Q3 2024 Haleon PLC Earnings Call
Events.
In emerging markets, we delivered 11% growth with China up double digit.
Equally important our growth algorithm continues to deliver operating leverage, particularly from organic gross margin expansion together with strong investment in Tau brands resulted in organic profit growth of seven 4%.
This takes us to nine 7% organic profit growth for the first nine months.
In the quarter, we continued to make good progress against our capital allocation priority we.
We announced an agreement to increase our stake in the China joint venture by 33%.
188% with a clear pathway to full ownership.
This comes after a successful divestment of chapstick and the nicotine replacement therapy business outside the U S.
Together these transactions demonstrate our commitment to optimize the portfolio through active management.
We also completed our 500 million share buyback allocation for the year to an off market purchase from Pfizer as a result, we have now returned over 1 billion pounds of capital back to shareholders. This year.
Finally during the quarter, we raised around 900 million pounds in bonds at attractive rates with strong demands. The proceeds will be used to refinance the $1 $75 billion bond we have maturing in March next year.
Our numbers today are evidence that on track to meet our full year guidance, which I remind you is to grow organic revenues by 46% and organic profit by high single digits.
Turning now to the details of our third quarter results.
Looking first at the drivers of revenue growth.
Revenue of $2 8 billion reflect a six 1% organic growth. This was made up of three 3% price and two 8% volume mix as.
We expected pricing in the quarter were stable relative to the second quarter.
While new mixed accelerators with good improvement in North America, and Asia Pacific is defended comparative other way.
Ultimately all three regions delivered positive volume mix consistent with the expectations. We had previously set out for the second half of 2024.
Net M&A represented a headwind to reported revenue of one 8% as a result of the disposals of Lamisil adjusted as a reminder, the divestment of the NRT business outside the U S closed at the end of the quarter and will impact our Q4 reported revenues as I have previously guided.
Lastly, foreign exchange had a significant impact on reported revenue, reducing this by four 9%, including one point from here hybrid economies. After we implemented capping from the start of this year.
The overall translation impacted the quarter reflect that sterling strength against the us dollar and a number of emerging market currencies. This effect was more pronounced at around 40% of our sales in the quarter occur in September in parts due to cold and flu seven when Sterling was particularly strong taken.
These factors together reported revenue declined <unk>, 6% in the quarter.
Coming back to the makeup of revenue growth between price and volume mix as I've said previously we expected growth to a bit more weighted towards price this year.
2024 would be a stepping stone towards reaching the healthy balance of price and volume mix that we would normally expect.
This is exactly what you have seen as we move through the year with growth in the third quarter now being more balanced to.
To be clear, we will continue to take price as needed and remain confident in our ability to do so given the strength of our innovation our brands and market positions.
Turning now to our performance across the categories.
We delivered broad based growth across the categories, which demonstrates the strength and diversity of our portfolio.
Organic growth was six 1% in the quarter and four 4% in the first nine months.
Looking at the detail starting with oral health revenues grew eight 2%, taking our total for the nine months to nine 3%.
Our key growth drivers in this category continues to deliver with <unk>.
Centered on growth underpinned by continued share gains.
Our latest innovation clinical white is performing well and it's attracting a younger demographic to the brand.
<unk> grew double digits.
Denture care growth normalized as we had predicted.
In line with our expectations.
Vms grew three 7% underpinned by Cal trade, which was helped by our bone up program in China, which is centered around the treatment and prevention osteoporosis.
The step down in Dms category growth from the first half of the year related to Centrum comparisons you will recall that central grew by 14% in the U S and 22% in China in Q3, 2023 and against those tough comparative Centrum sales were broadly flat with the U S flat in China, though.
Performance in China also reflected some channel dynamics, which I'll come back to later importantly, centrum continues to gain share in both of these markets and also globally.
Pain relief returned to growth in the quarter up three 1%.
<unk> is benefiting from our ongoing investment in North America, including the launch of our new topical atmel targeted relief.
Tenant wholesales declined reflecting consumption trends against the strong base last year, plus the Pan brand continues to gain share.
What is higher on revenues are flat to a more competitive market situation across our local growth brands grant kinds of Africa saw strong performance.
Respiratory health revenue was up nine 1% with strong growth in tariff new enrollment Hudson as you'll remember in the first half we proactively ran down our inventory in the U S of oral products containing <unk>.
The quarter, we shipped three formulated cough and cold medicines not containing to eat in time for the season.
In addition, Australian performed well helped by continued strong uptake of our nasal mist innovation.
The decline in LNG reflected in all the destock after week season.
Finally, digestive health and other was up five 9% after we left the destock in North America last year.
Turning now to look at geographic performance, starting with North America.
Organic revenue grew four 8% made up of two 4% price and two 4% volume mix. This included the impact of carryforward pricing, which now rolls off.
Growth in our health was led by sensor line, which was underpinned by share gains from the launch of clinical but VNS also continued to gain share with emergency up low single digit and a broadly flat performance et cetera.
Pain relief grew mid single digits, driven by AD within both hiring respiratory.
Respiratory health with driven by shipments of reformulated, cold and flu products, and new innovation, including soft choose with Terra float and Robert Hudson.
Turning to Europe, Middle East Africa, and Latin America.
Organic revenue increased six 1% made up of five 3% price and 0.8% volume mix pricing in Europe was up around 3% running slightly above the rate of innovation looking to 2020 volume I wouldn't expect price growth in Europe. Some other aid as inflation comes down.
Emerging markets saw stronger pricing as you would expect.
Across the segment with double digit growth in Middle East and Africa helped by our House brands Centrum in Australia, Latin America grew high single digits.
Performance in Europe was more mixed with a high single digit revenue growth across central and Eastern Europe mid single digit growth in northern Europe in Germany, and Southern Europe was relatively flat.
Looking at it by category or a health we saw strong performance from sensor Diamond peridotite.
We continue to see good consumer uptake for a number of brand innovations, including sensitive on clinical white and <unk> strengthen and protect.
And Vms central both up strongly helped by continued activations and strong in market execution.
And pain relief, we saw strong growth from grant funds, South Africa, offset by a decline in tenant all against a strong comparative last year and some shipping delays in middle East and Africa.
<unk> was down given softer consumption trends, particularly in Egypt.
Finally, turning to Asia Pacific.
Organic revenue increased eight 2% and was made up of one 1% price and seven 1% volume mix growth in volume mix benefited not only from the passing of defendant comparative but also from good underlying performance driven by share gains.
China was up double digits with continued strength in cultivating defended.
India grew double digit while Australia, New Zealand grew low single digits.
Looking at performance by category or a health was underpinned by strong growth in sensor volume, particularly in India.
We also recently launched <unk> in the E Comm channel in China, and initial consumer feedback has been encouraging.
In Vms, we saw strong performance enculturate.
Centrum declined against the tough comparative in China last year.
It's also worth noting that has been some weakness in the multi vitamin category in the pharmacy channel, which has been partly offset by strength in the E. Comm channel as I mentioned central share performance has been continued to be strong.
And pain relief faster driven by <unk>, and voltaren, which saw strong growth, particularly in China Panadol declined.
I want to take a moment now to expanded our business in China, which is our second largest market. After the U S. We have a strong position as the number one multinational in the country and have delivered consistent share gains resulting in attractive growth.
This reflects the resilience of our overall portfolio, which capitalizes on our local production footprint, our innovation capabilities and our strong route to market, including our E Commerce business, which now makes up around 30% of our revenues.
As shared earlier, we have agreed to buy an additional 33% stake in the China JV for around half a billion pounds from our JV partners with an option to acquire the remaining 12%.
We anticipate the deal to close by the end of the year and be accretive to EPS.
Full control of the OTC business will have a number of benefits to ADR, including flexible manufacturing across our two sites in the country and optimized routes to market and at a higher level. It further strengthens our position in a huge market, where we continue to see exciting growth potential and where we have.
It continues to outperform.
Turning now to our operating performance our growth algorithm is delivering the six 1% organic revenue growth, resulting in gross margin expansion, which enabled strong investment into our brands. This resulted in seven 4% organic profit growth of 30 basis points of margin improvement despite the.
Bit of a tax credit in North America last year.
Net M&A had the 30 million negative impact mainly from the divestments of <unk> and buzz around the 70 basis points drag on margin.
Finally, it was 69 million pounds or 120 basis points adverse impact from translational foreign exchange.
This impact was greater proportionately than the revenue impact given the geographic mix of costs relative to revenue takes.
Taken together this resulted in a seven 2% decline in operating profit and a 23% margin for the quarter.
On a year to date basis, we have grown organic profit by nine 7%. This puts us firmly on track as ever our guidance for high single digit growth for the year.
Moving on from the quarterly financials, I'd like to take a moment to revisit our capital allocation priorities and our delivery against these.
We remain committed to investing in the business and this remains our priority to drive sustainable long term growth.
You have seen during the year, we have invested in A&P at a healthy rate up high single digit alongside new innovation and the number of projects to drive growth and efficiencies.
We're supporting these investments with our productivity program, which remains on track.
Secondly, I have said that we would look at M&A wariness commercially compelling and consistent with our strategy and that we would be active in portfolio management.
We have done exactly that Mr. Divestments of chapstick in the NRT business outside the U S.
And we have recycled capital into increasing our stake in the China JV.
Thirdly, we are committed to building our track record of delivering attractive shareholder returns and I was pleased to complete the 500 million be allocated to buybacks. This year with over 85% of this being bought from Pfizer.
Turning now to our 2024 guidance.
Based on our good year to date performance and momentum as we enter the fourth quarter, we're confident in our full year outlook.
We continue to expect to achieve organic revenue growth of between 4% to 6%.
Expect another year of positive operating leverage translating to organic profit growth in the high single digits.
We continue to face FX headwinds, which as we previously guided to have around 4% FX translation impact on revenue in the six to six 5% impact on adjusted operating profit.
This assumes FX rates as of October 3rd hole, but we remain mindful of the ongoing volatility in the currency market and we will update you as usual in our next aide memoire.
No change to our net interest expense or tax guidance.
Speaker Change: As I come to the end of my time at helium I'm proud to see that we are delivering strong results and that we are continuing on the trajectory we set over the last few years.
Speaker Change: Our growth algorithm is clearly delivering.
Speaker Change: <unk> achieved attractive and above market growth in revenues with resilient volume mix coming to the floor.
Speaker Change: This has meant that our profit growth algorithm has delivered particularly over the last few quarters.
Speaker Change: This in turn has driven strong cash generation, which has supported our ability to delever.
Speaker Change: The strong delivery combined with our disciplined capital allocation actions has resulted in total shareholder return outperformance, which.
Speaker Change: Which we aim to continue as we deliver against our medium term financial objectives.
Speaker Change: So to sum up.
Speaker Change: We had another strong quarter of consistent delivery driven by continued share gains from our portfolio of exceptional brands combined with strong end market execution.
Speaker Change: We delivered seven 4% organic profit growth in the quarter, which takes us to nine 7% for the nine months.
This leaves us well placed to deliver high single digit growth for the year.
Speaker Change: We're also making good progress on our capital allocation priorities, including investing in the business at healthy rates.
Speaker Change: Proactive portfolio management recycling capital from lower growth areas into higher growth markets such as China.
Speaker Change: And finally, returning over 1 billion pounds to shareholders through dividends and share buybacks.
Speaker Change: Finally, I want to share my personal thanks for the support you have given me over the last few years and to share my reflection as I look back on my career as a CFO of the consumer businesses since 2000 2017 and the failure.
Speaker Change: It's been a unique experience to say the least I.
Speaker Change: I feel an enormous sense of pride looking back on what we have.
Speaker Change: <unk> achieved delivering consistently strong results, while standing up a new FTSE 20 business.
Speaker Change: It's the very definition of building the plane, while you're flying it, but we did and Haley.
Speaker Change: All the stronger for it.
Speaker Change: I've learned a huge amount is underway both before separation as well as over the last two and a half years.
Speaker Change: For sure we've had challenges and it hasnt always been plain sailing.
Speaker Change: But it's how you navigate those challenges and change that I think really defined to you I've learned something from every experience I've had here the good and more challenging.
Speaker Change: I'm excited about what lies ahead for <unk>.
Speaker Change: Opportunity ahead. This enormous hadrian is fighting fit and its going from strength to strength for my own part I'm pleased I'm, leaving having delivered on what we promise and having put the overhangs firmly in the rearview mirror.
Speaker Change: The business is in excellent hands with Dong and Helios executive team and I will be here until the end of the year to support the smooth transition for Don in the finance function.
Speaker Change: But after that I'll be sharing the business long from the sideline knowing that I was one of its founding members.
Speaker Change: All the very best to all of you. Thank you and now that sounds to questions. Operator. Please can you open up the lines.
Speaker Change: Thank you, yes, just a reminder to ask a question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by.
Speaker Change: Having to ask your question. Please ensure your device is unmated likely.
Speaker Change: First question is from Keith del Mar Kim Your line is now open. Please go ahead.
Speaker Change: Thank you very much and good morning to be recast first of all to be us congrats on a really fantastic job over the years and.
Thank you very much for your kind of your cognex or insights and also when it comes to me Youll patients dealing with me all my questions.
Speaker Change: So to my two questions. The first one is on your outlook for 2024.
Speaker Change: In the press release, I think Brian indicates that you are well on track to deliver your FY 'twenty guidance should we interpret this as you being quite comfortable with current consensus expectations at all for almost 5% organic sales growth and 22, 5% operating margin.
Speaker Change: For the year and related to that with only two months left what are the key sources of uncertainty I mean is it mostly cough and cold and foreign exchange or any other factors, we should take into account.
Speaker Change: And then my second question is on your Vms business.
Speaker Change: It's a bit of a slowdown in the third quarter can you just confirm this deceleration is hardly down to a tough comparator for centrum and therefore that we should expect some sequential pick up as early as Q4 and also if you could shed some light on current category growth for us.
Speaker Change: <unk>, particularly in the U S.
Speaker Change: And against that to your market share development.
Speaker Change: Do you continue to gain shares.
Speaker Change: Thanks for ticket through Central Silberman, Thank you very much.
Gil: Thanks, Gil only two questions from you.
Gil: [laughter] picking up what youre, saying.
Gil: Yeah.
Speaker Change: So let me start with the 24 outlooks. So look I think as you pointed out right their writing quiet and Brian's growth. He said, we're well on track I think we're really confident about the year, where we are I think the Q3 results you have seen balanced between price volume, 6% growth I think bodes well for the future.
Gil: <unk> seen.
Gil: We continue to gain market share. So I think we're doing well against the market as well and we're also investing heavily in the business. So high single digit growth in A&P. So we're investing behind our brands, we're investing behind the growth. So I think overall I think I would say a.
Gil: I'm very very confident.
Gil: And our ability and you will understand im not commenting on on where consensus sits overall, but I think these worth were all very very carefully chosen then you pointed them out very rightly. So now you asked about uncertainties.
For the rest of the year. So so look I mean.
Gil: We're guiding to organic so FX isn't consideration icon plan FX, if I could I wouldn't be working here. So I think that it's going to be what it's going to be from what we said on FX is very very clear we put in the Ed memoir, four on the top six months to fix it off on the bottom that is unchanged. So.
Gil: No no concerns here from that perspective and of course, we'll update you with what happened then.
Gil: To October three rates.
As we put up the next at men who are at the beginning of the year. So what are the uncertainties against the organic growth I think cold and flu is an up and down it could be a bit better it could be a bit less you don't know I mean, ultimately what's driven call them too is if there's a spike in December and off that drives you know small up or downside, it's going to be.
Gil: What it's going to be we are ready for the cold and flu season, and we have good and healthy sell in so thats I think all we can do and then we see how many boxes are going around on that the other thing that.
Gil: You don't know about is what our U S retailers are doing so I think we have a surprise in Q1, we have not seen any movements in Q2 and Q3. So I think from that book. If you will has been stable, but this is another one that I think is a little bit outside of our control to manage so that's probably the bigger the bigger things out there, but again see continued.
Gil: <unk> continued performance and we expect continued outperformance against the against the market growth rate.
Gil: And then moving through your Vms question. So.
Gil: Yes, BMS was slightly lower than Q3, but I think taking a step back nine months seven 3%.
Gil: Growth overall in the category Centrum op.
Gil: The upper end of mid single digit Cultrate up double digits. So I think strong year to date performance and.
Gil: And you rightly pointed out the big comparative and dose competitors are gone they won't be there for Q4, which ultimately means BMS is going to be better in Q4 than it was in Q3 and from a share point of view, we continue to gain share. So I think both globally, but also into key markets and by the way in a healthy category. So the Vms category.
Gil: We still have growth around mid single digit and we're outperforming that so it's very much on our long term growth algorithm and also our nine months southern with 7% is exactly where it should be growing ahead of the category.
Speaker Change: Thank you.
Speaker Change: Thank you very much.
Thank you. Our next question is from David Hayes from Jefferies. David Your line is now open. Please go ahead.
David Hayes: Thank you good morning.
David Hayes: I'll just go for two I guess as well so just firstly on the FX leverage effects in the quarter. Obviously it was running at about two times the sales effect.
David Hayes: For the full year going to about one and a half.
David Hayes: So just wanted to I know we've kind of.
David Hayes: Do this before a little bit, but just to understand is there anything specific in the third of course, the essential weights that pull through or was it just the absolute numbers being zika or should the effects on the operating profit level be smaller in the fourth quarter for some specific reason and then the second question just on the China OTC changes does anything change in terms of your visibility and <unk>.
Running of that business and I guess, what I'm getting at there is have you got visibility on levels of inventory in the market at the moment.
David Hayes: And is that something that you may have to look at as you get more control, where maybe run a leaner levels here, we got get some destocking early next year anything like that it's all that you'd flag is going on in terms of sort of ongoing due diligence in that process.
Speaker Change: Thanks, David So on FX to correct. The multiply it was about to I mean first of all I think you should view that as an outlier and I'll explain in a moment why that is so the ultimate that a multiplier reflects a bit the geographic mix of the translation and that of course again sort of the mix of costs.
Speaker Change: <unk> fits as well and what made Q3 a bit unusual is probably is treat treat things right. One is in Q3 and particularly in the September months, you have but you've still got sort of the biggest exchange rate <unk> the dollar against the third.
Speaker Change: You had last year, the lowest points reached in Q3 and actually in the month of September and this year, we reached pretty much the highest points that you have and you have about 10% FX difference.
On the on the dollar between between that and then what makes this particularly painful for US is that our sales are weighted to September. So we sell a lot of the cold and flu into September in the September month, So we get an over proportional impact on that and of course, these cold and flu sales are profitable sales.
Speaker Change: And then you add to that that there is no A&P against us because we're shipping that stuff being ready for the season, but then were advertising for it in Q4 and that's also as a result Q3 has the highest profitability in the year. So you get higher sales with shipping and you get better profitability, but you don't get the funk the cost protection from.
Speaker Change: It because you're not you're not advertising in it and I think that's what.
Speaker Change: I think particular to Q3, so I would see it as a bit of in and out there because normally you get in the other quarters a bit more naturally hedged on the <unk>.
Speaker Change: On the cost line to offset it and then the last thing is as a reminder, we implemented hyperinflation accounting from Q1 of this year, we didn't do it last year.
We could have and restated last year, but it was not material for the group last year, because it only started to come up in Q3, and Q4, and we spared ourselves and all of you the pain of doing a restatement of the last year.
Speaker Change: But it means it wasn't there last year. This year now so you get about a 1% on the revenue that comes from from this different and we'll leave that behind US. Once we are in Q1 of next year as well. So those are the FX, calling on China OTC. So.
Speaker Change: The good news is on this we've been running that business David right. So I think it's a joint venture it Hasnt joint venture Board, we have the joint venture partners off the board, but it was operationally run by our team. So so that was while eight.
Speaker Change:
Speaker Change: We have control of the business given it being a majority owner, but secondly, we ran it operationally. So I think from that point of view, we have been tracking the <unk> performance to sell outperformance we have been setting the the sales practices in the market. So I think from that point of view this isn't sort of a.
Speaker Change: What you normally expect in an acquisition, where you acquire a business that you have known we noticed business by the way. We also rounded for the accounting on this business all the finances everything operationally is done is done by us but of course, we shared the profit of it and have to agree.
Speaker Change: Our strategic directions, and bigger decisions with the joint venture Board, what we will do in China now with the integration allows us is to merge to field forces, yes, So I think that.
What we have to go through now is an integration of two separate field forces into one and we believe this will be beneficial, but that's probably the short term. The short term noise. We have to we have to work through so I think that's I think where to focus is on is on this integration.
Speaker Change: Which by the way is already underway.
Speaker Change: Thanks, David.
Thank you. Our next question is from Ian Simpson from Barclays.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Good morning, <unk>, just to kind of those comments about thanks for all your help and support over the years and very much hikes that you have.
Speaker Change: A fantastic time doing something a little bit different in the years to come.
Speaker Change: Two two questions for me if I if I may.
Speaker Change: Wondered if there was anything systemic happening with pan at all because it just seems to be struggling a little bit and quite a few markets I think you called out Middle East Africa.
Speaker Change: But severe Australia may.
Maybe somewhere in Asia Pac I was just wondering if there's anything kind of compressed just turn up the dial or whatever or is it just a coincidence.
Speaker Change: A lot of pattern at all markets seem to ton south at the same time.
Speaker Change: And then my my second question is around some of them.
Speaker Change: Well clearly that's launched pretty recently, so I'm guessing you have much in the way of sell out data yet, but last night just here. What you do have but are you able to share anything on retailer appetite keep a rock song.
Speaker Change: Now broadly distributed is in U S stores versus your.
Speaker Change: Spectation for this point in the launch thank you so much.
Speaker Change: Great. Thanks, Thanks very much.
Speaker Change: So I think Thomas tenant also handled all the good news is the vast majority of markets, we're gaining or maintaining share. So that number is well above the 80% Mark. So I think from a competitive standpoint, I think we're doing fine. So I think not worried about that what.
Speaker Change: What we have did not get right as we were planning for this year is as we expected.
Speaker Change: We didn't realize that there were still more use of panadol last year, because there was still a triple that make or RSV whats going around in some places COVID-19 will still going around.
Speaker Change: And cold and flu was going around and that was more use of those of those products that we thought there was so we got a bit surprised by that dynamic.
Speaker Change: This year, because we sort of had underestimated that I think that has normalized now so I think that's now out of debates.
Speaker Change: And ultimately the data point on upscaling and maintaining share it helps us it's a market dynamic.
Speaker Change: It's the overall market and not and not not just US and then look there were some nickels here or there about middle east with some shipping delays given the geopolitical and some shipping lanes being blocked say smaller things like that in Australia, we had one of the retailers destock.
Speaker Change: Destock a bit but I think these are you know small tiny point, so no concerns on panadol and its performance more normalization.
That has happened this year and you know that.
Speaker Change: They are a bit bigger than we than we thought it was going into the year.
Speaker Change: On <unk>, so yes, we launched.
Speaker Change: We started with.
The shipments pretty much the first after the first of the quarter.
Speaker Change: <unk>.
Speaker Change: Hum.
We pre launched it or E. Com a few days earlier about shipping really shipments started very early in the year way too early to tell.
Speaker Change: Talk before Rod we're building a new category.
Speaker Change: And the new part of the shelf.
Speaker Change: Uptake by retailers has been very good so we're that above 80% and sometimes even higher.
Speaker Change: Distribution in our in our biggest customers.
Speaker Change: All of our big retailers, all the big customers have taken it so I think thats been good it's been good uptake on the product and there were also ready to do a shelf reset outside the normal the normal time, which shows there is support there is good retailer support also in terms of advertise a placing of materials and the <unk>.
The trade because the retailers agreed this is an attractive an attractive an unmet consumer a consumer need.
Speaker Change: We fully launched advertising towards the middle of October So that's when we kicked off advertising.
Speaker Change: And we use the NFL as sort of the big kickoff and we did big advertising during NFL games that ticked off and I think that is then do you see that in directly translating especially on the E comm side into a into the demand. So we're starting to see sales come through so.
Speaker Change: Distribution is there we're activating now so all of that has gone I would say <unk> very well and then we'll we'll see what comes from it. So I think excited about it but way too early to tell.
Speaker Change: Say, where this is going just given it's a new category.
Thanks again.
Speaker Change: Thank you. Our next question is from Russia Cohen from Morgan Stanley. Your line is now open. Please go ahead.
Speaker Change: Hey, good morning, Thanks Rakesh.
Speaker Change: <unk> and again congrats to be assigned.
Done.
Thanks for all the help through the last few years and wishing you all the best going forward.
Speaker Change: Just a couple from me please.
Speaker Change: On the U S. So in the slides you mentioned the overall market in North America, improving can you speak about what you've been seeing there in terms of underlying trends and what's driving the improvement and then the second just on cold and flu I not to be so you touched on it a little earlier.
Speaker Change: It seems early reads are suggesting a slightly weaker trend versus last year, and especially kind of what if you look at one of the slots that you guys put through.
Speaker Change: It's still too early to make a call in season, but what have you seen in terms of retailer purchase patterns in Q3, what type of season are you guys planning for internally. Thank you.
Speaker Change: Good thanks.
Speaker Change: Thanks, Brett shot so for the U S market overall, you remember the last few quarters is that the market isn't volume decline.
It's showing small value growth given the pricing that was rolling through that has improved the market on a year to date basis is now flat in volume. So it does come back to flat, which means that more in the more recent weeks its gotten into volume growth because of the volume decline is offset so I think that's positive so we're coming back to volume.
Speaker Change: So people are probably beyond the destocking on their pantries.
Speaker Change: And again, our products are bought on a needs basis. So I think we're seeing that supporting the market and of course, you still have price growth, but of course that price growth is moderating as we're starting we in all I think most of our competitors are starting to roll off the price increase that they took and also in the U S price increase they used to be taken.
Speaker Change: At different points in the year usual lines of shelf resets.
Speaker Change: You don't have to look as once annual pricing that you have in Europe, and the U S. It takes a few quarters to sort of step wise to stepwise roll off so I think overall I think a.
Speaker Change: Still the market is flat in volume, but on an improving on an improving trend, which is which is positive and we've outgrown the market. Both in volume terms and of course in value terms as well. So we've been gaining share in the U S. On advanced majority of our portfolio. So I think again that is positive.
Speaker Change: So I think that the.
Speaker Change: Q3 numbers I think also put sell out and sell in.
Speaker Change: In the same sort of the same range with each other which is I think which is which is positive positive development from my perspective, it looks still early right.
Speaker Change: Sort of I would say.
First signs of first signs of an improvement, but I wouldn't call that victory victory, yet on cold and flu. So I put the U S. Slide in the appendix of my slide deck and.
Speaker Change: The last few weeks the first few weeks of the season, a little bit off of those a bit down honestly I mean, I think through the summer it was slightly higher than the early weeks were slightly no but it's in this into my new shot right and when you look at the slide ultimately what makes the season is the spikes that comp and whether there is two spikes III spikes in these bikes are.
Speaker Change: Double or triple the weekly demand if they spike up and that's what's going to make to make the season. So I think from my perspective way too early to tell the U S might have been a bit less the first few weeks, we have other markets across Europe, where it's been a bit better and don't forget the vast majority of our cold and flu sales are outside the U S. So I.
Speaker Change: I wouldn't read everything into into USD.
Speaker Change: The sell in has been good so I think you saw 90% respiratory growth globally.
Speaker Change: You know the effect that that reversed out I mean, thats four points on the category for the quarter. So then it's probably mid single digit and then by the way includes.
Speaker Change: Destocking analogy as well so I think very healthy sell in which actually tells you. We've done the right job in March of April and taking the inventory out after the season, so retailers, we're ready to buy into the inventory to buy into the season and ahead of the season in very similar terms as they have done in the prior year. So that's.
Speaker Change: All we can do we can sell in we're ready for the season, we shipped we have stuff in our warehouse and then the rest.
Speaker Change: The box will tell us how they go around and affect some of us more than some of us a bit.
Speaker Change: Some of other bits of SM.
Speaker Change: Thanks, Tricia, Thank you very much very clear.
Speaker Change: Thank you. Our next question is from Celine <unk> from Jpmorgan. Your line is now open. Please go ahead.
Speaker Change: Thank you and congrats to BS on that caveat.
Speaker Change: I'll come back to you.
Speaker Change: And my second question is on them.
Speaker Change: Mix benefits, thank you I'll mentioning and.
Speaker Change: As we look into the fourth quarter I'd, just like to understand a bit the moving parts and so it seems that you are flagging that pricing.
Speaker Change: Normalized from Q4 am I right in thinking that and then it means therefore, that's probably we should see a step up in volume in the fourth quarter and Thats, what I would like to.
Speaker Change: He could do.
Speaker Change: Just understand the key driver because from what you just said it seems that there was fully repaid the 40 basis point benefit in Q3 from that.
Speaker Change: The piece and the non PC new product so could you help.
Speaker Change: Help us understand where does step up will come from and especially as I look at Europe trying to undo.
Speaker Change: Why.
Speaker Change: Thank you Melissa.
Quite a few.
Speaker Change: Thus this expectation.
Speaker Change: My second question.
Speaker Change: Between it keeps that.
Speaker Change: On the margin outlook for the year.
Speaker Change: In the first half your organic margin was up 100 basis points. In Q3. It was up 30 bps you are flagging more E&P I believe in the fourth quarter in terms of the flu and it makes sense I was wondering whether we should expect assuming a path.
Speaker Change: In margin for the fourth quarter and they'll give you <unk> what you did in each one.
Speaker Change: Thanks Helane.
Speaker Change: Happy to go through those so lots of moving parts with price and volume. So I think my comments on pricing coming down are probably more expensive five right. So I don't think there is a there is anything there is a stepping stone and price expectation for Q4, right. So I think that the reason is.
Speaker Change: Europe has been very stable stepped on in Europe was Q1, where you still have to rollover from prior year. Then all the pricing is largely set for the rest of the year. So you should expect that to be stable going forward Asia has been pretty stable on it and I think also in the U S.
Speaker Change: It's fairly it's fairly it's fairly stable, you'll always have you now.
Speaker Change: Sure.
Speaker Change: Bigger markets, you might have a point up or down which depends on the mix you do and it depends on the on the gross to net you'll have you'll have running through so I think small small moves quarter by quarter I wouldn't get overly excited about but I think that the.
Speaker Change: Most important message for me, it's about we you've seen us coming back to a balanced between price and volume is exactly what we predicted that the volume growth comes and picks up and that has happened and we've looked and we see that trajectory continuing into <unk>.
Speaker Change: Into into into Q4, so that's why I'm also on my slide, giving you a bit of the history.
Speaker Change: As we went.
Speaker Change: Through the year, and then I would expect going into 'twenty five months more balanced between price and volume and loan balance again 46060, 40, it's not exactly 50 50, but we're getting back to that longer term algorithm that we think there is but for 25 log prices and look go back into history long longer.
Speaker Change: Pricing, usually balls around Verde inflation falls right. So I think as inflation comes down you would also expect the price impact. That's this year receding and then secondly of course, we have this rollover effect in Q1 of 'twenty four that will not repeat.
Speaker Change: In Q1 of 'twenty of 25, so look very confident that a volume step up we have Ericsson launch we have.
Speaker Change: Heavily investing in healthy investing into our brands. Our A&P investments are are good our key growth drivers and our deliberate and we're also leaving some of the some of the comparative drag in Q3 behind us. So I think that all bodes well for continued.
Speaker Change: Continued volume growth going into into Q4, and then on your margin outlook. So.
Speaker Change: Yes, we have more modest growth in half one I think Q Q3, just to point out we had the onetime benefit from the.
Speaker Change: So you have the tax credits or the MPW tax credit we got into the U S that was material for the quarter. It wasn't material for the year. So from that point of futures. That's why 30 bps in Q3 was a bit less than what you would normally.
Speaker Change: C C coming coming through but yes, you're right. We're investing we're investing in the business right and that's also a bit of timing of efficiency. So we have efficiencies came through quite strongly in the first.
Speaker Change: First half so I think that.
Speaker Change: It's a bit more frontloaded than.
Speaker Change: Backloaded ultimately I would say take a step back nine 7% operating profit growth year to date very well on track for the year end guidance on.
Speaker Change: And I think probably I would take the year to date performance more of an indicator on nine 7%.
Speaker Change: Organic profit growth.
Speaker Change: Thank you let me just ask it looks there.
Speaker Change: Oh.
Speaker Change: What kind of number are we looking at for this first quarter, where you're launching a real looking at too. So long run rate of 100 million for 12 months, you see like 25 million per quarter, we should be.
Speaker Change: Thinking about.
Speaker Change: So I.
Speaker Change: I would wish it would be simple to model right I mean I think.
Speaker Change: And I think the answer is simply Idaho, though right I think the good news is the retailers have taken the product and its on shelf. So you get the shelf builds that we've done.
Speaker Change: And in October and that's positive right. So that gives you a nice distribution in the first pop up in sale now. It's a question of obviously into Reorders, obviously to repeat is that coming back and it's a new category that we're building and that's what is the piece that is hard to it's hard to estimate right.
Speaker Change: So from my perspective, I think way too early to indicate that will tell you in Q4, what happens or the full year results.
Speaker Change: And I don't think this is one that you can exactly guide on and more.
Speaker Change: So now I mean, I said before in Investor meetings, and with you guys that the reason we're doing this is because there's an unmet consumer need and we believe it's worth building a single market brands to do that yet.
Speaker Change: And we would only do this if we believe there is a potential of $100 million plus in revenue, but that doesn't mean, it's going to come tomorrow or in the first quarter. This will be a slow build.
Speaker Change: Because youre not going to build a new U S brand for 20 or $30 million of revenue that's not enough. What you need to have sustained a brand in the long run the right. So I think we have an ambition that it's $100 million or more.
Speaker Change: That's what we have to see as we execute on our plans here and I think the execution. So far has been good. If you have time look a bit of the advertising that's out there I think it is I think the team has done a really good job in starting to us on that but I think it's a new category for us for the retailer and for the consumer and that's what let's just take a little bit of time.
Speaker Change: Thank you.
Speaker Change: Thanks Lynn.
Speaker Change: Thank you. Our next question is from Victoria Petrova from Bank of America, Victoria Line has now been please go ahead.
Victoria Petrova: Thank you very much and to be a silver best to you and thank you for all your help I have a couple of small clarification questions first is on pain relief outside of what we already discussed first of all are you happy with your ideal market share.
Victoria Petrova: Who are you gaining of gains specifically in the U S is there any more dynamics to expect and how should we think about market share in voice.
The performance is mix thing is there anything in the base just to keep in mind or maybe advil.
Victoria Petrova: Topeka launching impacts it as well and my clarification question is about the this benefit vertex created in North America.
Victoria Petrova: How much was it.
Speaker Change: I'm not sure I could find it in your last year press release, how should we adjust for it in the third quarter, what's that adjusted number would be and you said, it's not material for the full year, but again.
Speaker Change: Does it suggest.
Speaker Change: Some incremental basis points in Q4 versus Q3 on the operating margin side. Thank you so much.
Speaker Change: Good.
Speaker Change: Thanks.
Speaker Change: So look on pad build in the U S I mean.
Speaker Change: You might remember a year ago.
Speaker Change: <unk>.
Speaker Change: We had a bit of issues and we said we needed to reinvest the brown reignited and get to a turnaround and that's what the team has done right. So I think over the last 12 months. This has happened on a year to date basis, we're gaining share.
Speaker Change: Initially going into the year, we're still losing share, but it's actually really good because that means in Q3.
Speaker Change: Actually outgrowing outgrowing the market right. So the pain relief market in the U S is healthy and we're growing against it and by the way that of course goes again.
Speaker Change: Powerhouse in the U S, which is tylenol buy can view so it is highly.
It's highly it is highly competitive and I think the.
Speaker Change: We're winning again with optical which is important and yes, there is new launches coming back topical, which we need to learn but ultimately the most important thing was getting the core brown back to back to share growth and Thats. What has happened right and I think if you didnt pull it up too.
Speaker Change: And then you asked about both holleran, yes, there you know, Germany, not going well right now, but I think that's what you always have a little bit what happened at the last year, we turned it around in a portfolio like ours, you always have a brand in a market or a brand and a couple of markets here or there where you have something happening that either specific to the market or.
Speaker Change: Two two a few markets that then you'll have to fix sometimes it's your own execution, sometimes it's competitive pressures.
Speaker Change: Or a combination of this and I think that's totally normal but the strengths for US is the strength of this portfolio that ultimately the whole category was still growing 4% with one or two not doing well.
Speaker Change: That's the that's the benefit and I think from that point of view I would not it's nothing to be concerned about and our policy is we just want to be open about what's going well and what isn't.
Speaker Change: So you can get a bit of a color around it.
Speaker Change: Around.
Speaker Change: What's happening and I think we're on it and we'll update you as it as it goes but I don't think there is a fundamental issue in the independent category.
Speaker Change: Anywhere to be concerned about and then on the tax credit no. We have not disclosed what the numbers are so so you couldn't find it.
Speaker Change: Because we said it wasn't materially for the late for the year.
Speaker Change: As a result, but we wanted to point it out for the quarter because for the quarter. It is what's a more material number and that's why.
Speaker Change: The margin accretion was equal patient Mark only 30 bps.
Speaker Change: In the quarter.
Speaker Change: So that's just to keep in mind and yes. This was a Q3 event last year. This this drag is not there for the Q4 quarter end.
Speaker Change: Thank good time, thank you.
Speaker Change: Thank you. Our next question is from Carlos <unk> from Kepler. Your line is now open. Please go ahead.
Speaker Change: Yes, good morning all.
Speaker Change: Thanks, Tom for all to Hell of the years I have two questions. The first one is just coming back to the currency impact.
Speaker Change: And we know it's difficult, but what prevents you from basically building up more fixed cost structures outside.
Speaker Change: U S Europe, and China were adequate to peak of your fixed costs are.
Speaker Change: Recently, it kind of Big assessment project in Ormeau business in England, and why not somewhere else.
Speaker Change: Haley and less able to find the right tenants in this market infrastructure.
Speaker Change: What prevents you from asking a more global footprint in other markets.
Speaker Change: And then the other question is on digestive health and that seems to be much more predictable and robust.
Speaker Change: And then historically at least in the most recent quarters.
Speaker Change: Why is this and how much is digestive health in that business or in other way are the bigger core prints, becoming a bigger part of this business units. Thank you.
Speaker Change: Sorry, I lost you on the last one so you said on digestive health can you just repeat that.
Speaker Change: Do you have to align to justice and harder and that's why I always get choppy.
Speaker Change: And now it seems robust and more predictable we know you've sold some lower growth trends. So I was sort of in relation to that.
Speaker Change: You said more predictable.
Speaker Change: How much are the core prints between brackets of that.
Speaker Change: Even if nowadays.
Thank you.
Speaker Change: So on your currency question Youre asking.
Speaker Change: So to go to longer longer term strategic where the footprint is so first of all.
Speaker Change: We're doing exactly that right I think as we you know part of our part of the efficiency program is building up structures for example in India.
Speaker Change: Where we shift and we've shifted already quite a few head count from the central markets.
Speaker Change: They're so and just to bring that to life I mean, when we spun out of GSK, our our capability Center in India had a head count of about 100 people were up to 700 now so I think.
Speaker Change: So we're doing exactly that but these things take time youre not doing that you're not doing that you're not doing that overnight yeah. So for us in the FX footprint I think.
Speaker Change: The biggest block is clear that you have the sterling fixed cost block that is stable and we're addressing that with efficiency program along the way.
Speaker Change: On your question on the oral care facility I think look this is this is the crown jewel of our portfolio. This is about know how and this is about stability right. So and I think that you want to have that in one place and I think when we looked at renewing this facility and by the way. The facility is 60 years old and this is an app.
Speaker Change: Need it's not fit for the Crown jewel that it is in our portfolio. We made a very conscious decision that this stays in the states and the UK given the knowhow and expertise we have.
Speaker Change: And it was not worth risking risking.
Speaker Change: Risking dacha outside that in the UK, we have a headquarter, but you know I think our cost base in the U S. In the U K is and isn't that high and then any other markets actually we have a pretty broad alignment because our manufacturing footprint largely isn't the same currencies or in the same broader regions, where the products are also sold right.
Speaker Change: The U S over 80% of what we sell in North America as manufacturers in North America, China, I think it's over 90% China for China. So there is a there is an alignment and then by the way we've done something similar with the debt and the earnings so our currency of debt is broadly aligned with the currency, where we already have.
Speaker Change: They are on the money. So look ensure we're doing things, but there is no. These.
Speaker Change: These things take time to to hopefully minimize some of the exposures, but you'll never be able to make them. All go away then on digestive health and others. So yes, youre right. The other part is getting smaller so now digested.
Speaker Change: Without other is around 60% of the of the revenues in that.
Speaker Change: That's the more stable part of the portfolio right I think under digested you hop brands like Tums, which is always has been going very well next year I'm, not so well, but I think in the aggregate and with INO.
Speaker Change: Very confident that it is a more stable category is a strategic category for us with the market leader in it and that will grow and smoke has gotten smaller because we divested we divest it outside the U S. And then I think also what's left now in skin is actually over the counter medicine pharmacy sold skin care products like a backdrop.
Speaker Change: And China is still in Europe, So core core products that sit on the pharmacy shelf and also does tend to be a bit a bit more stable. It was really the smokers health business that was an up and down and also Chesapeake with more cosmetic products that have the ups and downs right and then of course, we still have the U S smokers business, which in my view is still.
Speaker Change: That's going to carry some some variability, but it's a much lower lower share in that category.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you just a reminder to ask a question at Star followed by one on that.
Speaker Change: Next question is from Tom Sykes from Deutsche Bank. Please go ahead.
Yeah morning, everybody excuse me I appreciate a long call so.
Speaker Change: Trying to get here just quickly just on EMEA and Latam.
Speaker Change: <unk> bin.
Speaker Change: Abstention, great strides within the division.
Speaker Change: Would you be able to just explain why you've had some nice success in respiratory it looks like last couple of years, it's probably been place.
Speaker Change: Close to 40% growth in a fairly high margin.
Speaker Change: So where does the growth come from.
Speaker Change: And then in your account.
Speaker Change: You released that he had previously with vessels or prior year.
Speaker Change: Write downs of inventory I think last year. It was about $74 million I was just wondering what categories is that.
Speaker Change: Tended to be in and it's not normally acute.
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: Okay.
Speaker Change: Okay.
Okay.
Okay.
Speaker Change: Alright, I said.
It didn't say, 40% of the growth I said, 40% of the business in the U S. Right. So I think our geographic mix on on respiratory is skewed to outside the U S right and I think the reason I said this is that there's a lot of U S market data coming through in cold and flu trends because you get pretty much daily data rolling through from that and I think you shouldnt take it.
Speaker Change: At least for our business sort of a read across from what the U S is doing on a daily on a daily or monthly on a monthly basis right. So for US respiratory is a core part of the portfolio.
Speaker Change: Everywhere, it's a core part of the.
Speaker Change: Pharmacy business, which is very big in EMEA Latam because the pharmacist need to have these products on shelf similar to pain relief product you need all the respiratory products on.
Speaker Change: On the shelf and in Europe, we're focusing here on two brands one is Tara flu, which is sold into the markets under the brand name of Nielsen It wrong and then on <unk> and then also remind me how the major innovation with nasal mist. So I mean, you all probably know from your childhood hi.
Speaker Change: How we all hated nasal drops in nasal sprays, because it's like shooting shoot.
Speaker Change: <unk> have gone up you're up your nose and we did this new innovation, which is the miss so which is much easier to take and actually should sort of take this either.
Speaker Change: Barrier of using a spray that'd be all experienced those kids in growing up away and I think that that innovation is rolling out.
Speaker Change: Across across EMEA.
And and.
Speaker Change: And that time right. So.
Speaker Change: And then on.
Speaker Change: So and that's where the focus is on EMEA Latam and being sell in was quite normally we sold and are ahead of the season as we always do and now we're ready to we're now ready to go and look how how the season.
Speaker Change: Evolved right and then I think on your reversal I'm.
Speaker Change: I'm not sure about inventory risks I mean, we reversed chopsteak in Hammond.
Speaker Change: Because that we have inherited we had it imperative it more last prior year and then we got a bit more money for it as we divested it if that's the one you referred to if that's not the one maybe we follow up with cash.
Speaker Change: Cash off of our installment we clarify that question for you here.
Speaker Change: Okay. Thank you.
Speaker Change: We currently have no further questions I'll hand back to Beth.
Speaker Change: Thank you very much thanks, a lot for your interest so before we close off the call to formative outcome, Don Allen to hurry up.
Efficiently thoughts as CFO tomorrow.
Speaker Change: Okay.
Speaker Change: Okay.
And look please give her the same boring outcome you gave me when I started as CFO a.
A few years ago, and also Don will be with us at the analyst meeting later today and also who will be joining me at upcoming upcoming investor conferences and meeting. So we're both looking forward to seeing you all so for this today Goodbye and see you. All soon thank you very much.
Speaker Change: This concludes.
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