Q3 2022 HALEON PLC Trading Statement Call
Tobias Hestler: Since we reported half year results and assuming current FX spot rates hold, we now expect adjusted operating margin to be slightly above year-on-year. Our cash flow continues to be strong and in the last months with the recent repayment of a further 250 million pounds, we have now repaid 1 billion of the 1.5 billion term loan within three months of separation, demonstrating the strong cash generation of the business and our focus on deleveraging.
and assuming current FX spot rates hold,
we now expect adjusted operating margin to be slightly above year-on-year.
Our cash flow continues to be strong and in the last months with the recent repayment of a further 250 million pounds, we have now repaid 1 billion of the 1.5 billion term loan within three months of separation.
demonstrating the strong cash generation of the business and our focus on deleveraging.
Tobias Hestler: Turning now to our third quarter results. Revenue of 2.9 billion reflected 8.1% organic revenue growth was 2.6% volume mix at 5.5% price. Adjusted operating profit of 725 million pounds up 4% constant currency resulted in a 25.1% margin, down 90 basis points constant currency, which included a drag from transactional FX largely from our exposure to the Swiss franc and U.S. dollar.
Revenue of 2.9 billion reflected 8.1% organic revenue growth was 2.6% volume mix at 5.5% price.
Adjusted operating profit of 725 million pounds up 4% constant currency resulted in a 25.1% margin, down 90 basis points constant currency, which included a drag from transactional FX largely from our exposure to the Swiss franc and U.S. dollar.
Tobias Hestler: Turning to the drivers of revenue growth in more detail. Revenue increased 16.1% to 2.9 billion pounds on a reported basis. That was an 800 basis points benefits from translational foreign exchange, mainly due to the sterling weakness compared with our major trading currencies. All in all, we delivered 8.1% organic sales growth, importantly with 5.5% price and 2.6% volume mix.
Revenue increased 16.1% to 2.9 billion pounds on a reported basis.
That was an 800 basis points benefits from translational foreign exchange, mainly due to the sterling weakness compared with our major trading currencies.
All in all, we delivered 8.1% organic sales growth, importantly with 5.5% price and 2.6% volume mix.
Tobias Hestler: Looking now at performance across our categories. Growth was broad based with increased pricing throughout the year. Our health revenues were up 7% with sensor line up mid-single digits, underpinned by continued share gains, benefiting from innovation and strong growth across a number of markets, including India, Middle East and Africa. As expected, China started to come back as lockdown restrictions begin to lift in some cities. In the U.S. Sensodyne was down low-single digits, reflecting the high base last year when retailers purchase inventory ahead of a price increase in Q4. Our other growth driver in the category, Paradontax was up double digits.
Growth was broad based with increased pricing throughout the year.
Our health revenues were up 7% with sensor line up mid-single digits, underpinned by continued share gains, benefiting from innovation and strong growth across a number of markets, including India, Middle East and Africa.
As expected, China started to come back as lockdown restrictions begin to lift in some cities.
In the U.S. sensodyn was down low-single digits, reflecting the high base last year when retailers purchase inventory ahead of a price increase in Q4.
Our other growth driver in the category, Paradontax was up double digits.
Tobias Hestler: As expected VMS organic revenues declined 1% largely due to tough comparatives in Q3 last year and the category was up around 20%. I will go through this in more detail shortly. Pain relieve revenue was up 4% with Panadol and Advil up low and high single digit respectively whilst Voltaren was broadly flat with good growth in China and the U.S., offset by a decline in Germany.
I will go through this in more detail shortly.
Pain relieve revenue was up 4% with Panadol and Advil up low and high single digit respectively.
whilst Voltaren was broadly flat with good growth in China and the U.S., offset by a decline in Germany.
Tobias Hestler: Respiratory revenues were strong driven by both increased consumption from cold and flu incidents over the summer and increased retailer purchasing ahead of the flu season. This contributed three points to group organic growth for the quarter. I will also share a bit more detail on this shortly.
increased retailer purchasing ahead of the flu season.
This contributed three points to group organic growth for the quarter. I will also share a bit more detail on this shortly.
Tobias Hestler: Finally, digestive health and other revenue was up 8% with high single digit growth in Tums and Eno. Smokers health and skills health brands were also up high single digits with Chapstick performing well as we launched a new value distribution channel for the brand.
Smokers health and skills health brands were also up high single digits with Chapstick performing well as we launched a new value distribution channel for the brand.
Tobias Hestler: Now coming back to VMS. As you recall in Q3 last year, we had strong growth in VMS from successful innovation across Centrum and improved capacity in the U.S. for emergency which allowed retail restocking. Since then our revenue has remained within a narrow band. We are now adapting the comparative which benefited from additional capacity in the U.S. last year, resulting in some volatility in organic growth rate. Absolute sales in Q3 were in line with the first two quarters of this year as you see in the table. This suggests continued consumption with good underlying demand and we continue to gain share in the category globally.
Since then our revenue has remained within a narrow band.
We are now adapting the comparative which benefited from additional capacity in the U.S. last year, resulting in some volatility in organic growth rate.
Unknown: Absolute sales in Q3 were in line with the first two quarters of this year as you see in the table. This suggests continued consumption with good underlying demand and we continue to gain share in the category globally.
This suggests continued consumption with good underlying demand and we continue to gain share in the category globally.
Tobias Hestler: Let me now share a bit more on trends in respiratory. It's becoming increasingly difficult to split individually with year-on-year movements, given elevated cold and flu incidences as well as COVID symptoms, which are flu like in nature. The data on this chart shows cold and flu industry sales for the U.S. market and we're seeing a comparable picture in Europe . The gray shaded area in this chart is pre-pandemic sales, which is indicative of a normal season. Low cold and flu sales into summer and higher level in the winter. The green and black line shows sales in 2021 and 2022.
It's becoming increasingly difficult to split individually with year-on-year movements, given elevated cold and flu incidences as well as COVID symptoms, which are flu like in nature.
Unknown: The data on this chart shows cold and flu industry sales for the U.S. market and we're seeing a comparable picture in Europe .
The gray shaded area in this chart is pre-pandemic sales, which is indicative of a normal season.
Low cold and flu sales into summer and higher level in the winter.
The green and black line shows sales in 2021 and 2022.
Tobias Hestler: So first we saw sustained cold and flu demand through the summer ahead of pre-pandemic levels and particularly in 2022 and this was very different in 2019. Second, strong growth in the quarter was also helped by increased retailer stocking ahead of the key season. As you think about Q4, it's worth keeping in mind that we saw 45% growth in respiratory in Q4 last year, when cold and flu came back after its absence through the pandemic. So we wouldnt expect these high growth rates to be sustained. As always it's difficult to predict cold and flu trends based on the recent out of season months. As you can see from the significant difference in the shape of the winter season sales between 2019, 2021 and 2022.
Second, strong growth in the quarter was also helped by increased retailer stocking ahead of the key season.
As you think about Q4, it's worth keeping in mind that we saw 45% growth in respiratory in Q4 last year, when cold and flu came back after its absence through the pandemic. So we wouldnt expect these high growth rates to be sustained.
As always it's difficult to predict cold and flu trends based on the recent out of season months. As you can see from the significant difference in the shape of the winter season sales between 2019, 2021 and 2022.
Tobias Hestler: Looking now at the geographic segment performance. We delivered strong organic revenue growth across all of our regions. Starting with North America. Organic revenue increased 2.9% with 4.2% price and a 1.3% decline in volume mix. The volume decline was as expected given advanced retailer purchasing ahead of Q4 price increase last year. This impacted third quarter growth last year by approximately 2% along with inventory restocking. The region saw low single-digit decline in oral health and a high teens percent decline in VMS lapping the comparative as I just mentioned. That said, underlying consumption has remained broadly steady in both categories through the year.
We delivered strong organic revenue growth across all of our regions.
Starting with North America.
Organic revenue increased 2.9% with 4.2% price and a 1.3% decline in volume mix.
The volume decline was as expected given advanced retailer purchasing ahead of Q4 price increase last year. This impacted third quarter growth last year by approximately 2% along with inventory restocking.
The region saw low single-digit decline in oral health and a high teens percent decline in VMS lapping the comparative as I just mentioned.
Unknown: That said, underlying consumption has remained broadly steady in both categories through the year.
Tobias Hestler: One thing we have observed in recent months is that emergency demand has been skewed towards time of Covid demand. For Centrum is more consistent and less volatile. Pain relief was up high single digits, given pricing and continued strong demand for Advil. Respiratory health was up in the mid twenties percent, benefitting from sustained cold and flu incidents and retailer stocking ahead of the season. This was underpinned by successful new innovations, including Paraflu max strength, and Flonase headache and allergy relief.
For Centrum is more consistent and less volatile.
Unknown: Pain relief was up high single digits, given pricing and continued strong demand for Advil. Respiratory health was up in the mid twenties percent, benefitting
Respiratory health was up in the mid twenties percent, benefitting
from sustained cold and flu incidents and retailer stocking ahead of the season.
This was underpinned by successful new innovations, including Paraflu max strength, and Flonase headache and allergy relief.
Tobias Hestler: Turning now to Europe , Middle East, Africa, and Latin America. Organic revenue increased 12.2% with 8.3% price and 3.9% volume mix. There was strong growth in Latin America and Middle East Africa helped by Sensodyne In Europe, revenue was up high single digits with broad based growth with the exception of Germany, which was down slightly. As you know, we have plans in place to turn around the German business.
Organic revenue increased 12.2% with 8.3% price and 3.9% volume mix.
There was strong growth in Latin America and Middle East Africa helped by Sensodyne
Unknown: In Europe, revenue was up high single digits with broad based growth with the exception of Germany, which was down slightly. As you know, we have plans in place to turn around the German business.
Tobias Hestler: Across the categories, oral health saw good growth largely driven by Sensodyne, up low double digits and Paradontax which was up high single digits. We're seeing good consumer uptake for a number of brand innovations, including Sensodyne Natural life, and Paradontax Gum and Breath. In VMS, the region delivered low double-digit revenue growth with strong growth from Centrum up nearly 20% as we continued to expand the portfolio over the brand's presence and launched new innovations, including benefit plans in Brazil.
We're seeing good consumer uptake for a number of brand innovations, including Sensodyne Natural life, and Paradontax Gum and Breath.
Unknown: In VMS, the region delivered low double-digit revenue growth with strong growth from Centrum up nearly 20% as we continued to expand the portfolio over the brand's presence and launched new innovations, including benefit plans in Brazil.
Tobias Hestler: Pain relief revenue was down low-single digits, reflecting a decline for Voltaren given weakness in the topical market. Respiratory sales were up over 35% driven by the factors I explained earlier and retailer stocking ahead of the season. Adjusted health and other soft sales up double digits with good growth across most of our brands.
Respiratory sales were up over 35% driven by the factors I explained earlier and retailer stocking ahead of the season.
Adjusted health and other soft sales up double digits with good growth across most of our brands.
Tobias Hestler: Finally, turning to Asia Pacific. Organic revenue increased 9% with 2.7% from price and 6.3% from volume mix. Growth from pricing was lower than our other regions, given the less pronounced inflationary environment. China, our second largest market overall was up high single digits, marking an improvement from the second quarter as lockdown started to ease. India continued to perform well up 10%. Looking across the Asia Pacific region as a whole, oral health saw strong growth, particularly from Sensodyne helped by new innovations in the market. In VMS, we saw mid single-digit growth underpinned by successful consumer campaigns for Cultrate. In pain relief, Voltaren saw strong growth in China from distribution expansion, pricing and digital activation. Respiratory revenue was up high teens, driven by advanced purchasing ahead of the flu season.
Organic revenue increased 9% with 2.7% from price and 6.3% from volume mix.
Growth from pricing was lower than our other regions, given the less pronounced inflationary environment.
China, our second largest market overall was up high single digits, marking an improvement from the second quarter as lockdown started to ease.
India continued to perform well up 10%.
Looking across the Asia Pacific region as a whole, oral health saw strong growth, particularly from Sensodyne helped by new innovations in the market.
In VMS, we saw mid single-digit growth underpinned by successful consumer campaigns for Cultrate.
Unknown: In pain relief, Voltaren saw strong growth in China from distribution expansion, pricing and digital activation.
Respiratory revenue was up high teens, driven by advanced purchasing ahead of the flu season.
Tobias Hestler: As you know India is a key strategic market for us. You may have seen that we have agreed with Hindustan Unilever limited to end our sales and distribution agreement in this market in Q4 of 2023. Once we have had a productive relationship with Hindustan, we now believe that by taking these services in house, we are better placed to fully deliver on our strategy consistent with our approach in other markets. We are working to ensure a smooth transition as we reestablish our own network in the country.
Once we have had a productive relationship with Hindustan, we now believe that by taking these services in house, we are better placed to fully deliver on our strategy consistent with our approach in other markets.
We are working to ensure a smooth transition as we reestablish our own network in the country.
Tobias Hestler: Turning now to our operating performance. We delivered 725 million pound of adjusted operating profit, up 4% constant currency, which included transaction FX losses, largely from the U.S. dollar in our Swiss cost base. Pricing and efficiencies fully offset inflationary cost pressure with the decline in margin driven by the ramp up of standalone costs as we expected. It was also a 68 million pound benefit from movements in foreign exchange or the translational basis. Taken together, this resulted in a 15% reported increase in adjusted operating profit and a 25.1% operating margin. As a reminder, as you think through modeling, Q3 is typically our higher margin quarter, given advanced sales of cold and flu products ahead of the season without any significant A&P spend related to that.
We delivered 725 million pound of adjusted operating profit, up 4% constant currency, which included transaction FX losses, largely from the U.S. dollar in our Swiss cost base.
Pricing and efficiencies fully offset inflationary cost pressure with the decline in margin driven by the ramp up of standalone costs as we expected.
It was also a 68 million pound benefit from movements in foreign exchange or the translational basis.
Taken together, this resulted in a 15% reported increase in adjusted operating profit and a 25.1% operating margin.
Unknown: As a reminder, as you think through modeling, Q3 is typically our higher margin quarter, given advanced sales of cold and flu products ahead of the season without any significant A&P spend related to that.
Tobias Hestler: Turning to Haleon's debt profile. As you remember, pre-separation, we secured our long term capital structure with the issuance of just over 9 billion of notes and a 1.5 billion term loan with no financial covenants. The principal supplier for the debt raise supports efficient deleveraging given our strong cash generation and at that time, we look to align the currencies of debts with revenue.
As you remember, pre-separation, we secured our long term capital structure with the issuance of just over 9 billion of notes and a 1.5 billion term loan with no financial covenants.
The principal supplier for the debt raise supports efficient deleveraging given our strong cash generation and at that time, we look to align the currencies of debts with revenue.
Tobias Hestler: During the third quarter, we repaid 750 million of our 1.5 billion term loan and a further 250 million was repaid in October. This was achieved through a combination of operational cash flows and commercial paper issuance.
Tobias Hestler: Due to significant volatility of Sterling, particularly during the third quarter, the resulting adverse impact of FX offset the repayments of this firm loan. As such and given the adverse currency the end of the quarter with net debt of 10.8 billion. As you know, this reflects the exchange rate at the end of September.
As you know, this reflects the exchange rate at the end of September .
Tobias Hestler: Although currency volatility continues albeit at a lesser extent, the cash generated nature of the business remains unchanged. We remain on track to achieve our deleveraging target of less than three times net debt to adjusted EBITDA by end of 2024. Furthermore, at the end of September our bond debt has an average duration of 8.2 years, and a weighted average cost of 3%.
years, and a weighted average cost of 3%.
Tobias Hestler: Finally, I'm pleased to say that given our strong performance to date, we have updated our revenue and margin guidance for 2022. Following the strong third quarter, we now expect full year organic revenue growth to be between 8% and 8.5%. We also expect adjusted operating margin to be slightly ahead of the 22, 8%. We reported in 2021, assuming spot rates as of the 31st of October are sustained for the remainder of the year.
Following the strong third quarter, we now expect full year organic revenue growth to be between 8% and 8.5%.
We also expect adjusted operating margin to be slightly ahead of the 22.8% we reported in 2021, assuming spot rates as of the 31st of October are sustained for the remainder of the year.
Tobias Hestler: So in summary, Haleon delivered strong third quarter performance with strength across both our power brands and local strategic brands. We delivered strong operating profit growth, having been able to fully offset inflationary pressures to price and efficiency. Our recent trading momentum has resulted in us revising upwards our sales guidance which will also result in higher operating profit. And our margin guidance for adjusted operating margin is slightly higher on a reported basis given net favorable currency moves.
We delivered strong operating profit growth, having been able to fully offset inflationary pressures to price and efficiency.
Our recent trading momentum has resulted in us revising upwards our sales guidance
which will also result in higher operating profit. And our margin guidance for adjusted operating margin is slightly higher on a reported basis given net favorable currency moves.
Tobias Hestler: Finally, our cash generation underpins our confidence in our ability to de-lever rapidly. Given the momentum across the business and what remains a challenging market environment, we remain confident of delivering on our medium term guidance as we stated in this morning's release.
Given the momentum across the business and what remains a challenging market environment, we remain confident of delivering on our medium term guidance as we stated in this morning's release.
Tobias Hestler: With that, I would like to turn it back to the operator to open us up for questions.
Operator: Thank you. As a reminder for any questions, please press star one on your telephone keypad or press star two to withdraw your question. Our first question is from Guillaume Delmas from UBS. Please go ahead.
star two to withdraw your question.
Operator: Our first question is from [indiscernible] from UBS. Please go ahead.
Guillaume Delmas: Okay. The first is on your --
The first one on Europe .
Tobias Hestler: Hello.
Guillaume Delmas: The first one is on your updated 2022 guidance because it seems to imply a soft fourth quarter with around 1% to 3% organic sales growth and circa and 50 basis points margin contraction at the operating margin level. So can you maybe walk us through the main factors driving the sequential slowdown and what is more temporary in nature versus recurring? And my second question is about your strong confidence in your ability to deliver on your medium-term guidance. Should we read into this statement that you anticipate your performance next year, so 2023 to be consistent with your medium-term multiple year objective of 46% like for like sales growth and moderate margin expansion in constant FX. Thank you.
with around 1% to 3% organic sales growth and circa and 50 basis points margin contraction at the operating margin level. So can you maybe walk us through the main factors driving the sequential slowdown and what is more temporary in nature versus recurring?
And my second question is about your strong confidence in your ability to deliver on your medium-term guidance.
Should we read into this statement that you anticipate your performance next year, so 2023 to be consistent
with your medium-term multiple year objective of 46% like for like sales growth and moderate margin expansion in constant FX. Thank you.
Tobias Hestler: Thanks, Guillaume.
Tobias Hestler: So let me start first with the outer sales outlook for Q4, and as you said our guidance implies about 1.5% to 3.5% growth in Q4. And first of all I think you've seen cold and flu sales were very strong. They contributed about three points of organic revenue growth in the third quarter. And as I said in my comments earlier, that will not repeat going forward because last year cold and flu was already back in Q4 with 45% growth and as you've seen in the chart -- actually '21 sales in cold and flu in Q4 were actually fully back at the pre-pandemic level. So that additional growth driver will not be there for Q4. And secondly, overall comps are slightly tougher for Q4. Remember last year with 11% growth in Q4. Then also last year, we took pricing in Q4. So we're starting to hit the base of significant price increases. So last year for example, we took a mid to high single digit price increase on October 1 across half of the portfolio in the U.S. And then there were some benefits in Q3 from advanced cold and flu purchasing ahead of the season. And then the last one is also you remember from last year, we brought incremental supply capacity on stream for VMS. So that benefited us in the second half of last year and again recycling over that.
first of all I think you've seen cold and flu sales were very strong. They contributed about three points of organic revenue growth
in the third quarter. And as I said
in my comments earlier, that will not repeat going forward because last year cold and flu was already back in Q4 with 45% growth and as you've seen in the chart -- actually '21 sales in cold and flu in Q4 were actually fully back at the pre-pandemic level. So that additional growth driver will not be there for Q4.
And secondly, overall comps are slightly tougher for Q4. Remember last year with 11% growth in Q4. Then also last year, we took pricing in Q4. So we're starting to hit the base of significant price increases. So last year for example, we took a
mid to high single digit price increase on October 1 across half of the portfolio
in the U.S. And then there were some benefits in Q3 from advanced cold and flu purchasing ahead of the season. And then the last one is also you remember from last year, we brought incremental supply capacity on stream for VMS. So that benefited us in the second half of last year and again recycling over that.
Tobias Hestler: So look, it's really a factor of quarterly movements, underlying consumption trends remained strong and as you said, I think we said this morning, we are committed to our 4% to 6% medium-term outlook. Then let me move to your margin question. So by margins would be down in Q4 comparable with what we have. So first of all, I think Q3 margin is artificially high. That is driven by us shipping and selling all the cold and flu inventory in Q3 without A&P attached to it. And then in Q4 you're catching this up by spending A&P on the saleswe had in Q3. So I think Q3 has always been the highest margin quarter in the year as well. And secondly, growth rates in top two are lower so I think we get less benefit from the efficiencies on the growth. And then the third one is, I think the same -- very similar to what we explained at half year. That ramp is -- the cost to run Haleon as an independent company are ramping up in the second half of the year, whereas we delivered the synergies predominantly in the first half of the year. So I think again, I think the result of all these quarterly movements in these moving pieces as we're separating out and establishing this company independently.
and as you said, I think we said this morning, we are committed to our 4% to 6% medium-term outlook.
medium-term outlook.
Then let me move to your margin question. So by margins would be down in Q4 comparable with what we have. So first of all, I think Q3 margin is artificially high. That is driven by us shipping and selling all the cold and flu inventory in Q3 without A&P attached
to it. And then in Q4 you're catching this up by spending A&P on the saleswe had in Q3. So I think Q3 has always been the highest margin quarter in the year as well. And secondly, growth rates in top two are lower so I think we get less benefit
from the efficiencies on the growth. And then the third one is, I think the same --
From the efficiencies on the on the growth and then the third one is I think the same.
very similar to what we explained at half year. The ramp is --
the cost to run Haleon as an independent company are ramping up in the second half of the year, whereas we delivered the synergies predominantly in the first half of the year. So I think again, I think the result of all these quarterly movements in these moving pieces as
we're separating out and establishing this company independently.
Tobias Hestler: And then thirdly coming back to the medium-term guidance. So we're going to give full year guidance at the full year results. I think -- and then we'll update you then. I think overall we remain committed to 4% to 6% medium term, but we'll tell you more about it as we close out the year.
I think -- and then we'll update you then. I think overall we remain committed to 4% to 6% medium term, but we'll tell you more about it as we close out the year.
Guillaume Delmas: Thank you very much.
Tobias Hestler: Thanks, Guillaume.
Operator: The next question comes from Chris Pitcher from Redburn. Please go ahead.
Chris Pitcher: Thanks very much. Two questions -- Good morning, Tobias and Sonya. Two questions for me. Could you talk a bit more specifically about Sensodyne in the U.S. You mentioned Sensodyne, you thought was taking share but can you talk about the competitive environment in the U.S. and sort of innovation team you're working with there. And then secondly on standalone costs -- forgive me if you did give this, but are you able to narrow the range you set before? And now that we're a bit further into it and within that, what sort of internal incentivization plans are being put in place both operationally and for the executive? Thanks.
Two questions.
Good morning, Tobias and Sonya.
Two questions for me. Could you talk a bit more specifically about Sensodyne in the U.S. You mentioned Sensodyne, you thought was taking share but can you talk about the competitive environment in the U.S. and sort of innovation team you're working with there.
in the U.S. You mentioned Sensodyne, you thought was taking share but can you talk about the competitive environment in the U.S. and sort of innovation team you're working with there.
And then secondly on standalone costs -- forgive me if you did give this, but are you able to
narrow the range you set before? And now that we're a bit further into it and within that,
what sort of internal incentivization plans are being put in place both operationally and for the executive? Thanks.
the executive? Thanks.
Tobias Hestler: Great. Thanks, Chris. So on Sensodyne in the U.S., I think first of all when you look at the sales growth, I mean recycling over a pull forward last year because the price increase we took in Q4 of last year, were in oral health largely and that meant quite a few of the retailers bought some inventory still in Q3 last year ahead of the price increase. And we said last year that I think impacted U.S. growth rates by a full two percentage points and a big part of that was on oral health and as Sensodyne is the largest brand, you can imagine a lot of it landed on Sensodyne as well. So that's the one item to keep in mind. I think -- outside that, I think we're competing well on Sensodyne. I think the business is doing well. We're gaining share overall. So I think from our perspective, I think I'm happy with the oral health performance and how it has come back on a year-to-date basis now after a week or two we had globally. On the stand alone costs, I mean, we're in the range of the guidance we've given, 175 to 200. Of course, now in Q3, because the cost fully landed so the team is complete and full, we also started the small amount of a TSA agreement, we have with GSK, sort of cost started running on that on the 18th of July . So I think we've now sort of the fully loaded cost book in the base as we operate Haleon independently. So no surprises here.
largely and that
meant quite a few of the retailers bought some inventory still in Q3 last year ahead of the price increase. And we said last year that I think impacted
U.S. growth rates by a full two percentage points and a big part of that was on oral health and as Sensodyne is the largest brand, you can imagine a lot of it landed on Sensodyne as well. So that's the one item to keep in mind. I think -- outside that, I think we're competing well on Sensodyne. I think the business is doing well. We're gaining share overall.
mind. I think -- outside that, I think we're competing well on Sensodyne. I think the business is doing well. We're gaining share overall.
business is doing well. We're gaining share overall.
So I think from our perspective, I think I'm happy with the oral health performance and how it has come back on
happy with the oral health performance and how it has come back on
a year-to-date basis now after a week or two
we had globally.
On the stand alone costs, I mean, we're in the range of the guidance we've given, 175 to 200.
I mean, we're in the range of the guidance we've given, 175 to 200.
Of course, now in Q3, because the cost fully landed so the team is complete and full, we also started the
small amount of a TSA agreement, we have with GSK, sort of cost started running on that on the 18th of July .
a TSA agreement, we have with GSK, sort of cost started running on that on the 18th of July .
So I think we've now sort of the fully loaded cost book in the base as we operate Haleon
the base as we operate Haleon
independently. So no surprises here.
Tobias Hestler: And then your last question was on the incentive plan, so I think we have said, you've seen we've issued the share plans and the short-term incentives are on sales and operating profit. And the executive team has personal objectives and also to hit so it's a combination of sales, adjusted operating profit, delivery and a margin delivery as a result and individual objectives and in the long term objectives are all linked to the cash generation and to the deleveraging targets. So I think very much in line with the overall objectives that we laid out at the CMD and that we're updating you on.
the incentive plan, so I think
we have said, you've seen we've issued the share plans and the short-term incentives are on sales and operating profit.
issued the share plans and the short-term incentives are on sales and operating profit.
short-term incentives are on sales and operating profit.
And the executive team has personal objectives and also to hit so it's a combination of sales, adjusted operating profit, delivery and a margin delivery as a result and
also to hit so it's a combination of sales, adjusted operating profit, delivery and a margin delivery as a result and
a margin delivery as a result and
individual objectives and in the long term objectives are all linked to the cash generation and to the deleveraging targets. So I think very much in line with the overall objectives that we laid out at the CMD and that we're updating you on.
Sonya Ghobrial: I think the other thing I'd may be able to say to fulfill that incentivization is I think we've seen there is a real opportunity because it's more consumer, more performance related than perhaps what we said before and I think the other component was [indiscernible] differentiated as the ESG qualified that inflated the incentivization as well.
it's more consumer, more performance related than perhaps what we said before and I think the other component was [indiscernible] differentiated as the ESG qualified that inflated the incentivization as well.
before and I think the other component was [indiscernible] differentiated as the ESG qualified that inflated the incentivization as well.
that inflated the incentivization as well.
Chris Pitcher: Thank you.
Operator: Our next question is from Rashad Kawan from Morgan Stanley. Please go ahead.
Rashad Kawa: Hey. Good morning, Tobias and Sonya. Thanks for taking my questions. My first one is just down trading or category softness. I mean are you seeing any signs of accelerating down trading in any of your categories or geographies? I know, obviously, you talked about VMS lapping strong comps, but that's one where we started to see some category softness and a few peers kind of talk about that as well. And any other geographies or brands in particular you'd call out? And then the second question is on Nexium. Obviously, the product liability litigation bellwether trials have been pushed back from the 14th of November to the first of March of next year, with the judge providing time for the parties to pursue a settlement agreement beforehand. Obviously there's the litigation remains complex and recent Delaware ruling in favor of Astrazeneca, but the future product liability could be significant if the plaintiffs gain momentum there given the high prevalence of chronic kidney disease. So can you talk about whether your views have changed at all over the last few months around the litigation and help us with anything we should be looking out for in the coming months that can help us kind of stay on track of any developments there? Thank you.
as well.
And any other geographies or brands in particular you'd call out?
And then the second question is on Nexium. Obviously, the product liability litigation bellwether trials have been pushed back from the 14th of November to the first of March of next year, with the judge providing time for the parties to pursue a settlement agreement beforehand.
the judge providing time for the parties to pursue a settlement agreement beforehand.
Obviously there's the litigation remains complex and
recent Delaware ruling in favor of Astrazeneca, but the future product liability could be significant if the plaintiffs gain momentum there given the high prevalence of chronic kidney disease. So can you talk about whether your views have changed at all over the last few months around the litigation and help us with anything we should be looking out for in the coming months that can help us kind of stay on track of any developments there? Thank you.
Tobias Hestler: Thanks, Rashad. So let me start with the current trading. So we've not seen any significant change in consumer behavior that we would call out. There are small variances here at thereby region or our subcategories, but there's no widespread change. Then I think maybe as a reminder, I mean, I think our product treat basic healthcare needs and I think they tend and that's I think also our experience from prior. prices hold up well through difficult economic times. But what we've seen -- I mean, a bit of color, right. There as some small private naval gains in subcategories like the PPI category. It's always been more price sensitive in the U.S. On Vitamin -- on base Vitamin C, a bit more private label box that I think it's really too early to call the trend. What we've also seen is that more multi pack purchases. So consumers looking at bulking up and buying more packs to get a price benefit and also little bit of channel shift so more sales going through for example, Dollar Tree in the U.S. So I think which ultimately for us, it's just the channel mix with very similar margins. So we're not too concerned about that. And then look, Asia Pacific really a much lower inflationary environment so nothing to report there. And then I think in Europe it's mixed. Again, nothing significant that would call out, but look we're not complacent. We believe in the strength of our brands and you've seen also the business coming through well with volume gains on top of the price increases we took so I think that gives us some confidence.
any significant change in consumer behavior that we would call out. There are small variances here at thereby region or our subcategories, but there's no widespread change. Then I think maybe as a reminder, I mean, I think our product treat basic healthcare needs and I think they tend -- and that's I think also our experience from prior
prices hold up well through difficult economic times.
But what we've seen -- I mean, a bit of color, right. There as some small private naval gains in subcategories like the PPI category. It's always been more price sensitive in the U.S.
On Vitamin -- on base Vitamin C, a bit more private label box that I think it's really too early to call the trend. What we've also seen is that more multi pack purchases. So consumers looking at bulking up and buying more packs to get a price benefit and also little bit of channel shift so more
sales going through for example, Dollar Tree in the U.S. So I think which ultimately for us, it's just the channel mix with very similar margins. So we're not too concerned about that. And then look, Asia Pacific really a much lower inflationary environment
so nothing to report there. And then I think in Europe it's mixed. Again, nothing significant that would call out, but look we're not complacent. We believe in the strength of our brands
And you've seen also the business coming through well with volume gains
on top of the price increases we took so I think that gives us some confidence.
Tobias Hestler: Then on Nexium, there's no change in our view on the situation, right. And I think just as a reminder, I think first of all, the product is on the market. It's supported by the FDA. We believe -- we don't believe the science constitutes an evidence that there is a link between PPI usage and the injuries. And then also lastly, think about OTC use. These products are labeled for short-term use in the OTC space as well. So I think no change in our view on the product or on the PPI case soon.
there's no change in our view on the situation, right. And I think
just as a reminder, I think
first of all, the product is on the market. It's supported by the FDA.
We believe -- we don't believe the science constitutes an evidence that there is a link between PPI usage and the injuries. And then also lastly, think about OTC use. These products are labeled for short-term use
We believe.
We believe don't believe the science constitutes an evidence that there is a link between PPI usage and the injuries and then also lastly think about OTC use. These products are labeled for short term use.
in the OTC space as well. So I think no change in our view on the
product or on the PPI case soon.
On the product or on the on the PPI case soon.
And I think.
Sonya Ghobrial: And I think the specific point in terms of the trial [indiscernible] was scheduled for November '22. That being postponed to 2023. We're probably important to note that that trial doesn't involve helium or OTC products and Nexium 24, [indiscernible] 24, and there are currently no trials involving [indiscernible] schedule. So just worth mentioning that.
[indiscernible] was scheduled for November '22. That being postponed to 2023. We're probably important to note that that trial doesn't involve helium or OTC products and Nexium 24, [indiscernible] 24, and there are currently no trials involving [indiscernible] schedule.
So just worth mentioning that.
Rashad Kawa: Okay, very helpful. Thank you both.
Operator: Our next question is from Victoria Nice from Societe Generale. Please go ahead.
Victoria Nice: Hi, there. Good morning, My first question just on A&P. I wanted, if you could just remind us on the outlook for group A&P spend this year, either as a percentage of sales or gross as of last year sales? And then my next question is on the [inaudible]. Just wondered when you expect we could see the next meaningful update providing better visibility on how the situation is unfolding and I guess, specifically related to that, where are we on the indemnification dispute with [inaudible] and finally has the parties developed anything regarding a resolution on this side of the situation. Thank you.
I wanted, if you could just remind us on the outlook for group A&P spend this year, either as a percentage of sales or gross as of last year sales? And then my next question is on the [inaudible]. Just wondered when you expect we could see the next meaningful update providing better visibility on how the situation is unfolding and I guess, specifically related to that, where are we on the indemnification dispute with [inaudible] and finally has the parties developed anything regarding a resolution on this side of the situation. Thank you.
And then my next question is on the
[inaudible].
Just wondered when you expect we could see the next meaningful update providing better visibility on how the situation is unfolding and I guess, specifically related to that, where are we on the indemnification dispute with [inaudible] and finally has the parties developed anything regarding a resolution on this side of the situation. Thank you.
and finally has the parties developed anything regarding a resolution on this side of the situation. Thank you.
Thank you.
Tobias Hestler: Great. So look on A&P, I mean, I think we said we're investing in the business as you've seen in our half year results. We're not giving specific guidance on what happened in the quarter. Again, Q3 isn't really meaningful given the respiratory spend that is happening in Q4, rather than in Q3. So overall, we are investing in the business, we're investing behind the growth of the business and we're agile and allocated the A&P to where we can get the growth that we've talked a bit earlier today about where the growth drivers are. Overall A&P was 20% of sales last year. I think we think it's in a healthy place and we keep investing in the business into both A&P and also into R&D and then we will give you more update at the full year results on that like we've done in the half year results.
we're investing in the business as you've seen in our half year results. We're not giving specific guidance on what
happened in the quarter. Again, Q3 isn't really meaningful given the respiratory spend that is happening in Q4, rather than in Q3. So overall, we are investing in the business, we're investing behind the growth of the business and we're agile and allocated the A&P to where we can get the growth that we've talked a bit earlier
today about where the growth drivers are.
Overall A&P was 20% of sales last year. I think we think it's in a healthy place and we keep investing in the business into both A&P and also into R&D and then we will give you more update at the full year results on that like we've done in the half year results.
20% of sales last year. I think we think it's in a healthy place and we keep investing in the business into both A&P and also into R&D and then we will give you more update at the full year results on that like we've done in the half year results.
like we've done in the half year results.
Tobias Hestler: On Zantac, look there's really nothing new to report so I think we talked about it a month and a half ago when we came out with the half year results. There has been small movements on the primary liabilities but I think that's probably for you to speak to GSK or Sanofi to. But anything from our perspective, there is no update. I mean, we believe and as we said in the half year, we are not liable and that's also why there is no movement on any indemnity discussions on that.
a month and a half ago when we came out with the half year results.
There has been small movements on the primary liabilities but I think that's probably for you to speak to GSK or Sanofi to.
There has been small movements on the on the primary liabilities and but I think thats probably for you to speak to GSK are Sanofi to.
But anything from our perspective, there is no update. I mean, we believe and as we said in the half year, we are not liable
and that's also why there is no movement on any indemnity discussions on that.
Operator: Our next question is from Faham Baig from Credit Suisse. Please go ahead. Yes.
Faham Baig: Good morning, guys. Thanks for the question. A couple for me as well please. Thanks for providing the VMS data on a quarterly basis and in currency adjusted -- on a currency adjusted basis. The question here for me is, how should we think about VMS consumption from a volume standpoint? So trying to eradicate the price increases that you've taken in the market and where volume consumption or share of stomach compare to pre-pandemic levels? Are we 10% higher? 20% higher? Are we back in line with 2019 volumes? And then the second question, if you could just give us an update on the percentage of the business that is winning and maintaining market share. I think you highlighted it was two-thirds of the portfolio and [indiscernible]. Thank you.
VMS data on a quarterly basis and in currency adjusted -- on a currency adjusted basis. The question here for me is,
on a currency adjusted basis. The question here for me is,
how should we think about
VMS consumption from a volume standpoint? So trying to eradicate
the price increases that you've taken in the market and where volume consumption or share of stomach
compare to pre-pandemic levels? Are we
10% higher? 20% higher? Are we back in line with 2019 volumes?
2019 volumes?
Volumes.
And then the second question, if you could just give us an update on the percentage of the business that is winning and maintaining market share. I think you highlighted it was two-thirds of the portfolio and [indiscernible]. Thank you.
if you could just give us an update on the percentage
of the business that is winning and maintaining market share. I think you highlighted it was two-thirds of the portfolio and [indiscernible]. Thank you.
the portfolio and [indiscernible]. Thank you.
[indiscernible]. Thank you.
Tobias Hestler: Good. Thanks. So first of all, on the percentage bidding and maintaining share, so we plan to give you that update at the full year and the half year results. Given we only reported a few weeks ago, there is just no material updates to that. I think what I would say more broadly is no major change or move on that, so we feel confident and by the way you also see it in the Q3 results, which were up both price and volume, which should give you an indication that the business continues to do well, but we'll give you that update at the full year results again, when there is a few more months of data for it to be also meaningful.
Thanks. So first of all, on the percentage bidding and maintaining share, so we plan to give you that update at the full year and the half year results. Given we only reported a few weeks ago, there is just no material updates to that. I think what I would say more broadly is no
major change or move on that, so we feel confident and by the way you also see it in the Q3 results, which were up both price and volume, which should give you an indication that the business
continues to do well, but we'll give you that update at the full year results again, when there is a few more months of data for it to be also meaningful.
for it to be also meaningful.
Tobias Hestler: Look, I think overall the business is up on a three-year stack and it's also doing well in terms of volume. I think we've not seen the category go back. We're gaining share so we're growing ahead of the market. There is a bit more of a rollercoaster on emergency because there's people that went into category without reacting very much to COVID being in the news. People are scared about immunity, they buy a bit more emergency, if less and they buy the less. So that's the one that's a bit more volatile, whereas Centrum is doing well. We're also doing extremely well in Centrum. Activating it in the markets across EMEA Latam. Up over 20% in the quarter for that region and also couch rates continue to perform well in China. So I think overall, we're pleased with VMS consumption, both from a volume perspective and also from a pricing perspective.
a three-year stack and it's also doing well in terms of volume. I think we've not seen the category go back. We're gaining share so we're growing ahead of the market.
There is a bit more of a rollercoaster on emergency because there's people that went into category without reacting very much to COVID being in the news.
People are scared about immunity, they buy a bit more emergency, if less and they buy the less. So that's the one that's a bit more volatile, whereas Centrum is doing well. We're also doing extremely well in Centrum. Activating it in the markets across EMEA Latam.
emergency, if less and they buy the less. So that's the one that's a bit more volatile, whereas Centrum is doing well. We're also doing extremely well in Centrum. Activating it in the markets across EMEA Latam.
Up over 20% in the quarter for that region and also couch rates continue to perform well in China. So I think overall, we're pleased with VMS consumption, both from a volume perspective and also from a pricing perspective.
China. So I think overall, we're pleased with VMS consumption, both from a volume perspective and also from a pricing perspective.
perspective and also from a pricing perspective.
Faham Baig: Thank you. Yeah.
Operator: The next question comes from Celine Pannuti from JP Morgan. Please go ahead. Isolating.
Tobias Hestler: Hi, Celine. Good morning.
Celine Pannuti: Hello. My question, number one, I would like to understand the BTO margin guide for the year. I mean, you raised it because of FX, so XFX is unchanged yet the top line is better from a mix standpoint, what you see is better. So what I've not done so well, that's net net you're not raising the underlying margin and maybe on that, could you tell us what is your FX transaction exposure to the U.S. dollar and the switch line, how much that had an impact on the nine months on your margin? My second question relates to some of the question that's been asked on liabilities. Number one, Nexium and Zentac, does this change a bit your view on RX switch, i.e is that a more risky business and so what is it -- how do you look at that? And second, you said that you think you are not liable on Zantac. Why aren't you doing an arbitration or engaging into an arbitration to get this clear, please? Thank you.
margin guide for the year. I mean, you raised it because of FX, so XFX is unchanged yet the top line is better from a mix standpoint, what you see is better. So what I've not
done so well, that's net net you're not raising the underlying margin and maybe on that, could you
well, that's net net you're not raising the underlying margin and maybe on that, could you
tell us what is your FX transaction exposure to the U.S. dollar and the switch line, how much that had an impact on the nine months on your margin?
My second question relates to some of the question that's been asked on liabilities.
some of the question that's been asked on liabilities.
liabilities.
Number one, Nexium and Zentac, does this change a bit your view on RX switch, i.e
RX switch, i.e
is that a more risky business and so what is it -- how do you look at that? And second, you said that you think you are not liable on Zantac. Why aren't you doing an arbitration or engaging into an arbitration to get this clear, please? Thank you.
engaging into an arbitration to get this clear, please? Thank you.
Tobias Hestler: Good. Thanks, Celine. So on the margin guidance. So we've taken the margin guidance up so I mean first of all is taking the sales guidance up. So there is more sales that rolls through to two higher higher profit and operationally leave in currencies aside things are as we expected so. We are offsetting the inflationary pressures we have across the business with pricing and efficiencies. We're delivering the synergies from the Pfizer transaction, which were predominantly in the first half of the year and we're in line with the spend the cost to run independently as we have guided before and those costs are coming predominantly in the second half of the year. So nothing has changed from a purely operational performance compared to what we have said before. What has changed is the massive movements on the currencies, predominantly after the summer so August and September. And two things that happens. On the translational side, you've actually seen in Q3, there's about 800 basis points positive impact on sales and over 10% on the profit line and you've seen that on my slides. So that I think the proof point for the natural hedging we have in the business coming pretty much from the weakness of the Sterling. And then of course, that was partially offset with some transaction losses and the transaction losses related predominantly to two things. One, so our cost base in Switzerland, and then secondly to the strengthening of the U.S. dollar against a number of the trading currencies that we have in the group as we purchase some of our materials in dollars, but of course, we sell in the local trading currencies. And that has increased as the year went on and given it was material, we pointed it now out and gave you a bit of a color for it. For the full year, we expect up to 30 bps of transactional FX losses, assuming the spot rates remain where they were a few weeks ago. So I think that also maybe I think just on that, I think that's also a natural hedge on the debt, right. So I think we've aligned the amount of our debts with where we earn our profits in the longer term, of course as a timing effect because it takes you full 12 months until the FX benefits are visible on the P&L versus the balance sheet date where it's immediately visible. Then moving onto Rx OTC switches. So look I think these cases have changed nothing in the way, how we deal with them Rx to OTC switches are an attractive place. We've done them successfully in our business. Yes, we are selling pharmaceuticals and bringing into the market, but we believe that the overall risk exposure is significantly lower than in the pharmaceutical industry because these products have been on the market for decades. There is another big regulatory approval step that happens. So I think from our perspective that makes sense and also the benefit you get from it, these are highly attractive product. You get high margins for it. So I think that the attractiveness of the OTC business is the strength of the margin. And of course that comes with a little bit of risk given its a regulated environment. And also the regulated environment is, I think also helpful because the hurdles of entry into that is also higher. So I think when you put it all together, I think we believe this is an attractive business and we will continue to invest in Rx to OTC switches given we have a leading position there and then on your last question on Zantac. I don't want to comment on the legal strategy, but we do not think a court would take an arbitration at that time, so I think that's not a road that we think is open to us at that point in time.
We are offsetting the inflationary pressures we have across the business with pricing and efficiencies.
the inflationary pressures we have across the business with pricing and efficiencies.
We're delivering the synergies from the Pfizer transaction, which were predominantly in the first half of the year and we're in line with the spend the cost to run independently
as we have guided before and those costs are coming predominantly in the second half of the year. So nothing has changed
from a purely operational performance
compared to what we have said before. What has changed is
the massive movements on the currencies,
predominantly after the summer so August and September. And two things that happens. On the translational side, you've actually seen in Q3, there's about 800 basis points positive impact on sales and over 10% on the profit line and you've seen that on my slides. So that
I think the proof point for the
natural hedging we have in the business.
coming pretty much from the weakness of the Sterling. And then of course, that was partially offset with some transaction losses and the transaction losses related predominantly to two things. One, so our cost base in Switzerland, and then secondly to the strengthening of the U.S. dollar against a number of the trading currencies that we have in the group as we purchase some of our materials in dollars, but of course, we sell in the local trading currencies. And that has increased as the year went on and given it was material,
we have in the group as we purchase some of our materials in dollars, but of course, we sell in the local trading currencies. And that has increased as the year went on and given it was material,
we pointed it now out and gave you a bit of a color for it. For the full year, we expect up to 30 bps of transactional FX losses, assuming the spot rates remain where they were a few weeks ago.
FX losses, assuming the spot rates remain where they were a few weeks ago.
where they were a few weeks ago.
So I think that also maybe I think just on that, I think that's also a natural hedge on the debt, right. So I think we've aligned the amount of our debts with where we earn our profits in the longer term, of course as a timing effect because it takes you full 12 months until the FX benefits are visible on the P&L versus the balance sheet date
on that, I think that's also a natural hedge on the debt, right. So I think we've aligned the amount of our debts with where we earn our profits in the longer term, of course as a timing effect because it takes you full 12 months until the FX benefits are visible on the P&L versus the balance sheet date
where it's immediately visible.
Then moving onto Rx OTC switches. So look, I think these cases have changed nothing in the way how we deal with them. Rx to OTC switches are an attractive place.
We've done them successfully in
our business. Yes, we are selling pharmaceuticals and bringing into the market, but we believe that the overall risk exposure is significantly lower than in the pharmaceutical industry because these products have been on the market for decades.
selling pharmaceuticals and bringing into the market, but we believe that the overall risk exposure is significantly lower than in the pharmaceutical industry because these products have been on the market for decades.
There is another big regulatory approval step that happens.
So I think from our perspective that makes sense and also the benefit you get from it, these are highly attractive product. You get high margins for it.
So I think that the attractiveness of the OTC business is the strength of the margin.
attractiveness of the OTC business is the strength of the margin.
And of course that comes with a little bit of risk given its a regulated environment. And also the regulated environment is, I think also helpful
a regulated environment. And also the regulated environment is, I think also helpful
because the hurdles of entry into that is also higher. So I think
when you put it all together, I think we believe this is an attractive business and we will continue to invest in Rx to OTC switches given we have a leading position there and then on your last question on Zantac.
leading position there and then on your last question on Zantac.
I don't want to comment on the legal strategy, but we do not think a court would take an arbitration at that time, so I think that's not a road that we think is open to us at that point in time.
Celine Pannuti: Thank you.
Okay.
Operator: Our next question is from Martin Deboo from Jefferies. Please go ahead.
Martin Deboo: Yes, good morning everybody.
Multiple: [Tobias Hestler] Hey, Martin. [Martin Deboo] Hello. Quick one from me, follow up on Zantac. I understand. I understand Pfizer did [indiscernible] calling yesterday, where they seem to be clarifying that all Zantac assets and liabilities being transferred to J&J, I presume in the 2006 transaction. Does that have any impacts on your indemnity relationship with Pfizer as opposed to GSK? Can you just comment on that?
Multiple: [Tobias Hestler] Hey, Martin. [Martin Deboo] Hello. Quick one from me, follow up on Zantac. I understand Pfizer did [indiscernible] calling yesterday, where they seem to be clarifying that all Zantac assets and liabilities being transferred to J&J, I presume in the 2006 transaction. Does that have any impacts on your indemnity relationship with Pfizer as opposed to GSK? Can you just comment on that? Yes.
Multiple: Zantac. I understand. I understand Pfizer did [indiscernible] calling yesterday, where they seem to be clarifying that all Zantac assets and liabilities being transferred to J&J, I presume in the 2006 transaction. Does that have any impacts on your indemnity relationship with Pfizer as opposed to GSK? Can you just comment on that?
I understand Pfizer did [indiscernible] calling yesterday, where they seem to be clarifying that all Zantac assets and liabilities being transferred to J&J, I presume in the 2006 transaction. Does that have any impacts on your indemnity relationship with Pfizer as opposed to GSK? Can you just comment on that?
Tobias Hestler: Thanks, Martin. So maybe let me just read the sentence that they put into their 10-Q yesterday or so. So Pfizer updated their 10-Q and in that is the the following sentence, quote, in 2006, Pfizer sold the consumer business that included it's Santech OTC rights to Johnson & Johnson and transferred the assets and liabilities related to Santech OTC to Johnson & Johnson in connection with the sale. End of quote. So in our view, this is what we had always assumed, but there was no public data on that sale. So we were all speculating. I think now with that statement Pfizer has confirmed that they sold the business, including its assets and liabilities in 2006. So I think it's now a official data point made by Pfizer on what happened back then, rather than us sort of speculating about what most likely would have happened in that transaction. So I think it just clarifies is in our view the chain of liabilities, which now clearly established that these liabilities were sold by Pfizer to J&J with all the historic liabilities. Okay. Thank you.
So Pfizer updated their 10-Q and in that is the the following sentence, quote, in 2006, Pfizer sold the consumer business that included it's Santech OTC rights to Johnson & Johnson and transferred the assets and liabilities related to Santech OTC to Johnson & Johnson in connection with the sale. End of quote.
the sale. End of quote.
So in our view, this is what we had always assumed, but there was no public data on that sale. So we were all speculating. I think now with that statement Pfizer has confirmed that they sold the business, including its assets and liabilities in 2006. So I think it's now a official data point made by Pfizer on what happened back then, rather than us sort of speculating about what most likely would have happened in that transaction. So I think it just clarifies is in our view the chain of liabilities, which now clearly established that these liabilities were sold by Pfizer to J&J with all the historic liabilities.
made by Pfizer on what happened back then, rather than us sort of speculating about what most likely would have happened in that transaction. So I think it just clarifies is in our view the chain of liabilities, which now clearly established that these liabilities were sold by Pfizer to J&J with all the historic liabilities.
by Pfizer to J&J with all the historic liabilities.
with all the historic liabilities.
Martin Deboo: Okay. Thank you.
Operator: Our next question is from Ian Simpson from Barclays. Please go ahead.
Ian Simpson: Thank you very much. Just a quick housekeeping question, if I may. Could you just remind us of the sources of translational FX tailwind? You've talked a bit about where the transactional headwind is coming from but anything on translational tailwind would be great. Thanks. And then also kind of quick housekeeping. If you could just give us an update on the Panadol rollout in Asia as I think earlier in the year that was something that you felt kind of had the potential to be a meaningful growth engine. And then just lastly, if I could. Thinking about the dynamics in the comps here, at the H1 stage you called out tough volume comps in Q3. Do you just sort of preorders and pipeline fill as supply came online? You're now talking about higher prices in Q4. So setting cold and flu to one side, let's just leave cold and flu out of it. But how should we think about your Q4 comp versus your Q3 comp given that tension. Thanks very much.
Just a quick housekeeping question, if I may. Could you just remind us of the sources of translational FX tailwind? You've talked a bit about where the transactional
You've talked a bit about where the transactional
headwind is coming from but anything on translational tailwind would be great. Thanks.
And then also kind of quick housekeeping. If you could just give us an update on the Panadol rollout in Asia as I think earlier in the year that was something that you felt kind of had the potential to be a meaningful growth engine.
you felt kind of had the potential to be a meaningful growth engine.
And then just lastly, if I could. Thinking about the dynamics in the comps here, at the H1 stage you called out tough volume comps in Q3. Do you just sort of preorders and pipeline fill as supply came online?
and pipeline fill as supply came online.
You're now talking about higher prices in Q4. So setting cold and flu to one side, let's just leave cold and flu out of it.
So setting cold and flu to one side, let's just leave cold and flu out of it.
But how should we think about your Q4 comp versus your Q3 comp given that tension. Thanks very much.
your Q3 comp given that tension. Thanks very much.
given that tension. Thanks very much.
Tobias Hestler: Great. Thanks. Thanks, Ian. So established translational. So I mean, I think the biggest impact is the dollar item. I think we have about a third of our revenues are in dollars and also a big part of the cost base is in dollars, given the manufacturing network has brought the line. The next biggest currency is the euro about 15%. And then followed by the Chinese RMB with about 8% of revenue. So I think those are the biggest currencies and ultimately it's the sterling weakness against those currencies, which was most pronounced of course in Q3. So I think those are probably the biggest driver, but I think it was a bit bigger than what [indiscernible] given probably the data massive roller coaster we've experienced and then of course some of it has [indiscernible] then as well. I think on your Panadol question, I mean, I think we commented in half year that Panadol did well because, I mean, one reason is that the team in Asia did a brilliant job in positioning it for post Covid vaccination use. I think so that gave us good results. I think it allowed us to get more product into more people's hands and we expect a positive long-term impact of that. But I think overall very happy about the Panadol performance and being you've seen Panadol did well also in Q3. <unk>.
third of our revenues are in dollars and also a big part of the cost base is in dollars, given the manufacturing network has brought the line. The next biggest currency is the euro about 15%. And then followed by the Chinese RMB with about 8% of revenue. So I think those are the biggest currencies and ultimately it's the sterling weakness against those currencies, which was most pronounced of course in Q3.
And then followed by the Chinese RMB with about 8% of revenue. So I think those are the biggest currencies and ultimately it's the sterling weakness against those currencies, which was most pronounced of course in Q3.
against those currencies, which was most pronounced of course in Q3.
So I think those are probably the biggest driver, but I think it was a bit bigger than what [indiscernible] given
probably the data massive roller coaster we've experienced and then of course some of it has [indiscernible] then as well.
I think on your Panadol question, I mean, I think we commented in half year that Panadol did well because, I mean, one reason is that the team in Asia did a brilliant job
in positioning it for post Covid vaccination use. I think so that gave us good results. I think it allowed us to get more product into more people's hands
and we expect a positive long-term impact of that.
But I think overall very happy about the Panadol performance and being you've seen Panadol did well also in Q3.
in Q3.
Tobias Hestler: And then on your questions on the pre-orders. So look it's very hard to establish exactly what the right level of pre-ordering is, given the changes we had over the last few years. So what I would say, it's probably more qualitatively. We know that some customers took orders that [indiscernible] may be a little bit higher, but it wouldn't be able to exactly quantify what it was. Ultimately it doesn't really matter because the sell out is happening in Q4. We're tracking -- you want enough inventory with the wholesalers and then we will determine in the spring how good or bad of a season it was. Looking back, how many spikes you had and I think for us it's important to manage inventory as the season ends. And then on your other [indiscernible] so leaving respiratory aside, I mean, I think what you have to keep in mind for Q4 is the price increases we put through last year, so we're hitting the base on those. I mean, example was 50% of the U.S. categories took a price increase on October 1 last year, so recycling that and we're also going to cycle more VMS supply that came on stream so a bit of a re piping last year. So that's the two things to keep in mind for Q4.
may be a little bit higher, but it wouldn't be able to exactly quantify what it was. Ultimately it doesn't really matter because the sell out is happening in Q4. We're tracking -- you want enough inventory with the wholesalers and then
the sell out is happening in Q4. We're tracking -- you want enough inventory with the wholesalers and then
we will determine
in the spring how good or bad of a season it was. Looking back, how many spikes you had and I think for us it's important to manage inventory as the season ends.
And then on your other [indiscernible] so leaving respiratory aside, I mean, I think what you have to keep in mind for Q4 is the price increases we put through last year, so we're hitting the base on those. I mean, example was 50% of the U.S. categories took a price increase on October 1 last year, so recycling that and we're also going to cycle more VMS supply that came on stream so a bit of a re piping last year. So that's the two things to keep in mind for Q4.
categories took a price increase on October 1 last year, so recycling that and we're also going to cycle more VMS supply that came on stream so a bit of a re piping last year. So that's the two things to keep in mind for Q4.
VMS supply that came on stream so a bit of a re piping last year. So that's the two things to keep in mind for Q4.
Ian Simpson: Thank you so much. Just on translational FX, if I could follow up. I meant more the margin levels. So is it just that your cost basis overweight Sterling because that's where your head office is and Sterling is weaker, so you get a sort of translational tailwind? My question was really on the margin relative to revenues.
My question was really on the margin relative to revenues.
Tobias Hestler: Yeah, look I mean, I think you saw it slightly better. It was 8 and then it was a bit more than 10, so I think yes there's the Sterling, cost base which plays a role in that. But I think for me, it's probably even with the massive amount of movements we had in Q3. It shows that natural hedging, which I think is positive for us as a business. Thank you.
cost base which
plays a role in that.
But I think for me, it's probably even with the massive amount of movements we had in Q3. It shows that natural hedging, which I think is positive for us as a business.
Ian Simpson: Thank you.
Operator: Our next question comes from Carl [indiscernible] from Kepler Schaeffer. Please go ahead.
Unknown: Yes. Good morning all. Thanks for taking the question. I have two question on individual markets. The first one is on India. Can you elaborate on the recent change to your route to markets in this market and what's going to be the benefits for Haleon and what will be your transition period we should take into account, et cetera? And the other thing is, is Germany a big market for example, full time. I think for a few quarters it's a bit more difficult in reporting setbacks. Is this a market issue or is it also a competitive situation that's difficult at this stage? Thank you.
elaborate on the recent change to your route to markets in this market and
what's going to be the benefits for Haleon and what will be your transition period we should take into account, et cetera?.
what will be your transition period we should take into account, et cetera?.
we should take into account, et cetera?.
And the other thing is, is Germany a big market for example, full time. I think for a few quarters it's a bit more difficult in reporting setbacks.
Germany a big market for example, full time. I think for a few quarters it's a bit more difficult in reporting setbacks.
Is this a market issue or is it also a competitive situation that's difficult at this stage? Thank you.
that's difficult at this stage? Thank you.
Tobias Hestler: Sure. So first of all on India. So when we sold the Horlick business to Hindustan Unilever, we agreed to five year distribution agreement and so what Hindustan Unilever did for us is the sales distribution. Our team, we're doing the marketing, the marketing campaign, the promotion, the advertising, that's all done by us. So Hindustan really supported us on the distribution on the fusion side. And that deal was signed for five years and we now agreed with Hindustan that we would end that prematurely. So two years earlier than we originally intended. And there's a 12 months notice on it, so I think over the next 12 months, we will work together with Hindustan to build our own structures. And maybe just a reminder, we have run this business as our own distribution before we did the Horlick sale a few years back so we have the capabilities and the skills and the teams. So ultimately we're building back what we had before. And ultimately, like we have in every other market, India is a key growth market for us and we want to have control of our own sales and distribution and we also think it is more efficient from a cost base to run that as the business continues to grow. So I think we feel confident that that's the right step to do that and take it back into our own hands. Now the collaboration went well and I think we're going to collaborate with Hindustan over the next 12 months to transfer it back into our business.
[indiscernible] business to Hindustan Unilever, we agreed to five year distribution agreement and so what Hindustan Unilever
we agreed to five year distribution agreement and so what Hindustan Unilever
did for us is the sales distribution.
Our team, we're doing the marketing, the marketing campaign, the promotion, the
advertising, that's all done by us. So Hindustan really supported us on the distribution on the fusion side. And that deal was signed for five years and we
now agreed with Hindustan that we would end that prematurely. So two years earlier than we originally intended.
And there's a 12 months notice on it, so I think over the next 12 months, we will work together with Hindustan to
There is a 12.
<unk> notice on it so I think over the next 12 months, we will work together with him. This dawn two two.
build our own structures. And maybe just a reminder, we have run this business as our own distribution before we did the Horlick sale a few years back so we have the capabilities and the skills and the teams. So ultimately we're building back what we had before.
And ultimately, like we have in every other market, India is a key growth market for us and we want to have control of our own sales and distribution and we also think it is more efficient from a cost base
to run that as the business continues to grow. So I think we feel confident that that's the right step
to do that and take it back into our own hands. Now the collaboration went well and I think we're going to collaborate with Hindustan over the next 12 months to transfer it back into our business.
Tobias Hestler: With respect to Germany, we had said with respect to Germany, it's a turnaround case so we said that will take a while. We're implementing those plans. I think Germany-- also there is a bit of a market issue. The biggest product in Germany is Voltaren. It is in times, when systemic pain relief does well as you've seen from our results as well. Usually topicals don't do as well because if you're already taking a systemic pain reliever, you then usually don't use a topical in addition. And of course, Germany gets a bigger exposure on that, given the high share of Voltaren in their business mix. And in addition, we have other internal things to fix and that plan is underway, but it isn't a quick fix where it's done within a month or two. So the team is on that and the implementation is underway.
with respect to Germany, it's a turnaround case so we said that will take a while.
We're implementing those plans. I think Germany-- also there is a bit of a market issue.
The biggest product in Germany is Voltaren.
It is.
in times, when systemic pain relief does well as you've seen from our results as well.
Usually topicals don't do as well because if you're already taking a systemic pain reliever, you then usually don't use a topical in addition. And of course, Germany gets a bigger exposure on that, given the high share of
Voltaren in their business mix. And in addition, we have other internal things to fix and that plan is underway, but it isn't a quick fix where it's done within a month or two. So the team is on that and the implementation is underway.
Unknown: Thank you.
Tobias Hestler: Thank you.
Operator: The next question comes from Tom Sykes, Deutsche Bank. Please go ahead.
Tom Sykes: Good morning, everybody. Thank you. I just wanted to clarify that you're saying on the respiratory inventories [indiscernible]. You'd normally get restocking in Q3. But obviously, the previous year was weak. You're saying that this year was a particularly strong restocking effect versus last year. And is that sort of in quantum if you like to be different to where it might have been in 2019? And then still on respiratory. [indiscernible] in Q1. In Q1 last year, as well as the very high demand, was there also some sort of over bind which makes that particularly difficult as a comp this year at all, and I suppose therefore, where do you think retailer inventories are at the moment from a sort of normalized level versus cold and flu, please? And just the final one would be, just on tax and interest. Is there any upward pressure on tax because of the UK and interest just because of FX in terms of the gross debt [inaudible].
[indiscernible]. You'd normally get restocking in Q3.
Restocking in Q3.
But obviously, the previous year was weak.
You're saying that this year was a particularly strong restocking effect
versus last year.
And is that sort of in quantum if you like to be different to where it might have been in 2019.
And then still on respiratory. [indiscernible] in Q1.
Q1.
In Q1 last year, as well as the very high demand, was there also some sort of over bind which makes that particularly difficult as a comp this year at all,
over bind which makes that particularly difficult as a comp this year at all,
difficult as a comp this year at all,
and I suppose therefore, where do you think retailer inventories are at the moment from a sort of normalized level versus cold and flu, please?
retailer inventories are at the moment from a sort of normalized level versus cold and flu, please?
at the moment from a sort of normalized level versus cold and flu, please?
And just the final one would be, just on tax and interest. Is there any upward pressure on tax because of the UK and interest just because of FX
just on tax and interest. Is there any upward pressure on tax because of the UK and interest just because of FX
in terms of the gross debt [inaudible].
Great.
Please.
Tobias Hestler: Thanks, Tom. So on the stock in trade, I mean overall I think what happens in Q3, if you ship all the inventory so of course there is -- the shelves are full, the warehouses are full. And that's what you wanted to be going into the season, because as you've seen in the sell out chart that I had, for example in Q1, you can get massive spikes. So when cold and flu bugs go around, you suddenly get the business to to double, quadruple in a week's or two week's time. And it's important that for those situations and for those weeks that there is enough inventory out in the trade. And that is impossible to predict if and when those spikes -- these spikes of demands are happening. So I think that's why the industry sells as a strong sell in by the end of Q3 and then we watch how the season goes. If you get some spikes earlier in the season, usually have repurchases when that happened later in the season, then the inventory comes down. And then what we manage is we make sure towards the end of the season in spring that the inventory levels are where they should be, going into the offseason months, where the demand is much lower and then also seen on my slide where it's much more predictable and not spiky anymore. I think that's the dynamic.
what happens in Q3, if you ship all the inventory so of course there is --
the shelves are full, the warehouses are full. And that's what you wanted to be going into the season, because as you've seen in the sell out chart that I had, for example in Q1, you can get massive spikes. So when cold and flu bugs go around, you suddenly get the business to to double, quadruple in a week's or two week's time.
And it's important that for those situations and for those weeks that there is enough inventory out in the trade. And that is impossible to predict if and when those spikes -- these spikes of demands are happening. So I think that's why the industry sells as a strong sell in by the end of Q3 and then we watch how the season goes. If you get some spikes earlier in the season, usually have repurchases when that happened later in the season, then the inventory comes down. And then what we manage is we make sure towards the end of the season in spring that the inventory levels are where they should be, going into the offseason months, where the demand is much lower and then also seen on my
these spikes of demands are happening. So I think that's why the industry sells as a strong sell in by the end of Q3 and then we watch how the season goes. If you get some spikes earlier in the season, usually have repurchases when that happened later in the season, then the inventory comes down. And then what we manage is we make sure towards the end of the season in spring that the inventory levels are where they should be, going into the offseason months, where the demand is much lower and then also seen on my
and then we watch how the season goes. If you get some spikes earlier in the season, usually have repurchases when that happened later in the season, then the inventory comes down. And then what we manage is we make sure towards the end of the season in spring that the inventory levels are where they should be, going into the offseason months, where the demand is much lower and then also seen on my
slide where it's much more predictable and not spiky anymore. I think that's the dynamic.
dynamic.
Tobias Hestler: When what happened this year in Q3, we think given the summer was a bit stronger, given the Q1 that was strong last year that some customers wanted maybe a bit more product. It's very hard to quantify what that is, and look, for us we ship it. We know it's going to be used and there is several months to manage inventory down if needed, but I am not particularly concerned about too much inventory in the trade because the season is going to be made by the number of spikes and what we would show it to you and share with you is at full year, how Q4 has been going and the end of Q1, how the winter season has been going and if we had a stronger or weaker season. And then look, Q1 this year, earlier this year was strong. There was strong sellout, but there wasn't any particularly inventory effects on top of that. And then you asked about, we're going to give you guidance on tax and interest next year as the full year results. For this year, there is no change to guidance. Just on the -- I mean, the tax rate this year, we said we expected at the lower end of the 22% to 23% range. And then on interest, it is $200 million for the year and we're still in line with that guidance, so no change to that. Just to keep in mind for next year on interest, the 200 million include a 40 billion income from the on lending of the bonds between March and 18th of July to GSK and Pfizer. So these 40 million income will not be there next year. So you have to take that into account and then secondly, you have to kind of take into account for next year that we've had the bonds for nine months this year. So you have to gross it up to a full year. And then the interest rate. I mean, 20% is floating so I think there is a smaller impact on the 20% that is floating from the change in interest rate environment since March when we took the bond. So that's probably just to give you a bit more color around as you model your interest for next year.
What happened this year in Q3, we think given the summer was a bit stronger given the Q1 that was strong last year that some customers wants it maybe a bit more product.
It's very hard to quantify what that is,
and look, for us we ship it. We know it's going to be used and there is several months to manage inventory down if needed, but I am not particularly concerned about too much inventory
in the trade because the season is going to be made by the number of spikes and what we would show it to you and share with you is at full year, how Q4 has been going and the end of Q1, how the winter season has been going and if we had a stronger or weaker season.
season.
And then look, Q1 this year, earlier this year was strong. There was strong sellout, but there wasn't any particularly inventory effects on top of that.
inventory effects on top of that.
top of that.
And then you asked about, we're going to give you guidance on tax and interest next year as the full year results. For this year, there is no change to guidance. Just on the -- I mean, the tax rate this year, we said we expected at the lower end of the 22% to 23% range.
range.
And then on interest, it is $200 million for the year and we're still in line with that guidance, so no change to that. Just to keep in mind for next year on interest,
the 200 million include a 40 billion income from the on lending of the bonds
of the bonds
between March and 18th of July to GSK and Pfizer. So these 40 million income will not be there next year. So you have to take that into account and then secondly, you have to kind of take into account for next year that we've had the bonds for nine months this year. So you have to gross it up to a full year.
And then the interest rate. I mean, 20% is floating so I think there is a smaller impact on the 20% that is floating from the change in interest rate environment since March when we took the bond. So that's probably just to give you a bit more color around as you model your interest for next year.
as you model your interest for next year.
Unknown: That's very helpful. Thank you very much.
Tobias Hestler: Thank you.
Operator: As a reminder, for any last questions, please press star one on your telephone keypad now. We have one follow up question from Ian Simpson at Barclays. Please go ahead.
We have one follow up question from Ian Simpson at Barclays. Please go ahead.
Ian Simpson: Okay. Thanks for letting me go again. Just to drill into that debt with the 20% that's floating, so you've repaid a billion of your 1.5 billion term loan, though I think was floating. You've clearly got the commercial paper element that I assume by definition is going to be floating, I guess. Could you just first remind us what proportion of your bonds are floating and what the face value of the kind of floating debt is. And secondly, whether we should assume that as the cash comes in, you'll finish retiring that term loan early and then potentially retire the commercial paper early. I'm just assuming that your floating debt will have priority in terms of how you repay stuff, but any granularity you can give us to how we think about this would be very helpful. Thank you.
Just to drill into that debt with
the 20% that's floating, so you've repaid a billion of your 1.5 billion term loan, though
I think was floating.
You've clearly got the commercial paper
element that I assume
by definition is going to be floating, I guess.
Could you just first remind us what proportion of your bonds are floating and what the face value of the kind of floating debt is.
bonds are floating and what the face value of the kind of floating debt is.
And secondly, whether we should assume that as the cash comes in, you'll finish retiring that term loan early and then potentially retire the commercial paper early. I'm just assuming that your floating debt will have priority in terms of how you repay stuff, but any granularity you can give us to how we think about this would be very helpful. Thank you.
finish retiring that term loan early and then potentially retire the commercial paper early. I'm just assuming that your floating debt will have priority in terms of how you repay stuff, but any granularity you can give us to how we think about this would be very helpful. Thank you.
Tobias Hestler: Yes, thanks, Ian. So I think that the floating one at the moment is a bit higher, given the terms on debt repaying that we're paying down. And you're absolutely right. We are prioritizing the term loan to pay it down. So we expect by year end to have about 20% floating and 80% afixed. So that's, I think where we're going to be by the end of this year and that includes some swaps as well that are in there. And on the commercial paper program, yeah, we've repaid -- part of the repayment of the 1 billion term loan came from taking commercial paper, but we did that because the commercial paper has the lower interest charge than the term loan. So I think we used the flexibility there from the term loan and being successful in the commercial paper market to also lower our interest charge on that.
floating one at the moment is a bit higher, given the terms on debt repaying that we're paying down.
And you're absolutely right.
We are prioritizing the term loan to pay it down. So we expect by year end to have about 20% floating and 80% afixed.
pay it down. So we expect by year end to have about 20% floating and 80% afixed.
So that's, I think where we're going to be by the end of this year and that includes some swaps
where we're going to be by the end of this year and that includes some swaps
as well
that are in there. And on the commercial paper program,
yeah, we've repaid -- part of the repayment of the 1 billion term loan came from taking commercial paper, but we did that because the commercial paper has the lower interest charge than the term loan. So I think we used the flexibility there from the term loan and being successful in the commercial paper market to also lower
our interest charge on that.
On that.
Tobias Hestler: Great. So with that -- thanks, everyone for listening and obviously that was a strong -- obviously, a strong quarter. [inaudible]. So thanks, everyone. Goodbye I think. Thanks for your interest. Thank you. Bye.
thanks, everyone for
listening and obviously that was a strong --
obviously, a strong quarter.
[inaudible].
So thanks, everyone. Goodbye I think.
Thanks for your interest. Thank you. Bye.
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