Q3 2023 Haleon PLC Earnings Call
Until our registration rights agreement with Pfizer and JFK targeting.
With that I'd like to hand, the call over to chip in.
Thanks, Tania and good morning, everyone.
Let me first start with our third quarter highlights.
As you'll have seen from our release this morning and have a good third quarter with 5% organic revenue growth.
In the 606% price and a one 6% decline in volume mix.
This performance was underpinned by continued share gains across our business.
Across the quarter growth was driven by a number of categories, including continued strength in both our in house in pain relief.
And it's encouraging to see BMS being back to growth.
<unk> also had a good quarter with normal seasonal cold and flu season.
Jessica upheld saw good consumption growth, but our results were negatively impacted by one off inventory movements from somebody once retailers.
And that's what was the primary driver for the volume mix decline in Q3.
Equally important we saw continued good operating leverage.
Larry cost pressures more than offset by price and efficiencies across the business.
Operating margin expansion.
Basis points.
On the back of today's strong numbers I'm pleased to reiterate that we remain firmly on track to meet our full year guidance to grow organic revenues by 7% to 8%.
Operating profit, 9% to 11% constant currency, resulting in margin expansion.
Finally, it's worth highlighting that we close the sale of land sales in the last couple of days earlier than we expected.
You will recall that we announced the sale of the brand with our half year results.
Demonstrate our commitment to optimize the portfolio through active brand management.
Now turning to our first quarter results.
Revenue of $2 8 billion reflected 5% organic revenue growth.
Adjusted operating profit was up eight 8% in constant currency, resulting in a 24, 6% margin up 90 basis points constant currency.
As expected the adverse impact of FX was most pronounced in the third quarter due to year on year strength in sterling against the US dollar and the movement in a number of emerging market currencies, which negatively impacted margin at actual rates.
Looking at the drivers of revenue growth in more detail.
We delivered 5% organic sales growth.
Pricing six 6% price and a one 6% decline in volume mix.
Icing in the quarter included some incremental price as well as the carryover of pricing taken over the last 12 months.
As I have said previously we will continue to take price that's needed.
Main confident in our ability to do so given the strength of our innovation and brand and market positions.
Going forward this will be at a lower level than it seems so far this year.
In Q3 last had a one point benefit from high inflation economies, Turkey and Australia.
You saw continued volume mix growth in APAC.
<unk> business, although overall this was offset by two factors.
One anticipated decline in emergency.
How can you rehash reverted towards pre pandemic level, which has now stabilized.
And to one of retailer inventory stock adjustments in digestive health in North America here, we had an inventory build last year following a temporary supply shortage, which we have now lapped.
Saw some U S retailers reduced their inventory this year.
Importantly consumption and digestive health continues to see good growth.
Excluding both of these impacts volume mix would've been flat across the group and I would expect improved volume mix in the fourth quarter compared with what we have reported for Q3 today.
Turning now to our performance across the categories.
Looking at the quarter I was particularly pleased that our health revenues grew 9% with healthy growth in price and volume mix.
<unk> was up double digits underpinned by continued share gains.
It's fitting for innovation and strong growth across a number of markets, including India, Japan as well as good performance in the U S.
BMS back in growth with continued strong performance of centrum, which more than offset the expected decline in emergency.
The double digit revenue growth with Centrum was driven by positive price and volume mix helps a geographic expansion and activation in the number of markets.
<unk> also delivered good revenue growth up 6% with.
10 at all driven by strength in Middle East and Africa, and Voltaren growth.
Performance in Europe from new innovations.
<unk> declined mid single digits, largely due to a more competitive market conditions.
Respiratory revenue was up 4% with strong growth in Turkey was robitussin from seven out of the cold and flu season.
It's more than offset.
The lower out of season clothing, food products and a decline in flonase following a weak allergy season.
Altogether and demonstrates the strength and the diversity of our portfolio delivering 5% organic growth for the group.
Let me now move to look at geographic segment performance.
Looking across the regions, we saw slightly differing trends from one region to another with strong growth across EMEA, and Latin America, and Asia Pacific and a slight decline in North America.
Our emerging market saw 11% growth, which included the benefit from pricing taking in high inflation economies.
Emerging markets made up a third of our revenue and a few of the double digit growth in India and broad based growth in other emerging markets.
Developed markets grew 2%.
Looking at each reached in more detail starting with North America.
Organic revenue declined one 5% with the.
Two 6% price increase and a four 1% decline in volume mix.
As I mentioned earlier this decline in volume mix last year reflected two factors first a one off reduction in digestive health brand inventories from retailers stocking movement.
Second we expect a decline in emergency.
Excluding both students impacts volume mix would've been slightly positive.
Across the categories. We saw mid single digit growth in oral health led by sensor dine underpinned by consumption and new innovation, including programmable active shield.
No thats increased low single digits at the strong performance of centrum that more than offset the declining emergency where demand has now stabilized.
Centrum benefited from the activation of cognitive function claims on central silver and the launch of our pre need to blend.
It really declined mid single digits driven by advil.
Respiratory health was down low single digit growth in cold and flu offset by a decline in allergy products due to weak season, resulting in inventory has been run down to normalized levels.
Finally, adjusted other mid single digits, largely due to the double digit fallen digestive health revenue as I already explained.
Turning to Europe, Middle East Africa, and Latin America organic revenue increased 10, 8%.
12, 7% price in the one 9% decline in volume mix, if you will.
Recall with recent the most exposed to higher inflation economies, Turkey, and Argentina, which had a 3% impact on organic growth.
The decline in volume mix was driven by Latin America, where volumes declined double digit from weakness in Colombia, and Mexico, which was more than offset by strong pricing.
Looking across the segment and strong growth in Middle East and Africa helped by Canada.
In Europe revenue was.
Up mid single digits with broad based growth, including strong results in Germany.
Plus the categories are a healthsouth double digit growth largely driven by sensor volume and then shook her it's being good consumer uptake for a number of brand innovation, including paradigm text active gum repair.
In Vms the reason the region saw a low single digit decline driven by some local brands and we set that up.
Ah strongly helped by continued activation and strong execution in markets across the region.
Pain relief revenue was up double digit.
Reflecting strong brands from panel and a number of successful campaign, featuring our specialist ranges and growth in both hiring.
That's where it's always have increased mid single digit range, driven by price and to sell in a cold and food products ahead of the season.
We continue to drive innovation in this category.
Recently launched offer and Nathan.
With deliveries and improved consumer experience, both comfort ergonomics and efficacy.
Our sense of helping other saw sales up double digits with good growth across most of our brands.
Finally, turning to Asia Pacific.
Organic revenue increased five 9% was two 9% from price and 3% from volume mix.
China, our second largest market overall up mid single digits.
Very strong comp.
The easing of Covid related lockdown restrictions in China.
For the nine months.
Elsewhere, India grew double digits in Australia, and New Zealand was up low single digits.
And then the categories are a house of high single digit growth underpinned by strong growth in <unk>.
I'm, particularly in India, Japan and China.
BNS, we saw low single digit growth helped by successful consumer campaigns for centrum, partially offset by an excitement culture.
You can't relate both higher and saw strong growth, particularly in China and Australia.
As expected and it did.
Revenues decline off of extraordinary strong growth in China during the first half and they are in.
Sure inventories have returns to more normalized level.
For total revenue was up double digits, driven by strong growth in tariffs.
Turning now to our operating performance.
Operating profit was up 19% constant currency driven by positive operating leverage.
Looking at the bridge in more detail Standalone costs were 10 million lower than last year as we run down our TSA with GSK.
I'm pleased to report strong execution with pricing and efficiencies offsetting inflationary cost pressures and negative volume, resulting in positive operating leverage.
Importantly, shorts continued investments in consumer facing A&P grew ahead of organic growth.
Finally, as expected about 100 million pounds of 140 basis points headwinds from material movements in foreign exchange on a translational basis, which particularly impacted the quarter.
Together this resulted in a 5% decline in adjusted operating profit actually exchange rates and a 24, 6% margin.
As a reminder, Q3 is typically our higher margin quarters of the year, given advanced sales of cold and flu products ahead of the season.
This takes our year to date adjusted operating profit constant currency growth to 9% and a margin of 23%.
10 basis points constant currency.
As I mentioned earlier, we're pleased to reiterate our confidence in our full year outlook.
We continue to expect to achieve organic sales growth of between 7% to 8%.
We see another year of positive operating leverage and expect that stuff that operating profit through brokerage benign and 11% constant currency.
So therefore, we saw an adjusted operating margin expansion on a constant currency basis.
So to sum it up hey, you're honest because over a strong third quarter performance demonstrated the strength and diversity of our portfolio and execution across our markets.
At 9% adjusted operating profit growth at constant currency and strong positive operating leverage across the business.
As such we have reiterated our full year guidance.
Given the momentum across the business and what remains a challenging market environment, we remain confident of delivering our medium term guidance at some statements in this morning's results release.
With that I would like to hand back to the operator to open up for questions.
We will now begin the question and answer session and anyone who wishes to ask a question press star and one on their Touchtone telephone you will hear soon to confirm to Kevin to the queue. If you wish him well yourself from the question you May Press Star two participants are requested to use only handsets when asking a question.
Anyone who has a question press star one at this time.
The first question comes from the line of protect come on Morgan Stanley. Please go ahead.
Good morning, and thanks for taking my questions a.
A couple for me. Please the first one on the negative volume mix in EMEA and Latam you talked about the decline largely a function of weakness in Mexico, and Colombia can you get into that a bit more what's driving that is it increased elasticity as a result of price increases more competitive dynamics peers.
There would be.
Helpful. And then the second point, you are calling out the door.
A one off retailer inventory adjustment in digestive health and in North America, which means obviously, if it's material enough can you quantify that and is that something that you would expect to reverse into Q4. Thank you.
Yeah.
Sure. Thanks, Richard So so first one last time, so I think.
Not concerned about the overall price volume pricing dynamics I mean overall I mean, you've seen that that's still a strong quarter up up double digit.
Revenue.
At Columbia, They still had a COVID-19 wave in Q3, so there they're cycling they're cycling over that I think in Mexico. It has more to do with the shipment of cold and flu that or the difference between the quarters. This year, so nothing particularly concerning to call out I believe the team in that time has done a really good job and keep.
Pushing up pricing in a very dynamic environment, but also maintaining overall the ability to hold to hold volumes.
On North America soon.
I think you had two things so I think the year over year. So first of all I mean.
The decline in digestive health, that's the biggest driver of why volumes by volumes were down both for the North American market, but also for the group overall. So that's the primary that's the primary driver or maybe Q3, a bit bigger is because last year you had built inventory because we have an out of stock situations thats be repeat.
Inventory and build inventory build last year. This year, there was an inventory burn because some retailers decided.
Hold on a little bit less inventory at the beginning of the quarter. Most importantly consumption is still strong. So we had when you look at both the half year and all of a sudden the Q3 number consumption on these products is still it's still up which is the most important thing and I don't expect that's tuned to reverse look I mean.
It's hard to predict.
But retailers are doing but this will not.
It will not repeat or come back in.
In Q4 from our perspective.
Perfect. Thank you.
The next question comes from the line of Cool Young Minimus UBS. Please go ahead.
Thank you and good morning to this and Sonya.
Two questions from me as well please.
The first one is on Vms.
<unk>.
Can you shed a bit more light on the various brands developments in Q3, because it seemed that central your largest brand there accelerated very nicely from low single digit in Q2 to double digits in that Q3, but then emergency remains a drag cultrate was unusually weak and the <unk>.
Local brands in the EMEA Latam had another soft quarter. So first in terms of category growth.
Are you seeing an improvement in Vms and then is it fair to assume that now that the emergency is fully normalized and I would assume couch rate should be back to growth in Q4 that Vms could very soon be back to its medium term gross range ambition of.
Mid to high single digits.
And then my second question is on your multi year organic sales growth guidance of 4% to 6%.
I appreciate it's early days, but can you already confirmed that your ambition is to achieve 46% next year. So in 2024, despite the uncertainty.
Around the respiratory division and the tough comps in China. Thank you.
<unk>.
Thanks Keith.
Let me start with let me start.
With BMS right. So I mean, you can slugged it out central and so.
Really strong about this brand I mean geographic expansion activation activating on the omnicare.
On the clinical trials and the claims that are rolling out globally. So I think the brand is really is really strong and look overall it was pleasing to see that BMS is.
It's back to it's back to growth.
And then you mentioned there were a few of the local brands for example, velocity SMA, which is more of a seasonal brand so very mild summer in Italy, so theres a bit of ups.
And downs on those so not not broadly concerned about these brands also behalf of BMS brand in Russia that we stopped distributing so.
I wouldn't be too concerned about about those and then culture. It was also more of a onetime thing.
<unk> and change in China, and dead last year Southeast Asia was very it was very strong. So again I think I'm not concerned about calc trade also particularly also not for China, where the biggest marketed an emergency.
Well it is what it is good to see over the last few months that consumption has now stabilized so and it's stabilized at pretty much at the 2019 levels in units and then you add on top of that the innovation and the pricing. We did so it's been stabilized and it is now following the patterns, where it was where it was.
Pre COVID-19 of course, it's going to take us probably two more quarters to two land thereabout, So it's going to.
Fully cycled over it but I think it's good to see that it's found its found to place at 19 and now going into the season.
Coming and starting to to grow to.
To grow again, but so I think that will be behind us, let's say in the March two.
Not too distant future and more broadly in BMS I think we remain confident in the in the category and I think it's back to growth now. So we have two strong years of growth in Vms and I think now it's coming back with you now see a bit down but syndrome more than making up for that.
And they're multiyear.
Question, Yes, I think local guys will guide for full year of the dollar without full year results, but maybe I mean for us the four to six guidance is an annual guidance right. It is our ambition that we grow four to six of every year and not just not just over a several year period. That's the first thing the other pieces.
You take a step back at half year, we guided for seven to eight for the full year, that's four to six in the second half and.
Right in the middle on that growth guidance with what we delivered in Q3 had been very confident in our guidance and being in this guidance range for the year as well.
Given the strength of the portfolio and of the business, but that we have.
The continued ability to take price up as well.
Thank you very much.
Thanks, Jim.
Question comes from the line of Citi.
J P. Morgan. Please go ahead.
Thank you good money to the estenson yeah.
My first question.
I put in what you just said in terms of the pricing.
You said the ability to price, but to see early.
On in your commentary you were talking about going forward liberally lower levels.
Pricing that we have achieved this year can.
Can you talk about what kind of.
Pricing that we should be looking at and then maybe is there any.
I'm not sure you can make on cost.
I see this year on how 'twenty 14 costs to be in.
It's shaping up.
2025, excuse me because he is shipping up Mike.
My second question is on <unk>.
So you are guiding for volume to improve in Q4, if I take out the business. He told me the impact three of them.
One of the issue in they just keeping the U S I get to minus zero point to exclude him at the group level is that the ballpark of what you are.
Aiming for.
In 'twenty in Q4, and then in 'twenty four maybe coming back on the previous question on that point and you know like we are seeing just unwind of rhodium that you benefited from in 2022, so here.
Here as well I mean, do you expect that to unwind to be an issue. This is definitely yes.
Okay. Thanks, Thanks for being so so on pricing. So when you look at what we did in Q2, we had the peak in pricing. It was seven 9% it came down to $6 six.
In Q3, as I had said at the half year, right and I would expect that trend to.
Two continued so now it doesn't mean, we're not taking any pricing right. So the team continues to take pricing of course, clearly in the emerging market, where there's high inflation environment, but we also for example, we took more price in the U S. In September mid single digit to low double digit on about a quarter off the portfolio. So I think.
We feel good.
About our ability to take price also be limited price elasticity today so from that.
We need a reassurance that our ability to take and doing that forward now of course, we're mindful on the consumer backdrop, but I think when you look at what the team has done I think we've found properties good spots between pricing and.
And volume, but of course, we're gonna be responsible in the pricing were taken.
Overall in this.
In this environment on the cost inflation I think.
We're down we're down into the mid single digit so that that is clear.
There are you know.
Commodities start coming down, but then I think there's others that still stay.
We're in the high.
Like sugar anything that the sugar related but also of course the thing that's I think the bigger topic right now is labor cost and how labor costs Ebola and.
But again I think what we said before was pricing I think we should have the ability to offset inflationary headwinds with the prior studies that is coming up.
That is coming through.
And then on your volume question. So I think for US I think as I said.
It's going to be better than Q3 was when you look at Q4, so the puts and takes not suitable to recall that helps you.
Do you expect to have a recall of this year and then of course the.
The other direction is a lost year funded in China and contact that took off after the after the change in Covid our strategy in China and.
Then we have this very early peak on a cold and flu season.
In the U S. So as I had guided at half year, you would still expect volumes to be down on cold and flu.
In the second half of the year, particularly in Q4 as well given the given that dynamic right, but you can take a step back from it in aggregate for the business very confident about the 4% to six guidance, we had given for off to that then puts us.
Into into the seven to eight.
<unk>.
A percent range and then going into next year I think it's exactly the same comment right. I mean, you've seen we did 5% growth in Q3 with ups in Thailand, but with puts and takes on as I said, So I think this.
Beauty in this business in my view is the diversity of this portfolio from a brand perspective, and you saw him in.
At the highest single digit nearly doubled that should grow up on our power brands.
That carry that.
The carry that forward.
Categories sort of strengths across four categories that carry that growth and then also the geographic mix with a good part of the business being an emerging market versus developed markets I think that gives us the ability.
And I think.
The strong confidence that we can grow and continue to grow in this 4% to 6% range going forward.
Thank you.
Thanks Helane.
The next question comes from the line of Karen <unk>.
Please go ahead.
Yes. Good morning, all thanks, Thanks for taking the question I for two questions first one is especially a follow up on China, you already provided some insights highlighting D M to difficult comparison base for the pain franchise, how should we look at the coming quarters ahead. This that's going to be.
Something where you would anticipate therefore, a decline or are there also offsets in China.
And the other thing is on the U S. Pain franchise, you mentioned apparel was down mid single digits.
And regarding fulltime on you, particularly mentioned the progress into European markets, how how sprint doing into United States. Thank you.
Yes.
Sorry, I didn't get your last month I got the China, the pain portfolio, absolutely U S. But then you said about it both horrid.
So tiring yeah. Yeah, you you highlighted that full time and is doing well in Europe now that's good from an improvement in Germany, too, but household parent doing in the U S.
Okay. Good. Thank you I got it. So then let me start with let me start with China. So.
I think.
Hmm.
First expand a little bit what happened on trended down so I think I've been bid or in China.
The second kind of Covid wave in may that.
Was over May June then the government in China expected another third way so they told retailers and pharmacies to keep stocking product that didn't happen, so what that and so luckily for us for the our colleagues in China. So ultimately go up and we decided during the third quarter.
It's to ramp inventory down to normalized level.
That was not there was not another another wave now last year of course, you had the big pickup in Q4 and Q1. So we would expect the drag from that on the pain relief portfolio, but when you look at the rest of the portfolio in China I think.
Very strong brands, we see continued growth in the oral care business.
And in Macau trade business and in the rest of the portfolio. So I think yes, there's going to be a bit of a drag on the pain relief.
The China business as we cycled that over but overall feel good about our ability to grow the Chinese the Chinese and Chinese business on Apple in the U S.
Very competitive situation of course advil.
Key competitors.
Tylenol.
They have done very well.
We got a bit of.
Work to do now nothing surprising in the big portfolio likely it'll be half rather than the pain relief overall grew 6%.
All the brands did well and that even with the small drag or the drag they had from pending.
And then Apple goes down so you focused a lot for us to put attention to that we just took a price increase.
On it which will which will support but yes I think it's you know it's one of those where we go head to head with a very strong.
Very strong competitor to them.
And then I think on an on.
Envelope on Walts Orange I mean overall I think that this year I think we've seen we've seen good growth on the on the branded in aggregate.
So I think also it's.
It's doing well.
In the U S done, particularly well in Europe, now I think coupling or coming off you know higher use of of systemic pain relief product that helps voltaren because.
In times when people use a lot of tablets a day.
Then they tends to reduce the use of.
Topical pain relief medicines.
Okay. Thank you.
Yeah.
Okay.
As a reminder to ask a question please press star and one day.
Our next question comes from the line of Chris pitcher Redburn. Please go ahead.
Thank you very much a couple of follow ups and a question.
But are you able to say what I'm trying to growth would have been ex the destocking impact of Finfet and contact I. Appreciate it's going to be this year. The next couple of quarters, just get the underlying growth there and then on the question about volume growth into Q4 can you give us a bit of color about the mix effect, you would expect within that particularly with lower potentially lower respiratory sales.
And then an underlying question India, you highlight the strength of oral health, but can you say, how digestive health performed and how the rollout central it's Dave. Thanks.
Yeah.
I think for me I mean I didn't.
China over all cats thrown right so.
Really don't want to go sort of into the ups and downs right I mean, ultimately they had thing.
The China performance overall is strong the defended was you know both a small drag there on both the pain relief I figure it locally or not but I think I mean ultimately what the team has been doing I think they've offset these impacts very well.
Developed so far and the good news is we have a broad portfolio in China that that carries us through I think on Q4, I mean, yes. So I think as you mentioned right I mean, we would.
Part of our guidance, we would expect volumes to be down in the respiratory now look this is an assumption so we need to see what the season, what the season does but I think that is that is clear.
They are going to be another drag on bended intended because that's when the.
Better consumption and consumption started.
And then when you look at digestive health and others, there should be a small health because last year. We had a recall you had a recall on tons I think that's probably the biggest puts and takes.
And the portfolio and then of course, you have to remove them and so from.
From the model as well I know, it's small, but I think given me close that a bit earlier than we than we expected and then I think the rest of the portfolio I think.
We would expect continued strong a strong momentum in performance.
And then you asked about India.
Yeah.
On India, when I was named digested and it was pretty strong double digits kind of not so much the energy check them out and the like.
In the quarter.
And the Rollouts of Centrum is still going to plan.
Yes.
Yeah.
Thanks.
Thanks, Chris.
The next question comes from the line of Tom Sykes Deutsche Bank. Please go ahead.
Morning, everybody.
Firstly, just on the gross cost savings to $300 million. When did if you could maybe just give us an update on when things should hit the P&L.
Hum.
How much of the $150 million.
To be clear you would expect to spend in 'twenty three.
And just don't stand alone costs, I mean will there be any difference in seasonality in with <unk> 24 versus 23 has been mostly in.
23 versus 22.
Ken just a quick one is there any parts of your Vms business that has seen a GOP one impact the tool and do you expect an impact of a tool people taking.
Switzerland supplement subtle.
So <unk>, taking those medicines to key.
Thanks, Thanks, Tom so sort of on the cost savings. We said the impacts are going to be at 24 and 'twenty five.
We are making good progress we made announcements so we are and given the announcement you know largely impact populations in Europe or in the middle of the rent consultation phase. So it always takes a bit of time, then for the savings to realize because as per labor law.
That we have in those countries that you have to get rid of it.
Yes.
Do you think before people are before people can exit the company. So from our perspective, we made good progress on that.
But we would expect.
The savings to hit in 'twenty four.
And 25.
On the Standalone cost I think.
<unk> is now stable and maybe which is ramping down now the TSA that burns a big amount, but year over year, you get a small benefit and I think that's gonna be complete quite soon so from that point of view. This is history and I would hope that from next quarter on I don't need to talk about standalone costs anymore. Because they are in debate there is no phasing.
There is nothing to.
Worry about that going going forward, we should I put it into bridge now even if it was only 10 million because it was such a topic before but that's gonna be history history now very soon and then look on your T. L. T. One question. We don't think we have a direct impact on from <unk> one.
From consumers potentially changing changing behaviors I mean, ultimately we believe it's a good thing if people want to take care of their health and wellness live healthier. So I think that should be you know overall benefit us.
In my view, but I don't think there's any direct impact and it's also.
Too early to tell what it can do but I don't see any direct consequences on our business at this point too.
Okay. Thank you.
Yeah.
No more questions right.
Alright, thank you so.
We just finished and just kind of a thing.
That's good so thanks, everyone for your time and your interest in Helios.
And as you've seen we had a good quarter and look forward to updating you on our progress next year together with Brian and if you have any questions. Please feel to reach out.
Our team and also worth mentioning we'll be hosting our first haynesville highlights many deep dive that there'll be an oral health on the 17th of December in London, and we will also that caused that so thank you and bye bye for now.
Thank you.
Ladies and gentlemen, the conference is now over thank you for Truecar.
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