Thanks for joining us, and it's a pleasure to introduce you to you today, Tobias Hestler, CFO of Haleon. We also have Callum Elliott here today, who until recently covers U.S. Staples and will soon be taking over from me. Clearly, they both got the memo to wear gray, light gray suits on the day, and I didn't get that memo. But with all of that aside, Tobias, thank you very much for being here today.
Sure.
You know, what a difference a year makes, right? Or what a difference just six months makes in terms of the perception of Haleon, right? Market perception has changed quite a bit. Initially, for the first probably 18 months, you know, "Can you really do 4-6%? Can you really do 4%? I only get to 3, 3.5." Those are probably the most frequent questions in there. So now people probably are there genuinely, you know, it's feasible. But in this industry, nothing ever lasts forever, right? Things always slow down
Yeah.
Things decay. It's natural for that, and quite a few brands are not exactly spring chickens, but a bit older brands already. To maintain over a long period of time, talking five-year plus, this level of organic growth, do you need major innovations? And I'm not talking about a different color or a different flavor, but new categories, new platforms, to be able to maintain this.
Yeah, thanks. Thanks, Bruno. So, I first of all, look, it's very good to see that the market now starts buying into the story. I mean, I sort of probably over a year, we started to. You know, the belief was building. Now, it's also coming through in the share price, which is what we had hoped to see. And we knew it would be a longer education journey, being a new segment, a lot of skepticism where we came from. So I think we started probably more in the negative, and we had to earn that, we had to earn that trust, and it's pleasing that this is coming through now, and it's also reflected in the valuation.
On your question about the four to six, I think, I mean, ultimately, this is, I mean, our medium-term guidance, four to six. We're very confident that with the makeup of the three categories, big three categories we play in, we can deliver that. And also, when you look at it from a geographic footprint point of view, that, with the mix of 35% of the business in emerging market and that broadly spread, we can deliver this four to six with what we have. So, we don't need to enter totally new adjacencies or segments doing that. Of course, there's things that will help, like the Erectile Dysfunction brand launch that is coming, getting us into sexual health. But again, the go-to...
The value chain is totally the same. It's on the same shelf. It's the same buyer in Walmart. The production is very similar, so I think it fits the chain, and we have the capabilities. Of course, you need innovation. I think innovation plays a major role in the higher innovation categories that we operate in. So that's clearly oral care, where the innovation rate is well into the 20%. That's sort of what the industry also needs to do. And of course, that has the smaller stuff, the colors and all that, but also it has the bigger innovations. And also in vitamins, minerals, and supplements. Again, a higher rate of innovation that is needed.
And then you have the over-the-counter medicines, where the innovation rates tends to be a bit lower. But look, the growth ultimately comes from unmet consumer needs and from the penetration opportunities that exist, either from a geography point of view, from a customer segment point of view, or just from the disease or condition states that are there.
And you mentioned the sexual health brand-
Yeah
... you're launching in, in the US. I know it's uncertain whether it will, you know, resonate with consumers or not.
Yeah.
But what does good look like, if it is successful? Is that a 50-100 basis points extra volume growth for four to six quarters, or is it bigger, is it smaller?
So, look, I think it's very hard to estimate what the sales numbers are, right? And I think it's a new segment, it's a new brand, a new subsegment. It's a new brand showing up in a new subsegment. When you're in front of the sexual health shelf today in Walmart, what you find there is condoms, you find lubes, you find things that have certain sensual effect. So now you come, we come with the first erectile dysfunction product that's then gonna be in a sea of lubes and other things. We first have to sort of establish and educate that there is something new and that it's different, and it's not just another lube, right? Because ultimately, you know, it's a polymer, and it's a small tube.
So I think there's work to be done to educate the consumer. The need is there, absolutely unquestioned. The need is there for something that is scientifically proven and FDA approved, so I think that ticks all the boxes. So, we have the capabilities of doing it. So yes, we should absolutely go for it. In the US, I think you wanna have a brand needs, from my perspective, a single brand needs to be a standalone brand, over time, at least $100 million plus in order to sustain it. Otherwise, you can't have the innovation, the marketing machine behind it, in order to get the returns on it, but also get the further growth.
So that should be sort of the, you know, the ballpark of what you should achieve at a minimum in success. And we can see how big it gets, right? And how big it can get. And also, we of course don't know if there's any switches happening on any of the pharmaceuticals that are there. So look, exciting. It's been on pre-order. It's gonna show up on shelves, so we're for sure gonna talk more about it in the next quarters to come.
In terms of innovations and new platforms, at the moment of the IPO, you talked about two Rx to OTC switches.
Yeah.
Then you should say there was some delay.
Yeah.
... you talked very little about them. Are they canned? Are they delayed?
Yeah, look, they're still both active projects. We're working with the FDA. I think, us, like many of our competitors, have difficult discussions with the FDA. They put out a new set of rules that actually we thought should help the industry to do. I think the interpretation at the FDA seems to be slightly different. So I think there is quite a bit of work to be done with the regulator, and that just takes time. And we've always said the switches are incremental to the 4%-6% growth algorithm.
If they come, they're a little bit, "icing on the cake." And that those are the years where you should expect more growth to come from the business. The investment in them are absolutely manageable, right? So I think this is. These are not, these are not huge P&L. It's not a huge P&L drag. That's why it makes sense to do them and keep doing them, because they're clear unmet consumer needs, right? But. And also, look, we've always said these aren't easy ones, right? These aren't the switches, switches that were nearly certain virtually certain that it would switch. Now, of course, my R&D team and regulatory team kills me when I said any switch is easy, right? But sort of, there were categories that were fairly clear they would switch.
Those aren't in those categories, neither for us nor for any of our competitors.
Assuming you do get through those hurdles with the FDA-
Yeah.
Are we talking one or two years, or?
Hard to say, right? I think this is, you know, you never know if the FDA then comes back and suddenly has a fundamentally different view, and suddenly then you have to run a study that takes twelve months to run because they have a data requirement, then you automatically have timelines that are different. That's the, you know, that's what you're battling with. Like, we think we have the data package and have everything. They suddenly say, "No, you don't, and in order for us getting okay with it, here is the data you need to bring," and then you need to go out and create that data. So I think that's why it's, it's unpredictable when they would be coming.
Now, your last switch, I think, very successful, was Voltaren. And around the time of the IPO, there was a lot of talk about the high growth of Voltaren, double digit, high single digit. Then the Voltaren growth went away, and there was a discussion about systemic painkillers and topical painkillers. When people take paracetamol, they don't use Voltaren. Now, we seem to have sort of been on a cleaner state in terms of normal diseases. You know, is Voltaren, does it still have major growth potential? How come we hear so little about the brand?
Yeah. So I mean, look, I think the Voltaren story is probably is a much longer one, right? The first switch of Voltaren was in the late nineties in Germany, and then we switched it over a twenty-plus year period everywhere in the US, right? And just it took us twenty years to do this, right? The last one was the US, and that was a few years ago, right? So shows you a little bit the difficulties, that you need to convince every local regulator about a switch and that that they're ready. And the US was the most difficult one to do that, right? It wasn't for lack of. It wasn't for lack of of trying. Ultimately, look, pain relief is part of OTC, lower growth category overall.
On Voltaren, I think the potential that is in Voltaren is. I think we probably—we're through the geographic expansion opportunities. There's still some, right? It's not everywhere with the same shares. But the potential is to convince and educate consumers that there is a benefit of using a topical versus a systemic versus a pill. So why bother your whole system with a painkiller when you can actually apply it and it does the—and sort of on the where the source of pain is, so arthritis, body pain, and all these uses. And I think getting that across is where the potential is, yeah. And then you have a little bit ups and downs, of course.
If everybody gets sick and takes a Panadol or Advil because they have a cold and flu, then you don't need to do your. You have your pain relief already, right? And that's why this usually has sort of the, you know, an inverted curve to what the systemics are doing, yeah. But we're probably more in this, you know, normal growth of over-the-counter medicines brand with Voltaren.
Okay. Now, around the IPO, you were quite clear that the division, Digestive Health and Other, had lower growth potential.
Yeah.
Now, you've sold a lot of the brands in the Other, and they were declining.
Yeah.
So you started at the low base, you sell the worst brands.
Yeah.
Does that really mean that implicitly, your guidance for that is gonna buy 50-100 basis points?
Yeah. Look, I think we're, I mean, we haven't sort of spelled out exactly what they were, but clearly both Lamisil and ChapStick were growth dilutive also in the shorter term. The non-US Smokers' Health business, you know, was growth dilutive over a longer period of time, and we also felt it would be going forward, given all the shifts on how people now get to their nicotine, nicotine use in the future. But smokers was up, was a rollercoaster, right? When you look a little bit in the result, it was up one quarter, down one, and it's impossible to predict, right? So it added an element of uncertainty.
I think now we've removed an element of uncertainty. We removed the drag of growth and also a future drag of growth. Now you have probably around 60% of that Digestive Health and Other is Digestive Health, which has always been a really good growth driver for us. You have, of course, the U.S. Smokers' Health business left, and you have the Skin Health business, which is actually the pharma, the typical pharma pharmacy skin and care brands that you need on an ongoing basis, and they're much more stable as well.
Now, in terms of the growth in oral care and VMS, I mean, they were always growth drivers. We've had a few quarters of growing at 10% rather than mid- to high single digits. How many more quarters do you need to see before you actually increase your and our expectations of what these two divisions can do?
Good. Look, it's wonderful, right? We come from a place where you can never do 4-6% growth, 4% growth, and, you know, it was Unilever that told you 4% and it's impossible, right? I mean, I think that wasn't too long ago, right? When I heard that movie playing, right? So, you know, we're in a really nice place now. We're talking actually, can you do more? So what as you said, right, what a change 12 or 18 months are making. But look, to be, you know, more serious about it. We said medium-term oral care and also VMS are the higher growth categories, mid- to high single-digit growth. But most importantly, we want them to grow ahead of the category growth.
One and a half times, two times ahead of is sort of what the aspiration is. And the category has also been healthy, right? If the category grows three to four or five, we wanna grow ahead of that. That's where our mark is, yeah. And we've been doing that consistently. Now, what has happened in oral care in the last 18 months is that you had a little bit sort of all the good things coming together. First of all, we had on Sensodyne two big innovations within less than a 12-month time frame. Last year, a big one on Pronamel and then this year now the Clinical White launch that's rolling out. Usually, this was more 18 months, right?
Now, two of them, and both of them successful, right? You, you're not... and you don't always know if they, if they land as much, but both of them landed really, really, really, really well. Then also really strong innovation that came through on the denture care range. Also here, the improvement on the fixatives really had a really positive impact on that. So it's a little bit of a lot of good things coming together and a little bit of help that there was a bit more pricing still rolling in. Look, so as long as we do significantly better than the overall oral care toothpastes and oral care category, I think that's sort of what you should measure us on going forward, yeah.
Can I just ask a quick-
Yeah
follow-up to that? So you spoke about the normal cadence of that.
Yeah
Innovation is eighteen months. These two pretty big innovations-
Yeah
have come at twelve months.
Yeah.
Should we infer anything from that? Like, has the cadence of innovation got faster, or that's just a coincidence?
No, that's a coincidence. Sometimes you get something quicker through the system, the data is good, and then you're able to get it out, right? And I think, look, then on Clinical White, I think we probably the team, when we saw the studies, when we saw the data, then probably they pressed a few more of the accelerator buttons, yeah. But I think ultimately it comes down to, is the innovation successful and is it coming, right? And then when you have something, then of course you wanna get it out in the market as quickly as you can. It also shows you the capability of the team being able to roll out two big innovations on top of each other within a twelve months time frame, right?
But I would probably say if you get one every eighteen months, then you can sustain the growth path, right? It's just I think don't count on it happening, because, I mean, this is not something, you know, this is not that easy to do, right? That because innovations need to make a difference. And so I say bigger innovations, right? Of course, then you have packaging stuff and all the smaller things, right? But the bigger innovations are, they need. In order for them for us to work, we need scientific proof and scientific data that we can go to the dentist and say: With this innovation, this is what's happening to the teeth.
There is the scientific study, there is the documentation, there's the microscopic imaging that shows you what's happening, in order to convince the dentist to say, "Yeah, I believe in that, and I'm doing that." Right? That's where, that's why it's so important, right? And of course, if you don't have the scientific data, then there's no point in making this a big if it's, you know, a marketing innovation, the dentist or also the pharmacist will not buy into. They wanna understand the science behind in order to be confident to recommend that to their consumers, yeah.
And you spoke about the sort of one and a half, two times multiplier for growth.
Yeah
- that you aspire to for that oral health business. If I look over the past six or seven years-
Yeah
that might have been easier because you have a very large, biggest player in the oral health business that I know very well from my US coverage. That for many, many years had been a very significant share donor.
Yeah.
Over the past couple of years, they've seen a pretty dramatic pickup in their fortunes. They're investing a lot more in the brands, gone from being this consistent share donor to now rapidly gaining share, actually, alongside yourselves
Yeah
within the category. Do you see that improvement in performance for your main competitor as being a threat to that one and a half, two X multiplier?
No. And look, I mean, right now, there's two companies that are in the big green, that's us and them. And then there's a sea of red across the rest, yeah? If you go down history lane, it's usually been the two other big ones that were battling it out. One of them up, the other one down, usually on you know the big battle is on the middle of the shelf where that tended to happen. So there was a bit of a give and take on that. And by the way, if the two big ones are battling themselves out on the middle of the shelf, that's a great place because we don't play there, right? We're on the top of the shelf.
We're into therapeutic healthcare. So I'm not worried about, I'm not worried about that, right? Also, I think what you have to keep in mind, this is not. When you look at our, let me maybe start with where we play. We play in therapeutic oral care. By the way, it's a term we invented, now others are copying it, right? So apparently, we've created a new subsegment in the market, and we created that very successfully. But we're not in a share steal game from each other. This isn't a Pepsi and Coke game where you're fighting about you can only drink one Coke. Do you drink this one or that one? This is about a therapeutic need that we all have. So over 40% of the world's population have sensitive teeth.
Only 30% of them use a sensitivity toothpaste. That's where the potential is. So convincing or educating first, and by the way, a second company doing it, that sensitivity is a thing, and you can do something about it. And by the way, it's not a new lifestyle or it is, you know, you don't have to stop drinking the things you like to drink or eat or add a new routine to your morning routine. You change your toothpaste to do that, and that needs basic education, right? And I think that's where the, that's where the potential is. And then, of course, and everybody wins in that. You, as a consumer, win because your, your teeth stop hurting.
Everybody in the business, the retailers, us, win because we move you from a $3-$4 toothpaste to a $6, $7, $8, $9 to $10 toothpaste. The patient wins because, you know, you feel better and you. I think that's where the potential is. It's this massive opportunity in penetration that still exists there.
So I want to bring you back to Bruno's question-
Yeah.
earlier, right?
Yeah.
Because you're four to six.
Yeah.
The starting point for that, I think you have a sort of target for 3%-4% growth for the oral health category.
Mm-hmm
as a whole.
Yeah.
But what you've just described is you've got yourselves, the biggest player in the industry, sort of pushing in the right direction-
Yeah
all focused on growing the category.
Right.
The number three is P&G.
Yeah.
That's also very focused on growing the category, right?
Yeah. Mm-hmm.
So, you've got three big players all focused on the same thing-
Yeah
growing the category.
Yeah.
A 3%-4% growth rate seems maybe quite conservative against that backdrop.
So look, I think if you go back, if you look sort of what the market growth was for the last 10 years, it used to be one to two. So we've already seen a step up in the growth from exactly what you're describing. It's now around this three to four, and of course, it was more the last two years with all the pricing and inflation on top, right? So I think what we need to see now, where does this settle as pricing normalizes? Where are we getting back to? I believe it's three to four, right? Because that's already the step up we have seen from more companies going into premiumization and trying and getting consumer to move up the shelf, providing better, different product along the way.
We still think it's gonna be three to four. If it's more than that, fine, it makes the, you know, raises the bar for us, but I don't see that yet. I don't see that yet happening, right? I believe the pricing will come down. A big part of this higher category growth now is pricing, and it's not volume driven, so let's see where that moves. Yeah. We probably need another, whatever, two, three, four quarters to see where that is landing. Yeah.
Want to dive into some of-
Yeah
the brand details.
Yeah.
Sensodyne, obviously the biggest brand in your portfolio-
Yeah
you've spoken about some of the structural drivers of that.
Right. Mm-hmm.
And it's gained share for years, driven by that-
Yeah
therapeutic approach that you mentioned. One of those big U.S. competitors has spent quite a lot of time over the past twelve, eighteen months talking about how they think that structural driver for sensitivity might be shifting towards much more of a focus on gum health, with the idea of consumers wanting to treat the cause rather than the symptom. That's the way they sort of describe it. Do you see that in your consumer work as well? And if yes, could it be a potential threat to your portfolio, or do you just think that Parodontax would pick up the slack if that's what happens?
Yeah. Okay. So clearly don't see this as a threat. I also don't see any scientific data that would support that because there's many more causes of sensitivity. Yes, receding gums and gum problem is one cause of sensitivity, but only one of quite many, right? So diet, enamel erosion. You get a long list of drivers, right? Now, yes, bad gums also can have that effect, right? But if everybody would have brilliant gums, you would still have sensitivity, and you would still have a large portion of the world's population have sensitivity because a lot has to do with the type of food we eat, the behaviors, what we drink, and. So that's the first one, right?
Secondly, there is an overlap, right? You have people that have both, right? They have sensitive teeth, and they have gum diseases, and in certain market that exists, like China. For those markets, we developed a combination product. There's a product that does both, that has the Sensodyne technology and has the Parodontax technology in it. So, and we actually, we developed that for China because we, in China, we realized the overlap in consumers is much bigger than it is in other markets, right? So I think that solution exists, and then we can decide, do we dial up a combination product, or do we actually go solo with this Parodontax because it's becoming a bigger need, yeah?
Also, on gingivitis, gum problems, I think also the treatment now goes more into a range of solutions. So, brush, mouthwash, and paste. And usually with gum, these things tend to come, and then you treat them, but then you can, you know, then you can reduce the treatment. You actually might use then for a while. You have gum problems, you get the dentist supporting you in this, you get it under control again, and then you might just go back to Sensodyne only because that helps you. But your bigger problem at that might be the gum. So I think and look, ultimately, it's therapeutic. This is our core place, where we are.
It's Parodontax with bleeding gum, and it's sensitive teeth. Yeah.
Okay. And you touched upon the Clinical White launch-
Yeah
Earlier. You've obviously spoken quite a lot about it as a, as a company recently.
Yeah.
The launch has clearly been very successful. My question is, do you think there's a risk of brand dilution for Sensodyne if you shift out of the core focus area and into whitening with that brand?
Mm-hmm.
I think it's something that investors would say they saw that with-
Yeah
Colgate brand, right?
Yeah.
Where it tried to be too many things to too many people.
To everyone, yeah. Mm-hmm. So, we're very mindful of that, right? Because, but I think it's important that we're not selling this as a whitening solution, yeah. We don't wanna get into the whitening segment, right? We wanna provide consumers that have sensitive teeth a safe alternative to also solve their whitening need, yeah. Because if you have sensitive teeth, then very often you have enamel erosion. You're worried about doing more damage, in quotation marks, to your teeth. So when, as a consumer, you ask your dentist: "What should I do?" Dentists do not recommend you the classic whitening solutions because what's in them is damaging to your teeth if you use it too long, too often. So the dentist says, "Brush your teeth or get professional treatment," but they won't recommend.
Clinical White now is the first one where dentists actually say, "I get the science, and I'm ready to recommend it," yeah, and by the way, I mean, it's only two shades, right? I mean, that's not that much compared to other whitening solutions out there. So if somebody's really, really looking for white, white, white, white, white, the two shades will not pull them in. But the point is, you have sensitive teeth, and it solves that thing, and most importantly, the dentist is ready to recommend that for you. That needs to be the focus, and you need to be careful, in my view, that it doesn't run away.
I think the team has done a really good job over the last ten years in the US, where we had a solution for enamel repair, so it was Sensodyne Enamel Repair first, which then moved actually to Pronamel because we saw there's people looking for enamel repair, so we actually then started taking the Sensodyne name down and sort of positioned Pronamel, which is sort of... It still says Sensodyne Pronamel, but it's really Pronamel, right, so and it's sold as Pronamel because that was a separate need, so I think there the team has done a pretty good job in allowing people to sort of have that need first to go for that.
And sort of they created a sub-brand with it that actually can stand on its own and also gets differentiated advertising, yeah. But yes, mindful of it, careful that you don't try to be everything for everyone, I think is really key in that, yeah.
Let's move to the other sort of big category area.
Yeah.
VMS has been a very, very challenging category for many of your peers in that space.
Yeah.
A lot of fragmentation in the category, lots of impairments for many of the other CPG companies, but obviously not Haleon, right? Centrum has been thriving, and I guess our question is, what's different about the Centrum brand that makes it stand out in that category? And, do you feel like that differentiation in an otherwise fairly challenging category is sustainable?
Yeah. So look, I think it's very hard to compare across, right? Because I think this is VMS is such a vast space. So the term VMS is used for God knows what, and if you go into Euromonitor and you open VMS, and you just click the VMS across, then you get a mega category, and that even has energy drinks in them, right? Because energy drinks have a supplement in them, right? So, and we clearly don't, we don't play there, right? And you get all the sports nutrition stuff, and you get dieting stuff. So it's a vast space, but everybody calls it VMS, right? or some shape or form of that. So I think we're...
That leads into a lot of noise in the industry because a player has a problem in one of their subsegments, and then suddenly, "Oh, the whole category is bad or sick," right? I think that's what tends to happen. Secondly, we have a different geographic footprint. So I think there has been quite a bit of rollercoaster in the US with COVID, especially on vitamin C-type products. And that was much bigger for other players, which we don't have, given our global footprint, our emerging market footprint as well. So I think that's one where we are a bit differentiated.
And then I think Centrum, staying just on this geographic footprint, there is still significant growth potential of Centrum because when we picked it up from Pfizer, on the Pfizer integration, Pfizer focused on the U.S. and China because that's where they had sizable business, and rightly so, they deprioritized Europe, the GSK Novartis business that had a real strength in Europe market, but market leader in Europe, market leader in many Asian countries, and a lot of emerging markets, was a very large pharmacy field for us. So I think there is still, and you could call it a delayed kind of deal synergy that's still coming through from us activating the brand in more markets through the go-to-market access that we have in Europe.
That's what's driven quite a bit of growth for Centrum in Europe. Plus, there's also now geographic expansion happening. So we took the brand into India, tested it on Amazon last year. Lots of very positive reception made us then build the belief for us makes sense to put to start putting that in brick-and-mortar, which is underway. So I think you got a geographic expansion opportunity and then, of course, the space we play in. The other thing that's happening on Centrum is we're in. Again, if you take a bigger step back, we're in what I would probably call the third big growth phase of VMS, yeah? So twenty years ago or something like that, it was single letter of the alphabet.
When I was growing up or being a teenager, and it was like, take vitamin A or B or an A and B combo, or whatever it is, and you started picking these things up. Usually at that time, started travel to US, you bought, you brought back the single bottles of stuff that you got there because it was very hard to get in Europe or crazily expensive in Germany and Switzerland. Then the next 10 years or so were the multivitamins, where then you had this growth of multivitamins, and that was all about all you need, yeah? A to Z was the Pfizer Centrum story. You get the one-a-days, you get all these things. Pretty much pharma companies telling us as consumers, "That's all you need," right?
There was one brand, it's all you need. No matter how old you are, no matter what gender you have, what your other need is, that's all you need, right, and I think that phase is coming to an end now, and I think that phase, there's now the third wave that's coming, which I would call benefit-focused VMS, and that's also what we as consumers want today. We don't wanna be told that's all you need? You want a brand now that fits your age, your lifestyle, your needs. I think what you see now on the multivitamins starting to happen is that there's a differentiation happening where the benefits of the brand start to come into focus, yeah, so for example, we have Centrum Silver, US adults age 50 plus. By the way, there's a gender version as well, right?
There's a Centrum Silver Men, a Silver men, Centrum Silver Women , for example, with a combination that solves your needs. And then on Centrum Silver, we have now three clinical trials and studies that actually prove that it improves cognitive function if taken over several years regularly against placebo and against other products. So a proper clinical trial, and that's sort of then when you hit, in quotation mark, "the jackpot," because you have scientific proof and you have the belief of the strong brand, yeah? Because what's missing in this category, especially in the US, where it's totally unregulated, is sort of the scientific differentiation. And I think with that differentiation, you can drive further growth. And there's other things we're doing where we have trials that prove that.
So very much core to sort of our scientific heritage, our knowledge of science, running studies and supporting them, and then putting the right combination of things together that allow us to get to that outcome.
I'm gonna come back to the investment thesis-
Yeah.
To buy, if I may. If the sort of one big worry investors still have-
Yeah
that if they look on their Bloomberg screens and they look at the earnings expectations-
Yeah
it's been drifting down, you know, since you've IPOed, and there have been sort of different explanations for that. Initially, it was transactional effects, your Swiss manufacturing, then it became translational effects, the dollar moving at the wrong time in the wrong direction. Then it became selling the very profitable brands, you know, that you talked about. At what moment do we sort of run out of options or explanations for earnings downgrades?
So you had to remind me of my little missteps early in the old company. Thanks, Bruno. Your parting gift to me now. So,
Love you.
So look, I think there's probably different things, right? Some of it was growing pains, right? So transactional losses, forecasting, we didn't have hedging capabilities in place. I would put them into... And also the first year, I mean, setting up a new company, I would put that as, you know, mistakes we made, but also capabilities that we didn't have yet, and we were openly talking about them, right? And then, yes, it's fine. I made these mistakes, remind me of them, but don't remind my successor, please, right? So, I hope we left them clearly in the rearview mirror on that, yeah? Then the divestments, yes, they are EPS dilutive, yeah.
No, no doubt they are, because what you take out as a brand at the gross margin level was very little A&P and was very little structure. But the reason we're taking them out is, we sold them because they have more value selling them than keeping them, because if we get a valuation and a price that's more than my keep valuation, I'm creating shareholder value, yeah? Now, I know it's EPS dilutive, but, I'm doing the right thing for the shareholder, and I'm not selling them if they're not dilutive. So that has been the driver of why we took them out.
Of course, then they have other benefits you get from them, which is we talked one of them, they should improve growth because they were growth dilutive. Actually, multiple of a company in our industry, there should be a correlation between valuation multiple and growth. They allow more optionality on the capital allocation, so I think some of these divestments have enabled us doing a share buyback program of GBP 500 million, so we funneled some of that back. So you get help from that on that. And I think, look, they also create focus because you stop people, you know, you focus in an organization to have to worry about less brands. So I think all of that should have other benefits that you can't directly some of them you can calculate, right?
Share buyback versus that, but others you can't calculate. Then, translational currencies, nothing I can do. It's a bit of a pity. We came out middle of 2022, that's when the dollar was highest, and you had like and it tanked. It tanked. There's not much you can do from that. It's pretty much since we launched it all in one direction with little bits and bobs, but the three years before are the other direction, but you don't have that history for us. That's what I can't plan for, right? I think ultimately for us, it's how do we operationally improve that business? Translation is what translation is, and that's driven by lots of other macroeconomic decisions.
And then internally, I do what I can with hedging and other things to buffer that or get the organization to pick up on that. But on translation, that's just impossible to do, and it would not pay back to try and hedge that. So we've run that analysis now and in prior lives a few times, and it's just. It's not worth even thinking about that, right?
I see we're getting several questions in.
Yeah.
from the audience already.
Yeah.
If you would like to scan the QR code, if any of you haven't asked or want to vote on it.
Perfect. Good.
You want to take the audience questions?
Yeah. Sure.
Good.
Let me start with one on the portfolio.
Yeah.
the question is: Are there any parts of consumer health where you feel like you're underweighted or maybe not even active at all, that you'd like to be present in? So look, I think we talked about sexual health, clear unmet need. There's other huge, big unmet needs, but there is no unlock yet because there aren't switches available, right? So when you think about heart health, would be, you know, massive consumer needs, you know, cholesterol-reducing drugs and so on, but then you have to find a way to switch them, and overcome some of the concerns, right? But they're where they need to be. So from that point of view, I think we have enough growth potential where we play, because, one, from a geography point of view, there is geographic expansion opportunity.
Our brands aren't everywhere in the world and are big. I gave you some example on Centrum and other things that are happening. And then secondly, I think in the core areas where we play, there is penetration opportunities, right? So I don't have to go to other places. And then, look, yes, would I love to be bigger in one or the other emerging markets? I would love to, but, there's scarcity of assets, right? I think this is an industry where M&A is... M&A, the issue is not capital, the issue is scarcity of assets, right? When you look at how many deals were done in this industry over the last five, eight years, it's, you know, it's one or two pages, right? And in a pretty large font size, yeah.
This is not an industry where you get a book of, "This is all that happened, and why are you not participating in?" I would love to participate because we have structures in place, right? And buying a brand that fits the global pipeline, all of that would be great, but people are not ready to give up brands, especially the OTC brand. They're stable contributors to cash. You need to have a bigger reason why you suddenly get out of it, right? So I think it's a bit, you know, a moot point a little bit to... Of course, we try, and we work and look for solutions, but I don't think you, you know, think this business will grow organically, and we're very confident in the organic growth and the opportunities it has. Yeah.
Okay. You spoke about how the ongoing penetration opportunity-
Yeah
... also sort of means you're not necessarily-
Yeah
desperate to do deals. The question here is on the sensitivity penetration.
Yeah
opportunity that you spoke to earlier.
Yeah.
So you said 40% of consumers have sensitive teeth-
Yeah
and 30% of those use-
Yeah
sensitivity toothpaste.
Yeah.
The question is: Are those numbers global? What does the penetration number look like in developed markets?
Yeah. The latest studies actually is over 40% of people have it, right? So I think our lifestyles in many markets actually are negative, you know, a negative contributor or in this sense, for the business, a positive contributor of more people having it. So I'm afraid most of you in this room, you'll get sensitive teeth at some part in your lifetime. Yeah. Sorry to say that, but it's gonna happen over time, right? So as you get older, more people get sensitive teeth, yeah. The numbers are these percentages are quite similar across the world. So there isn't one that sticks out in one geography versus another, right?
Of course, if there's, you know, if there's less people, if there's less denture dental care and so on, you might find more people with gum disease and so on. But I think from a sensitivity point of view, it's pretty similar around the world. Now, our shares are different, right? I think clearly in the U.S., where Sensodyne has existed for, God, 25 years or so, and then GSK picked it up about twenty-ish years ago, our shares are bigger. They're in the teens, but they're then in other markets where, like in India, where we launched it 5 years ago, where you still do the basic education about sensitivity. You don't have a Pronamel there and other things.
So that's again, where there's probably a geographic growth potential from continuing to activate because the markets are in different life cycles. Yeah.
Okay, question on the Chinese JV?
Yeah.
The agreement's been delayed by nine months, I think, as at your Q2 reporting.
Yeah.
Has there been any update on the progress for renewing the agreement? Anything to worry about?
Yeah, so look, first of all, nothing to worry about, right? I think we said we're very confident in the future of that JV. It's a complicated JV, right? It started in the eighties. We have two partners. One of the JV partner is a publicly listed entity that are listed, they're listed in China and in Singapore. Then it's a private entity, and that private entity actually has a private shareholder and has two of the provincial governments as shareholders. So that already tells you that it's quite complex, plus you're dealing with a joint venture agreement that was created in the eighties, and then or eighty-four, I believe, and then updated since then, right?
You do this all in a Chinese environment and with an international company like us, right? That just takes time to work through that and to work through all the stakeholders. I think what I said in H1 is, we're very positive, directionally. Partners are aligned on their direction of travel, and then once we have news, we're gonna publish that. Yeah.
Okay. A little bit of a shorter term question, I guess, but seems to drive the business and investors' care. Do you have any insights into the upcoming cold and flu season, better or worse than last year?
No, and in twenty years in this business, on and off, I haven't found a crystal ball to predict cold and flu. I cannot predict it. I doubt anybody can predict it. I know people are trying it. They're trying very hard. I can't, and I'm not spending time in trying to predict it, right? It's gonna be what it's going to be. If you draw a five-year line or a ten-year line to cold and flu, it's gonna grow. Population is gonna grow. The bugs are going around. Not worried about that. Then it's a little bit more one year, a little bit less in the other, and that shouldn't change the value of this business at all, right?
So I think this, you know, if cold and flu is suddenly better for a quarter, who cares? It should not change the value of this company. Yes, I know it gives maybe short-term, and also it shouldn't create short-term trading opportunities, in my view, right? Because it's irrelevant, right? All we can do is we need to make sure that our products are there for when it hits.
So we're shipping to the trade in September and in October, and we have enough inventory in our warehouses that when there are spikes, that there is enough product on shelf, that suddenly, you know, you get a row of people that all need cold and flu treatments, that the products are there for the consumer, and then when the pharmacies runs out of it, or the retailer, that they get replenished very, very quickly. And then you see how the season runs, and then you make sure towards the end of the season, that if there's any inventory left, that you pull it back out, that you don't have a nasty surprise when the next season rolls around. That's the cycle you go through, and it's also why we report it as a separate category, right?
That we could give you that transparency, that it's a bit better or worse, and we give you some color around what happens, but it's always gonna be in the rearview mirror and never in the forward-looking mirror.
Okay. I've got two questions-
Yeah
on GLP-1s from the audience.
Yeah.
And they're both along a similar line.
Yeah.
Question is, sort of, has it opened the market for kinda over-the-counter hunger style products, and could this be something that you guys are interested in playing in?
So look, I think it's. I mean, it's new. It's, it's a came to the market, you know, stormed into reality. And I think what we're clearly seeing that there are side effects. Yeah, there is, it changes patterns, it changes users. So what the team's doing now is to see where do we have products that can help with that, right? But what we need to do and what we always wanna do is we don't want to speculate.
We want to do trials, and we want to work with people that we can actually get the proof points that we say, "Look, if you do this or if you use the product, this really helps you." We don't want to go out and speculate and say, "Oh, we might think that this might be good for you." Because I think the core of building these brands, I mean, all of our brands are decades old, some of them are a hundred years old, is to believe, to keep the belief in the brand, both by the consumer, but most importantly, by the pharmacist, by the dentist, by the expert that recommend it, and we don't want to play lightly with that, so yes, there's something new happening out there.
So now you need to do studies, you work with people and say: What are these side effects? What could our people, what could our products do for that? And then do some work with them, some short-term studies and so on, that you hopefully can get to recommendations, that you can actually go back to a pharmacist or you can go back, say, "Look, this is what it's doing. We have the data for it. You might want to recommend when you, when you see that happen." And then, given it's an emerging space, we of course, you have new products coming out that have different side effects as well. So I think this will be a big one to watch, as well. But yes, it changes things out there, which should create opportunities, but way too early to call them, yeah.
Okay. Probably got time for one last question, and I have sort of two that I'm gonna combine here-
Yeah
... related to pricing. So you spoke about the sort of elevated contribution of-
Yeah
... pricing to revenue growth over the past year or two, stepped down a little bit in Q2. So the first positive question is, what should we expect for price growth in H2?
Yeah.
Further normalization. And the second part is, a lot of companies have spoken about how through this inflationary cycle, they've sort of beefed up their RGM capabilities, and maybe mix can be a more meaningful contributor longer term. Do you agree with that for the Haleon business?
Okay. So on pricing, the step down from Q1 to Q2 was the rollover, because most of the pricing in Europe and the mass market is sort of negotiated in that timeframe, so you tend most of the pricing to go into effect, you know, some March one, if you're very fast, Feb one, but most of them March one, April one. So you got that step up is totally what we expected because it comes just from the pattern of the business and how it rolls. And that's also why the step down was very visible in EMEA and the LatAm region. You saw, and that was just how the business simply works, right? We didn't have a negative surprise on it. It's exactly what we expected to do. Take the step back, we...
Look, last year, 85% of our growth was driven by price. We said we're confident that it gets back to, you know, broadly balanced, and broadly balanced means 40, 60, 60, 40, somewhere in that range over time. We're not there yet. This year is a stepping stone in that direction, and that's exactly what you saw happening, right? So Q1, still the rollover effect. Q2, a much more normalized pricing. And you saw, I think I put a slide in, I think it was in my Q1 deck, or in the full year, in the half year deck, actually, where I showed you sort of where, with the lines, where the normalization is happening. So volume clearly coming back and going up, and then actually the pricing effect coming down, right?
Will we be at this forty, sixty, sixty, forty this year? No, we won't. But it looks like very much that we're on the trend line to getting back there, probably by next year. Yeah.
Okay, perfect. I can see that we've run out of time.
Fantastic.
So, Tobias, thank you so much for joining us.
Thank you
on behalf of both Bruno and myself.