Haleon plc (HLN) Q3 2024 Earnings Report, Transcript and Summary

Hello, everyone, and thank you for joining the Haleon 2024 Q3 Trading Statements Call. My name is Becky, and I will be your operator today. [Operator Instructions] I will now hand over to your host, Rakesh Patel, investor relations director, to begin. Please go ahead.

Thanks, Becky. And good morning, everyone, and welcome to Haleon's conference call for our third quarter trading statement. I'm Rakesh Patel, Director, Investor Relations. And with me today is Tobias Hestler, our CFO. 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 and 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. Today, we will focus on revenue performance. And we have also provided group profit and margin detail on both a reported and an adjusted basis, with a full reconciliation, including organic revenue and profit growth, in the appendix. Following Tobias's remarks, we will take your questions. [Operator Instructions] With that, over to Tobias.

Thanks, Rakesh. And good morning, everyone. I'm very pleased to report another strong quarter of consistent delivery driven by continued share gains from our portfolio of exceptional brands, combined with strong in-market execution. Organic revenue growth was 6.1%, balanced between price and volume/mix. Our Power Brands grew 5.4%, with broad-based growth across all regions. Our developed markets grew 4%, and encouragingly, North America saw an improved performance. In emerging markets, we delivered 11% growth, with China up double digit. Equally important, our growth algorithm continued to deliver. Operating leverage, particularly from organic gross margin expansion, together with strong investment into our brands, resulted in organic profit growth of 7.4%. This takes us to 9.7% organic profit growth for the first 9 months. In the quarter, we continued to make good progress against our capital allocation priorities. We announced an agreement to increase our stake in the China joint venture by 33%, [ so ] we will own 88%, with a clear pathway to full ownership. This comes after successful divestment of ChapStick and the nicotine replacement therapy business outside the U.S. Together, these transactions demonstrate our commitment to optimize the portfolio through active brand management. We also completed our GBP 500 million share buyback allocation for the year through an off-market purchase from Pfizer. As a result, we have now returned over GBP 1 billion of capital back to shareholders this year. Finally, during the quarter, we raised around GBP 900 million in bonds at attractive rates with strong demand. The proceeds will be used to refinance the $1.75 billion bond we have maturing in March next year. Our numbers today are evidence that we're well on track to meet our full year guidance, which I'll remind you is to grow organic revenues by 4% to 6% and organic profit by high single digit. Turning now to the details of our third quarter results, looking first at the drivers of revenue growth. Revenue of GBP 2.8 billion reflected 6.1% organic growth. This was made up of 3.3% price and 2.8% volume/mix. As we expected, pricing in the quarter was stable relative to the second quarter. Volume/mix accelerated with good improvement in North America and Asia Pacific, as the Fenbid comparative fell away. Importantly, all 3 regions delivered positive volume/mix, consistent with the expectations we have previously set out for the second half of 2024. Net M&A represented a headwind to reported revenue of 1.8% as a result of the disposals of Lamisil and ChapStick. As a reminder, the divestment of the NRT business outside the U.S. closed at the end of the quarter; and will impact our Q4 reported revenues, as I have previously guided. Lastly, foreign exchange had a significant impact on reported revenue, reducing this by 4.9%, including 1 point from [ here ] hyperinflationary economies after we implemented [ capping ] from the start of this year. The overall translation impact in the quarter reflected sterling strength against the U.S. dollar and a number of emerging market currencies. This effect was more pronounced, as around 40% of our sales in the quarter occur in September, in part due to cold and flu sell-ins when sterling was particularly strong. Taking these factors together, reported revenue declined 0.6% in the quarter. Coming back to the makeup of revenue growth between price and volume/mix. As I've said previously, we expected growth to -- a bit more weighted towards price this year. Thus, 2024 would be a stepping stone towards reaching the healthy balance of price and volume/mix that we would normally expect. This is exactly what you have seen as we moved through the year, with growth in the third quarter now being more balanced. To be clear: We will continue to take price as needed and remain confident in our ability to do so given the strengths of our innovations, our brands and market positions. Turning now to our performance across the categories. We delivered broad-based growth across the categories, which demonstrates the strengths and diversity of our portfolio. Organic growth was 6.1% in the quarter and 4.4% in the first 9 months. Looking at the detail, starting with Oral Health where revenues grew 8.2%, taking our total for the 9 months to 9.3%. Our key growth drivers in this category continued to deliver, with Sensodyne growth underpinned by continued share gains. Our latest innovation, Clinical White, is performing well and is attracting a younger demographic to the brand. parodontax grew double digit. Denture Care growth normalized as we had predicted, in line with our expectations. VMS grew 3.7%, underpinned by Caltrate, which was helped by our "bone up" program in China which is centered around the treatment and prevention of osteoporosis. The step-down in VMS category growth from the first half of the year related to Centrum comparatives. You will recall that Centrum grew by 14% in the U.S. and 22% in China in Q3 2023. And against those tough comparatives, Centrum sales were broadly flat, with the U.S. flat and China down. Performance in China also reflected some channel dynamics, which I'll come back to later. Importantly, Centrum continues to gain share in both these markets and also globally. Pain Relief returned to growth in the quarter, up 3.1%. Advil is benefiting from our ongoing investment in North America, including the launch of our new topical Advil Targeted Relief. Panadol sales declined, reflecting consumption trends [, against the ] strong base last year, but the band -- brand continues to gain share. Voltaren revenues were flat -- to a more competitive market situation. Across our Local Growth brands, Grand-Pa in South Africa saw strong performance. Respiratory Health revenue was up 9.1%, with strong growth in Theraflu and Robitussin. As you will remember, in the first half, we proactively ran-down our inventory in the U.S. of oral products containing PE. During the quarter, we shipped reformulated cough and cold medicines not containing PE, in time for the season. In addition, Otrivin performed well, helped by continued strong [ uptake ] of our nasal mist innovation. The decline in allergy reflected a normal destock after a weak season. Finally, Digestive Health and Other was up 5.9%, after we lapped the destock in North America last year. [ Let's now ] to look at geographic performance, starting with North America. Organic revenue grew 4.8%, made up of 2.4% price and 2.4% volume/mix. This included the impact of carryforward pricing, which now rolls off. Growth in Oral Health was led by Sensodyne, which was underpinned by share gains from the launch of Clinical White. VMS also continued to gain share, with Emergen-C up low single digit and a broadly flat performance in Centrum. Pain Relief grew mid-single digit, driven by Advil and Voltaren. Respiratory Health was driven by shipments of reformulated cold and flu products; and new innovation, including soft chews for Theraflu and Robitussin. Turning to Europe, Middle East, Africa and Latin America. Organic revenue increased 6.1%, made up of 5.3% price and 0.8% volume/mix. Pricing in Europe was up around 3%, running slightly above the rate of inflation. Looking to 2025, I would expect price growth in Europe to moderate as inflation comes down. Emerging markets saw stronger pricing, as you would expect. Across the segment, there was double-digit growth in Middle East and Africa helped by our Oral Health brands, Centrum and Otrivin. Latin America grew high single digit. Performance in Europe was more mixed with a high single-digit revenue growth across Central and Eastern Europe, mid-single-digit growth in Northern Europe and Germany. And Southern Europe was relatively flat. Looking at it by category. Oral Health, we saw strong performance from Sensodyne and parodontax. We continued to see good consumer uptake for a number of brand innovations, including Sensodyne Clinical White and parodontax gum strengthen and protect. In VMS, Centrum was up strongly, helped by continued activation and strong in-market execution. In Pain Relief, we saw strong growth from Grand-Pa in South Africa, offset by a decline in Panadol against a strong comparative last year and some shipping delays in Middle East and Africa. Voltaren was down given softer consumption trends, particularly in Germany. Finally turning to Asia Pacific. Organic revenue increased 8.2% and was made up of 1.1% price and 7.1% volume/mix. Growth in volume/mix benefited not only from the passing of the Fenbid comparative but also from good underlying performance driven by share gains. China was up double digit with continued strength in Caltrate and Fenbid. India grew double digit, while Australia and New Zealand grew low single digit. Looking at performance by category. Oral Health was underpinned by strong growth in Sensodyne, particularly in India. We also recently launched parodontax in the e-com channel in China, and initial consumer feedback has been encouraging. In VMS, we saw strong performance in Caltrate. Centrum declined against a tough comparative in China last year. It's also worth noting there has been some weakness in the multivitamin category in the pharmacy channel, which has been partly offset by strength in the e-com channel. As I mentioned, Centrum's share performance has continued to be strong. In Pain Relief, sales were driven by Fenbid and Voltaren, which saw strong growth particularly in China, while Panadol declined. I want to take a moment now to expand on our business in China, which is our second largest market, after the U.S. We have a strong position as the #1 multinational in the country and have delivered consistent share gains resulting in attractive growth. This reflects the resilience of our overall portfolio which capitalizes on our local production footprint; our innovation capabilities; and our strong route to market, including our e-commerce business which now makes up around 30% of our revenues. As shared earlier, we have agreed to buy an additional 33% stake in the China JV for around GBP 0.5 billion from our JV partner, with an option to acquire the remaining 12%. We anticipate the deal to close by the end of the year and be accretive to EPS. Full control of the OTC business will have a number of benefits to Haleon, including flexible manufacturing across our 2 sites in the country and optimized routes to market. And at a higher level, it further strengthens our position in a huge market where we continue to see exciting growth potential and where we have continued to outperform. Turning now to our operating performance. Our growth algorithm is delivering, with 6.1% organic revenue growth resulting in gross margin expansion which enabled strong investment into our brands. This resulted in 7.4% organic profit growth [ or ] 30 basis points of margin improvement despite the benefit of a tax credit in North America last year. Net M&A had a GBP 30 million negative impact, mainly from the divestments of Lamisil and ChapStick, and was around a 70 basis points drag on margin. Finally, there was GBP 69 million or 120 basis points adverse impact from translational foreign exchange. This impact was greater proportionately than the revenue impact given the geographic mix of costs relative to revenue. Taken together, this resulted in a 7.2% decline in operating profit and a 23% margin for the quarter. On a year-to-date basis, we have grown organic profit by 9.7%. This puts us firmly on track to deliver our guidance for high single-digit growth for the year. Moving on from the quarterly financials, I'd like to take a moment to revisit our capital allocation priorities and our delivery against these. We remain committed to investing in the business, and this remains our priority to drive sustainable long-term growth. As you have seen during the year, we have invested in A&P at a healthy rate, up high single digit, alongside new innovations and a number of projects to drive growth and efficiencies. We are supporting these investments with our productivity program, which remains on track. Secondly, I have said that we would look at M&A where it is commercially compelling and consistent with our strategy and that we would be active in portfolio management. We have done exactly that with the divestments of ChapStick and the NRT business outside the U.S. And we have recycled the capital into increasing our stake in the China JV. Thirdly, we're committed to building on our track record of delivering attractive shareholder returns. And I was pleased to complete the GBP 500 million we allocated to buybacks this year, with over 85% of this being bought from Pfizer. Turning now to our 2024 guidance. Based on our good year-to-date performance and momentum as we enter the fourth quarter, we're confident in our full year outlook. We continue to expect to achieve organic revenue growth of between 4% to 6%. We expect another year of positive operating leverage, translating to organic profit growth in the high single digit. We continue to face FX headwinds, which as we previously guided to will have around a 4% adverse translation impact on revenue and a 6% to 6.5% impact on adjusted operating profit. This assumes FX rates as of October 3 hold, but we remain mindful of the ongoing volatility in the currency market. And we'll update you as usual in our next aide-mémoire. There is no change to our net interest expense or tax guidance. As I come to the end of my time at Haleon, I'm proud to see that we are delivering strong results and that we are continuing on the trajectory we set over the last 2 years. Our growth algorithm is clearly delivering. We have achieved attractive and above-market growth in revenues, with resilient volume/mix coming to the fore. This has meant that our profit growth algorithm has delivered, particularly over the last few quarters. This in turn has driven strong cash generation which has supported our ability to delever. The strong delivery combined with our disciplined capital allocation actions has resulted in total shareholder return outperformance, which we aim to continue as we deliver against our medium-term financial objectives. So to sum up. We had another strong quarter of consistent delivery driven by continued share gains from our portfolio of exceptional brands, combined with strong in-market execution. We delivered 7.4% organic profit growth in the quarter, which takes us to 9.7% for the 9 months. And this leaves us well placed to deliver high single-digit growth for the year. We're also making good progress on our capital allocation priorities, including investing in the business at healthy rates; proactive portfolio management; recycling capital from lower-growth areas into higher-growth markets such as China; and finally, returning over GBP 1 billion to shareholders through dividends and share buybacks. Finally, I want to share my personal thanks for the support you have given me over the last few years and to share my reflections as I look back on my career as the CFO of the consumer businesses since 2017 and at Haleon. It's been a unique experience, to say the least. I feel an enormous sense of pride looking back on what we have achieved delivering consistently strong results while standing up a new FTSE 20 business. It's the very definition of building the plane while you're flying it, but we did it and Haleon is all the stronger for it. I've learned a huge amount along the way, both before separation as well as over the last 2.5 years. For sure, we've had challenges and it hasn't always been plain sailing, but it's how you navigate those challenges and change that I think really defines you. I've learned something from every experience I've had here, the good and the more challenging. I'm excited about what lies ahead for Haleon. The opportunity ahead is enormous. Haleon is fighting fit and is going from strength to strength. For my own part, I'm pleased that I'm leaving having delivered on what we promised and having put the overhangs firmly in the rearview mirror. The business is in excellent hands with Dawn and Haleon's executive team. And I will be here until the end of the year to support a smooth transition for Dawn and the finance function, but after that, I'll be cheering the business on from the sidelines, knowing that I was one of its founding members. All the very best to all of you. Thank you. And now let's turn to questions. Operator, please, can you open up the lines?

[Operator Instructions] Our first question is from Guillaume Delmas.

Well, first of all, Tobias, congrats on an absolutely fantastic job over the years at Haleon. And thank you very much for your kindness; your insights; and also when it comes to me, your patience dealing with me and my questions. And so on to my 2 questions: The first one is on your outlook for 2024. I mean, in the press release, I think Brian indicates that you are well on track to deliver your FY '24 guidance. Should we interpret this as you being quite comfortable with current consensus expectations that are for almost 5% organic sales growth and 22.5% operating margin for the year? And related to that, with only 2 months left, what are the key sources of uncertainty? I mean, is it mostly cough and cold and foreign exchange? Or any other factors we should take into account? And then my second question. It's on your VMS business. There was a bit of a slowdown in the third quarter. Can you just confirm this deceleration is entirely down to a tough comparator for Centrum and therefore that we should expect some sequential pickup as early as Q4? And also if you could shed some light on current category growth for VMS, particularly in the U.S.; and against that, your market share development. As in, do you continue to gain shares, thanks particularly to Centrum Silver?

Thanks, Guillaume. Only 2 questions from you -- picking on you. Thanks...

[indiscernible].

So I'm -- good, cool. So let me start with the '24 outlook, so look. I think, as you pointed out right, you read in Brian's quote -- he said we're well on track. I think we're really confident about the year and where we are. I think the Q3 results you have seen balanced between price, volume; 6% growth, I think, bodes well for the future. You've also seen we continue to gain market share, so I think we're doing well against the market as well. And we're also investing heavily in the business. So high single-digit growth in A&P, so we're investing behind our brands. We're investing behind the growth, so I think, overall, I think I would say, very confident in our ability. And you will understand I'm not commenting on where the consensus sits overall, but I think these words were all very, very carefully chosen. And you pointed them out very rightly so. Now you asked about uncertainties for the rest of the year, so look. I mean we're guiding to organic, so FX isn't a consideration. I can't plan FX. If I could, I wouldn't be working here. So I think that's -- it's going to be what it's going to be. From what we said on FX is very, very clear. We put in the aide-mémoire 4% on the top, 6% to 6.5% on the bottom. That is unchanged, so no concerns here from that perspective. And of course, we'll update you with what happened then, compared to October 3 rates, as we put out the next aide-mémoire at the beginning of the year. So what are the uncertainties against the organic growth? I think cold and flu is an up and down. It could be a bit better. It could be a bit less. You don't know. I mean ultimately what's driven cold and flu is if there's a spike in December or not. That drives small up- or downside. It's going to be what it's going to be. We are ready for the cold and flu season. We have good and healthy sell-in, so that's, I think, all we can do. And then we see how many [ bucks ] are going around on that. The other thing that you don't know about is what U.S. retailers are doing, so I think we had a surprise in Q1. We've not seen any movements in Q2 and Q3, so I think, from that point of view, it has been stable, but this is another one that I think is a little bit outside of our control to manage. So that's probably the bigger things out there, but again, see continued performance. And we expect continued outperformance against the market growth rate. Then moving to your VMS question. So yes, VMS was slightly lower in Q3, but I think -- take a step back. 9 months, 7.3% growth overall in the category; Centrum up the upper end of mid-single digit; Caltrate up double digits, so I think strong year-to-date performance. And you rightly pointed out the big comparators, and those comparators are gone. They won't be there for Q4, which ultimately means VMS is going to be better in Q4 than it was in Q3. And from a share point of view, we continue to gain share. So I think both globally but also in the key markets, so -- and, by the way, in a healthy category. So the VMS category still grows around mid-single digit and we're outperforming that, so it's very much on our long-term growth algorithm. And also, our 9 months sell-in with 7% is exactly where it should be growing ahead of the category. Thank you.

Our next question is from David Hayes from Jefferies.

I'll just go for 2, I guess, as well. So just firstly, on the FX leverage effect. In the quarter, obviously, it was running at about 2x the sales effect at the operating profit level. At the full year, you're guiding to about 1.5 effectively, so I just want to -- I know we've kind of been through this before a little bit, but just to understand: Is there anything specific in the third quarter that accentuates that fall-through, or is it just the absolute numbers being bigger? Or should the effect on the operating profit level be small in the fourth quarter for some specific reason? And then the second question, just on the China OTC changes. Does anything change in terms of your visibility and running of that business? And I guess what I'm getting at there is have you got visibility on levels of inventory in the market at the moment. And is that something that you may have to look at as you get more control or maybe run that at a leaner level [ so we get ] some destocking early next year? Anything like that at all that you'd flag is going on in terms of sort of ongoing due diligence in that process?

Thanks, David. So on FX, you're correct. The multiplier was about 2x. I mean, first of all, I think you should view that as an outlier; and I'll explain in a moment why that is. So then ultimately the multiplier reflects a bit the geographic mix of the translation; and that, of course, against where the mix of costs sits as well. And what made Q3 a bit unusual is -- probably is 3 things, right? One is, in Q3 and particularly in the September month, you had -- when you look at sort of the biggest exchange rate pair we have, which is the dollar against the sterling, you had last year the lowest points reached in Q3 and actually in the month of September. And this year, you -- we reached pretty much the highest points. You have about a 10% FX difference on the dollar between that. And then what makes this particularly painful for us is that our sales are weighted to September. So we sell a lot of the cold and flu in the September month, so we get an overproportionate impact on that. And of course, these cold and flu sales are profitable sales. And then you add to that, that there's no A&P against that because we're shipping that stuff being ready for the season, but then we're advertising for it in Q4. And that's also, as a result, Q3 has the highest profitability in the year. So you get higher sales from shipping in. You get better profitability, but you don't get the cost protection from it because you're not advertising in it. And I think that's what's, I think, particular to Q3, so I would see it as a bit of an [ outlier ]. Because normally you get in the other quarters a bit of more natural hedge on the costs line to offset it, yes. And then the last thing is as a reminder. We implemented hyperinflation accounting from Q1 of this year. We didn't do it last year. We could have and restated last year, but it was not material for the group last year because it only started, come up in Q3 and Q4. And we spared ourselves and all of you the pain of doing a restatement of last year, but this means it wasn't there last year. It's this year now, so you get about a 1% on the revenue that comes from this difference. And we'll leave that behind us once we're in Q1 of next year as well. So those are the FX comment. On China OTC. So the good news is, on this, we've been running that business, David, right? So I think it's a joint venture. It has a joint venture Board. We have the joint venture partners of the Board, but it was operationally run by our team. So there was -- while, I mean, a -- we have control of the business given being a majority owner, but secondly, we ran it operationally, so I think, from that point of view, we have been tracking the sell-in performance, the sell-out performance. We have been setting the sales practices in the market, so I think, from that point of view, this isn't sort of a -- what you normally expect in an acquisition where you acquire a business that you haven't known. We know this business. By the way, we also run the full accounting on this business. All the finances, everything operationally is done by us, but of course, we share the profits of it and have to agree strategic directions and bigger decisions with the joint venture Board, yes. What we will do in China now, what this integration allows us is to merge the field forces, yes, so I think what we have to go through now is an integration of 2 separate field forces into 1. And we believe this will be beneficial, but that's probably the short-term noise we have to work through. So I think that's, I think, where the focus is. It is on this integration, which by the way is already underway. Thanks, David.

Our next question is from Iain Simpson from Barclays.

Just to echo those comments about, thanks for all your help and support over the years. And I very much hope that you have a fantastic time doing something a little bit different in the years to come. 2 questions from me, if I may: I wondered if there was anything systemic happening with Panadol because it just seems to be struggling a little bit in quite a few markets. I think you called out Middle East, Africa; some bits of Europe, Australia; I think, maybe somewhere in Asia Pac. I was just wondering if there's anything kind of competitors turning up the dial or whatever or if it's just a coincidence that a lot of Panadol markets seem to turn south at the same time. And then my second question is around Eroxon, where clearly that's launched pretty recently, so I'm guessing you don't have much in the way of sell-out data yet, but fascinating to hear what you do have. But are you able to share anything on retailer uptake of Eroxon? How broadly distributed is it in U.S. stores versus your expectations for this point in the launch?

Great, Iain. Thanks very much. So let me start with Panadol. So Panadol, the good news is, in the vast majority of markets, we're gaining or maintaining share. So that number is well above the 80% mark, so I think -- from a competitive standpoint, I think we're doing fine, so I think -- not worried about that. What we have -- did not get right as we were planning for this year is we expected -- we didn't realize that there was still more use of Panadol last year because there was still a tripledemic or -- and the RSV was going around in some places. COVID was still going around and cold and flu was going around. And there was more use of those products than we thought there was, so we got a bit surprised by that dynamic this year because we sort of had underestimated that. I think that has normalized now, so I think that's now out of the base. And ultimately the data point on us gaining and maintaining share tells you it's a market dynamic that hits the overall market and not just us. And then look. There were some niggles here or there about Middle East with some shipping delays given the geopolitical and some shipping lanes being blocked, so smaller things like that. And in Australia, we had one of the retailers destock a bit, but I think these are small, tiny points, so no concerns on Panadol and its performance, more a normalization that has happened this year and admittedly a bit bigger than we thought it was going into the year. On Eroxon. So yes, we launched. We started shipments pretty much the first of the quarter, day. And we prelaunched it for e-com a few days earlier, but shippings -- really shipments started very early in the year. Way too early to tell: I mean we've, I've talked before, right, we're building a new category in a new part of the shelf. Uptake by retailers has been very good, so we're well above 80% and sometimes even higher percent of distribution in our biggest customers. All of our big retailers, all the big customers have taken it, so I think there's been good uptake on the product. And they were also ready to do a shelf reset outside the normal time, which shows there is support. There is good retailer support also in terms of placing of materials in the trade because the retailers agree this is an attractive and unmet consumer need. We fully launched advertising towards the middle of October, so that's when we kicked off advertising. And we used the NFL as sort of the big kickoff and we did big advertising during the NFL games that [ kicked off ]. And I think that is then -- you see that then directly translating, especially on the e-com side, into demand. So we're starting to see sales come through, so look: Distribution is there. We're activating now, so all of that has gone, I would say, executionally very well. And then we'll see what comes from it. So I think excited about it but way too early to say where this is going just given it's a new category. Thanks, Iain.

Our next question is from Rashad Kawan from Morgan Stanley.

Congrats, Tobias, on everything you've done. Thanks for all the help through the last few years. And wishing you all the best going forward. Just a couple from me, please: on the U.S. So in the slides, you mentioned the overall market in North America improving. Can you speak about what you've been seeing there in terms of underlying trends and what's driving the improvement? And then the second, just on cold and flu. I know, Tobias, you touched on it a little earlier. It seems early reads are suggesting a slightly weaker trend versus last year and especially kind of if you look at one of the slides that you guys put through. I know it's still too early to make a call on the season, but what have you seen in terms of retailer purchase patterns in Q3? What type of season are you guys planning for internally?

Good. Thanks, Rashad. So the U.S. market overall. You remember the last few quarters. I said the market is in volume decline and is showing small value growth given the pricing that was rolling through. That has improved. The market on a year-to-date basis is now flat in volume. So it has come back to flat, which means that more -- in the more recent weeks, it's gotten to volume growth because the volume decline is offset. So I think that's positive. So we're coming back to volume growth, so people are probably beyond the destocking on their pantries. And again, our products are bought on a need basis, so I think we're seeing that supporting the market. And of course, you still have price growth, but of course, that price growth is moderating as we're starting -- we and all -- I think the -- most of the competitors are starting to roll off the price increases they took. And also in the U.S. price increases are usually taken at different points in the year, usually aligned to shelf resets they -- so you don't have sort of this once annual pricing that you have in Europe. So in the U.S., it takes a few quarters to sort of stepwise roll it off. So I think overall, I think, a -- still the market is flat in volume but on an improving trend, which is positive. And we've outgrown the market both in volume terms and, well, of course, in value terms as well. So we've been gaining share in the U.S. on a vast majority of our portfolio, so I think again that is positive. So I think the Q3 numbers, I think, also put sell-out and sell-in in the same -- sort of the same range with each other, which is I think -- which is positive development, from my perspective, but look. Still early, right? It's still sort of, I would say, first signs of an improvement, but I wouldn't call that victory yet. On cold and flu. So I put the U.S. slide in the appendix of my slide deck -- and the last few weeks, the first 2 weeks of the season, a little bit up, a little bit down, honestly. I mean I think, through the summer, it was slightly higher. Then the early weeks were slightly low, but it's in the minutia, right? And when you look at the slide, ultimately what makes the season is the spikes that come; and whether there are 2 spikes, 3 spikes. And these spikes are double, triple the weekly demand as they spike up. And that's what's going to make the season, so I think, from my perspective, way too early to tell. The U.S. might have been a bit less the first few weeks. We have other markets across Europe where it's been a bit better. And don't forget the vast majority of our cold and flu sales are outside the U.S. So I wouldn't read everything into U.S. data, yes. The sell-in has been good. So I think you saw 9% respiratory growth globally. You know the PE effect. That reversed out. I mean that's 4 points on the category for the quarter, so then it's probably mid-single digit. And that, by the way, includes a destocking on allergy as well. So I think very healthy sell-in, which actually tells you we've done the right job in March and April and taking the inventory out after the season. So retailers were ready to buy into the season and ahead of the season in very similar terms as they have done in the prior year, so -- and that's all we can do. We can sell-in. [ We're ] ready for the season. We shipped. We have stuff in our warehouse. And then the rest, the [ bucks ] will tell us [ on ] how they go around and affect some of us more and some of us a bit less, yes. Thanks, Rashad.

Our next question is from Celine Pannuti from JPMorgan.

Congrats, Tobias, on all your career. And best of luck to you. My first question is on this volume/mix balance that you are mentioning. As we look into the fourth quarter, I'd just like to understand a bit the moving parts. So it seems that you are flagging that pricing will normalize from Q4. Am I right in thinking that? And then it means therefore that probably we should see a step-up in volume in the fourth quarter. And that's what I would like to -- if you could help us understand the key driver. Because I -- from what you just said, it seems that there was what, a 40 bps, a 40 basis point benefit on volume in Q3 from that sell-in, the non-PE sell-in product, so could you help us understand where the volume step-up will come from? And especially, as I look at Europe, trying to understand why the volume was quite low versus expectation. My second question may be a bit related, but it's on the margin outlook for the year. In the first half, your organic margin was up 160 basis points. In Q3, it was up 30 bps. You are flagging more A&P, I believe, in the fourth quarter, in terms of the flu and Eroxon side. I was wondering whether we should expect a similar path in margin for the fourth quarter on an organic basis versus what you delivered in H1.

Thanks, Celine. Happy to go through those. So what are the moving parts of price and volume? So I think my comments on pricing coming down are probably more for '25, right? So I don't think there is a -- there's anything -- there's a stepping stone in price expectation for Q4, right? So I think -- and the reason is Europe has been very stable, right? The step down in Europe was Q1, where you still have the rollover from prior year. Then all the pricing is largely set for the rest of the year, so you should expect that to be stable going forward. Asia has been pretty stable on it, and I think also in the U.S. it's fairly stable. You always have -- for bigger markets, you might have 1 point up or down, which depends on the mix you do. It depends on the gross-to-net you have running through, so I think, small moves quarter-by-quarter, I wouldn't get overly excited about, but I think the most important message for me is about you've seen us coming back to a balance between price and volume. It's exactly what we predicted, that volume growth comes and picks up; and that has happened. And we will -- and we see that trajectory continuing into Q4, so -- and that's why I've also, in my slide, given you a bit of the history and -- as we've entered the year. And then I would expect going into '25 much more balanced between price and volume. And look: balanced, again 40-60, 60-40. It's not exactly a 50-50, but we're getting back to that longer-term algorithm that we think there is. But for '25, look. Prices -- and look. If you go back into history longer term, pricing usually was around where the inflation was, right? So I think, as inflation comes down, we would also expect the price impact that's, this year, receding. And then secondly, of course, we have this rollover effect in Q1 of '24. That will not repeat in Q1 of '25, so look. Very confident in the volume step-up. We have the Eroxon launch. We have -- we're heavily investing and healthily investing into our brands. Our AP investments are good. Our key growth drivers are delivering. And we're also leaving some of the comparator drags in Q3 behind us, so I think that all bodes well for continued volume growth going into Q4. And then on your margin outlook. So look. I think, yes, we had more margin growth in half 1. I think, Q3, just to point out, we had the onetime benefit from the tax credit or the [ employee ] tax credit we got in the U.S. That was material for the quarter. It wasn't material for the year, so from that point of view, just -- that's why the 30 bps in Q3 was a bit less than what you would normally see coming through, but yes, you're right. We're investing in the business, right? And there's also a bit of timing of efficiencies. So we had -- efficiencies came through quite strongly in the first half, so I think that was a bit more front loaded than back loaded. Ultimately I would say take a step back: 9.7% operating profit growth year-to-date, very well on track for the year-end guidance on that. And I think probably I would take the year-to-date performance more of an indicator on 9.7% organic profit growth, yes. Thanks, Celine...

Can I just ask on Eroxon?

Yes, yes...

So what kind of a number are we looking at for the first quarter where you're launching? Are we looking at a run rate of 100 million for 12 months? Is it like 25 million per quarter we should be thinking about?

So Celine, it -- I would wish it would be simple to model, right? I mean I think -- and I think the answer is simply I don't know, right? I think the good news is the retailers have taken the product and it's on shelves, so you get the shelf build that we've done in October. And that's positive, right? So that gives you a nice distribution and the first pop in sale. Now it's a question of are we seeing the reorders. Are we seeing the repeats? Is that coming back? And it's a new category that we're building, and that's what is the piece that is hard to estimate, right? So from my perspective, I think, way too early to indicate that. We'll tell you in Q4 what happens, or in the full year results, but I don't think this is one that you can exactly guide on and model, yes. So now -- I mean I said before in investor meetings and with you guys that the reason we're doing this is because it's an unmet consumer need. And we believe it's worth building a single market brand to do that, yes. And we would only do this if we believe there's a potential of $100 million-plus in revenue, but that doesn't mean it's going to come tomorrow or in the first quarter. This will be a slow build because you're not going to build a new U.S. brand for 20 million or 30 million of revenue. That's not enough what you need to sustain a brand in the long run, right? So I think we have an ambition that it's $100 million or more, but that's what we have to see as we execute on our plans, yes. And I think the execution, so far, has been good. If you have time, look a bit of the advertising that's out there. I think it is -- I think the team has done a really good job in starting to land that, but I think it's a new category for us, for the retailer and for the consumer. And that will just take a little bit of time, yes. Thanks.

Our next question is from Victoria Petrova from Bank of America.

Tobias, all the best to you. And thank you for all your help. I have a couple of small clarification questions. First is on Pain Relief outside of what we already discussed. First of all, are you happy with your Advil market share? Who are you gaining against, specifically in the U.S.? Is there any more dynamics to expect? And how should we think about market share in Voltaren? It's the performance is mixed. Is there anything in the base just to keep in mind? Or maybe Advil topical launch impacts it as well. And my clarification question is about this benefit of a tax credit in North America. How much was it? I'm not sure I could find it in your, last year, press release. How should we adjust for it in the third quarter? What's the adjusted number would be. And you said it's not material for the full year, but again, does it suggest like some incremental basis points in Q4 versus Q3 on operating margin side?

Good. Thanks a lot. Thank you. So look. On Advil in the U.S. I mean you might remember, a year ago, we had a bit of issues. And we said we needed to reinvest the brand, reignite it and get to a turnaround. And that's what the team has done, right, so I think, over the last 12 months, this has happened. On a year-to-date basis, we're gaining share. And initially, going into the year, we're still losing share, which is actually really good because that means in Q3 we're actually outgrowing the market, right? So the pain relief market in the U.S. is healthy and we're growing against it. And by the way, that, of course, goes against the powerhouse in the U.S., which is Tylenol by Kenvue, so it is highly competitive. And I think we're winning, again, with Advil, which is important. And yes, there's new launches coming like topical which we need to land, but I mean ultimately the most important thing was getting the core brand back to share growth. And that's what has happened, right? And I think, if you then pull it up to -- and then you asked about Voltaren. Yes, there, Germany, not going well right now, but I think that's what you always have, right? It's a little bit what happened with Advil last year. We turned it around. In a portfolio like ours, you always have a brand in a market or a brand in a couple of markets here or there where you have something happening that's either specific to the market or specific to a few markets that then you have to fix. Sometimes it's your own execution. Sometimes it's competitive pressures, so -- or a combination of these. And I think that's totally normal, but the strength for us is the strengths of this portfolio, that ultimately the whole category was still growing 4%, with one or two not doing well. And I think that's the benefit. And I think, from that point of view, I would not -- there is nothing to be concerned about. And our policy is we just want to be open about what's going well and what isn't and so you can get a bit of a color around what's happening. I think we're on it and we'll update you as it goes, but I don't think there's a fundamental issue in the Pain Relief category or anywhere to be concerned about. And then on the tax credit. No, we have not disclosed what the numbers are, so you couldn't find it, because we said it wasn't material really for the year. And as a result -- but we wanted to point it out for the quarter because, for the quarter, it is -- was a more material number. And that's why the margin accretion was "only 30 bps" in the quarter. So that's just to keep in mind. And yes, this was a Q3 event last year. This drag is not there for the Q4 quarter, yes.

Our next question is from Karel Zoete from Kepler.

Thanks, Tobias, for all the help over the years. I have 2 questions. The first one is coming back to the currency impact. And we know it's difficult, but what prevents you from basically building up more fixed-cost structures outside U.S., Europe and China, where the bulk of your fixed costs are? Recently again a big investment project in oral business in England. Then why not somewhere else? Is Haleon less able to find the right talents in these markets? Is it infrastructure? What prevents you from having a more global footprint in other markets? And then the other question is on Digestive Health. That seems to be much more predictable and robust than historically, at least in the most recent quarters. Why is this? And how much is Digestive Health in that business? Or in other way, are the bigger core brands becoming a bigger part of this business unit?

Look. I now -- I lost you on the last one. So you said, "On Digestive Health." Can you just repeat that...

Yes. The -- you have the line digestive and other. And that was always quite choppy.

Yes, yes...

And now it seems robust and more predictable. We know you've sold some Lower Growth brands, so in relation to that, is it more predictable? How much are the core brands between brackets of that unit nowadays?

That's fine. Then -- thank you. Now I try. So on your currency question, you're asking about sort of longer-term strategic where the footprint is. So first of all, we're doing exactly that, right? I think, as we -- part of our -- part of the efficiency program is building up structures, for example, in India, where we shift and we've shifted already quite a few head counts from the central markets there. So -- and just to bring that to life: I mean, when we spun out of GSK, our capability center in India had a head count of about 100 people. We're up to 700 now, so I think -- so we're doing exactly that, but these things, of course, take time. You're not doing that overnight, yes. So for us, in the FX footprint, I think the biggest block is clearly you have the sterling fixed-cost block that is stable. And we're addressing that with efficiency program along the way, yes. On your question on the oral care facility. I think -- look. This is the crown jewel of our portfolio. This is about know-how and this is about stability, right, so -- and I think you want to have that in one place. And I think, when we looked at renewing this facility -- and by the way, the facility is 60 years old and is in absolute need -- it's not fit for the crown jewel that it is in our portfolio. We made a very conscious decision that this stays in the U.K. given the know-how and the expertise we have and it was not worth risking that, yes. Outside that, in the U.K., we have a headquarter, but I think our cost base in the U.S. -- in the U.K. isn't that high. And then in the other markets, actually, we have a pretty broad alignment because our manufacturing footprint largely is in the same currencies or in the same broader regions where their products are also sold, right? So the U.S., over 80% of what we sell in North America is manufactured in North America. China, I think it's over 90% China for China, so there is an alignment. And then by the way, we've done something similar with the debt and the earnings, so our currency of debt is broadly aligned with the currency where we borrow the money. So look: In short, we're doing things, but there is -- these things take time to, hopefully, minimize some of these exposures, but you will never be able to make them all go away. Then on Digestive Health and Other. So yes, you're right. The other part is getting smaller, so now digestive without other is around 60% of the revenues in that. And that's the more stable part of the portfolio, right? I think, under digestive, you have brands like Tums which is always -- has been going very well, Nexium not so well, but I think in the aggregate and with Eno, very confident that this is a more stable category. It's a strategic category for us. We're the market leader in it, and that will grow. And smokers has gotten smaller because we divested outside the U.S. And then I think also what's left now in skin is actually over-the-counter medicine, pharmacy-sold skin care products like Bactroban in China, Fenistil in Europe. So core products that sit on the pharmacy shelf, and also those tend to be a bit more stable. It was really the Smokers' Health business that was an up and down; and also ChapStick, which is more a cosmetic product that had the ups and downs, right? And then of course, you still have the U.S. smokers business, which in my view is still -- that's going to carry some variability, but it's a much lower share in that category, yes. Thank you.

[Operator Instructions] Our next question is from Tom Sykes from Deutsche Bank.

I appreciate it's a long call, [ so I'll try and get through ] quickly. Just on EMEA & LatAm, respiratory has been a substantial growth driver within the division. Would you be able to just explain where you've had the most success in respiratory? It looks like, in the last couple of years, it's probably been close to 40% of growth in a very high-margin category, so where does the growth come from, please? And then in your accounts you released that you've had previously reversals of prior year write-downs of inventory. And I think, last year, it was about 74 million. I was just wondering. What categories has that tended to be in? And is that normally a Q4 phenomenon, please?

All right, thanks, Tom. So first of all, I think, on EMEA, LatAm -- so maybe just to clarify, right? I said -- I didn't say 40% of the growth. I said 40% of the business in the U.S., right? So I think our geographic mix on respiratory is skewed to outside the U.S., right? And I think the reason I said this is that there's a lot of U.S. market data coming through on cold and flu trends because you get pretty much daily data rolling through from that. And I think you shouldn't take, at least for our business, sort of a read-across from what the U.S. is doing on a daily or monthly -- on a monthly basis, right? So for us, respiratory is -- it's a core part of the portfolio everywhere. It's a core part of the pharmacy business, which is very big in EMEA, LatAm because the pharmacists need to have these products on shelves. Similar to pain relief products, you need all the respiratory products on the shelf. And in Europe, we're focusing here on 2 brands. One is Theraflu, which is sold in the markets under the brand [ NeoCitran ]; and then on -- Otrivin, yes. And on Otrivin, we had a major innovation with nasal mist. So I mean you all probably know from your childhood how we all hated nasal drops and nasal sprays because it's like shooting a gun up your nose. And we did this new innovation which is a mist, so -- which is much easier to take and actually should sort of take this barrier of using a spray that we all experienced as kids and growing up away. I think that innovation is rolling out across EMEA & LatAm, right, so -- and then on -- so -- and that's where the focus is on EMEA & LatAm. I think sell-in was quite normal. We sold-in ahead of the season, as we always do. And now we're ready to -- we're now ready to go and look how the season will -- evolved, right? And then I think, on your reversal, I'm not sure about inventory risk. I mean we reversed a ChapStick impairment because that -- we had impaired this -- we had this impaired a bit more last -- prior year. And then we got a bit more money for it as we divested it, if that's the one you referred to. If that's not the one, maybe we follow up with Rakesh afterwards, Tom, and we clarify that question for you, yes.

Okay.

We currently have no further questions. I'll hand back to Tobias for closing remarks.

Thank you very much. So thanks a lot for your interest. So before we close out the call, I want to formally welcome Dawn Allen to Haleon. She officially starts as CFO tomorrow. She's been listening to this call. And look: Please give her the same warm welcome you gave me when I started as CFO a few years ago. And also Dawn will be with us at the analyst drinks later today. And also she will be joining me in upcoming investor conference and meetings, so we're both looking forwards to seeing you all. So for this, today, goodbye. And see you all soon. Thank you very much.

This concludes...