Hello, welcome to the Haleon Full Year 2022 Results Q&A. My name is Harry, and I'll be coordinating the call today. If you would like to ask a question, please press star one on your telephone keypad. I would now like to hand you over to Sonya Ghobrial to begin. Sonya, please go ahead.
Thanks very much. Good morning, everyone, and welcome to Haleon's Full Year 2022 Q&A conference call. I'm Sonya Ghobrial, Head of Investor Relations, and I'm joined this morning by Brian McNamara, our Chief Executive Officer, and Tobias Hestler, our Chief Financial Officer. Just to remind listeners on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans, and expectations.
Please refer to this morning's announcement on the company's U.K. and SEC filings for more details, including factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. We posted a preview of the presentation on the website this morning, with prepared remarks running through the results in detail. With that, we'll go straight to opening the call for Q&A. Thanks. If I can hand back to the operator.
Thank you. As a reminder, if you would like to ask a question, please dial star one on your telephone keypad now. Our first question of the day is from the line of Iain Simpson from Barclays. Ian, your line is now open. Please go ahead.
Good morning, everyone. Thanks very much. Couple of questions from me, if I could. Firstly, could you just give us a clue as to how we should think about the phasing of organic sales growth as we move through 2023? 'cause clearly there's some sort of volatility in the comps, given the shape of cold and flu, and I guess a bit of unknown as to how that trends towards the end of the year. Secondly, not sure if it's something you feel able to comment on, but there was some press speculation, a few weeks ago that you might be considering, a very sizable acquisition, namely the sort of Sanofi business.
I'm not asking you to comment on that, on any specific transaction, but in general terms, you know, is an acquisition of a decent size a likelihood near term, or does your priority for the next few years very much remain deleverage and getting the debt down? Thank you.
Iain, thanks for the question, and I'll answer that second question first, and I'll pass it to Tobias on the phasing. I mean, as you said, and as you would expect, we won't comment on any rumors or speculation around M&A. I think what I would say is, you know, this business was created from the two largest transactions in the industry the last eight years and divestments of 50 growth dilute brands. The result of that is an incredibly strong portfolio. We love the portfolio. I think the organic sales opportunity is there and really strong, and we reconfirm by guidance this year. As we also mentioned in the press release, you know, we'll be proactive about managing that portfolio and looking for opportunities to strengthen it.
Either that's through bolt-on M&A or through potential divestments. We've also been clear on our capital allocation priorities. The first is to invest in growth. The second to strengthen the balance sheet, then bolt-on M&A, and then return excess cash to shareholders. You know, that's our focus. And obviously if anything comes up, we would evaluate and look at it. At this point, our focus is primarily on delivering the organic sales growth and following those capital allocation priorities. Tobias, you wanna touch on phasing?
Yeah. Thanks, Iain. On the phasing, first of all, yes, as you noted, we had a very strong half one last year. Having said that, we and you heard it in Brian's presentation earlier today, we're seeing positive momentum going in Q1 in both cold and flu and in pain trends this quarter, with continued positive growth. Secondly, when you look at pricing last year, we started the year with more than 2% in pricing in Q1, and then that went up to 4%, and then 5%, and 5.5%.
You should also see some pricing benefits come through as we cycle over over the pricing that we did in half two of last year. Look, other than that, we've continued to monitoring the trends. I mean, I think I provided a slide in the backup that shows you a little bit what to keep in mind, what happened in 2022. I hope that is moderately helpful for you. Let me just maybe take the bigger step back. When you look at the last few years, there were certain categories that were up, others were down. We really feel good about the strength of our portfolio and our ability to deliver in the 4%-6% guidance range. That's also why we've guided to 4%-6% for this year.
Thank you very much.
Thank you. Our next question is from the line of Faham Baig from Credit Suisse. Faham, your line will be open now if you'd like to proceed.
Hi. Thank you for the questions. Tobias, can I come back to the first question from Iain on price versus volume? How do you see the balance of price and volume for the full year in 2023? What are the key moving parts that will differentiate your growth from being at the bottom end of the range to the top end of the range? Secondly, a slightly more broader question, but there clearly are at least a couple more of your peers that are looking to become standalone businesses over the next couple of years. How do you see this impacting the competitive dynamics, both short term and long term? Thank you.
Yeah. Thanks, Faham. Look, on the price volume, we're not guiding to price and then volume for the year. I mean, as I said in my presentation earlier today, we would expect that, from a mixed point of view, that we're a bit more weighted due to price initially. I mean, as I said earlier, there's a bit more pricing coming through as we cycle the increases we did throughout the year. Look, I mean overall, feel good about the 4%-6% volume across the strong portfolio we have. I think at that, our ability to navigate the environment that we're seeing out there in the market.
Maybe on the second question around other standalone businesses and competitive environment. I mean, the one that's obviously been announced is J&J's consumer business, Kenvue, listing at some point in 2023. Listen, overall, I think the listing of another consumer healthcare business is a good thing. It's a good thing, one, it reinforces, I think, the attractiveness of these categories and the attractiveness of consumer health. I also think it will create more interest and dialogue around this new sector that we were first out there. You know, it's always been a competitive environment we compete in. I don't necessarily see that getting any easier or any harder as we go forward. Competitively, we feel really good about where we're at.
Actually, you know, if I look at last year, you know, this growing and maintaining share in two-thirds of our business, we feel really good about. That was consistent throughout the year. That was the number in the first half and the number for full year. Overall, we feel like with our portfolio and our brands, we're in a really good place to compete.
Thanks, guys.
Great. Our next question is from the line of Rashad Kawan of Morgan Stanley. Rashad, please go ahead now.
Hey, good morning, Brian, Tobias and Sonya . Thanks for taking my question. A couple from me, please. First one, can you talk about the productivity program you announced today? Where do you see the savings coming from? Maybe talk about the phasing of that over 2024 and 2025. The second question, just about your innovation pipeline for the year. How's it shaping up? Where are you looking to focus in terms of the level of innovations, areas that you're most focused on, et cetera? Thank you.
Great. Thanks, Rashad. On the productivity program, let me maybe take a step back and give some perspective. You know, obviously separating from GSK and standing up a listed company is a pretty big undertaking, and it's quite complex to do. Our focus was to ensure that we did that smoothly with no business interruption and continued the momentum in the business. We feel great about that. We feel like we achieved that, and I think that shows up in the results today. Now that we've been running the company for seven months, we see the opportunity to streamline the organization, simplify the way we work, become more agile and productive, which will in turn give us the capacity to invest in the growth opportunities and the innovation. We see those growth opportunities.
It even gives me more confidence. I was already very confident in our medium-term guidance. From a phasing, what we announced today was, you know, GBP 300 million in saving, the majority of that in 2024 and 2025. You know, Tobias, do you have anything to add?
Yeah. Just I think the restructuring costs to come through, which are front-faced, so split between 2023 and 2024, yeah. As we go through the year, of course we'll update you, and there's more to update on that, yeah.
On innovation, listen, we don't necessarily talk about future innovations that haven't launched yet or specifics around them, but I have to say I feel really good about our innovation next year, and especially in oral health, which is a really important category for us and a place where we feel like we've really led in innovation, certainly on the toothpaste segment. We saw some great innovations this year across the board, like Emergen-C Kidz in the U.S., which really opened a new segment for us in the immunity segment or, you know, Centrum Benefit Blends, which really expanded Centrum out and gave us runway room for growth in places like Middle East, Africa and Latin America, or launching new brands like parodontax in India, launching brands in new markets like South Africa and India for parodontax and Centrum for India. I feel really good about, you know, what we've been able to do in 2022 and the outlook for 2023.
Thank you very much.
Thank you. Our next question is from the line of Guillaume Delmas of UBS. Guillaume, please go ahead now.
Thank you very much. Good morning, Brian and Tobias. Two questions for me, please. The first one, going back to your savings program. You're basically signaling that this will be additional fuel for your brands and growth opportunities. My question here is, what kind of return do you expect on this incremental investment? Because unless something has changed, deteriorated since the time of your listing, this investment should effectively drive an acceleration in your like-for-like sales growth. Basically, when you talk about greater confidence in achieving the 4%-6% like-for-like, should we interpret this as a signal that your ambition is clearly not to be at the bottom end of the 4%-6%, where consensus currently is for the next three years?
My second question is on your Local Growth Brands. I think you said in the presentation it's 20% of your turnover, 20% of your growth last year. Can you maybe shed some light on how many brands you've gotten there, and are they just like your Power Brands accretive to your growth margin? Maybe could you see some of this Local Growth Brands getting Power Brands status over time, as in significant opportunities in international rollouts or category adjacency expansion? Thank you.
Yeah. Thanks to Guillaume. I'll answer that second one first, and then touch on the first question and go back to Tobias on that. First, in the Local Growth Brands, listen, we feel great about our portfolio. I think as we went separated from GSK, took a step back, and frankly engaged with our board and looked at the strategy of the business, we confirmed we feel great about our strategy, our ability to deliver. We also do see some additional growth opportunities, frankly, and some of those are in those Local Growth Brands. We have over 20 brands in that local growth bucket now. Some of those brands are just really powerful brands at the local level.
One example, BeTotal , which is a VMS supplement in Italy, grew double digits this year, as did Caltrate, a calcium supplement we have, which is more at the local level. We've talked about Eno in India and Brazil, comes in the U.S., Emergen-C. We really see a lot of opportunities in Local Growth Brands. As we look at our, you know, plan and intent to invest in A&P and R&D ahead of sales, it's really because we see the opportunities to invest and drive the growth across the portfolio. Which is why I'm even more optimistic today than I was six months ago, where I was quite confident in our medium-term guidance. We really see those growth opportunities. On the...
I'll turn to Tobias on the productivity and where that plays out. Certainly, we think we have a fantastic portfolio and from a growth perspective, our ambition is to grow as much as we can on this business, and we see those opportunities. As we see those opportunities, we wanna go after them, and we wanna build the capacity to invest in them. Tobias?
Yeah. Guillaume, I think it's what you said, right? I think is we really believe and are confident in this 4%-6% growth outlook, right? As you mentioned, this isn't necessarily reflected yet in the consensus that is out there. I think for us, this is I think just another reason to believe in the growth algorithm that we put out because it gives us the capacity to fully invest behind these opportunities that Brian just described. You know, and also, you know, in an environment out there that is also fluctuating. I think from that point of view, I think it's A, the right thing to do for the business because the business, as Brian described before, it's the phase we enter.
I said at the capital markets day, that's the phase. We're gonna reduce other SG&A over time. We're doing what we said we would do because we wanna be an agile company. Secondly, it allows and gives the capacity to invest behind the brands, ultimately that is a reconfirmation of the value creation model that we put out there and we fully believe in.
Thank you very much.
Thank you. Our next question is from the line of Chris Pitcher of Redburn. Chris, please go ahead now.
Good morning, all. A couple of questions from me as well. In terms of the growth story, geographic rollout is an important part. Is it fair to say that you've got the broadest sales and distribution network, the competitive environment that you were talking about earlier? And can you help us sort of understand the scale advantage that gives? Are you able to give us an idea of how much of your growth in sales has come from brands launched in new markets over the last couple of years? Is it the tens or hundreds of millions?
Perhaps using India as an example, can you say precisely how much India was over the 20% you discussed in the statement, and how much of that growth was in the core Sensodyne and Eno, sorry, and how much came from the rollout of Centrum and parodontax? Thanks.
Great. Thanks, Chris. Appreciate the question. I think on rollout, we do see those opportunities to drive growth. You know, we haven't given any specific guidance on what that growth or that rollout is driving versus other areas. What you said on the broader sales and distribution, I think we have a fantastic geographic footprint, and we see opportunities in that. We've said, you know, two-thirds in developed markets, one-third in emerging markets, and real strength across emerging markets. It's Middle East, Africa, Latin America, Central Eastern Europe, India, China, Southeast Asia. We see very broad opportunities there. We mentioned in the past, we see that in Middle East, Africa, in places like India, where we have those opportunities to drive growth.
Your specific question on India had a very strong year this year, grew double digits. India was up double digits every quarter in 2023, so very strong business for us. You know, Centrum, for me, in India is really a midterm to long-term play. It's a category that's developing there. We believe that it has huge potential. We started with an online launch, which we'll now move to physical distribution in 2023, and very quickly took a 10% share of the category on that online piece. You know, we see it as a key part of our strategy.
As we've laid out, it's about household penetration, increasing household penetration, and we see those opportunities across the portfolio, and it's also about, you know, new and emerging, channels and geographies and expanding the portfolio.
Chris, also when you look at the emerging market footprint, I mean, Brian said it's a third of our business, 33%. Even with some currencies that went negative on the emerging market, you know, it eats up by a full %, right? From 32% last year to 33%. The emerging markets in aggregate grew 16% last year. I think this is a key part of our growth story, and a big part of that growth story in the emerging market is the geographic expansion, but also the existing growth in this brand, capitalizing on the footprint that we have built. I think again, also with opportunities to invest behind further growth as we do more of these things that Brian just described.
Thank you.
Thank you. Our next question is from the line of Victoria Nice of Société Générale. Victoria, please go ahead now.
Hi, good morning, everyone. My third question is on A&P, which was up 6% in constant currency in the first half and flat for the full year. Can you walk us through in more detail what was driving that? Does spend step up again in the first half? During the presentation, Tobias flagged a reduction in retailer inventory in the U.S. Where was this impacting specifically? Should we expect it to continue into the first quarter? Also you called out oral was weak in the fourth quarter in the U.S. What was driving that? Does that continue into the first quarter? Thank you.
Thanks, Victoria. First of all, on A&P, listen, we're a branded consumer healthcare company, so we take investment in our brand, both in A&P and innovation very seriously, and we're committed to it. You'll look at the 2022 A&P spend, our consumer-facing A&P was up 6% excluding Russia, where we ceased all advertising, you know, by the end of Q2. Importantly, we saw growth in that consumer-facing A&P in both the first and second half. You know, we continue to invest in growth and brand building. I think that investment showed up in our results where we, you know, grew or maintained share in 2/3 of the business with really consistent performance throughout the year.
That number was what we shared for Half one. It was the same number for full year results. Overall, we feel really good about that number. As we look at 2023, our plan is to invest A&P ahead of sales growth with continued focus on areas where we see the most growth opportunities, which are our Power Brands and our Local Growth Brands. Tobias, you wanna take the second question?
On oral health. I mean, first of all, when you look at consumption, we continue to grow share in Q4. I think from a sellout point of view, we continue to grow ahead of the market. Across the oral health business, we grew about 2x the market with some brands doing better than that. I think overall feel good about the consumption on that. There were two impacts in Q4, as you mentioned. One is, there was some inventory reduction in U.S. retailers. Look, it's very hard to predict what they're doing. Ultimately, it will even out over time. We don't believe we have excess inventories anywhere, but it's very hard to say or predict what retailers are doing.
I'm not concerned about it going going forward because this is the most important thing is the sellout was strong and continues to be strong. China was down. The oral health market in China was down given the lockdown. We also think this will come back. Actually, we've grown share through that period as well, but in a declining market. Those were the two things to keep in mind for oral health. Brian already mentioned earlier, feel good about our innovation pipeline and continued growth in oral health overall.
Maybe the only thing I'd add is, still feel fantastic about Sensodyne and it grew mid-single digits this year. Tobias mentioned some of the things that impacted Q4. We also grew share on Sensodyne in 2022, and the consumption remained strong. However, Our overall business has three Power Brands. We don't tend to talk about them as much, but they're very strong. Parodontax, which is our gum health brand, and Poligrip, Polident, which is our denture care brand. Both of them grew high single digits on the year, and both of those brands also grew share. I continue to be optimistic about oral health overall, Sensodyne within that, and our ability to drive, you know, the market performance across those 3 brands.
Thank you. Our next question is from the line of Martin Deboo of Jefferies. Martin, please go ahead now.
Yeah, morning, everybody. I've got some geeky ones on FX, I'm afraid. What lies behind the questions is, I think you were saying that the margin miss for FY 2022 was driven by translational FX on margin getting a bit more adverse towards the end of the year, if I understand it correctly. Just value a bit of color on that. Second component is this guide down in 2023 margins on transactional FX of 40 basis points. Can I just understand what your transactional FX exposures are, so we can just get behind that number a bit?
Thirdly, net debt was better than we expected, I think because FX translation on net debt was a lot better than we expected. Again, are the hedges playing into that? Can we just understand how you're managing your FX risk on net debt? Some technical ones from me. Those are the questions.
Great. Thanks. Thanks, Martin. There are no geeky questions. I just want to be clear about that. One thing I would say on the leverage is, you know, this is a big focus for us, and we feel great that we're down now at 3.6x at the end of the year. Cash flow is really strong in 2022, and we're also now confident that we will deliver ahead of our commitment of leverage below three by the end of 2024. We'll deliver that during the year in 2024. Just wanna reinforce that point. We feel really good about that performance. Tobias, you wanna talk to the.
Yeah. Good. Let me just working backwards since Brian started on the net debt, right? I think on the net debt, I think our in the long term, we've aligned the currencies of our debt with the currencies of our earning. We've also switched some of the debt and interest to Chinese renminbi in Q4. I think we even brought that closer together by the end of last year. I think we have a good coverage. That the FX on the debt and on our earnings are broadly aligned with each other. The FX impact on the debt for the year, as you mentioned, was very low.
You see it in the bridge I have in my deck. It was only GBP 70 million negative between the merger date and year-end. Of course at end of Q3, it was a massive number given where the currencies had moved. I think it's a non-material movement from 18th of July to the 31st of December so GBP 70 million on a, but on the GBP 10 billion number. Let me just talk you go through the other two questions. You asked about the 22 myths. What we had said in November, we had said we would expect an increase in the adverse actual effects of up to 30 basis points.
Also we had said, given the recent favorable translational movements, that margin would be slightly above last year. That was at October rates. Since then, basically two things happened. One is the transactional component got slightly worse. That comes from our Swiss cost base, and also there was massive volatility in some emerging market currencies, where there's a mismatch in the operational versus trading currency. Examples, Pakistani rupee, the Turkish lira, are examples of that. I think these were really unprecedented moves, I think both in the Swiss franc and also these emerging in a number of these emerging market currencies that all came together over a few months. As a result, the transactional came out right at the top end of the 30 bps expectations that I had set.
On the translational side, that impact was a bit less. That comes from a stronger dollar because the dollar actually was up 5% in those eight weeks between the time we had guided and year-end. Also, the Russian ruble came back up by over 25%. Those are the two things against the 2022 guidance. You asked about the 2023 transactional. I think this is simply the full year effect of the effects that we had seen come through in late Q3 and in Q4 on the transactional side. They're gonna hit predominantly in H1 as we work through those effects. The other pieces we have historically not hedged transactional exposure to GSK.
It's not a capability that that we have. We've now built those capabilities. We're looking at hedging where we can. I think, probably will not be possible with the Pakistani rupee, but clearly on the Swiss francs we can do that going forward. I would expect once we're through, have worked through these short-term impacts, that impact came from half two, that these things will diminish over time going forward then.
Okay, thank you.
Our next question is from the line of Celine Pannuti of JP Morgan. Celine, please go ahead.
Good morning, and thank you for taking my questions. I have a few, so maybe, since we are talking about margin, I'll start with this one. I mean, net-net, I think, you know, FX exposure, is something that group like you on a global basis are exposed to. I think that's not new. I think if I look at the net benefit of FX was a positive of 30 bps for this year, for 2022, if I add transaction and translation together. The underlying was still down 30 basis points. My question would be, why is it that the business did not manage to get margin expansion? More importantly for 2023, if you could give us the bridge on the building blocks. Do you expect both margin to be up in 2023?
If you could talk about the different moving parts that gets you to a guide of 22.8%. My second question is on Oral Care. Because at the time of the listing last year, that clearly has been one of your key engines for growth. Sensodyne has been growing mid-single digits versus I think double-digit historical rate. If I look at P&G and Procter in Oral Care, they grew high-single-digit last year versus you doing mid-single digits. Is the environment becoming more competitive, and does it make it harder for you now to outperform in Oral Care? Lastly, if I just can ask another one on restructuring costs. Am I right to. You said there will be about GBP 150 million restructuring costs this year, and I think GBP 100 million next year. Then on the separation cost, is that still in the GBP 100 million or can you talk about what other one-off costs we should expect? Thank you.
Right. Thanks, Celine. Tobias, why don't you start on the margin question and hit restructuring costs, and I'll come back on the oral care later.
Yeah. Thanks, Celine. I mean, yes, what you said is correct, right? There was a net, a net 30 bps positive impact from currencies in 2022. I think, now the reason why was the margin down, I think simply comes from the fact that we just separated out and there were two things that weren't in the prior year base. One is the cost of running the company as a standalone entity and all that that entails. Secondly, the synergies that the rest of the synergies of Pfizer that came through. Between the two, that was a net 60 BPS drag on the margin.
If Haleon would have been fully standalone with all the synergies in there, the 2021 margin would have been 60 bps less. I think from my point of view, we have delivered operating leverage in the year, but I think it's just that full year annualization impact of us just having separated out that comes through. Yeah. Then for 2023, I mean, we guided to the margins broadly flat after taking this 40 bps of transaction impacts that I just explained earlier on the call, which again, I think means that from an operational basis, the margin would go up, right?
I think, look, and I would see how we do this pretty much with the model that we have laid out of, and the long-term model, is that we see gross margin increasing. That comes from the stronger growth in the Power Brands, so that drives mix. That gives us the freedom to invest. Brian said it earlier, we're planning to invest heavily into A&P and R&D in 2023, yeah. Then of course, you have to show some things to work through, which are these transactional losses. Then secondly, we have the full year impact of the inflation as we roll on off the fixed price contracts.
The flip side to that is you also get a bit more pricing as the pricing impacts are analyzing. On your restructuring costs, yes, that's correct. GBP 150 million in 2023 and another GBP 150 million in the following year. We'll update you as the year goes, as we have more color when that hits. From that, you see, you would expect to pay that back, pay back the bulk of the restructuring costs very quickly. On separation costs, no change to the guidance. We had said about 80% of the spend to expect in 2022, and that pretty much came through with about GBP 400 million. That was the bulk of it that came through. I think there is just some final stuff to work through as we switch all our brands to Haleon packaging and a few final separation things to complete then.
Yeah, thanks, Tobias. Celine, on oral care, I mentioned a little bit of this earlier. First of all, oral care has always been a very competitive environment. We are really confident in our strategy around therapeutic oral care, which has really delivered the consistent growth and share growth on Sensodyne and across our Power Brands portfolio. I won't comment on anyone else's growth. There are portfolio differences. You know, we're not in electronic toothbrushes. That's not a place, you know, where we play per se. In the toothpaste business, where parodontax and Sensodyne play, we've been consistently able to grow share. That was no different in 2022.
Tobias mentioned a few of the things that impacted Sensodyne in Q4, so we ended up mid-single digits on Sensodyne, 5.6% on oral health on the year. Again, with really strong growth on Poligrip, Polident, and parodontax gum health, where we also see now growth opportunities as we go forward. Listen, nothing in my mind has really changed. It's always been a competitive category. We know how to compete. Our focus and strategy in therapeutic oral care, which is a faster-growing sub-segment that we've driven, we believe will continue to pay dividends for us for the foreseeable future.
Thank you.
My apologies. Thank you. Our next question is from the line of Karel Zoete of Kepler Cheuvreux. Karel, please go ahead now.
Yes. Good morning. Thanks for taking the question. I have three questions. The first one is on your e-commerce growth, and particularly in the U.S. In the U.S., you grew by 7%, more or less in line with your overall growth in the U.S., which was a bit of a surprise. What's driving that particularly in the U.S. and in general, the incremental investments you plan? Will some of those also go towards strengthening e-commerce capabilities? The second question is on U.S. private label. Obviously, a bit of concern that in difficult times it might win share. Have you seen that in any of your categories?
Yesterday, a private label player announced to be entering the Advil Dual Action . How do you look at that? The third question on the U.S. is Voltaren. The brand grew high single digits last year. How do you judge that progress versus the opportunity you see for Voltaren in the United States? Thank you.
Great. Thanks, Karel, for the question. First, on e-commerce, I think maybe taking a step back. You know, we grew in the high teens on e-commerce overall globally. E-commerce is now 9% of our sales, which is up from 4% from pre-pandemic levels. It is a place where we feel good about our capabilities. If you look at the U.S., you're right, that there... Our growth this year was 7%. Our growth in China was significant double-digit growth. You know, in the U.S., the net sales growth is also impacted by movements in inventory and phasing of sales. What I will say is we are overdeveloped on 11 of our top 16 brands online versus offline. That includes Sensodyne, where offline we're approximately a 20% share of the market, and online we're closer to...
Well, we're in the high 20%s. You know, that disproportionate share is what we really look at because that means we're winning online versus offline. We feel good about those capabilities. We feel good about this as a channel where consumers are going. We wanna be where our consumers are. We've invested in the capability. Our focus is to you know, have stronger shares online than offline. That's been our focus. Tobias, you want to touch on the questions on the U.S.-
Yeah.
Private label?
Yeah. Overall on private label, when you look at the categories we play in, private label shares in those categories were flat. There is no pickup overall on private label, yeah? Now, when you double-click on it, there's a brand, there's a subcategory here or there where it went up. For example, when you look at the PPI category, right, Nexium brand plays there, the private label share went up. I mean, overall, private label did not move, and we gained share against private label overall in the U.S. I think as we had said before, I think not a concern.
We believe, even through crisis times, private label shares are staying broadly flat, and last year they have stayed flat. I think this is exactly as we had expected and forecasted. You asked about Advil Duo. I think this is what we expected. Depending on the route you take to bring a new product to the market, you get exclusivity. On Advil Duo, we had exclusivity. That was three years. That exclusivity now expires. You would expect that the private label manufacturers have in three years' time to prepare for that it would launch a private label, usually around the time or shortly after when that happens.
Nothing unusual and has happened pretty much in every launch, it's just a normal part of our business, yeah? I think, look, overall, feel good. We're not complacent. We know, I think it's ultimately the strength of our brands, the trust these brands have when resolving health needs. No issue on the private label. I think you asked another question on incremental investments and where they go. I think on e-commerce, I mean, clearly, I mean, you see the shares are significantly different across the market. I think we keep investing in the markets where private label as a result are very e-commerce business isn't developed as much.
I think there are opportunities as the market evolves, that we are there, and we wanna participate in that growth. We continue to invest in those, not just in the U.S. and China where it's big, but also in the other markets where it is still underdeveloped.
Thank you.
Our next question is from the line of Misha Omanadze of BNP Paribas. Misha, please go ahead now.
Morning, all. Thanks for taking my questions. I have two. The first one is on the VMS. How do you view the prospects of this category in the near term? A number of your peers have commented on the category softening, so I was wondering what you are seeing from your perspective. And the second question is on ChapStick. Recently there were press comments that you may potentially explore the sale of the brand. Now, I understand that you may not be able to comment on the validity of this report. However, could you please give us a color on the relative size of the brand, its profitability and growth rate in recent years? Thank you.
Thanks, Misha , for the question. I'll start on VMS. Listen, we feel very good about the VMS category. Now, you know, that said, no doubt there will be swings quarter to quarter as we cycle on spikes in demands and when we brought on additional capacity. I think if you take a big step back, our growth over the last three years, since 2019, averaged 9% CAGR on VMS, which means the business is much bigger than it was in previous pre-COVID. You know, we saw a 5% growth this year. Now, the growth, again, varied first half to second half, and that had a lot to do with what happened in the base when we brought on new capacity and spikes in demand.
The consumer behavior of more proactively managing their health is still there and is continuing. If we look at our VMS portfolio and the potential, we feel great about the portfolio and where we play. We think there's opportunities both in innovation, and you saw that this year in our Emergen-C Kidz launch, which was really successful. I talked earlier, geographic expansion opportunities in places like Middle East, Africa, and Latin America and India. We see the growth opportunities.
I've talked a lot about the Centrum kind of revenue synergy opportunity, which is, you know, our structure in places like Middle East, Africa, is so much bigger and stronger, able to run that business through, where it hasn't been on market but hasn't been invested in, has really shown good opportunity for us. We're still very optimistic about China.
On your other question, I think that as Brian mentioned before, look, I mean, as a matter of principle, we're not commenting on any M&A speculation that's out there in the marketplace. I mean, as you know, as Brian said, and also I think as we put in the press release, I think we're disciplined about looking at our portfolio, which is about exploring bolt-on M&A opportunities, but also you would expect that from us as consumer companies with a large number of brands to also be disciplined, to look at our portfolio and how we invest in our brands. I think this is what we have done. We've done that successfully in the past, and we're continuing to do that.
Then on your specific Japan question, I mean, we're not commenting specifically on any brand. I think there is a note somewhere in the press release about skin health, which has grown slightly, but we're not commenting on individual brand performance. Yeah.
Understood. Thank you very much.
Our next question is from the line of Graham Parry of Bank of America. Graham, please go ahead.
Great. Thanks for taking my questions. The first one's on the Nexium premises settlement. Can you give us a reminder of how many cases you have outstanding there, how many of those have been settled? Can you confirm that the cost of that has all gone through the SG&A line in the GBP 44 million adjustment to IFRS on page 26 of the release? Does that provision anticipate further settlements, or is it just done those that you've actually settled to date included in there? Second question is on interest and tax. The guide in 2023, they look worse than where consensus was coming out. Can you help us understand the phasing of interest expenses through the year as you manage the balance sheet with debt repurchases being announced as well?
On tax, is the 2023 guide a good sort of mid-range guide as well, for your tax rate going forwards, or are there other mix, or, tax benefit effects that could, improve that over time? Thank you.
Good. Thanks, Graham. On the Nexium settlement, I think first of all, on the number of cases, I think there is, I think around 3,000 cases. We settled the vast majority of those. I think as in every settlement, there might be, you know, a very small amount that does not, that where participants might not choose. We expect that the vast majority get settled. I think overall, I think we feel good about this settlement. The reason we do is I think, it was a non-material amount. We cannot, the settlement terms are confidential.
As you have pointed out, page 26 of the press release, that is where it has been booked and accounted for, which should ultimately mean that it's a non-material amount for us. I think it's good to have this out of the way. Yes, there could be another, you know, single case here or there, but I mean, there could be we'd expect those to be totally non-material as you would have in every settlement. You ask about the tax outlook. I mean, look, key driver, I mean, the U.K. government announced a tax increase and enacted it. I think that's I think the biggest step up.
Also at half year, we had said that we will be, we will need to be taxed on a different U.S. state tax mix. The reason is in the past, while we were part of GSK, our U.S. state taxes were done by based on the profit and the sales and the business mix that GSK had in the U.S. overall. I think now we have to look at what the Haleon mix of business is across the state tax, and there's a small increase on the U.S. state tax mix as a result of that. Those are the two, reason one, separation related, the other one, government, the U.K. government, decision. Yeah.
Great. Thanks. Interest charges, just the phasing through the year, do you expect to see that manage down through the course of the year?
No, okay. On the interest charge, I mean, I think, one, you have the annualization impact, so that's why the step-up is there, which I had laid out in my comments in Q3. Overall, I mean, 87% of the debt is fixed by the end of the year. You would expect us as we pay down our debt, that we first pay down the floating part. I would expect that ratio to continue to decrease. I think the risk on the floating part is very, very small. Not concerned about that. Then of course, as we pay down the debt, you would see that also the interest charge come down.
Of course, you have to take the annualization impact of that, because there were no interest expense in Q1 and also in the first half last year, we had interest income because we on lend fees the GBP 9 billion of bonds we had taken to GSK and Pfizer, and that will not be there in 2023 anymore.
Great. Thank you.
Thank you. As a reminder, for any further questions, please dial star followed by one on your telephone keypad. Our next question is from the line of Alicia Forry of Investec. Please go ahead.
Thank you, good morning, everyone. I was wondering if you could talk about whether you feel you have any additional levers to address some of these transactional FX mismatches besides simply hedging. Now that you're a standalone business, are there opportunities to change where certain costs are located? Second question is, I wonder if you could discuss your expected evolution for some of the cost components for FY 2023. I know you've touched on A&P, but a bit more color on what you're seeing with regards to conversion costs, freight costs, distribution costs, et cetera. Thank you.
Good. Let me start on your hedging questions. I think it depends a bit on where they arise, right? I think on the Swiss franc cost base, I think hedging is the best path forward. I mean, overall, I think we benefit as a company from having a Swiss franc base, having a big part of our IP there, so it helps on the overall tax charge and the overall tax mix. I think having that presence in Switzerland is actually helpful for the company overall, and I think we can remove some of the short-term impacts by using a hedging approach, yeah. When you look at emerging market currencies, I think here, there is...
I mean, for example, in Pakistan, we have a local production site, so we already manufacture locally. There are still components that you have to buy outside the country because they're not available inside the country. There's probably less you can do about those. I think there is probably a small exposure on that, but I hope it's not as massive where, you know, four or five of these emerging markets have those, have those over time, yeah. I think that's probably the bigger things of what happened on the hedging side. Then you asked about the cost component. Look, I mean, more broadly, I think we're seeing a flattening of the material costs.
We're also seeing a flattening or come down on freight and freight and distribution costs. Now, what will happen 2023 is, as we switch from fixed price contracts that we had locked in for 2022 into the new pricing for 2023, there is still a step-up, but that step-up is in the single digits versus in the double digits, as it was in 2022. Against that, of course, we have the annualization impact of the pricing to cover that. We will see and will track where the inflation headwinds are going and ensure with our suppliers that if it goes positive, that we can also participate in that.
I mean, I think there's one, there's at least one big component glycerin for us where we start seeing the prices come down. That's where we also chose not to take a fixed price contract because we believe we're seeing it reduce. Look, I think the situation is still volatile out there, so we will stay vigilant in that as we look as we look into it. I think from a freight point of view, I would expect those those will come down over time.
I think we'll take one more question. That's it, actually.
Thank you. Our final question is from the line of Tom Sykes of Deutsche Bank. Please go ahead now.
Thanks very much. Morning, everybody. Firstly, just on cost inflation, could you give some comments on cost inflation? In Q3, you said you were renegotiating some of your contracts with third-party manufacturers and looking at fixing some freight costs. Any timing of any cost relief over the course of the year would be helpful. Just a follow-up on the tax rate question. As you have more emerging market growth, is that going to pressure upwards the tax rate on a net basis at all, please? Sorry, a final one on FX. Is there much revenue where you're invoicing in a currency which is different to that which you're calculating the organic growth in, please?
Good. Let me start with the last question. The organic revenue growth is fully currency adjusted. Compare the organic growth is the true organic growth rate, removing all currency components. On the tax rate question, in our, I mean, more broadly, our. Look, I mean, the emerging market mix does not drive up our tax mix dramatically. I think most of our countries are what you would call limited risk distributors. I think they have normal local distribution margins where our intellectual property sits in the U.K., Switzerland, and the U.S. From that point of view, our biggest tax exposures are to the Swiss rate, the U.S. rate, and the U.K. rates.
I think those have the biggest impact. Given those movement, that's also why you see the tax rate overall go up. Then on cost inflation, I mean, look, I mean, where we are this year, we're around 70% on the materials where we have fixed agreements done, so we have good visibility on those. On some, we consciously decided not to take it, given we believe the cost will come down. As you would expect, the expiry of 2022 contracts to 2023, which means there is a step-up in cost that starts coming from the year.
We need to see if we're moving into a much more beneficial environment in half two or not, but then we'll ensure that we're able to participate in that, yeah. Clearly, I mean, more broadly, we don't see the same pressures in 2023 compared to what we have seen in 2022, where I think everything came together on commodities, on energy, on transportation, on freight. From that point of view, I think we're seeing a lower pressure overall.
Great. Listen, I think we'll close out here. Thanks everyone for joining today and your interest in Haleon. As I said in my presentation, 2023 has started well. I look forward to updating you as we go through the year. As always, if you have any queries, questions or follow-up, please let Sonya and the IR team know. Thanks, have a good day.
This concludes today's call. Thank you all for joining. You may now disconnect your lines.