give us competitive advantage. And finally, now is the time for Parago to shift from M&A to executional excellence and strengthening its balance sheet. All right, so this will be the format. This one will show that key question that was on the prior page. Lesson one, our focus on consumer self-care has shown to be correct and must be maintained. The key insights are what I'll walk you through in detail slide by slide. So the first one, consumer self-care is large. It's a $400 billion plus category worldwide as identified by numerous sources. It was growing from 17 to 22 at about a 2.8% rate. That has accelerated in Europe to almost 5%, in North America to 4%, and globally to almost 6%. I mean, that's staggering growth for big categories. And there's a reason for that. World populations are – aging meaningfully. Older populations spend more on health. And they spend more per capita on self-care. And you can read these charts on your own when you have time. But on each one of them, it provides great data that says all of the that the trends are in place for this category to keep growing and accelerate growth going forward. And there are some portions of the category that grow faster than ever. But again, part of my message to you is Parago is a very diversified company. And part of that diversification is that we play in many categories. And in all of these major growing segments of the market, Parago has a meaningful presence as shown in this chart. We're also an established leader in the over-the-counter space. You know, we're number three on revenues as measured by IRI, and we are in the top ten in OTC and EU. Now, I will tell you on the left-hand side, the numbers are drastically understated for Parago because our U.S. business is primarily private label. So this is reflecting a – a, you know, a strong number three position in the marketplace, but what it's not reflecting is volume, which is much more difficult to get to when you have categories that cross over doses and, I mean, excuse me, liquids and pills and dissolvable tabs, and some have recommend one and some recommend two and some recommend three. And I, with all the data advancements we've made to be able to report more and more data over the last four years, we are working to get to an equivalent unit basis because I think it's very important to understand when you talk volume, Perigo is much bigger than this because our products sell at a 30 to 40 percent discount. And when you look at dosage units, for example, in the U.S., our products are as big as the number two and number three competitors combined. So massive scale, like I told you before. The other thing that I think is I didn't necessarily see coming four years ago, but it makes sense is when we talked about self-care and this big opportunity, we were kind of the only ones out there talking about it. Like my first analyst call, I had people saying, self-care, what is that? I mean, I think one analyst said to me, are you going to start selling Q-tips or something? Or I don't understand what it is. And he was trying to be devil's advocate and And that's great. But the reality is it's a very big and huge segment, as I just said. But what's exciting is it's now forming its own industry. So, Perigo went out there first, got things itself transformed. Prestige Brands in the U.S. is a branded consumer. You can call it, they call themselves consumer healthcare. I would say they're a self-care company. Halion, you know, the combination of the consumer divisions of GlaxoSmithKline and Pfizer in the last year, July 22, began trading as its own company. J&J is, I don't know the timing of it, but they have announced publicly they're spinning off their consumer businesses. So all of a sudden, there is this massive, over $150 billion segment with more to come and companies evaluating it focused on consumer self-care. Think how much innovation could come out of that. Think about all the possibilities now that there are all these focused companies. So on the positive side, You know, I hope I've convinced you with just a few short slides. Self-care was a great place for Parago to go after. It is a growing trend. But if you are playing devil's advocate, you say, all right, but I hear you about all these new companies and forming this new segment, Murray. But is that good for Parago or bad for Parago? Can Parago compete effectively with these new self-care companies that are all going out in there? And in the next section, we'll show you facts to say whether we can or cannot. If I'm going to give you a preview, the answer is we can. Lesson number two. This is a more complicated, one of the meatier lessons, but it takes a look, and I'll walk you through sort of what we have accomplished in bolt-on M&A, which is massive. But I want you to remember the purpose of that we started and got very aggressive on bolt-on M&A. It was because organically we had stopped growing. So the idea was to provide cover for a couple years when we ramped up our organic growth platforms, our innovation programs, our e-commerce programs, our ability to partner with customers and change the dialogue from just price to added value or what we call the perigo advantage. And it's amazing to see what we've been able to accomplish in terms of growth. So when you look at it, we were able to get growth growing, but 7% is the number, compound annual growth rate, that includes M&A. We had 7% growth internationally. We had 7% growth over the 18 to 22 period in the Americas. We had 11% growth in our branded portfolio, and we had 4% growth in our store brand. So every segment, every major segment of our business growing. Now, when you take a look at that growth and what bolt-ons contributed, you can see – You know, again, in green, the amount that added to that 7% total pair growth. But underlying that, we delivered our promise of 3% organic growth over that period of time. And that is, we take the toughest way of looking at that. Because if you look at Compede, which we had most of the year, it had strong double-digit organic growth. We don't count that. But bottom line is organically we are growing. All the while, we added $660 million in net sales on the top line from Bolton M&A. Now, what I love about that Bolton M&A is it feeds the organic growth going forward because we just didn't buy brands, add brands. We bought brands and we bought store brands that are margin accretive, strongly margin accretive. You talk about, you know, 70%. Near 70%, 70% plus gross margin in a number of these brands. All growing double digits. Compete, you know, number one in foot care, bless their treatments, as I said earlier. A massive brand through Europe. Number one in scar care in Mederma, in women's health, LO1 around the world. Plackers, Firefly, all of these brands growing double digits with big market shares. We replaced declining generic RX sales and profitability with growing brands. and that are growing double digits with high margins, terrifically on trend growth projections of continued growth. This is a huge part of what we've been able to accomplish. And I can't imagine where I would be if I was sitting here and we hadn't done any of this. Because when you look at through the adversity, these bolt-on M&As, while we were getting the organic growth going, helped us deliver the growth that I was just able to, you know, and the team report yesterday. So if you look at next year, we are projecting – 40% of our adjusted operating income, excuse me, by 2025 to come from those brands that we've acquired over the last few years. I mean, that's just a staggering number and a big portion of Perigo's now brighter self-care profitability. Now, let's go back to the other important part, right? So it's not just buy things because as you see, when you do that, your debt starts to accumulate and we need to deliver on that organic growth so we can get the returns and drive up our return on invested capital and create value for our investors. So when I look at it, just as exciting as those new brands we bought is what we were able to do in our innovation program. And if you look at it, we launched $610 million in new and refreshed products. Refreshed products think of new and improved. It's a complete sell-in. It might be a complete reformulation of an infant formula. It could be new packaging. But as long as it has a consumer benefit and it's a change and creates news in the marketplace, we put that into the refreshed products. New products are completely new category segments. And you see some examples here. But our pipeline, not only did we fill it and launch this much, but we've kept it at a half a billion dollars or more by replenishing that pipeline each and every year. And we weren't even efficient in the way we did in the beginning. I mean, we, you know, I put a lot of pressure, the team put a lot of pressure. Um, Jim Dillard, who you'll hear from in a few minutes was our chief scientific officer at the time, put a lot, a lot of pressure. Um, And now we have Allison Ives, who you'll also hear from, has come in and said, hey, we can do this and we can even be more efficient. We can do less and bigger. And what you see on this chart is that 60% of the projects that were being worked on represented less than 10% of the pipeline value. So this one's kind of exciting because we've got it going, but we know we can take that pool of resources without adding another dollar and make an even more productive innovation program going forward. Our e-com back in the beginning in 2018 was less than $100 million. We didn't spend a lot of time talking about that. We did a little bit in the original transformation program, but look at it today. It's over 12% of our total business, over a half a billion in net sales, and customers look at Parago and say, They rely on our ability to help them grow this business, whether it's Amazon or it's one of our major brick-and-mortar retailers. This is more than people understand. This is a major competency of Perigo's, and it's a point of difference and a competitive advantage. We don't just ship the product and they do it. We have, you know, dozens of people that work, you know, 50, 60 people that work in this, and they're managing content and doing testing and partnering and pricing tests. And they actually, you know, we do the content for our customers. We develop the brand names often for, you know, many of the products we launch. And our customers, you know, this is an important area of growth for them as well, and they've come to rely on us. So I'm real proud of what's been accomplished in this area. The other area, and that's obviously the point of saying it was that it's a driver of organic growth. The third area that you look at is in order to get organic growth growing, You know, we make over 13,000 products and, you know, hundreds of brands. We have to focus where we're going to, you know, drive and what are the biggest opportunities. So, you know, when we did this a few years ago, we said core OTC, oral care, nutrition, nicotine replacement, science-based natural products, a over-the-counter type product, but doesn't have a pharmaceutical active ingredient in it. It's a natural product with clinical trials to support claims. Those were the strategic opportunities. And, you know, bottom line, if you look at the biggest by far, the 2.8 billion Acura OTC, it exceeded our organic growth numbers. Oral care exceeded nutrition. NRT didn't quite get there. And there's a There's a reason for that, although we have beautiful products in the pipeline. Jim will talk more about it in a few minutes. And science-based naturals growing amazing in CSEI. It's a much bigger base in CSEI, but still an opportunity. Bottom line here is what I'm telling you is our focus work. It helped to grow organically, but, and it's a big but, if you look at this chart, there's some red elements on there, and that means there's opportunity for refinement. And we are refining refinement. our strategic pillars going forward. We'll talk about that in a few minutes. And, you know, the last piece of organic growth was the bleeder on the business was, you know, with a lack of differentiation. And before we had e-com and a more robust innovation program, et cetera, we got into too many discussions on price. And it was eroding a lot of the profitability of the the company and you can see, you know, that's completely turned itself around. Now, I want to be careful in the way I talk about it because Parago believes in delivering value. We don't want to raise prices. Our customer partners don't want to raise prices. But we also don't want to erode prices either. So stabilizing was the goal. But it was encouraging to see our customers partner with us when we got hit with unprecedented input cost inflation in the past year and a half, be willing to work with us and understand for the long term we needed to be able to invest in these categories and keep the growth going that we were able to, you 4% pricing for Perigo in 2022 compares to most of the consumer companies reporting more in the 8% to 12% range on pricing, and their volume declining, getting them to some 7% or 8% growth. What I showed you is 4% pricing, but volume also continuing to grow at 4% or 5%. So our growth was a combination of both price growth and continued volume growth, which we believe is attributed to a lot of national brand consumers trading down to store brand. Okay, so again, quality growth, it's a lesson. Bolton M&A provided strong growth and access to new and growing segments while we were reigniting organic growth, which we did. So what's the strategic question? What are you thinking? Okay, you did it, Murray, during those few years, but Can Parago continue to reliably grow revenue at 3 plus percent over the long term? Can you really back off on the level of M&A you've done over the last few years and strengthen your balance sheet? And we'll show you why we believe the answer to that is yes as well. Lesson number three. We have a number of tools available for Parago to recover and expand margins. That this was not a one-time thing. You know, we had a recovery from the first quarter to the fourth quarter. We believe we have many tools available to us to grow margins, both gross margins and operating margins over time. And I'll walk you through the specifics. You can read this key insight slide on your own, but I have a slide for each. So let's look at it. First one, we said we could take out $100 million out of the operating expenses for the company, and we have already pulled out about $80 million today. I said it. It's a big project for us in centralization of finance around the world that will basically close that gap, and we just completed that project. So we look forward to those savings as part of our 23 and 24 plans as well. Bottom line, our SG&A is a percentage of net sales that's declined. from 21% to 19% over the last several years. Conversely, supply chain-related external factors hurt our adjusted gross margins, but it's been mostly recaptured remarkably fast in only a year. So 2019, we were a 40% margin business. That went down to 39%, went down to 36.5%. If you look at this year, We started – the downward trend continued to 33. We turned it around, built it up to 36.5. 36.5 again in the third quarter. People were suspicious. The stock kind of reacted negatively because people were like, well, wait a minute. Maybe your gross margins aren't going to continue to recover. And then we end the fourth quarter at 38.4. 500 points higher than where we were in the first quarter. And basically, when you average those, it's roughly stable versus 2021 with a lot of room to grow. Where did that gross margin recovery came from? The first part, and it's not done affecting it yet, is from acquisitions, HRA. We blend that in. It's a higher margin business and growing. So it not only is accretive out of the chute, it's accretive for years to come as that business continues to grow. Same thing with the premium infant formula we got with the acquisition of the Nestle infant formula plan. And additionally, we already began to get supply chain savings, and there were margin opportunities in that acquisition as well. We also had gained about 100 basis points from strategic acquisitions, or pricing actions. And that's what drives you from the 33 to 38. But that, you know, those are quick. And I'm glad, I think it's terrific that we got that recovery. But there's bigger opportunities. And we're calling that our supply chain reinvention program. And it it was born out of the fact that sort of when you're in a crisis, you kind of learn where your weaknesses are and where your opportunities are. And we got challenged through this entire period of COVID on our service levels, as it related to the largest infant formula manufacturer, I won't name them, but them going out and pushing on. And as a result, they had a recall, their plant was shut for a long period of time. I believe it's back up and running now. But for us, that created tremendous demand on our system. And we believe that, you know, we'd always believe we had an unmet demand, but there's even more. We are the only. only private label manufacturer in this category. We are the only one where somebody wants to come into the United States and get into this category and compete. We're the only ones they can go to. And there's been a couple brands that we helped facilitate and get into the marketplace this year that in the last two years that are doing incredibly well. So we help create competition there, but we couldn't meet demand. We'll talk about supply chain, but one of those answers was the acquisition of the infant formula plant from Nestle to give us more capacity. There are numerous other ways that you'll see that we can improve service. And when in doing that can build our business further, can have competitive advantage, can have better costs. Same thing with, you know, Our supplier base, there's a benefit of being concentrated, but when a supplier goes down, you don't have backup. And we didn't have necessarily the highest manufacturing footprint. And you might say, how is that possible? Perigo has been around a long time. But remember what I just told you. did 14 transactions, companies going out, companies coming in. A few years earlier, we had bought Amiga and all of their various facilities. So with all of this now in place, there is an opportunity to step back and say, what is the optimized manufacturing and distribution footprint? So we went through that, and we were able to develop and go through massive learning. We'll try to share a little bit for you, but it's like it would be a four-hour presentation by itself. But I'll talk about four areas, whether it's winning portfolio, planning evolution, sourcing optimization, or the manufacturing optimization, all measured by our results delivery office, that we've identified 200 to 300 million in savings by the end of 2028, with a good portion of those before 2025. And that comes with a cash investment of 350 to 570 million. And that includes the, you know, the couple hundred on infant formula that we basically already spent or committed to on increasing capacity in that area as well. More to come on that later in this presentation because it's a big part of our future growth. But, you know, the other part that is harder to capture is, you know, what are the lost sales when a shelf is empty? What, you know, I gave you the infant formula example. We left, you know, $50 million, $40, $50 million of sales on the table that we had we had additional capacity. You could argue that that's temporary. I would argue a big piece of that can be sticky and can be sustained. Same thing with cough cold right now. You know, it's cough cold went away. 20% of our business went away, came roaring back with sort of no warning. And we've been having a hard time keeping up with, you know, bottling of liquids. I mean, it's We have 10 times the demand that we can satisfy right now. And we are shipping well above our 2019 levels. But there is more we can do. And I would argue in an inflationary period of time, consumers are figuring out that Perigo products are a dramatic cost savings and equally effective to the national brands. And again, I believe a lot of those consumers will be sticky. But as a rough estimate, we think we left $200 million on the table over the last couple of years. So great job. We understand why we were able to fully recover, you know, we were able to recover margins dramatically over the course of 2022. But the real question is, can you get back to that 40% margin or better? that you were at in 2019. Can Perigo achieve it? Can it sustain it? Can it continue to grow that over time? And again, we believe the answer to that is yes, when you see the details of this supply chain reinvention project in just a few minutes. Lesson number four. ESG has become embedded in our organizational DNA and continues to evolve. This is an interesting one because there's something that sometimes corporations, they just have to do the right thing and what's good for the environment, et cetera. But I And I believe in that. Don't get me wrong. But I also believe this is a way a company going forward can be more successful and grow its business. I talk about the difference of thinking of, you know, when I think of diversity, I think of, you know, marketing with a black and white TV versus a color television set where you have all this great detail and perspective, right? So, you know, I have found in my career that more diversity they add, the more innovation that we have and faster growth that we have. And in the business that we're in with our customers, if you're not paying attention to sustainability, when, you know, the big guns, the Walmarts, the Targets, the Walgreens, the CVS, and on and on and on and on, they all have very aggressive technologies. sustainability goals and packaging reduction goals and all that, that they expect us to keep up with. We don't want to keep up with them. We want to lead it. We want to be a partner with them. We want to be on the forefront. We want it to be competitive advantage for Parago. Statistically, there's lots of charts. There was a recent McKinsey survey that just came out that said sort of the younger generation, the millennial group of people, they're making purchasing decisions based on this. You know, they want brands that they believe are authentic, that care about health and the environment, that companies that, you know, that are inclusive and care about diversity and equity. And, you know, I will tell you, Parago embraces all of these. We began reporting and providing transparency into the Parago employees and ethical supply chain 10 years ago. In 2015, we released our sustainability goals of reducing greenhouse gas emissions, waste, energy, and water uses. And today, our focus on sustainability involves several facets of our business, whether it's packaging and plastics, supply chains, or operations and climate. So these are just a few examples. You can look on our website and see an entire sustainability annual report that we're very proud of. But just to name a couple, Since 2015, a 22% reduction in CO2 emissions. Almost 2 million pounds of reduced packaging weight since 2020. We have four of our major sites achieving zero waste to landfill. 90% of our paper labels are now certified sustainable. You know, we are 100% use of RSPO certified palm oil. And, you know, and again, there's just more and more of these statistics. When you talk about D&I, and you'll hear from Granio Quinn, who also spearheads this project, major strides under her leadership since 2019. But we created an entire DEI function, launched the three-year strategy, focused on awareness and education, published our first DEI reports. laid out a 2023 to 26 strategic plan. And I will tell you, this is embedded throughout our organization, but the focus today is on inclusion. So we have had made major progress in sort of getting the numbers there, but it's not just about numbers. I want everyone who works at Perigo to feel safe and be who they are and give me the best work they can possibly give me to build our great business, to make lives better for everyone who buys Parago products. A couple of statistics here, and you can read them yourself, but we're 48% female. 51% of who we're hiring right now are females. We're in greater than 30 countries. 23% people of color are represented. And 33% of all the people we hire are people of colors. And our board of directors, 36% of our board of directors is women or people of color. And my operating committee has changed dramatically. Our board of directors has gone from 20% diverse to 36% diverse. My direct reports operating committee from when I joined has gone from 9% diverse to 40% diverse and 43% of our global leaders are female. Major, major strides. But again, it's not just getting the numbers. Everyone needs to feel included. in Parago. We care about the communities, and this doesn't do justice. We make great financial donations, but what's really exciting to see is when there's a crisis or there's trouble, Parago people rally every time. You know, if it does through COVID and when, you know, a lot of us were sitting in our homes and scared and afraid to walk out the door, you know, the Parago factory workers, manufacturing team, unbelievably was there every day, two years of COVID or longer, never missing a single shift through that two-year period of time through all of our global operations. And all they cared about is making sure that people had the medicines that they needed to be able to get better. And I can give you example after example, whether they're helping students or they're helping people build homes or volunteering at hospitals, Perigo is involved in. Parago people care. The other people that care and they care about good governance is our board of directors. And oversight has always been a major priority. But over the past few years, we've continued to evolve our governance. And today, Parago has annual elections for each individual board member. You're not voting for the whole slate. We have a separate chairman and CEO on Parago's board of directors. No poison pill. no shareholder rights plan, no company loans to employees, a strong pay for performance compensation philosophy, majority voting for directors, annual board and committee assessments, and that's just to name a few. The rest you can read in our proxy statement, but I can tell you the board takes governance extremely seriously. So, listen, hopefully I've convinced you ESG has become embedded in our organizational DNA and should continue to involve But again, what's that strategic question? It's not just to do it. How do you take it? How do you make people feel inclusive? And then how do you leverage that to your competitive advantage? And we'll talk to you about how we believe Parago's commitment to ESG can continue to set us apart. Lesson number five. Now is the time for Parago to shift from M&A to executional excellence and strengthen its balance sheet. I kind of alluded to this earlier. A bit earlier, but let me go into. to more detail. First thing we need to do is not acquire more companies. Right now, in the 2023 plan and 24 plan, we have $150 million of operating income from HRA and the Nestle acquisition. We have $50 million of synergies that I raised the targets to that we have to deliver on HRA. And as a reminder, about $60 million we're spending to achieve those synergies, about half of which is Gapped, and half of that is non-gapped, as our chief financial officer, Eduardo, will walk you through in a couple minutes. But those are big numbers, big numbers. We need to take a breath from doing M&A, integrate these two exceptionally well. And I have a high degree of confidence we will based on, you know, that little status chart on the left that looks like, okay, you've got a lot of green lights. That's massive amounts of work that have happened over the last time or 10 months and building the right organization, assessing the talent and taking the best talent from both organizations and building structures that would benefit Perigo from a clean slate of paper that That just wasn't, you know, shoehorn these in. What is the best way we can market globally going forward? You know, how do we, you know, where is the talent? How do we structure? Where is the right areas? Can we take products across the ocean better than we've ever done before? And on and on. And all of those reflect within the green lines. Oh, by the way, how do we move? HRA from a distributor sales force to our direct sales force. And, you know, there's hundreds of those activities that are all being managed and is our focus for the short term. Likewise, our debt went up. Now, we refinanced partially because of the HRA acquisition, partially because we had some bonds coming due and we refinanced early in the year at a very effective rate. a terrific rate before all the escalation of interest rates. But having said that, we now have $150 million of interest expense in our P&L, and our leverage ratio, our net leverage ratio, is 5.5 times. We believe there is a significant opportunity right now with organic growth growing increasingly with our focus on integration and executional excellence and supply chain, to at the same time drive this number down, drive this leverage number down, strengthen our balance sheet, and return some of that interest expense back into earnings for the corporation. While our plan is to reduce leverage, Parago remains committed to a consistent and growing dividend. And just a week ago, we raised our dividend 5%, which I believe is the 20th year in a row that Parago has raised its dividend. So I don't want you to think that dividends don't matter. Our focus right now from a capital allocation, it's moving from bolt-on M&A to debt reduction and getting our leverage ratios in line. It's keeping the dividend growing and strong as well as continue to invest in our business. We are not going to milk the business while we do that. So, you know, we'll continue to invest in our facilities and capital and people. So, you know, while I say the lesson learned is now is the time to shift, and I think everybody believes that. I talk to investors all the time. I think the big question, though, you have to say is, How will Perigo achieve its goal to reduce leverage? Does it throw off enough cash when I build those models? Will you be able to pay off that $700 million in bonds that are coming due in 2024? If you haven't gotten the hang of it yet, the answer to all of these questions is yes, and we'll show you how in just a few minutes, okay? So let me summarize the first part. I walked you through the transformation, how we got there, And then I've walked you through the lessons learned with the five key lessons learned. And I came up with a set of strategic questions that I've tried to be you or others who are evaluating the business. Can Perigo compete effectively with all the new self-care companies out there? Can we reliably grow that organic growth 3%? Can you really back off that M&A? Can you continue to grow margins? It wasn't just a one-time thing. Can you do it again next year and the year after that? With the investment in ESG, can you leverage that for competitive advantage? And how are you going to be able to do all of that and also pay down your leverage? That's what the next section of this presentation is about, and I am so excited to have my team show you just how we'll answer all those strategic questions. Thank you. Thank you. We'll be right back.

Thank you, Morrie. My name is Sven Andelsen. Over the next section of the presentation, I and several other members of Morrie's executive team will answer the key strategic questions that were identified, demonstrating the ways in which Perigo intends to compete and win in our refined strategic growth pillars through innovation, global branding, and through omni-channel strategies. secure margin expansion and fortify our balance sheet. We will also show you how we intend to do all of this in a world of ESG. Ultimately, we want to show you how we believe we can profitable grow in harmony with our purpose to make lives better and consistent with our value proposition to consumers and customers, the planet and its people. Let's start with why we believe Perigo can successfully compete in the new emerging self category. First off, these are growing categories globally. These bullish growth projections from Euromonitor for the extended self-care market project a global growth rate of approximately 6%. The projections for regions in which Parago have higher penetration of 46% underline the very strong business fundamentals for self-care, which has only been amplified by the formation of a new dedicated industry. Coming back to the strategic question, can Parago compete effectively with other pure players? Well, first and foremost, Parago rarely competes with other companies head-to-head on an international basis. In the U.S., we primarily compete indirectly via our OTC store brands' unique and compelling and value-driven go-to-market model. And on the oral care side of things, we tend to compete in these segments or similar with store brands. Our recently expanded infant nutrition business are primarily a similar store brand alternative with the same consumer and customer dynamics based on a strong value proposition of high quality and affordable products. Our recently acquired global brands from HIA primarily within women's health and wound and scar care do indeed have a truly global reach. However, they are niche and unique. And on the international side, we either compete with our exceptionally strong trusted local brands with higher royalty rates, and we compete on a regional basis, typically across profitable smaller niche segments in which we are the market leader. Additionally, several of the segments we operate in are outside the traditional OTC registered pharmaceutical, which allow us faster innovation cycles and easier access to the e-commerce channel. It is worth mentioning that we have decided not to compete in Russia as a result of the ongoing war. We remain convinced that this was the right thing to do. Finally, in a broader context, we believe we are ahead of the game when it comes to focused execution of business strategies. We have been a pure play company for over a year and are now fully focused on acceleration and optimization. We are not distracted in selling off tail-end brands as other portfolio configuration has been completed, and we have no Rx interdependency overhang from a majority of an Rx shareholder. In our view, the newly independent and focused self-care companies should drive penetration. National brand competition would lead to category growth through penetration and innovation, which will ultimately benefit both our store brand businesses in the US and in the UK as far as followers. On the opposite side, where Perigo is the national brand, either globally or in the US or via our pan-European branded businesses, we drive penetration through great communication and innovation. An overall increased OTC penetration globally will support this, particularly in the defined extended OTC self-care categories, In the near future, given an acquisitive last couple of years, we do not feel we need to participate further in the consolidation of the industry. With that being said, greater M&A opportunities will surface as portfolios are optimized, and 2025 likely will be a good year for us to re-engage globally. An increased sell-side coverage of the OTC industry, deemed to be two and a half times larger than the traditional defined $400 billion business, is expected to bring new investors' interest to the Perigold stock. We believe the new industry formation and expected strength in category growth will benefit the entire consumer healthcare industry and Perigold. Talking about capabilities within the growing category, we strongly believe that Perigo has the capabilities to compete effectively with its self-care peers. On the store brand side, particularly across the US, manufacturing is a core strategic capability in which it covers many categories and dispensing forms. It allows for a very broad portfolio, has excellent OTC switch capabilities, and is a fast follower on innovation, which is of paramount importance. As a result of this, it has achieved an impressive market share of 49%, which is hard to beat. These shares represent as an almost critical infrastructure for the U.S. consumers and customers with an extremely compelling value proposition which has clear benefits for both consumers and customers in regard to both accessibility and affordability. Opposite on the international side, we have a considerable brand portfolio of more than 100 strong brands, twice the average of our competitors. We have benefited from the strong equity of our local and regional brands that have continued to grow. And now, with the inclusion of HIA, truly global brand building capabilities have been added to the formula. The next slide shows a bar chart from McKinsey. And it really lays out that we believe that the U.S. brand value proposition is compelling. disregarding macroeconomic fluctuations, but have clear advantages, especially during downturns, which we are experiencing right now, which is our opportunity to switch consumers and secure permanent market shares for store brand equivalents. This McKinsey Pulse consumer research, as of July 22, was with a sample of 4,000 respondents, clearly verifies this as consumers are taking action to trade down in respect to pack size, frequency, and price parameters. On the next slide, on this pie chart, we are delighted with the mix of shareholders we now have, with a majority of generalist and consumer-focused shareholders, and pharma analysts really mirroring the total OTC share of total pharma. We believe current megatrends will see the industry begin to pivot, and consumers of all ages are becoming increasingly engaged with health, wellness, and prevention, Not to mention there is an aging population for which the perception of aging has changed dramatically. So to the answer, the overarching question, we firmly believe that Perigo can compete effectively with the new pure play companies.

Thank you, Sven. So I'm going to take the group here through. Can Perigo continue to reliably grow organic revenue at three plus percent over the long term? So let's get started on the major categories. So three and a half years ago, when I was the chief scientific officer at Parago, we presented the five original strategies, strategic pillars, OTC, oral care, nutrition, mainly infant formula, science-based naturals, and NRT. And what we have done is planned out over the course of this next three-year strategic plan to have our focus pillars and our enablers as we look towards growth in an organic manner. So we are actually transforming from five strategic pillars, five categories, to six categories. And I'll talk a little bit more in the next slide about NRT and why we're moving NRT into managed categories today. But, of course, maintaining oral care, a growth driver for us, nutrition, which I'll talk a little bit about. It certainly had an interesting year in 2022. And our relentless pursuit of science-based naturals, a category where regulation is very different than getting OTC medicines approved by FDA and other bodies globally. And adding women's health and skin care, and Sven will come back and talk a little bit about those two as well. So let's go right to core OTC. Core OTC is our largest global category, $2.5 billion in 2022, representing about 56% of all of our sales. And the market outlook looks good. All of our categories look good. But at a 4% annual growth rate, it is certainly a category we want to continue to participate in. Our market drivers, Murray mentioned earlier, global population is aging. And so there's going to be a continued need for self-care. Less people are going to the doctor. Less people are seeking health care after COVID. And the fact that. Three and a half years ago, we didn't have a good view into new RX to OTC switches. And we already know over the last year, Nasinex switched, Voltaren switched. So we've had new opportunities in the RX to OTC pipeline. And you're going to hear a little bit more from Allison Ives about what we have in the pipeline currently. Our rationale, it's a big part of our business. OTC remains strong. We need to continue to innovate, and we need to build probably in this category higher than a 3% growth rate. Each share point is big in this category, $260 million in revenue, and we believe this is a strength globally for us. Across OTC, switches, whether that be on the international front or in the USA, and we have a lot of white space room to roam, and the RX to OTC switches are exciting. It wasn't as exciting three and a half years ago, very exciting today over the next three-year plan. NRT. So we talked a little bit about NRT. Why did NRT become a strategic pillar and now being managed in the businesses today? It does have a projected global annual growth rate that's healthy, one that we certainly want to participate in. But we also know that it really takes disruptive technologies these days and larger distribution of those disruptive technologies to compete and to grow at the 4% plus rate. We have a very deep pipeline in this particular area. But the deep pipeline comes with national brand better or national brand different products that are not just like the national brand. So we have to go through a much more rigorous FDA process, much more rigorous international processes, and this creates a significant amount of time. So for the time being, we're putting these back into the businesses to be managed. But as we gain approvals, which we believe are coming in 24 and 25, this will become another very good growth vector for us. So very good opportunity here, but it's going to take some time to develop. Oral care. So with the purchase of Rainier, Dr. Fresh that Murray mentioned, Steripod, we actually have a very nice portfolio of oral care products, both branded and store branded, split by about 50-50 here in the United States with strong placards ability as an example globally that is managed as a global brand. We are seeing that the promotion of oral self-care is essential to overall health. A lot goes through our oral cavity. We have to be very aware to make sure that we've got the right kinds of products to really participate and compete, and we believe we have that portfolio. We also understand that personal aesthetics are back. They took a little pause during COVID. People were not whitening their teeth to the same degree, but it's back as well. And we are a major player in the store brand category on personal aesthetics. So a lot of opportunity for us, given the portfolio of the products that we have today. Our biggest threat in 2022 was the supply chain. The supply chain is now fixed. We are now getting product from our suppliers globally, and each SharePoint in this particular category represents about 35 million in revenue. The oral care pipeline is also strong. It is mostly a medical device pipeline. It has less rigorous regulatory exposure, and therefore we can launch products much more quickly. Very excited about the global opportunity in oral care. And finally, for me, nutrition, mainly infant formula. It remains a strategic pillar, and 2022 was certainly an interesting year with recalls, with disruptions, with moms not being able to find infant formula. We were really helpful in the category at that time. We provide all the store brands. Store brands were in demand. Moms were looking for formula. Part of the reason we went after the Gateway facility to increase our capacity and be able to actually supply our customers and our also strategic suppliers that we supply in both the organic and the natural categories, which are growing faster today than the actual existing categories. So that acquisition, the opportunity for high growth rates within infant nutrition, and the fact that we are the leading supplier to the industry, and therefore we are creating the competition in the industry, is all good for moms, for babies, for the supply chain, as well as infant formula that is affordable for moms that aren't necessarily on the WIC program. So with that, I'll turn it back over to Sven. Sven?

Science-based naturals also remains the strong strategic pillar for Perigo. Alongside with vitamin and mineral brands, this also includes herbals and naturals derived from plants, natural sources, which are registered as foods, traditional herbal medicines, or food for medicinal purposes and medical devices, with claims backed by clinical trials or bibliographic data. Vitamins, minerals, and natural supplements is the largest source of the official OTC categories with a value of more than $50 billion is grown by 6% from 2020 to 2021 with a forecasted growth of a minimum of 4% and represent 32% of the traditional total OTC market. We have seen a very strong demand for more natural solutions being either the original mode of action challenging both the traditional chemical-based OTC products and even RX products for the more milder to moderate indications. Naturals have been linked to both the treatment of ailments and holistic wellness. Perigo has a broad range of supplements and science-based natural into cough and colds, sleep, mental health, cholesterol-lowering remedies, urinary infections, prostate health, and recently chronic pain, among other categories, with a strong branded portfolio in Europe. And one SharePoint gain represents, in our case, $30 million of additional sales. On the next slide, you will see that Women's Health, with the acquisition of HIA Paragon, now have access to market-leading brands, numerous talented professionals, and core expertise within Women's Health. This has given us a starting point of a significant base of a $150 million branded franchise. Women's Health and Reproductive Health is a sizable and fast-growing market. representing a top consumer trend in OTC self-care, and we intend to expand our branded business within the sector. We are seeing a range of fascinating opportunities to support women throughout all stages of life, ensuring they are empowered and not misled through incorrect information or advice. We intend to do this through providing high-quality and easily accessible solutions, which could potentially also include the addition of fintech service solutions. Option two, which you see in the picture, is our equivalent store brand version of Plan B, in which emergency contraception would address a $700 million market. This brand has just recently begun shipping at Amazon. Ella One and Nolevo are leaders of the European emergency contraception market, representing close to two-thirds of the market. And Hannah, on the right side of the chart, was previously prescription-only contraception, which was successfully changed to an OTC product in the UK, allowing daily access to birth control for women. We intend to replicate this success in the US with the RX to OTC switch of Opel, which would introduce a hassle-free way for women to obtain safe contraception and address a $3.7 billion market. So let's take a look at a HANA marketing video from the UK.

In a cynical ride

The current RX prescription market for daily oil contraception is, as previously mentioned, valued at $3.7 billion. So evidently, a successful OTC switch such as Opio not only empowers these women, but also represents a major business opportunity. Despite the variety of contraceptive methods available, 45% of 6.1 million pregnancies per year across the U.S. are not planned, impacting all population groups. The U.S. has around 60 million women of reproductive age, 40 million who are sexually active and can be considered at risk of unintended pregnancy. with more than 10 million women already using prescription daily birth control. Interesting, though, is that 15 million of these women use less effective contraceptive methods, such as condoms, or no method at all. These 40 million women would all greatly benefit from easier access to effective contraception. Finally, despite technically having access to a prescription solution, one-third of women living in the U.S. who have tried to obtain a prescription or a refill for contraceptive have reported difficulties in doing so, proving the magnitude of the need for a complete seamless process. We have seen overwhelming support for an OTC version of regular contraception among many leading medical associations, and unsurprisingly, an incredible amount of support among women. The 2020 Women's Health Survey found 70% of women polled want birth control pills to be easy accessible over the counter. More than 60 years ago, After an oral contraceptive pill was approved, this is the first time the FDA is considering an application to make daily birth control available over the counter. Having submitted our application in 2022, we are currently in an active dialogue with the FDA discussing the next steps of the process with approval expected in 2023. In line with Perigo's mission, an OTC switch of Opioid will improve access to safe and effective contraception, which will ultimately reduce unintended pregnancies and therefore reduce the associated pain and cost to women. Women's health has naturally been added as a new growth pillar for Perigo. Daily and emergency contraceptive segments are both sizable and expected to significantly grow by 9% and 3% respectively over the coming years. Women's health as a whole is a large and fast-growing market requiring product innovation, clinical documentation to support and empower women of all ages and life stages. Women's health solutions have been identified as one of the six major trends shaping consumer health in general. As a result of the recent reversal of role versus weight in the U.S., women are now looking more closely at preventative alternatives such as effective contraception, which in our opinion will be an absolutely game-changer. The HIA acquisition has created numerous of opportunities in women's health. Alongside the aforementioned Rx2TC switch with HANA in the UK and in Europe and OPIL in the US, it has also opened up opportunities for potential switch to ELA-1 in the US and for further marketing authorizations on emergency contraception in Japan, China and several other countries. This has, of course, made it to be the top of our uniform growth pillars, as SharePoint would represent additional $50 million of sales. And as a result of the HIA acquisition, skincare is now our second largest and fastest growing category of brands, with the total market projected to grow to $181 billion by 2025, with a CAGR of 6%. For Perigo, skincare represents 13% of total sales, despite having only included eight months of the HIA sales in 2022. Perigo has, as you can see, a number of iconic brands in the portfolio. Perigo has more than 10 brands. and with a very strong branded portfolio within the European skincare market. The majority of Perigo skincare brands don't really appear in the traditional to see self-care statistics, as most of our products are registered as cosmetics, providing wellness and beauty benefits. The remaining brands are registered as medicated skincare. some which requires e-prescriptions and others which don't, all as medical devices and cover such indications as atopic eczema, rosacea, psoriasis, dry sensitive troubled skin and spot pigmentation and hair growth. The majority of our newly acquired HIA portfolio is made up of medical devices such as Compete and Mederma, but the portfolio also includes OTC drugs and some cosmetics. HIA represents truly globally leading these brands, while Perigo's portfolio represents regional and local jewels, whilst maintaining some global ambitions. HIA currently's portfolio is just shy of $200 million, and when combined with the skincare segment, it adds up to a total of $650 million. I'm now pleased to show you a collection of our skincare commercials to give you a feel for the positioning strategies and the brand equity.

Back to playing. Back to dancing. Now that we're back out, blisters won't hold us back. Compede blister plasters provide 20% more pain relief, three times more cushioning, and stays in place for days. So, let's get prepared. Compede. Get back on track.

Your skin protects and strengthens you. It takes care of you day and night. But sometimes it needs your help. So that you can feel soft, safe, shining and fantastic. Do your best for your skin.

Derma works under the skin. It has this unique triple action formula.

It locks in moisture. It renews the skin cells. It even helps form collagen.

You are bigger than your scar.

People don't look at my scars first thing. You know, they look at me.

First touch and smell of his skin. As a result of its significant growth, skincare has been added as a new strategic growth pillar

The HIA acquisition has allowed us to take a deep dive into these exciting segments with both strong brands and global ambitions. It comes at a fantastic time as growth rates of 6% are expected for the skincare market through to 2025. And many consumers are looking exclusively for products with more proven efficacy and a less-is-more approach to skincare routines is becoming more increasingly common. And Perigo has a strong foundation within skincare and is a leading presence in key markets with more than 10 regional and local brands, including brands like Arco, Biodermal, and Emolium. But HIA allows us to take a change in direction with Compete and Mederma, Alongside enabling us to explore key segments of face, body, sun, and target CN conditions, we are now in a strong situation with key capabilities when it comes to understanding the consumer, omnichannel activation, and innovation development at our dermatological R&D center in Sweden. In this category, each SharePoint gain represents additional $80 million in revenue. So I would like to sum up the six strategic growth pillars that provides for organic growth rates are more than our long-term target of 3% top-line growth. And to summarize, we have made a strategic decision to focus specifically on six growth pillars. We believe we have the right to win in these areas, which represents significant revenue growth and are supported by significant innovation and commercial excellence in an omnichannel environment. with core to C, as you can see, representing 56% of our oral portfolio, but then followed by skin care and nutrition with 13% and 12% respectively. And there are a number of fast-growing need segments, as you can see, including oral care, the science-based natural category that we covered, and not least, women's health. You can see here our consensus is regard to the projected market growth rates in the sectors we are competing in and the value gain on the right side for the perigold market share points. Thank you for your attention and then allow me to introduce Alison Ives, our Chief Scientist.

Thanks, Ben, and hello all. We turn now to three enablers that will be foundational to the continued acceleration of organic growth. Firstly, our operating model and the formation of global teams for several of the strategic pillars that you've just been hearing about. Secondly, innovation as the lifeblood of any consumer business. And last but certainly not least, our crucial omnichannel strategy with an ever-increasing focus on digital marketing, communication and e-commerce. We formed three global structures with tailor-made organizational design to drive focus in critical growth areas, integrating outstanding talent coming to us from HRA. Women's Health has dedicated representatives from across the value chain. They have a diverse remit spanning the RX to OTC switch-enabled strategies of today through to more transformational innovation in the rapidly growing femtech sector. Skincare has a strong marketing focus and they will partner with a multifunctional category innovation team to bring the global brand plans to life. Lastly, Oral Care, independent from the other units and complete with its own manufacturing and innovation teams. This more global approach is new for Perigo and has huge potential to synergise our great organisation. Compede is one example of an iconic brand with double digit growth and clear scope to further accelerate enabled by innovation and a global team. This chart reflects the strategic evolution that happens when a truly global niche brand is able to secure increased penetration and access to adjacencies on and offline. Turning now to how we're optimizing our new product pipeline. You heard from Murray that our innovation program is winning. And to reflect again on some of the numbers shared, we created over $600 million in revenue from new product launches in the last three years, meaning around 40% of overall growth came from innovation, a truly best-in-class performance. We had strong and stable R&D investment through these years and have delivered an increasing return on this globally year over year. We've done this by getting back to our core strengths, reigniting insight-led development, increasing partnerships, and stretching our product assets and technologies further. Our focus now is on the efficiency of our pipeline, building on what we've already achieved to ensure an optimized balance of scale, risk, and return. Through disciplined evolution of our pipeline, we've significantly reduced complexity, enabling us to pivot resources to higher value projects. In just six months, we've increased our average value of our pipeline projects by over 20% and have a framework in place to take this further, with laser focus on innovating within our refreshed strategic growth pillars. Our pipeline is primed to deliver accelerated growth, with greater than 50% increase in new product revenue forecast for 2023 and a long-term path defined to sustain the overall contribution of innovation to our organic growth. We now see an increasingly healthy balance across different innovation horizons, regulatory classifications, brand and store brand, and across our strategic growth pillars, embracing pipeline diversity as a key to our success. RX to OTC switch has not gone away. On the contrary, activity is increasing. And with the integration of HRA, we have expanded the depth of our capabilities, ensuring we're poised to harness switch-related growth. As a core component of our transformational innovation roadmap, branded switches will be a key growth driver and will continue our legacy to fast-follow U.S. national brand switches with store brand offerings whenever feasible. giving consumers expanded access to essential products. We're also driving forward on key ingredient and technology platforms as a priority pillar of our development strategy for its ability to drive scale. Our investment in high-quality CBD as an ingredient platform that can span categories has made strong progress, with our partner Casmera achieving cosmetic CGMP compliance and our first launches expected in 2024. And in this space, after a long period of regulatory unknowns, we welcome the recent progress in US and Europe and will be actively engaging in the efforts to create a path for ingested cannabinoids. And finally, to continue this mission, we've added some outstanding R&D and regulatory talent to our already high-performing team. Together, they have a phenomenal depth and diversity of self-care experience that will be a foundational enabler to our continued growth. I now hand it back to Jim to reflect on our third enabler of e-commerce and digital, and to summarise the elements that we've covered in this section.

Thank you, Alison, and I'm back to close this section on growth drivers. So let me begin by talking about our third enabler of our pillars of growth, that being e-commerce and digital. Now, it's a good thing we started our investment in e-commerce and digital prior to the pandemic. In 2019, we saw this as a strategic enabler for us to develop the right kinds of platforms to work with our customers. We invested in the evolution of technology, tools to enhance consumer experience, and built a strategic plan with Amazon that had growth initiatives, drivers, and activities that have continued to grow 30% since 2019. Another good advantage of our partnership with Amazon is that we built a test and learn platform. And in fact, this January, we launched, for example, option two, an emergency contraceptive under Amazon's brand, Basic Care, which is an emergency contraceptive intended to be tested in a test and learn capability at Amazon. We have invested in channel diversification, growth across all the retailer.com, target.com, walmart.com, and continue to invest in digital and e-commerce assets. We've hired talented individuals. We've hired and put them into positions to develop digital and media retail, in-house content design, and DTC platforms that will help us springboard into 2023 and 2024. It is a journey. The journey started in 2019 at a nascent level for us. It was really about developing basic content that could be used across all of the digital platforms. We have advanced, we have built A-plus digital development and content, and we have begun performance marketing across the platforms that we address today. We have reached the level three intermediate marketing. We have a PIM DAM. We can take all of our content across all of the different platforms. We have website optimization, and we are well on our way to a pathway in 2025 to get to an advanced and a master sort of level. In summary, with this optimized growth framework, we are confident we can deliver 3% plus organic growth without additional M&A. We think that the strategic pillars are strong. They're in growth categories, OTC, oral care, nutrition, predominantly infant nutrition, science-based naturals, women's health, and skin care, all enabled by investments in strategic enablers that will allow these categories to grow through growth. focused global marketing units, innovation, and finally e-commerce. And with that, we are very confident that organic growth will carry us to our 3% growth targets. Ron, over to you for the third strategic question. Ron?

Thanks, Jim. So at this stage, we've addressed the question of whether we can compete effectively in the self-care space and if we can continue to reliably grow the top line over the long term. Now we're going to shift our focus and answer the question, can Parago achieve and sustain a 40-plus percent gross margin? We have a number of tools at our disposal that we will be leveraging as we continue to rebuild our gross margin. First, a complete end-to-end reinvention of our global supply chain. We focused on every aspect of our supply chain and currently have work streams underway in four key areas that started delivering benefit for us already here in the fourth quarter. In addition, our recent acquisitions of HRA and the Gateway infant formula facility, coupled with the rights to the US and Canada Good Start business, are driving significant margin accretion right out of the gate. And finally, the combination of carryover pricing from actions we took last year, stabilization, and probably more importantly, normalization of some of the significant COVID-related supply chain cost increases we experienced, inbound ocean freight being a perfect example, plus improved productivity in some of our core manufacturing sites as a result of improved staffing dynamics, are all contributing to additional margin expansion. So let's talk about supply chain reinvention. We took a fully unconstrained clean sheet of paper approach to evaluating our full end-to-end global supply chain. As a result of that work, we've identified a portfolio of initiatives across four major areas with the potential to deliver $200 to $300 million in operating income improvement over the next five years. This for an all-in cash investment of $350 to $570 million. I will talk you through some of those initiatives in greater detail in a bit, but the four main bodies of work fall into the following areas. First, winning portfolio. Standardizing significant portions of our product portfolio, which in turn will help us reduce the overall complexity of our supply chain. Next, planning evolution. This is the body of work aimed at improving our integrated business planning process with a significant focus on reducing forecast error. We manage massive complexity in our end-to-end supply chain, exponentially more than most CPG companies. So having a more robust process in place to ensure we have the right products on hand at the right time and in the right quantities is critical to our long-term success as an organization. Next, sourcing optimization. This involves an expanded focus on continuing to diversify our supply base by increased alternate source qualification, while at the same time working to reduce our external contract manufacturer complexity. This either through insourcing activities, bringing those products into our internal manufacturing network, or supplier consolidation. And finally, manufacturing optimization. This is a very large body of work focused on our global manufacturing assets, investments in upgrading our core asset base, investments in automation to help enable us to better manage the complexity that we manage day to day, and perhaps most importantly, implementing the new Parago work system across our global operating network. This to ensure that we have one Parago way of working in all of our sites around the globe. And as you can see, the roadmap that we've established allows us to realize a significant portion of that 200 to 300 million dollar benefit in the first three years of execution by delivering 150 to 200 million in annual benefit by the end of 2025. Across the four main bodies of work, we'll be at full run rate potential with both winning portfolio and planning evolution by year three. Sourcing and manufacturing optimization activities will continue beyond 2025. Nutrition asset modernization, a key component of our manufacturing optimization work stream, which is effectively the recent acquisition of the Nestle Gateway infant formula facility, coupled with the additional investments in capacity and capabilities that we announced in fourth quarter last year, will also be at full potential at the end of year three as well. Now I'm going to switch gears and talk through a couple of the major bodies of work in a bit more detail. The work we are doing under the winning portfolio umbrella is aimed at optimizing the portfolio and reducing overall product complexity for our supply chain. As you can see in this one example, This is from our U.S. OTC business. A single store brand product for the U.S. can be sold in literally hundreds of different configurations when you take into consideration count sizes, bottle and cap configurations, label and carton configurations, and finally case pack configurations. All of these different configurations that we manage in our supply chain require some level of changeover in our plants today. And those changeovers represent downtime. And as a result, are the single largest drag on our productivity as a manufacturing organization. The SKU portfolio we manage in our USOTC business, for example, is as large as the next 12 largest USOTC manufacturers combined. So managing this complexity effectively is critical to our ongoing success. Here's where the benefit for us comes from. We run our manufacturing assets in the US at a very high rate of utilization, roughly 85% today. However, due to all that complexity I just talked about, we run today at only about 40% efficiency. By focusing on optimizing our portfolio, harmonizing and standardizing the different configurations and so on, We can reduce complexity, thereby reducing changeovers and driving up our productivity. Every 10 points of productivity that we generate unlocks 25% more capacity for us versus our current baseline without having to invest in any additional capital or having to add any more people to the organization. This is a huge opportunity for us and increases our return on invested capital. Some of the work that we've identified in our portfolio optimization work stream is looking at flavors and count sizes, for example. For many of our products today, we offer a variety of flavors and typically more count sizes than our branded peers offer. We reached out to consumers to validate some of our initial assumptions, and that feedback told us that for the majority of consumers, equivalency to the national brand is what's important. And what defines equivalency is same active ingredient, the corresponding compare to text on the packaging, and ultimately the symptom relief that the product provides. 85% of those that responded indicated that count size, packaging, and flavors were not important, and yet those are the attributes that drive a large amount of the complexity in our portfolio. That consumer feedback gives us the data that we need to help our retailers in the U.S. understand that consumers actually choose store brand based on value it delivers and equivalency versus the national brand. not due to unique attributes versus other retailers. Again, 80% of those that responded prioritized value and equivalency of store brand offerings versus breadth of selection. Now, when we look at our CSCI portfolio, we have a different opportunity to reduce complexity through skew rationalization as we have a meaningful portion of the overall portfolio that contribute very little today to overall profit for the business. 30% or slightly more than 1,500 SKUs in that business represent less than 1% of the standard margin for our CSCA business today. This represents a significant opportunity to continue to streamline the portfolio and reduce overall complexity for our supply chain. Now we're going to switch gears and talk about planning evolution. Planning evolution is the process that manages the entire flow of information from customer forecasts through to development of a demand plan, a corresponding supply plan, inventory plan, and so on. When you look at one very specific outcome of the planning process, product obsolescence, having a much more robust planning process can ultimately drive an overall reduction in the amount of product that we ultimately end up throwing away because it has become obsolete, either through the result of shelf life expiration or product conversions. focusing on utilization of a better statistical forecast algorithm, better inventory management processes, having a core set of robust KPIs to help us better understand what is happening within our supply chain, and then enabling the overall process with state-of-the-art technology All combined will help us drive down forecast error and reduce the amount of obsolescence that we ultimately generate. Within our CSCA business, 50% of our annual waste is directly addressable by taking our planning process to the next level. This represents a very significant opportunity for us as an organization. An added benefit of a more robust planning process, better working capital utilization. Less forecast error or greater forecast accuracy means you are producing more of the right stuff when you need it, which ultimately means you end up carrying less overall inventory. Forecast error is one of the key components that drives the amount of safety stock inventory that you need to maintain as an organization. Reducing error reduces inventory. This value isn't captured in our 200 to 300 million operating income benefit, but is an added cash benefit associated with our planning optimization work. The last piece that I'm going to talk about in detail is our recent acquisition of the Gateway Infant Formula Facility. As I previously mentioned, this was a key component of our manufacturing optimization body of work. And not only does this acquisition add incremental capacity to our overall infant formula network, it helps fortify our overall supply chain for this core category. We now have three infant formula manufacturing facilities in the U.S. Vermont, Ohio, and the recently acquired Wisconsin facility. Within this network, we now have the ability to produce a variety of core and specialty infant formula products, packing them in both cans and tubs, which we then ultimately supply to a number of store brand and contract customers, as well as our recently acquired Good Start brand. In total, in 2023, we are already anticipating $50 million of operating benefit as a result of this acquisition. With the extensive body of work that is covered with our supply chain reinvention roadmap, we have also spent a lot of time making sure we have the right organization in place to successfully deliver the identified benefit. As you can see, we've made a lot of changes within our global supply chain organization, both people new to Parago as well as individuals new to their current roles in order to ensure that we are fully prepared to deliver against our supply chain reinvention commitments. All in, the work that we are doing on supply chain reinvention that we just spoke about, coupled with the benefits from our recent acquisitions of HRA and the Gateway infant formula plant, as well as pricing carryover and the supply chain normalization benefits that we talked about previously, put us well on the path to achieving and sustaining our target of 40% gross margin. Thank you. And with that, I'm now going to hand over to Dr. Gragi Quinn to walk us through all the great things that we are doing on the ESG front as an organization.

Thank you, Ron. Perigo's commitment in the area of environmental, social, and governance will set us apart and continue to set us apart. We started our CSR and sustainability program over 10 years ago, and it since then evolved into ESG, and we've been measuring and reporting in this area since then. We've started by looking at it through the lens of the triple bottom line, people, planners, and financial performance. And over time, we've engaged stakeholders and leveraged ESG frameworks and best practices to continuously evolve the program to focus not only on the ESG topics material to our stakeholders, but the most meaningful to our business. Today, our ESG strategy has these four pillars. Each pillar addresses the most critical topics we feel will lead us sustainably into the future as good stewards of natural and social capital. Let's look at these in more detail. This slide further details our ESG strategy with our key goals and initiatives for each pillar, as well as the sustainability frameworks and organizations with which we are aligned, SASB, TCFD, Global warming and climate change is a growing existential risk that's been dominating many ESG conversations. Well, I'm proud to say that in the last year, we've made the commitment to have net zero emissions by 2040, 10 years ahead of the Paris Climate Agreement. This complements our other goals to use 100% renewable electricity and to continuously reduce our GHG emissions, energy, water and waste. Packaging. As for any CPG company, packaging is an important part of our products and very important to our retail customers. To reduce our footprint and support our retailer programs, we set goals to make our packaging more recyclable, use recycled content, and reduce material use through efficient design. Responsible and sustainable sourcing is as critical as it is complex. We focused on sourcing only 100% sustainable palm oil, paper from sustainable forestry, and ensuring ethical production. We're continuously expanding the conversation to engage and measure our key suppliers on climate, water, waste, and more. Our people pillar represents our approach to human capital, with each of these four bullets representing an extensive strategy in its own right. In addition to DEI, which I'll cover in more detail in a moment, We fundamentally believe in investing in our people, and we have very mature programs which invest in our communities, uphold human rights, and promote the health, well-being, and engagement of our global colleagues. Our ESG report has the detail on these goals and year-over-year results, and it's available publicly on perigo.com. The next slide speaks to further detail on our DEI program. As we transformed from healthcare to self-care, and from a pharmaceutical to a consumer packaged goods organization, we recognized the need for a greater commitment to diversity, equity, and inclusion. Now, DEI has been a focus for many years through our ESG efforts, but in 2019, we formalized our commitment by we determined our baseline maturity, we created a multi-year strategy with measures of success, and we allocated dedicated headcount. Now in 2023 we are working on our second three-year strategy. We have published our first ever DEI report in addition to our ESG report highlighting our journey. Our new 23 to 26 DEI strategy focuses on creating a culture of belonging. Belonging is about the outcome of being treated and feeling like a full member of a larger community where you can thrive. It's a result of having a diverse workforce, equitable systems and processes, and people acting in inclusive ways. Our goal is to create a community where all colleagues feel welcomed, valued, respected and heard. Research data unequivocally tell us that when people experience belonging at work, they're more likely to stay and are better able to perform at their best and eliminate that emotional tax that can be associated with dimensions of differences. We are evolving from focusing on DEI awareness to building inclusive mindsets. And we're continuing our work to build talent processes and practices that promote equity. And we're going to further enable our leaders to lead inclusively and to be more accountable for promoting equity and inclusivity. To kick off our new strategy, we will focus on evolving our business inclusion groups by doubling membership and engaging them in taking a lead role in our 2023 campaigns, which this year are focused on being curious about racial diversity, pride, and an entire campaign focused on a culture of belonging. We are also extremely proud of removing barriers for people with disabilities by sponsoring the U.S. Paralympic equestrian team. We will be publishing our second DEI report before the end of quarter one this year. And we continue our efforts to build inclusive leaders through conversations that matter, where leaders engage in conversations with all colleagues on DEI, Continuing to develop that culture that prioritizes DEI will enable us to make lives better not just for some, but all. Lastly, for sure, ESG is a complex and ever-changing journey, and we all still have a long way to go. That being said, we've had some strong validation from our shareholders, customers, our own people, and others that indicate we're on the right track. Perigo punches above their weight in ESG. Perigo is a leader in store brand and they are showing this leadership in sustainability. We feel ESG will continue to set us apart because we genuinely care about it and like any strategy we must stay ahead of the changes and continue to evolve our approach and I think that we have demonstrated this. Thank you. I will now hand over to Eduardo Bezerra, our CFO, who will walk us through how we are managing to reduce our leverage.

My name is Eduardo Bezerra, and I'm glad to be here to share the last piece of our section today. So the last question that we have to address is how we're going to focus on achieving our goal to reduce our leverage. So over the last four years, the emphasis of Perigo has been on continue to grow our dividend, but most importantly, focusing on strategic M&A to really transform the company. While at the same time, we're invested in the business. Going forward, between 2023 and 2025, we're shifting the focus. While at the same time, we're keeping our growth dividends plan, we're going to focus more on the leveraging and paying down our debt, while at the same time reinvesting in the business and eventually performing opportunistic M&A to support some key categories and also as we refine our portfolio. Most importantly, as it was shared last week, our board has approved a new growth of 5% on our dividend policy that confirms as the 20th consecutive year of different dividend growth policy that we have been successful. So that keeps our commitment to return value to our shareholders. So beyond dividends, very good priority is really to pay down our debt and really achieve below three times adjusted EBITDA net leverage by 2025. So really committed to pay down $700 million in debt that's maturing at the end of 2024. We're gonna continue to utilize our balance sheet and cash flow generation to opportunistically paying down additional debt With the acquisitions that we did on both HRA and the Gateway facility and Good Start brand, and as shared by Ron, the supply chain reinvention, we expect that is going to grow our adjusted EBITDA. And also we expect to utilize proceeds from any further portfolio refinement to really repay our debt over the next two years. Of course, we will continue to invest in our infrastructure and in our business. So as you can see here, we are projecting between $500 and $600 million of reinvestment into our business. That's evenly split between supply chain reinvention, which also includes key investments that we're going to do to support our growth, both including innovation, automation, operation, efficiency projects, while we keep a strong asset reliability to keep the quality of our products. And an important emphasis there is in our nutrition business in CSEA. As you can see here, we expect to generate between $1.6 to $1.8 billion over the next three years, which translates into a conversion rate of net income into operating cash flow of about 100%. And we're going to use those proceeds to focus on reducing our debt, Also continue with our growth on the dividend policy and reinvest in the business. And with that, we translate and we answer the last question that we had in this section. And so the last piece on my section here is going to be how do we translate our strategic direction into shareholder value creation. And I would like to start talking about the near-term priorities. Between 2023 and 2025, we have two key areas of focus. How do we grow our both top line and bottom line, and how we leverage our balance sheet. And so what also we expect is to leverage all the activities that we started in 2022 to translate into achieving a strong top line and bottom line growth in 2023, while at the same time we recover our margins. So let's talk a little bit more about that. So 2022 was a great year, as Murray mentioned. So we were able to outperform our long-term algorithm of 3, 5, 7. So 3% net sales growth, 5% adjusted operating income, and 7% adjusted earnings per share. So when you look into the performance in the full year, we're able to grow top line by 13% on a constant currency basis. 11% our adjusted operating income, and 12% our adjusted diluted earnings per share, both metrics on a constant currency basis. And the most important thing that we did that translated that into cash. So as you can see in this slide, we're able to end the year with more than $600 million in cash, which translates into a cash conversion of 110% of our adjusted net income results of 2022. Over the next three years, we expect to continue to outperform our long-term algorithm of 357, and we expect to achieve that with low-mid single-digit growth on organic net sales. mid-teens growth on adjusted operating income, and mid to high teens on the adjusted diluted earnings per share. Beyond that period, in 2026 and beyond, we expect to come back to the 357 algorithm that's mainly normalized the performance of the industry. So the next three years, it really focuses on the recent acquisitions that we're going to be integrating, as well as the supply chain reinvention that also we have benefits in the outer years. So let me spend a little bit more time providing color on how we're going to achieve these objectives over the near term. So first, one important thing is how are we going to be able to recover our adjusted gross margin to pre-pandemic levels of around 40%. As you can see, in 2022, we started implementing a lot of these actions that we call under the Perigo toolbox to be able to succeed going forward. So just to name a few, strategic pricing actions that we took during 2022, we expect that to have a complementary effect, mainly in the first half of 2023. Also, the benefits of the acquisitions that we performed. So both HRA and the gateway in good start, when you analyze those effects, we're going to see a positive impact to our business, as well as the supply chain reinvention that Ron mentioned, that it's really going to help us expand our adjusted gross margins. Also, beyond these key growth initiatives, we expect to expand our operating margin between 300 and 500 basis points. And from that, the analyzation of the 2022 acquisitions with incremental four months of the HRA acquisition and 10 months of the Gateway Facility and Good Start brand, that should add around 100 basis points to our adjusted operating margin. The HRA synergies that we have already shared before and we expect to continue in that trajectory to achieve $50 million in 2025, that's going to add another 100 basis points. And last but not least, the supply chain reinvention that we expect between 100 and 300 basis points. So in total, we expect by 2025 to grow our adjusted operating margin to 14% to 16%. Also, to be able to achieve expansion of me to high teams on earnings per share, we expect to reduce our debt and also lower our interest expense. So as you see here in this slide, we expect around $30 million benefit by implementing those deleveraging actions that will have a positive effect into our earnings per share beginning in 2025. So in summary, over the next three years, as you can see, we have a very strong, robust plan on how we're going to be able to continue to to outpace our long-term growth algorithm in top line, as well as in the adjusted operating income, and most importantly, translating that into adjusted diluted earnings per share. And as I mentioned in the previous section, how we're going to be able to generate enough cash to repay our debt and reduce our net leverage. So let's shift gears now and talk about specifically 2023. Okay, so in 2023, we expect on top line to grow between 7% and 11%. 3% to 6% of that growth is going to come organically, mainly driven by our base business, net of some portfolio optimization that we have been focusing starting in 2022. Also, we expect the analyzation of the acquisitions that I mentioned before. And also, we have an impact, a one-time impact, related to the HRA transition on the distribution side. So that gives us, in total, 7% to 11% growth in the top line. When we look into the bottom line, We expect to convert these strong results on net sales into more than 20% growth in adjusted earnings per share, growing from $2.07 to $2.50 to $2.70 by the end of 2023. Important to mention that this number includes 16 to 18 cents of one-time impact on the HRA distribution transition costs that would give us between $2.66 to $2.88 on earnings per share. As you can see, the same components that we talked before on base growth, annualization of our acquisitions, as well as the HRA synergies, partially offset by the full year impact of our long-term debt that we put in our balance sheet, that we have an interest expense impact. As well, we do not expect to see the same level of tax benefits we saw in 2022 repeating in 2023. Important to mention that we expect our earnings distribution in 2023 to follow the same pattern of 2022, with around 40% of the earnings generation in the first half of the year and the remaining 60% in the second half of the year. That's mainly driven by four key elements. We have incremental advertising and promotional spend in the first half of the year tying to key categories like allergy and skincare. We also have higher employee costs that take place mainly in the first quarter of the year. And also, we're going to see the HRA distribution transition costs heavily impacting the first quarter and the third quarter of 2023. And finally, the benefits of both the supply chain reinvention and the HRA synergies are expected to take a bigger effect in the second half of 2023. In closing, as we talk about guidance for 2023, we expect strong top line, bottom line, and margin expansion. To that sense, we're expecting 7% to 11% reported net sales growth, organic net sales to grow between 3% and 6%, Adjusting the earnings per share between $2.50 and $2.70 with an adjusted tax rate of 21.5%, and interest expenses around $180 million, and a cash conversion reflecting our operating cash flow generation over net income of around 100%. So this translates, you know, everything that we started in 2022 to really, you know, come to further fruition in 2023, and we expect that to continue over the next couple of years in 2024 up to 2025. So with that, I would like to invite Murray to come back here to bring it all together again. Thank you. Murray?

Thank you, Eduardo. So let me summarize what you heard from us over the past few hours. Bottom line is we believe we have a clear path to outsized growth, and it's based on what we believe is a well-supported and concrete strategic plan. That strategic plan recognizes the fact that our self-care strategy and vision is correct, and we will stay the course with it. that we have completed the basic portion of our transformation, and that has returned the Perigo company to top-line growth. We recognize that external factors limited our OI growth and pushed us out a year, but in 2022, we got the business growing ahead of our 357 goals and back on track, and to make sure that happens and continues, we've learned from the last couple years of adversity and made adjustments to our plan. We believe the company is uniquely positioned to succeed in the emerging self-care category and industry. We are accelerating profitable growth by refining our strategic pillars and investing in critical enablers, as well as making the necessary culture changes that will continue to evolve us in many areas. We're becoming increasingly global and leveraging our commercial assets around the world. We're optimizing our global supply chain through the supply chain reinvention initiative, which we believe will bring our gross margins to 40% plus over the next strategic planning horizon. We're committed to reducing our leverage ratio to below three times by 2025, and all of that adds up to a company that is poised to deliver growth significantly above its 357 stated algorithm, and we believe that will be well above our consumer peers. Again, if I can go back to a chart that I showed earlier in the presentation and add just one more column. Again, in 2022, Perigo performed at the top of its peer group, in the top quartile of its peer group, in almost every single metric. But when we look at our P ratios, you can see that Perigo has been at the bottom. We understand that we need to consistently perform and prove it. But we sure think this says that Perigo is one heck of a compelling product. value to invest in. So with all of that and all of those financials and all that, let me just tell you when I wake up in the morning and my feet hit the ground, I want to create value. I want to do all those things. But the first thing I want to do and everybody else in the Parago organization wants to do is make lives better for the people who depend on Parago products. And with that, I am happy for my team and I to answer your questions.

Welcome to the Q&A portion of Parago's 2023 Investor Day. My name is Layla, and I will be your operator today. For those of you who are joining us via Zoom, if you would like to ask a question at this time, please raise your hand by clicking the Raise Hand button under Reactions at the bottom of your Zoom window. Once called upon, please unmute your audio to ask your question. If you're watching online, please ask your question on the flyout to the right of your screen. Thank you. To start, we'd like to take our first question. Our first question is from Chris Schott from J.P. Morgan. Chris, your line is open. Please go ahead.

Good morning. Thanks, guys, for all the – good morning, and thanks for all the details this morning. So I have a couple questions here, maybe just to kick off with on gross margins. Can you talk a little bit more about what we should expect for gross margins in 2023, and basically reflect the guidance? I'm just trying to get a sense of when I bridge between the 36% that we saw in 2022 and this 40% target, how much of that's occurring this year versus how much of that's going to be dependent on some of these longer-term initiatives out in 2024 and 2025?

Well, on a macro level, you know, even though we were at the 36% on on average, right, we started at the year much lower and gained 500 gross margin points through the year. So we're exiting a much higher level. But Eduardo wanted to share what we expect from this year.

Hi, Chris. So as Murray reflected on, so we ended up the year at 38.4%. So we do expect for 2023 around 200 basis points of improvement. And then the remaining to achieve the 40% in 2025, we expect that evenly distributed between 24 and 25.

Great. And this is a question I was turning my hands around. It seems like the last few years there's been a lot of quarter to quarter variability of the business and results. I know Murray's highlight was obviously a pretty unique environment we've been in. When I think about Pergo going forward, Can we think about that variability kind of being reduced going forward as the environment kind of normalizes and some of these initiatives that you're pushing forward with? Or is there something that's inherent with the business that there's going to be a bit of variability in the portfolio quarter, of course? And that's one of the things that I think investors have struggled with is it seems we get kind of a good quarter and then that quarter was headwinds. And I'm trying to kind of segment out how much of that was the environment versus maybe elements that are more within your control.

Well, let me start it. When I first got here, the first nine quarters, we met or exceeded expectations, and that was pre-COVID. And it was, I mean, even in the earlier stages of COVID, it was a lot easier to forecast. This hasn't been normal. And, you know, and I don't know if the investors sort of understood, and hopefully they do at the end of today, the complexity that Parago manages. Okay. Now, and we're good at managing that complexity. The company has an amazing complexity quotient, and I call CQ. The volatility that made us so inconsistent over the past couple years was we had cough cold 20% of our business go away, right? Like, that's like, you know, an airline that couldn't fly during, you know, saying, hey, your business, your sales were down during COVID. COVID, no kidding. We weren't allowed to be able to fly airplanes. Well, we lost 20% of our entire business, and then it came back. Last year, another example was the infant formula crisis. That was dramatic variability on the business. So there were two or three of those major ones. We had labor shortages, but that was everybody. That wasn't just Perigos specific. We had a number of supply chain challenges and costs that came fast and furious, and every one of them we've managed. I believe, with the information I have today, that the bulk of that is behind us. And as a normal course of action, as I look forward and what we have built into our plans, we have You know, we know that everything that we have built into our forecast for next year, we can make it in our facilities. And where we were stretching and trying to get back and we weren't sure we were going to have the API a year ago, you know, everything that's built into this plan, we have line of sight to at the moment. Now, you know, I can't know if there's something around the corner, but I have a much higher degree of confidence going forward than The one thing after another, whether it was war or supply chain disruption or infant formula crisis or pediatric cough and cold medicine crisis that we've faced over the past couple of years. So, yeah, it should start as the supply chain has stabilized. It should be more predictable.

And maybe one last one for me. On the over-the-counter oral contraceptive opportunity in the U.S., can you just maybe elaborate, and it was helpful the slides you went through, but just how large of a peak sales opportunity could this be for Perigo? And maybe not to get too granular on one specific product, but how important is that or how much is it? reflected in the 2025 kind of growth target specific to that asset. So, I think that's one that, you know, conceptually could be a very large driver for Paragon. I was trying to get a sense of, like, how much you're baking in and how you think about the longer-term opportunity.

So, you know, listen, we're very, very excited about the opportunity. I haven't been shy about that. I'm not going to build it in until it gets FDA approval. I think the company made a mistake a few years ago with albuterol building into the projections before it had the approvals, and I'm just not going to repeat that mistake. So it's just not built into these projections at the moment. We think it builds to 100 million plus. How fast that happens or whether it gains momentum and what happens in the political environment in the U.S., but For us, that could be a meaningful contributor. Would it be helpful to you, Chris, to have Alison talk a minute about where we see it with the FDA at the moment? Yeah, that'd be helpful. Just a quick update.

Yeah, happy to. Hi, Chris. So, of course, approval is ultimately an FDA decision, but we have a strong data package

There's a clear unmet need. It was in the slides, the 40 million women who are at risk of unintended pregnancy every year. And I think you also saw in Sven's slides that we've got the strong support of a lot of major health organizations and women themselves behind us and have many key opinion leaders involved in our regulatory process.

So we believe it should be approved this year, and we really look forward to the Public Advisory Committee where our application is going to be discussed.

Great. I'll jump back in queue. Thanks for the answers.

Our next question comes from Elliot Wilber from Raymond James. Elliot, please go ahead.

Good morning, Elliot. Good morning. Good morning. Maybe I could just follow up on Chris's questions or line of questions around Opil and Ask Allison. So Opil is a progestin-only product. I think there's another company out there working on an estrogen-based potential introduction into the OTC space as well. Curious longer term sort of whether or not you would anticipate Also coming to market potentially with an estrogen-based product or, more importantly, a combination oral contraceptive. Just trying to get your sense of the FDA's receptivity to that possibility, maybe based on your interactions around the progestin-only product.

Yeah, happy to, Elliot.

So I think you saw on my slide with the switches that we had the women's health stretching out over the years. And certainly we will look at all options with the acquisition of HRA. We have and will be the world's leading powerhouse on women's health So certainly we'll clear the first hurdle, hopefully, of Opal, and then we'll look at other opportunities to continue with additional women's health products and switches as part of that across the world.

Yeah, I do think there is an advantage of going progesterone only from a side effect standpoint without much given in efficacy. So, you know, listen, we've got to get over the first hurdle. But I like what Alison started to say, Elliot. Don't think of us as just launching Opel. That's not the strategy. The strategy is to be a leader in women's health. And we already are. We're the leader outside of the U.S. in emergency contraception. We have the ANDA in the U.S. for Plan B, you know, that product. And, you know, you heard Jim say in this presentation, customers have resisted it. politically, but basic hair just went out from Amazon, just started shipping a few weeks ago. That's a potential. If we chose to, we could use the LO1 brand to launch into the U.S. in the current form that the A&E we have, or we could go through an approval process because LO1 has a competitive advantage over Plan B and its efficacy range. It's good to five days versus And there'll be others as well in the femtech world. So a broad strategy with a global team of motivated women that are passionate about what they're doing.

Okay, thanks. And then I wanted to ask a question around some of the manufacturing optimization initiatives and strategies that you unveiled today. You know, fair to say, if you didn't appreciate the complexity of Parago's manufacturing network over the last 20 years, you certainly have over the last couple of years. One of the dynamics you talked about was sort of reducing forecast error. And, you know, I'm a sell-side analyst, so I'm not really that familiar with the concept of forecast error, but I wanted to get a sense of – That was funny. I try. I want to get a sense of sort of how important that element of your optimization strategies is versus some of the other initiatives, such as just reducing the complexity of manufacturing network or sourcing. you know, things of that nature. It just, you know, it seems like there's a lot of things that, you know, can and should be addressed, but I wanted to specifically kind of drill down on sort of the, you know, the internal forecasting capabilities and just sort of, you know, how important that has been or how much has that been responsible for some of the shortfalls and misses of the past.

Well, we have a very difficult measure, and Ron can talk about it here in a second. But in order for Ron to be able to hit service levels in the 90s, which that's the historic norm in the U.S. on a private label manufacturer, right? In Europe, on a brand of products, you're more like 95 plus. We're performing well, and our customers are happy when we're in the 90s. We have been nowhere near the 90s in the U.S., for the past couple of years. We were going into COVID, but we have not yet gotten back. That creates tens of millions, 30, 40 million a year in waste. So the answer is it starts with the forecast. If we give Ron an accurate forecast at four months out or five months out, four months out, right? It's T minus four. Four months out, then he's going to be able to deliver and hit that forecast. When I say accurate, I mean accurate up to 50% accuracy, and he'll make those numbers. We're below that at the moment. So it is a tremendous amount of inefficiency, and I don't want to put words in your mouth, Ron, but I would say at the heart of supply chain, the very first thing that we can fix and must be fixed is improving the forecast accuracy. So if you wouldn't mind talking about that and all the things you've done over the last three years to get the data to a point, where we could dramatically improve the accuracy. I think that'd be good insight.

Yeah, I think, Elliot, so we have a very complex supply chain. And as you know, because of the private label nature of the business or a heavily private label nature of the business in the US, our SKUs are retailer specific. So having greater visibility into understanding what our consumers need and what our customers need at that SKU level allows us to better plan and operate our supply chain and take some of that uncertainty out of it. So again, improving our understanding of what the customers and consumers need is going to be very helpful to the success of what we're doing on the supply chain reinvention side. We've done a lot over the last few years already going, we used only forecast at the count size level for a formula. We introduced a skew level forecast here a couple of years ago. We are now going into collaborative planning with our retailers. We're introducing some technology to help us be better on the forecasting side of the equation. There's a lot of things that we're putting in place that, coupled with what we're doing on the winning portfolio side, to take some of that complexity out is going to ultimately make us better able to deliver what our consumers and customers need when they need it.

Okay. Maybe I can follow up your response with an additional question here. You showed a very good slide. I forget the number. And, of course, the presentation just showing, you know, the tail end of your total SKU count and how little that contributes to sort of the overall profitability of the CSEA base or the revenue of the portfolio. It's a very big number. So as you, I assume, look to reduce the number of SKUs within that tail, how do the retailers react to that? I see your forecast has some sort of drag on it from optimization. But, you know, I feel like the retailers think that, you know, if they have a 32-count box and their competitor only has a 48-count box, that somehow that's going to keep the consumer in their store and not allow them to – you know, or deter them from visiting another retailer, which, you know, I don't quite understand. But it seems like, you know, there may be some sort of natural resistance to your efforts to kind of, you know, reshape the SKU count and, you know, eliminate that tail or reduce the complexity associated with it.

Yeah, so let me start, Ron, and then I'll turn it back over to you. Let's first separate SKU optimization from winning portfolio. They're two different things. SKU optimization of just, no one's going to resist that. We're just taking the very low margin or negative gross margin items and discontinuing them and cutting them and saying, we don't want to be in that business. We would rather make more profitable things. And if you're going to insist on those, get them from somebody else, we don't want to play in that area. And that was a big driver of fourth quarter profitability. A big bump in that gross margin was we discontinued negative margin items, right? That's just math, right? No pushback from retailers. The next big one is where you were going, and it's very strategic. Don't think of that as optimization. Think of that as simplification. You know, I've got one retailer, and it was in the slide if you go back and read it. You've got one retailer that wants an opaque bottle. You have one that wants a clear bottle. You want one that wants a yellow cap, one that wants a red cap, one that wants a blue cap. One wants 225 in a bottle. One wants 240 in a bottle. One wants 270 in a bottle. One wants, you know, a round pill. One wants an oval pill. One wants packing four in a carton. One wants a label that's a different size. Then all of those drive that efficiency level in our manufacturing down to that 40% number. So where we lose sales and lose service is when we run out of capacity. So we can't keep up right now, not even close to our cough cold business. So on my market share chart, I showed you a one-point market share loss even though we are well above 2019 levels because we are running at maximum output under the current efficiency levels. So our job here and why we have gone back and done the consumer studies is the more we can get people realizing that as we standardize on some of those big SKUs, we'll be able to service them better and they'll make more money. Compete on price between each other all you want. but a slightly different package size is just hurting your service levels and it's not gonna drive competition. Those are the two consumer slides we showed you today out of probably a 50 page of consumer study. Can we get that done in a day? No, but I will tell you where they are more receptive. And I had this conversation with the CEO of the biggest of all of them. And I think he was startled to learn that And listen to me here, Elliot. 80% of our complexity is not consumer-facing. 80% is not consumer-facing. It is just the backroom logistics things that don't allow us to automate all of our lines with automatic case factors as an example. So this is a big opportunity, but slower. Forecasting slower. Immediately, go after that $60 million of throwaway. Let's cut it in half. It's addressable. Let's start to simplify those lines over the next few years. And these are not capital-intensive. So I don't know if you want to add anything to that. It's great to hear my CEO talking that passionately about supply chain. I don't know if I can add anything else to it. It's a big opportunity. It's a huge opportunity.

Yeah, absolutely. Maybe one more question and I'll jump back in the queue. I may have missed it during your prepared commentary, just talk about the expected incremental impact of price on 2023. your 2020-23 outlook. And then maybe more specifically, I guess, you know, one of the things that's always, you know, we're in a unique environment where you can raise price and, you know, the resistance level is probably a lot lower than it's been historically because of, you know, some very unique dynamics. But, you know, eventually this is going to go away and, you know, we're going to revert to sort of, you know, a longer-term pricing algorithm, I guess, that the company has always kind of dealt with. And, you know, You know, maybe with the lack of new products the last couple of years, pricing, you know, the modest negative pricing trend that you continually face, 2% to 3%, became a little bit more pronounced or more noticeable in results. But, you know, I think investors sort of always struggled with, you know, why a company that dominates its market really has – no competition, at least none that anybody can really identify, still faces 2% to 3% annual pricing headwind on its base portfolio. How much of that is driven just by a very small number of competitors chipping away at your highest margin, most profitable products, versus you sort of competing against yourself in terms of negotiating with the customer base?

Well, that's the ultimate question, isn't it, right? I mean, that gets down to the to the heart of it, whether you believe in the outsized growth or not. I believe, having been here, that you're spot on, that Perigo was stuck in legacy paradigm thinking of fill the plant, fill the plant, don't lose a share point, concede the price, and And even if it was just a small competitor that was cherry picking up a high profitability item. So, Perigo always said yes, whether it was price or whether it was complexity. The Perigo that started to stabilize, and before this inflationary period, we had already made major progress of stable. We will walk away from business. I am going to have to tell you once in a while, that, hey, the business, the organic underlying growth is there, but we have walked away some and stood our ground in a few areas because I believe we, as a scale that we have, that we should not be denigrating prices. And that's why the supply chain initiative should be exciting for customers as well because it's all about getting their service levels up there. You know, they live, I mean, probably more like a billion dollars on the table of empty shelves and space. That's the opportunity we all have to go after, innovation we all have to go after. So, you know, I don't mean to give you a long-winded answer. I believe we can stabilize it. I don't want to take price. We're a value company. Our customers don't want it. We don't want it. Our consumer peer growth took 8 to 12 pricing. We took 4 to 5% this year and had 4 to 5% volume growth. Our consumer peers had 8 to 12 pricing minus 4 to 5 volume. So we gained volume share, which bodes well for the long term. We have no new pricing of significance. on any of our OTC products built into the plan going into next year. But most of our pricing wasn't as fast as the consumer peers. So we had to negotiate it. It took time to get it into the marketplace. So we have carry-in, meaningful carry-in pricing which benefits us in the next year. But I would say our reserve on pricing is if there was further inflation, we would price to offset that. That's the way we think about it. But we haven't priced it additionally to make these numbers. I don't know if you have anything to add to that.

Just to add to what Farid mentioned, and he focused a lot on CSCA, right? When you look into CSCA, because of still the inflationary pressure that we see there. We have built incremental pricing, you know, and because the majority of the business is stranded there, we see that we have a stronger pricing capability there. And that showed up in 2022, you know, that we saw that across the year. And so we feel very confident on our organic growth that we're expecting for 2022.

Okay, thanks for fielding questions. Appreciate it.

Thanks, Elliot.

Our next question comes from Daniel Bielsi from Hedgeye.

Thank you for hosting the event. My first question was if you could explain what was behind the lower manufacturing productivity experience in Q4, and is that the skew proliferation you mentioned during the presentation and what the outlook for that is in 2023? And then for the labor component, how is the hiring, training, and overtime progressing?

Yeah, absolutely. Daniel, I can address that. So if you recall back to the middle of last year, you know, we were as many of our peers in the same space were struggling with labor availability. And so for the mid part of last year, we were very well understaffed in some of our core. manufacturing facilities and therefore were not able to produce the volume that we had planned on producing. And so that's what really contributed to the productivity piece that we're talking about at this point in time to a very heavy, intensive concerted effort between supply operations and HR. We are now sitting at 98, 99% of the staffing level we need to be at. And so going into 2023, we are in very good shape from a labor perspective. like the productivity challenges that we saw in 2022.

And then I think, you know, from an impact on sales, I think our fourth quarter of the streak was a little ahead of us. And where we came in at fourth quarter sales, there were a couple things we'd probably bucket into productivity. We had a commercial dispute with a third-party packer for us on infant formula. It was not quality. It was a pure commercial dispute. We actually had to take legal action to get it But that affected infant formula and it affected the early part of this year. The second was cough cold, which is a productivity issue from earlier in the year, but we literally didn't have enough people to run third shift consistently. We are, we did the whole fourth quarter. So you get the productivity benefit of that. in 2023, not in 2022. And then I think then the last little bit of that gap on sales versus the street forecast was some inventory reductions by our customers. Our consumer takeaway was through the roof. It was one of the strongest quarter of the year. It was plus 9%, I believe, for the U.S., for the Americas division and And that was well ahead of our factory shipments. And you know that's right when, you know, we're in 2023 and we've started the year very strong.

Thank you. So, as a result of all the government actions during the infant formula shortage crisis, has the competitive environment been altered permanently, you know, from an international capacity standpoint?

I might need Allison or Jim to help me a little bit on the – there were some temporary approvals. You've gotten a couple shared points, but can you speak to those? Yeah. It hasn't hurt us. I'll start, and then I'll hand it to Jim. We have north of 10 million pounds of unmet demand that has nothing to do with the Abbott recall or anything else that we have been chasing after for years that we're starting to address but won't fully – address. So, sort of competition in the marketplace is good for Perigo. We're not one of those two big dominant players, and we're where people come when they want to go to get into the market in the U.S., but But talk to the regulations, the temporary approvals you gave, all that stuff.

Yeah, I'll see if I can do it justice. Allison can jump in right after me as well. But let me talk about the market a little bit. So what you've seen is obviously the largest player in the market has gained the most market share. We have done very well over this period of time. And we believe that we can keep a large part of the market share that we've been able to gain. But what we have seen are competitors that have come in from Europe and New Zealand. And it started with some temporary permits to be able to sell during the height of the crisis. And then it has changed a little bit here just towards the end of the year, which is the companies that are going to stay need to be in compliance with the current FDA regulations. So I think what we'll see – this is my prediction. I think what we'll see is maybe one strong player that has gained some market share continue to sell in the United States. I think most of the other temporary manufacturers, once you add in shipping of formula products or air freighting a formula, it's just not going to compete on price.

And Daniel, I'm not sure whether you know it or not, but a couple of those small brands that are doing incredibly well besides the store brand, we make them.

Yeah.

So there are two national brands, two or three national brands, almost all the organics. We make it. Bobby Baby, we make it. You know, I mean, so it's been good. This is... This will be a big area of growth for Pareto in 2023. And beyond. And beyond.

If I could squeeze one last point in. Yeah, take it. How has the M&A environment changed with the recent and announced consumer health care company spinoffs and also the higher interest rates? And should we expect any further divestments than that was outlined in that one chart? Does the three-year plan include anything beyond what you had sort of like put in a little bit of the red chart?

I think you could expect to see us continue to refine our portfolio from a divestment standpoint, but you won't see any major bolt on M&A for the next couple of years. The amount of M&A activity we've done over the last few years is significant, but I got $150 million of operating income coming in from HRA and the Wisconsin acquisition that have to be executed flawlessly. And we believe it is the right time to strengthen our balance sheet and get that leverage number down. We think it holds back our multiple a bit. But to answer your question fully, the M&A environment from an availability standpoint, because of the mergers and the spinoffs, et cetera, We get calls all the time. There is smaller brands, bigger brands. There is a lot of things available. I think that if you're buying in cash, that's fine. If you're buying and you need to get leverage or you need to borrow to do it, interest rates are still high and it's slowed down the marketplace, especially on bigger deals significantly. I think the outlook is there's starting to be more money There are signs of that, that it's more positive. But in general, it's been a bit of a quiet period. And there's a lot of private equity companies that need to put money to work. And I do think some brands will come out. But for Perigo right now, the message is we're going to execute these integrations. We're going to pay down some debt. That ought to put us in a nice position to be able to revisit some deals again. from 2025, but only if they, you know, further enhance our strategy. They're not like they were the first time around, which, and by the way, we probably will do some divestitures because we haven't, while we haven't, I say we're a pure play consumer self-care company, there's still some work to do to refine the portfolio. And that'll help give us, as Eduardo said, some of the cash for paying down the debt next year.

Thank you. Thanks, Daniel.

For our next question, we'll return to Elliott Oliver from Raymond James. Elliott, please go ahead.

Thanks. That was a great setup for a question that I've been anxious to ask you for some time. So if you think about the M&A environment, a lot of very good assets seem to be coming to market. Halyon, there were suggestions that they may be looking to sell the Chapstick brand. Beatrice is putting up a very large portfolio of very high-quality European products. assets. And some of the other larger players have been rumored to be selling assets as well. So it seems like it's a rather unique time in terms of just sort of the richness of asset availability. And everyone seems to be speaking about seems to be sort of gets kind of stuck on the leverage issue in terms of that being sort of the limiting factor of why companies can't be a little bit more aggressive in terms of M&A. So the question is really this, why not or would you consider equity to purchase some of these large attractive assets? I mean, it seems like it would be de-levering And you're about the only company in the consumer space that I can think of that could actually get a multiple upgrade with an equity-based acquisition for the right assets.

You want to take that one?

Yeah, so I would say, Elliot, it's, again, would like to see, you know, further, you know, stock appreciation to make sure that, you know, that really reflects the value of Berrigo before we'll do anything on the equity side, right? So, and we agree, there are some interesting opportunities coming up, but as you look into our our next three years opportunity and it's a lot focused on how do we really uh integrate and execute flawlessly you know on on these opportunity that's really our main objective uh there may be some you know opportunities at a smaller scale on certain categories that's more opportunistic but that's not our main priority at this stage yeah i mean i

We're not not doing it because of the leverage. We're not doing it because of focus right now. After all that number of deals, and we've just done these two big ones, there is a massive amount of work that has to do to execute flawlessly and the distributor conversions and everything else. So that has got to be what this organization focuses on at the moment. I like your idea. As I think about it, and I'm listening to Eduardo speak – which means it's not top of mind to be doing that at the moment. But I think it'd be expensive at the moment right now, given our valuation, that would be an expensive way to buy. So help us get that multiple back up to 18 and 20, and then we'll talk.

Help me help you.

Help me help you. We're starting.

Exactly. So two quick additional questions. First for Eduardo, thinking about the targeted gross margin improvement and ultimately your gross margin goal, obviously the majority of that's going to be driven by CSCAA, but how important, I guess, are some of the initiatives that are underway in CSCI in terms of sort of driving that margin improvement? And then maybe I'll ask my last question as well. In the deck, you showed a slide discussing the pipeline and essentially a very large percentage of the pipeline seemed to be committed to revenue opportunities that ultimately represented kind of a small portion of the total bucket. I'm just sort of thinking about you know, how efficient is that? Is that something that you're looking to address, rationalize, or is that just sort of the way that, you know, the pipeline is always going to be? You're going to have just a small percentage represent the bulk of the opportunities. Just, you know, thinking about sort of just, you know, the cost efficiencies of pursuing a lot of these endeavors that don't seem to have much incremental impact in terms of revenue, at least direct impact. Thank you.

Well, I do think the last part of the question is a very big difference between a pharma company and a consumer company of our scale with the amount of brands. Women's Health and the Opel, that's a big idea and a big launch, but I've been in this for 40 years and it's very normal that each of the brands has, you should have hundreds of initiatives. The big thing is when I took over this company, we had a zero pipeline. Allison, what's our pipeline now? It's like

well north of 500 million.

Yeah, I mean, approaching a billion, right? So think of it a different way. Right now, think of it that we would like to get to, and we're about halfway there, to where about 20% of our volume comes from products launched or refreshed within the last three years. I don't know if that number's down around 10% or 12% now, but we're trying to drive that number forward. Most industry benchmarks would say that, you know, a company that is in the top quartile of revenue performance in the CPG industry tends to be approaching the 20% number of new products, innovation, renovated, new and improved. But it tends to be singles and doubles with an occasional triple or home run. And we're hoping the OPIL is that. You asked a lot of questions. I only answered one.

Yeah, so... your question in terms of the contribution of CSCI on the gross margin improvement in 2023. First of all, I would say we have four months of HRA that will help for sure. because of the differential margin that contributes there. And also in 2022, mainly the second half of the year, we saw a lot of the productivity issues that also Ron mentioned about. So we do expect that to be normalized. Again, the only key question is how much inflation could keep on creeping on. they are in Europe, given the uncertainty on Russia and in Ukraine, but from portfolio standpoint, I think with the addition that we have in HRA and the way we position our brands, I think we are going to be able to offset that to pricing. And I don't know, Sven, if you want to add anything on your side on CSCI?

But it's true that more than 90% of our operating income comes from a branded business where we have pricing powers. And everything we are doing is accretive. Price on its own, HIA, and, of course, new products that we are launching to a higher extent in 23 versus 22 is also margin accretive.

Yeah. And, Elliot, we are in the 90s. That's 90s plus on service. And we'll be in the 95 plus on service. So – If you look at our map in the middle of Ron's presentation, there was a, within this strategic planning horizon, where it was really driven by forecasting, planning, capacity on infant formula, and that spending, that's all CSEA. Then the back half, the longer, bigger manufacturing and distribution footprint initiatives, Those are longer to do, but that's more of a CSCI opportunity. So there is big opportunity for CSCI, but they're probably years four and five. Anything you want to add to that, Ron? No, that's perfect.

Thank you.

Thank you, Elliot.

I'll now hand over to Brad to take questions from the online audience. Thank you.

Great. Thank you. So there were a couple of questions that did come through that weren't asked already. The first one I think might be for Svend. The question comes as a big portion of the plan is dependent on HRA. So the question direct is, how is the integration process coming along? What is going right? What could not go right? Just a big picture question on HRA.

Yeah, from my lens, I would say we're off to a really good start. And keep in mind, this is based on a phenomenal performance of HRA last year. I've done more than 20 deals in my life, and this is probably the best planned integration ever. And the first two months of this year looks really good, both on sales and synergies. And that actually included a substantial part of the insourcing of the distributors. But we did start 18 months ago with 13 working projects, as I showed in the presentation, and we took some help from Bain. So I'm really confident about executing on the integration.

Yeah, and I mean, from what we had said in – I mean, we're pretty much right on track with HRA on all of our original estimates, what it delivered in 22. Okay, I didn't know that I wasn't able to non-gap the distributor, 32 million next year in distributor charges, but that's a one-time charge and everybody can see that. And Eduardo in his presentation showed you what that one-time cost was. And then other than that, I mean, it's pretty much right on track, a little bit of timing on some of the synergies that roll into 24, although the synergy target's been raised twice based on what we know. But that, you know, that's a star business.

Great. Next question I think might be for Grania here is on the ESG section. Can you talk about how you've incorporated ESG metrics into the Executive Performance Awards, and have you thought about making them more quantifiable?

Sure. Thank you for the question. Look, as an organization as a whole, and you certainly saw it in Murray's piece and in my piece, we've been very clear about how much we care about how we do business, right? We've aligned with and partnered with multiple third parties and frameworks and best practices that help to create our strategy, assessing our maturity in various areas about how and what and when we report, auditing us, we self-audit. And these are all linked to the corporate goals. And all of that is, of course, outlined in both our ESG and DEI reports that are on perigo.com. And I think in addition to all of that, yes, I mean, Murray and the entire operating committee have EFT-related performance objectives. I mean, generally in line with their, you know, the individual strategic area of focus and example, you know, spanning things like human capital, sustainability, health and safety, et cetera, et cetera.

Wonderful. Really important. Thanks, Ronan. And I think we have reached now a lot of time in the Q&A portion here. And with that, I can turn it back over to Marty.

Sure. Thank you for listening to the Perigo Investor Day webcast. We hope you are as excited as we are on how far the company has come over the past four years and on the opportunity as we move on to the next phase of our strategy, which we've termed optimization and acceleration. Simply said, We believe all the pieces are in place. And our story can be boiled down to this. We will be focused on execution of the integrations, simplification. And if we do that well, we will deliver outsized growth that is predictable and create a lot of value. And most importantly, we'll make lives better all around the world for people that use Pareto products. Thank you for your interest in Pareto.