Good morning, good afternoon and good evening. On behalf of Perrigo's executive leadership team, I'd like to welcome you to Perrigo's 2023 Virtual Investor Day. For those who don't know me, my name is Brad Joseph, Head of Investor Relations and Communications at Perrigo. Today, you're going to hear about Perrigo's transformation journey over the last few years and how the company is extremely well positioned to drive outsized growth through 2025 and solid long-term growth beyond by continuing to focus on operational execution, integrating acquired businesses and achieving synergies and by delivering on the tremendous innovation opportunities we see ahead. This next phase of our strategy is called optimize and accelerate, which you'll hear much more about in just a moment. But before we do that, I would like to remind everyone that during this presentation, participants will make certain forward-looking statements. Please refer to the important information for shareholders and investors and safe harbor language regarding these statements in our press releases issued last night and earlier this morning, and of course, our most recent SEC filings. We'll also be referencing financial measures that are non-GAAP in nature and will provide a reconciliation of our GAAP to non-GAAP financial measures on the Perrigo Investor Relations website. A few quick items before we start. First, unless dated, all financial results discussed and presented are on a continuing operations basis. They do not include any contributions from the divested Rx business, which was accounted for as discontinued operations prior to its sale. Unless stated, all financial results discussed and presented for those years prior to 2021 represents CSCA, CSCI and corporate segments only. Second, as a reminder, organic net sales growth excludes the effect of acquisitions and divestitures and also the impact of currency. We also discussed net sales growth,…

Thank you, Brad. I get the pleasure today of walking you through the journey that my team and I have been on for the last 4 years. And if you're a new investor, it's been an amazing journey as we have transformed ourselves from a consumer health care company that had both health care for consumer products, but it also had Rx subscription products. And we had gotten together and built the strategy that we introduced that we believe there was a major opportunity to change the trajectory of the business if we focus on self-care. And if you have been here in the original presentation, which I believe was around May 2019, you would have seen the team and I walked into a pretty tough situation. It was a long-term declining trend. You had about 4 years of declining 2% in total, kind of a flat consumer top line business and -- but a declining Rx business and an overall declining operating income trajectory and this share price was declining and the business was continuing to erode. So we said, look, how do we change this? And again, we went back to this idea of a transformation that was based on this concept that the company had a 130-year rich history and was almost the very first in the world to launch private label over-the-counter products that didn't need a prescription and that, that self-care vision was on trend and nobody was really trying to own that opportunity, and it could be a place where Perrigo could really stand out and differentiate itself versus other companies in the space. So -- and with that, it would open up tons of opportunities. So if you follow me in my career, I always start with when I come into a company,…

While strategic objectives that were set out in 2019 were clearly achieved. There just can't be any argument before that. The truth of the matter is that we got the 3% and we blew away the 3% in our compound annual growth rates, and we got rid of the uncertain. But we -- our financial objectives, the 5 % and the 7% were delayed about a year because of numerous factors. And when you add them all up and you put them on the page of what we went through and all consumer packaged goods companies went through, it's staggering, whether it was the impact of the Ukraine war -- in this last year at 2022, the impact of currency translation, the COVID-19 pandemic, which literally made 20% of our business go away for about 1.5 years. Global supply chain disruption, input inflation like that hasn't been experienced in my 35, 40-year carrier ever. And labor shortages, it's just been one thing after another. And if you add all of those up, they negatively impacted our company's gross margins by 500 basis points versus when I was standing up here originally giving the plan back in May 2019. And it affected adjusted operating income or the total increased cost associated with these factors on the screen was over $400 million. Now to put that in perspective, a normal year for Perrigo is about $30 million of inflation. This was just staggering numbers. But it didn't -- one by one by one, our team was able to knock those things down, to solve the problem, solve the labor issues, do what was necessary to crawl back and scrap back, all different types of activities that build gross margin again. And I'm happy to say that we are back on track. And…

Thank you, Murray. My name is Svend Andersen. Over the next section of the presentation, I and several other members of Murray's executive team will answer the key strategic questions that were identified, demonstrating the ways in which Perrigo intends to compete and win in our refined strategic growth pillars through innovation, global branding and through omnichannel strategies, secure margin expansion and fortify our balance sheet. We will also show you how we intend to do all of this in a world of ESG. Ultimately, we want to show you how we believe we can profitably grow in harmony with our purpose to make life better and consistent with our value proposition to consumers and customers, the planet and its people. Let's start with why we believe Perrigo can successfully compete in the new emerging cell category. First off, these are growing categories globally. These bullish growth projections from your monitor for the extended self-care market project a global growth rate of approximately 6%. The projections for regions in which Perrigo have higher penetration of 4% to 6% underlying the very strong business fundamentals for self-care, which has only been amplified by the formation of a new dedicated industry. Coming back to the strategic question, can Perrigo compete effectively with other pure players? Well, first and foremost, Perrigo rarely competes with other companies, head-to-head on an international basis. In the U.S., we primarily compete indirectly via our OTC Store Brand unique and compelling and value-driven go-to-market model. And on the Oral Care side, of things we intend to compete in these segments or similar with Store Brands. Our recently expanded infant nutrition business are primarily a similar Store Brand alternative with the same consumer and customer dynamics based on a strong value proposition of high quality and affordable products. Our…

Thank you, Svend. So I'm going to take the group here through. Can Perrigo continue to reliably grow organic revenue at 3-plus percent over the long term. So let's get started on the major categories. So 3.5 years ago, when I was the Chief Scientific Officer at Perrigo, we presented the 5 original strategies -- strategic pillars, OTC, Oral Care, Nutrition, mainly Infant Formula, Science-based Naturals and NRT. And what we have done is planned out over the course of this next 3-year strategic plan to have our focus pillars and our enablers as we look towards growth in an organic manner. So we are actually transforming from 5 strategic pillars, 5 categories to 6 categories. And I'll talk a little bit more in the next slide about NRT and why we're moving NRT into managed categories today. But of course, maintaining Oral Care, a growth driver for us, Nutrition, which I'll talk a little bit about. It certainly had an interesting year in 2022 and our relentless pursuit of science-based naturals, a category where regulation is very different than getting OTC medicines approved by FDA and other bodies globally and adding Women's Health and Skin Care and Svend will come back and talk a little bit about those 2 as well. So let's go right to core OTC. Core OTC is our largest global category, $2.5 billion in 2022, representing about 56% of all of our sales and the market outlook looks good. All of our categories look good. But at a 4% annual growth rate, it is certainly a category we want to continue to participate in. Our market drivers, Murray mentioned earlier, global population is aging and so there's going to be a continued need for self-care, less people are going to the doctor, less people are…

Science-based naturals also remains a strong strategic pillar for Perrigo. Alongside with Vitamin and Mineral brands, this also includes herbals and naturals derived from plants, natural sources which are registered as foods, traditional herbal medicines or fruit for medicinal purposes and medical devices with claims backed by clinical trials or biographic data. Vitamins, minerals and natural supplements is the largest of the official OTC categories with a value of more than $50 billion. It's growing by 6% from '20 to '21 with a forecasted growth of a minimum of 4% and represent 32% of the traditional total OTC market. We have seen a very strong demand for more natural solutions being either the original mode of action, challenging both the traditional chemical-based OTC products and even Rx products for the more mild to moderate indications. Naturals have been linked to both the treatment of ailments and holistic wellness. Perrigo has a broad range of supplements and size based natural into cough and cold, sleep, mental health, cholesterol-lowering remedies, urinary infections, prostate health and recently chronic pain, among other categories with a strong branded portfolio in Europe and 1 share point gain represents in our case, $30 million of additional sales. On the next slide, you will see the women's health with the acquisition of HRA Perrigo now have access to market-leading brands, numerous talented professional and core expertise within women's health. This has given us a starting point of a significant base of $150 million branded franchise. Women's health and reproductive health is a sizable and fast-growing market, representing a top consumer trend in OTC self-care, and we intend to expand our branded business within the sector. We are seeing a range of fascinating opportunities to support women throughout all stages of life, ensuring they are empowered and not mislead through incorrect information or advice. We intend to do this through providing high-quality and easily accessible solutions, which could potentially also include the addition of fintech service solutions. Option 2, which you see in the picture is our equivalent Store Brand version of Plan B, in which emergency contraception would address a $700 million market. This brand has just recently begun shipping at Amazon. ellaOne and NorLevo are leaders of the European emergency contraception market representing close to 2/3 of the market. And Hana, on the right side, of the chart was previously prescription-only contraception, which was successfully changed to an OTC product in the U.K., allowing daily access to birth control for women. We intend to replicate this success in the U.S. with the Rx OTC switch of Opill, which would introduce a hassle-free way for women to obtain safe contraception and address a $3.7 billion market. So let's take a look at a Hana marketing video from the U.K. [Presentation]

The current Rx prescription market for daily oral contraception is, as previously mentioned, valued at $3.7 billion. So evidently, as successful OTC with such as Opill not only empowers these women, but also represents a major business opportunity. Despite the variety of contraceptive methods available, 45% of 6.1 million pregnancies per year across the U.S. are unplanned, impacting all population groups. The U.S. has around 60 million women of reproductive age, 40 million who are sexually active and can be considered at risk of unintended pregnancy with more than 10 million women already using prescription daily birth control. Interesting, though, is that 15 million of these women use less effective contraception methods such as condoms or no method at all. The 40 million women with all greatly benefit from easier access to effective contraception. Finally, despite technically having access to a prescription solution 1/3 are women living in the U.S. who have tried to obtain a prescription or a refill for contraceptive have reported difficulties in doing so, proving the magnitude of the need for a complete seamless process. We have seen overwhelming support for an OTC version of regular contraception among many leading medical associations and on surprisingly, an incredible amount of support among women. The 2020 Women's Health survey found 70% of women [indiscernible] want birth control pills to be easy, accessible over-the-counter. More than 60 years ago, after an oral contraceptive was approved, this is the first time the FDA is considering an application to make daily birth control available over-the-counter. Having submitted our application in 2022, we are currently in an active dialogue with the FDA discussing the next steps of the process with approval expected in 2023. In line with Perrigo's mission and OTC switch Opill will improve access to safe and effective contraception, which…

As a result of its significant growth, Skin Care has been added as a new strategic growth pillar. The HRA acquisition has allowed us to take a deep dive into these exciting segments with both strong brands and global ambitions, it comes at a fantastic time as growth rates of 6% are expected for the skin care market through to 2025. And many consumers are looking exclusively for products with more proven efficacy and a list is more approach to skincare routines is becoming more increasingly common and Perrigo has a strong foundation within Skin Care and is a leading presence in key markets with more than 10 regional and local brands, including brands like ACO, Biodermal and Emolium. But HRA allows us to take a change in direction with compete in Mederma alongside enabling us to explore key segments of face, body, sun and targeted skin conditions, we are now in a strong situation with key capabilities when it comes to understanding the consumer, omnichannel activation and innovation development at our dermatological R&D center in Sweden. In this category, each share point gain represents additional $80 million in revenue. So I would like to sum up the 6 strategic growth pillars that provides for organic growth rates are more than our long-term target of 3% top line growth. And to summarize, we have made these strategic decision to focus specifically on 6 growth pillars. We believe we have the right to win in these areas, which represents significant revenue growth and are supported by significant innovation and commercial excellence in an omnichannel environment with Core OTC, as you can see, representing 56% of our overall portfolio, but then followed by Skin Care and Nutrition with 13% and 12%, respectively. And there are a number of fast-growing new segments, as you can see, including Oral Care, the Science-based Natural category that we covered and not least Women's Health. You can see here our consensus is regard to projected market growth rates in the sectors we are competing in and the value gain on the right side for the Perrigo market share points. Thank you for your attention. And then allow me to introduce Alison Ives, our Chief Scientist.

Thanks, Svend, and hello, all. We turn now to 3 enablers that will be foundational to the continued acceleration of organic growth. Firstly, our operating model and the formation of global teams for several of the strategic pillars that you've just been hearing about. Secondly, innovation is the lifeblood of any consumer business. And last but certainly not least, our crucial omnichannel strategy with an ever-increasing focus on digital marketing, communication and e-commerce. We formed 3 global structures with tailor-made organizational design to drive focus in critical growth areas integrating outstanding talent coming to us from HRA. Women's Health has dedicated representatives from across the value chain. They have a diverse remit spanning the Rx to OTC switch enabled strategies of today through to more transformational innovation in the rapidly growing Femtech sector. Skin Care has a strong marketing focus, and they will partner with a multifunctional category innovation team to bring the global brand plans to life. Lastly, Oral Care, independent from the other units and complete with its own manufacturing and innovation teams. This more global approach is new for Perrigo and has huge potential to synergize our great organization. Compeed is one example of an iconic brand with double-digit growth and clear scope to further accelerate enabled by innovation and a global team. This chart reflects the strategic evolution that happens when a truly global niche brand is able to secure increased penetration and access to adjacencies on and offline. Turning now to how we're optimizing our new product pipeline. You heard from Murray that our innovation program is winning. And to reflect again on some of the numbers shared, we created over $600 million in revenue from new product launches in the last 3 years, meaning around 40% of overall growth came from innovation, a truly…

Thank you, Alison, and I'm back to close this section on growth drivers. So let me begin by talking about our third enabler of our pillars of growth that being e-commerce and digital. Now it's a good thing we started our investment in e-commerce and digital prior to the pandemic. In 2019, we saw this as a strategic enabler for us to develop the right kinds of platforms to work with our customers. We invested in the evolution of technology, tools to enhance consumer experience and built a strategic plan with Amazon that have growth initiatives, drivers and activities that have continued to grow 30% since 2019. Another good advantage of our partnership with Amazon is that we built a test and learn platform. And in fact, this January, we launched, for example, Option 2, an emergency contraceptive under Amazon's brand Basic Care, which is an emergency contraceptive intended to be tested in a test and learn capability at Amazon. We have invested in channel diversification, growth across all the retailer.com, target.com, walmart.com and continued to invest in digital and e-commerce assets. We've hired talented individuals. We've hired and put them into positions to develop digital and media retail, in-house content design and DTC platforms that will help us springboard into 2023 and 2024. It is a journey. The journey started in 2019 at a nascent level for us. It was really about developing basic content that could be used across all of the digital platform. We have advanced. We have built A+ digital development and content, and we have begun performance marketing across the platforms that we address today. We have reached the Level 3 intermediate marketing. We have a PIM and DAM; we can take all of our content across all the different platforms. We have website optimization, and we are well on our way to a pathway in 2025 to get to an advanced and a master sort of level. In summary, with this optimized growth framework, we are confident we can deliver 3% plus organic growth without additional M&A. We think that the strategic pillars are strong. They're in growth categories, OTC, Oral Care, Nutrition, predominantly Infant Nutrition, Science-based Naturals, Women's Health and Skin Care. All enabled by investments in strategic enablers that will allow these categories to grow through focused global marketing units, innovation and finally, e-commerce. And with that, we are very confident that organic growth will carry us to our 3% growth targets. Ron, over to you for the third strategic question. Ron?

Thanks, Jim. So at this stage, we've addressed the question of whether we can compete effectively in the self-care space and if we can continue to reliably grow the top line over the long term. Now we're going to shift our focus and answer the question, can Perrigo achieve and sustain a 40-plus percent gross margin. We have a number of tools at our disposal that we will be leveraging as we continue to rebuild our gross margin. First, a complete end-to-end reinvention of our global supply chain. We focused on every aspect of our supply chain and currently have work streams underway in 4 key areas that started delivering benefits for us already here in the fourth quarter. In addition, our recent acquisitions of HRA and the Gateway infant formula facility, coupled with the rights to the U.S. and Canada Good Start business are driving significant margin accretion right out of the gate. And finally, the combination of carryover pricing from actions we took last year, stabilization and probably more importantly, normalization of some of the significant COVID-related supply chain cost increases we experienced inbound ocean freight being a perfect example, plus improved productivity in some of our core manufacturing sites as a result of improved staffing dynamics are all contributing to additional margin expansion. So let's talk about supply chain reinvention, okay? We took a fully unconstrained clean sheet of paper approach to evaluating our full end-to-end global supply chain. As a result of that work, we've identified a portfolio of initiatives across 4 major areas with the potential to deliver $200 million to $300 million in operating income improvement over the next 5 years. This for an all-in cash investment of $350 million to $570 million. I will talk you through some of those initiatives in greater…

Thank you, Ron. Perrigo's commitment in the area of environmental, social and governance to set us apart and continue to set us apart. We started our CSR and sustainability program over 10 years ago, and it since then evolves into ESG, and we've been measuring and reporting in this area since then. We started by looking at it through the lens of the triple bottom line, people, planners and financial performance. And over time, we've engaged stakeholders and leverage ESG frameworks and best practices to continuously evolve the program to focus not only on the ESG topics material to our stakeholders, but the most meaningful to our business. Today, our ESG strategy has these 4 pillars. Each pillar addresses the most critical topics we feel will lead us sustainably into the future of good stewards of natural and social capital. Let's look at these in more detail. This slide further details our ESG strategy with our key goals and initiatives for each pillar as well as the sustainability frameworks and organizations with which we are aligned, SASB, TCFD and global warming and climate change is a growing, existential risk and dominating many ESG conversations. Well, I'm proud to say that in the last year, we've made the commitment to have Net Zero Emissions by 2040, 10 years ahead of the Paris Climate Agreement. This complements our other goals to use 100% renewable electricity and to continuously reduce our GHG emissions, energy, water and waste. Packaging -- as for any CPG company, packaging is an important part of our products and very important to our retail customers. To reduce our footprint and support our retailer programs, we've set goals to make our packaging more recyclable, use recycled content and reduce material use through efficient design. Responsible and sustainable sourcing is as…

My name is Eduardo Bezerra, and I'm glad to be here to share the last piece of our section today. So the last question that we have to address is, how we're going to focus on achieving our goal to reduce our leverage. So over the last 4 years, the emphasis of Perrigo has been on continue to grow our dividend, but most importantly, focusing on strategic M&A to really transform the company, while at the same time, we reinvested in the business. Going forward, between 2023 and 2025, we're shifting the focus. While at the same time, we're keeping our growth dividends plan, we're going to focus more on deleveraging and paying down our debt, while at the same time, reinvesting in the business and eventually performing opportunistic M&A to support some key categories and also as we refine our portfolio. Most importantly, as it was shared last week our Board has approved a new growth of 5% on our dividend policy that confirms as the 20th consecutive year of different dividend growth policy that we have been successful. So that keeps our commitment to return value to our shareholders. So beyond dividends, Perrigo priority is really to pay down our debt and really achieve below 3x adjusted EBITDA net leverage by 2025. So really committed to pay down $700 million in debt that's maturing at the end of 2024. We're going to continue to utilize our balance sheet and cash flow generation to opportunistically paying down additional debt with the acquisitions that we did on both HRA and the Gateway facility and Good Start brand. And as shared by Ron, the supply chain reinvention, we expect that is going to grow our adjusted EBITDA and also, we expect to utilize proceeds from any further portfolio refinement to really…

Thank you, Eduardo. So let me summarize what you heard from us over the past few hours. Bottom line is we believe we have a clear path to outsized growth, and it's based on what we believe is a well-supported and concrete strategic plan. That strategic plan recognizes the fact that our self-care strategy and vision is correct, and we will stay the course with it, that we have completed the basic portion of our transformation, and that has returned the Perrigo company to top line growth. We recognize that external factors limited our OI growth and push this out a year. But in 2022, we got the business growing ahead of our 3/5/7 goals and back on track and to make sure that happens and continues. We've learned from the last couple of years of adversity and made adjustments to our plan. We believe the company is uniquely positioned to succeed in the emerging self-care category and industry. We are accelerating profitable growth by refining our strategic pillars and investing in critical enablers as well as making the necessary culture change, changes that will continue to evolve us in many areas. We're becoming increasingly global and leveraging our commercial assets around the world. We're optimizing our global supply chain through the supply chain reinvention initiatives which we believe will bring our gross margins to 40% plus over the next strategic planning horizon. We're committed to reducing our leverage ratio to below 3x by 2025, and all of that adds up to a company that is poised to deliver growth significantly above its 3/5/7 stated algorithm, which will -- and we believe that will be well above our consumer peers. Again, if I can go back to a chart that I showed earlier in the presentation and add just 1 more column. Again, in 2022, Perrigo performed at the top of its peer group in the top quartile of its peer group in almost every single metric. But when we look at our PE ratios, you can see that Perrigo has been at the bottom. We understand that we need to consistently perform and improve it. But says that Perrigo is one heck of a compelling value to invest in. So with all of that and all of those financials and all of that, let me just tell you when my wake up in the morning and my feet hit the ground, I want to create value, I want to do all those things. But the first thing I want to do and everybody else in the Perrigo organization wants to do, is make lives better for the people who depend on Perrigo products. And with that, I am happy for my team and I to answer your questions. [Break]

Welcome to the Q&A portion of Perrigo's 2023 Investor Day. My name is Leila, and I will be your operator today. [Operator Instructions] Our first question is from Chris Schott from JPMorgan.

So just a couple of questions here. Maybe just to kick off with on gross margins. Can you talk a little bit more about what we should expect for gross margins in 2023 and basically reflected in the guidance? I'm just trying to get a sense of when I bridge between the 36% that we saw in 2022 in this 40% target, how much of that's occurring this year versus how much of that's going to be dependent on some of these longer-term initiatives out in 2024 and 2025.

Well, on a macro level, even though we were at the 36% on average, right, we started at the year much lower and gained 500 gross margin points through the year. So we're exiting at a much higher level. But Eduardo, why don't you take what -- share we expect from this year.

Yes. Hi, Chris. So as Murray reflected on, so we ended up the year at 38.4%. So we do expect for 2023, around 200 basis points of improvement and then the remaining to achieve the 40% in 2025, we expect that evenly distributed between '24 and '25.

Great. And just another question, I think my hands around it. It seems like the last few years, there's been a lot of quarter-to-quarter variability of the business and results. I know Murray as you highlight it was obviously a pretty unique environment we've been. When I think about Perrigo going forward, can we think about that variability kind of being reduced going forward as the environment kind of normalizes and some of these initiatives that you're pushing forward with? Or is just there's something that's inherent with the business that there's going to be a bit of variability in the portfolio of quarter 4. So that's one thing that I think investors have struggled with it seems we get kind of a good quarter and then the quarter with headwinds. And I'm just trying to kind of segment out how much of that was the environment versus maybe elements are more within your control.

Well, let me start it, but when I first got here, the first 9 quarters, we met or exceeded expectations, and that was pre-COVID. And it was -- I mean even in the earlier stages of COVID, it was a lot easier to forecast. This hasn't been normal. And I don't know if the investors sort of understood and hopefully, they do at the end of today, the complexity that Perrigo manages. Now there -- and we're good at managing that complexity. The company has an amazing complexity quotient and I call CQ. The volatility that made us -- that was made us so inconsistent over the past couple of years was we had cough, cold, 20% of our business go away, right? Like that's like an airline that couldn't fly during saying, hey, your business -- your sales were down during COVID, no kidding. We couldn't -- we weren't allowed to be able to airplanes. Well, we lost 20% of our entire business, and then it came back. Last year, another example was the infant formula crisis. That was dramatic variability on the business. So there were 2 or 3 of those major ones. We had labor shortages, but that was everybody. That wasn't just Perrigo specific. We had a number of supply chain challenges and costs that came fast and furious and every one of them, we've managed. I believe with what the information I have today that the bulk of that is behind us. And as a normal course of action, as I look forward and what we have built into our plans, we have -- we know that everything that we have built into our forecast for next year, we can make it in our facilities. And where we were stretching and trying to get back and we weren't sure we were going to have the API a year ago, everything that's built into this plan, we have line of sight to at the moment. Now I can't know if there's something around the quarter, but I have a much higher degree of confidence going forward than [indiscernible] the one thing after another whether it was war or supply chain disruption or infant formula crisis or pediatric cough and cold medicine crisis that we faced over the past couple of years. So yes, it should start to -- as the supply chain has stabilized, it should be more [indiscernible].

Okay. And maybe 1 last one for me. On the over-the-counter oral contraceptive opportunity in the U.S., can you just maybe elaborate -- it was helpful as the slide you went through, but just how large of a peak sales opportunity could this be for Perrigo. And maybe not to get too granular on one specific product, but how important is that? Or how much is reflected in the 2025 kind of growth target specific to that asset? I guess one that conceptually could be a very large driver for Perrigo. I just trying to a sense of like how much you're baking in and how you think about the longer-term opportunity?

So listen, we're very, very excited about the opportunity. I haven't been shy about that. I'm not going to build it in until it gets FDA approval. I think the company made a mistake a few years ago with albuterol building into the projections before it had the approvals. And I'm just not going to repeat that mistake. So it's just not built into these projections at the moment. We think it builds to $100 million plus. How fast that happens or whether it gains momentum and what happens in the political environment in the U.S., but for us, that could be a meaningful contributor. Would it be helpful to you, Chris, to have Alison talk a minute about where we see it [indiscernible] with the FDA at the moment?

Yes, that'll be helpful just a quick update. Yes.

Yes, happy to. So of course, approval is ultimately an FDA decision, but we have a strong data package. There's a clear unmet need. It was in the slides, the 40 million, women who are at risk of unintended pregnancy every year. And I think you also saw in some slides that we've got the strong support of a lot of major health organizations and women themselves behind us and have many key opinion leaders involved in our regulatory process. So we believe it should be approved this year, and we really look forward to the public advisory committee where our application is going to be discussed.

Our next question comes from Elliot Wilbur from Raymond James.

Maybe I could just follow up on Chris' question or line of questions around Opill and ask Alison. So the -- so Opill is a progestin-only product. I think there's another company out there working on an estrogen-based potential introduction into the OTC space as well. Curious longer term sort of whether or not you would anticipate also coming to market potentially with an estrogen-based product or, more importantly, a combination oral contraceptive. Just trying to get your sense of the FDA's receptivity to that possibility, maybe based on your interactions around the only progestin-only product.

Yes, happy to, Elliot. So I think you saw on my slide with the [ switches ] that we had, the women's health stretching out over the years. And certainly, we will look at all options. With the acquisition of HRA, we have and will be the world's leading powerhouse on women's health products. So certainly, we've cleared the first hurdle hopefully, of Opill and then we'll look at other opportunities to continue with additional women's health products and switches as part of that across the world.

Yes, I do think there is an advantage of going progestin-only from a side effect standpoint without much given in efficacy. So listen, we've got to get over the first hurdle. But I like what Alison started to say, Elliot. Don't think of us as just launching Opill. That's not the strategy. The strategy is to be a leader in women's health. And we already are. We're the leader outside of the U.S. and for an emergency contraception. We have the ANDA in the U.S. for Plan B, that product. And you heard Jim say in this presentation, customers head resisted it politically. But just went out from Amazon, just started shipping a few weeks ago. That's a potential. If we chose to, we could use the other one brand to launch into the U.S. in the current form of the ANDA or we could go through an approval process because the other one has a competitive advantage over for plan B and its efficacy range of some 3 to 5 days versus 30 days. And there'll be others as well in the [indiscernible] world. So a broad strategy with a global team of motivated women that are passionate about what they're doing.

Okay. And then I wanted to ask a question around some of the manufacturing optimization initiatives and strategies that you unveiled today. Fair to say, if you -- they didn't appreciate the complexity of Perrigo's manufacturing network over the last 20 years, you certainly have over the last couple of years. But I'm -- one of the dynamics you talked about was sort of reducing forecast error and I'm a sell-side analyst, so I'm not really that familiar with the concept of forecast here, but I wanted to get a sense of how -- I try -- I want to get a sense of sort of how important that element of your optimization strategies is versus some of the other initiatives such as just reducing the complexity of manufacturing network or sourcing, things of that nature. It just -- it seems like there's a lot of things that can and should be addressed, but I wanted to specifically kind of drill down on sort of the internal forecasting capabilities and just sort of how important that has been or how much has that been responsible for some of the shortfalls and misses over the past?

Well, we have a very difficult measure and Ron can talk about it here in a second, but we -- in order to -- in order for Ron to be able to hit service levels in the 90s, which we -- that's the historic norm in the U.S. on a private label manufacturer, right? In Europe, on a branded products, you're more like 95% plus. We are performing well, and our customers are happy when we're in the 90s. We have been nowhere near the 90s in the U.S. for the past couple of years. We were going into COVID, but we have not yet gotten back. That creates tens of millions of -- $30 million, $40 million a year in waste. It will -- so the answer is, it starts with the forecast. If we give Ron an accurate forecast at 4 months out or 5 months out, 4 months out, right? It's T-minus 4 months out, 4 months out then, he's going to be able to deliver and hit that forecast. When I say accurate, I mean accurate up to 50% accuracy, and he'll make those numbers. We're below that at the moment. So it is a tremendous amount of inefficiency. And I don't want to put words in your mouth Ron, but I would say at the heart of supply chain, the very first thing that we can fix and must be fixed is improving the forecast accuracy. So if you wouldn't mind talking about that and all the things you've done over the last 3 years to get the data to a point where we could dramatically improve the accuracy, I think that would be good insight.

Yes. I think, Elliot, so we have a very complex supply chain. And as you know, because of the private label nature of the business or a heavily privately -- private label nature of the business in the U.S., our SKUs or retailer specific. So having greater visibility into understanding what our consumers need or what our customers need at that SKU level allows us to better plan and operate our supply chain and take some of that uncertainty out of it. So again, improving our understanding of what the customers and consumers need is going to be very helpful to the success of what we're doing on the supply chain reinvention side. We've done a lot over the last few years already going -- we used to only forecast at the account size level for a formula. We introduced a SKU level forecast here a couple of years ago. We are now going into collaborative planning with our retailers. We're introducing some technology to help us be better on the forecasting side of the equation. There's a lot of things that we're putting in place. That, coupled with what we're doing on the winning portfolio side, to take some of that complexity out is going to ultimately make us better able to deliver what our consumers and customers need when they need.

Okay. Maybe I can follow up our response with an additional question here. You showed a very good slide, I forget the number, of course of the presentation, just showing the sort of the tail end of your total SKU count and how little that contributes to sort of the overall profitability of the CSCA base or the revenue of the portfolio. It's -- I meant -- it's a very big number. So as you, I assume, look to reduce the number of SKUs within that tail, how do the retailers react to that. I see your forecast to have some sort of drag on it from optimization. But I feel like the retailers think that if they have a 32 count box and their competitor only has a 48 count box that somehow that's going to keep the consumer in their store, not allowed them to -- or turn them from visiting another retailer, which I don't quite understand, but it seems like there may be some sort of natural resistance to your efforts to kind of reshape the SKU count and eliminate that tail or reduce the complexity associated with it.

Yes. So let me start, Ron, and then I'll turn it back over to you. Let's first separate SKU optimization from winning portfolio. They are 2 different things. SKU optimization of just -- no one's going to resist that, right? We're just taking the very low margin or negative gross margin items and discontinuing them and cutting them and saying, we don't want to be in that business, they're -- we would rather make more profitable things. And if you're going to insist on those, get them from somebody else, we don't want to play in that area, and that was a big driver of fourth quarter profitability. So a big bump in that gross margin was we discontinued negative margin items, right? That's just math, all right. No pushback from retailers. The next big one is where you were going, and it's very strategic. Don't think of that as optimization. Think of that as simplification. I've got 1 retailer, and it was in the slide if you go back and read it. You've got 1 retailer that wants an opaque bottle, you have 1 that wants a clear bottle. You want 1 that wants a yellow cap, 1 that wants a red cap, 1 that wants a blue cap. One wants 225 in a bottle, one wants 240 in a bottle, one wants 270. In a bottle, one wants a round pill, one wants oval pill, one wants [ Pentium IV ] in a carton, one wants a label that's a different size. Then all of those drive that efficiency level in our manufacturing down to that 40% number. So -- and where we lose sales and who service is when we run out of capacity. So we can't keep up right now, not even close to our cough/cold…

It's great to hear my CEO talking that passionately about supply chain.

I can't -- anything else to it. It's a big opportunity for the [ client ] -- huge opportunity.

Yes. So maybe one more question, and I'll jump back in the queue. Did you -- or can you -- I may have missed it during your prepared commentary, just talk about the expected incremental impact of price on 2023 outlook? And then maybe more specifically, or, I guess one of the things that's always -- we're in a unique environment where you can raise price and the resistance level is probably a lot lower than it's been historically because of some very unique dynamics. But eventually, this is going to go away and order to revert to sort of the longer-term pricing algorithm, I guess that the company is always kind of dealt with. And maybe with the lack of new products the last couple of years, pricing -- the modest negative pricing trend that you continually face 2% to 3% became a little bit more pronounced or more noticeable in results. But I think the business is sort of always struggled with why a company that dominates its market really has no competition, at least none that anybody can really identify, still faces 2% to 3% annual pricing headwind on its base portfolio. How much of that is driven just by a very small number of competitors chipping away at your highest margin, most profitable products versus you sort of competing against yourself in terms of negotiating with the customer base.

Well, that's the ultimate question, isn't it right? I mean that gets down to the heart of it, whether you believe in the outsized growth or not. I believe, having been here that you're spot on that Perrigo was stuck in legacy paradigm, thinking of fill the plant, fill the plant, don't lose the share point, conceive the price, and even if it was just a small competitor that was cherry picking up a high profitability item. So Perrigo always said, yes, whether it was price or whether it was complexity. The Perrigo that started to stabilize. And before this inflationary period, we had already made major progress of [ stabling ]. We will walk away from business. I am going to have to tell you once in a while that, hey, the business, the organic underlying growth is there, but we have walked away some and stood our ground in a few areas because I believe we -- at the scale that we have, that we should not be denigrating prices. And that's why the supply chain initiative is -- should be exciting for customers as well because it's all about getting their service levels up there. They're -- They live -- I mean, probably more like $1 billion on the table of empty shelves and space. That's the opportunity we all have to go after. Innovation, we all have to go after. So I don't mean to give you a long-winded answer. I believe we can stabilize it. I don't want to take price. We're a value company. Our customers don't want it, we don't want it. We -- our consumer peer group took 8% to 12% pricing. We took 4% to 5% this year and had 4% -- 4% to 5% volume growth. Every -- consumer peers had 8% to 12% pricing minus 4% to 5% volume. So we gained volume share, which bodes well for the long term. We have no new pricing of significance well on any of our OTC products built into the plan going into next year. But most of our pricing wasn't as fast as the consumer peers. So we had negotiated it, took time to get it into the marketplace. So we have carry-in -- meaningful carry-in pricing, which benefits us into next year. But I would say our reserve on pricing is if there was further inflation, we would price to offset that. That's the way we think about it. But we haven't priced additionally to make these numbers. I don't know if you have anything you can add to that?

Yes, just Elliot to what Murray mentioned. We focus a lot on CSCA, right? When you look into CSCI, you got huge inflationary pressure that we see there. We have built incremental pricing. And because the majority of the business is stranded there, we see that we have a stronger pricing capability there, and that showed up in 2022 that we saw that across the year. And so we feel very confident on our organic growth that we're expecting for 2023.

Our next question comes from Daniel Biolsi from Hedgeye.

My first question is if you could explain what was behind the lower manufacturing productivity experienced in Q4? And is that the SKU proliferation you mentioned during the presentation and what the outlook for that is in 2023? And then for the labor component, how is the hiring, training and overtime progressing?

Yes. Absolutely, Daniel. I can address that. So if you recall back to middle of last year, we were -- have many of our peers in the same space. We're struggling with labor availability. And so for the mid part of last year, we were very well understaffed in some of our core manufacturing facilities, and therefore, we're not able to produce the volume that we had planned on producing. And so that's what really contributed to the productivity piece that we're talking about at this point in time to a very heavy intensive concerted effort between supply operations and HR, we are now sitting at 98%, 99% of the staffing level, we need to be that -- we need to be at. And so going into 2023, we are in very good shape from a labor perspective and so do not expect to have anything like the productivity challenges that we saw in 2022.

And then I think from an impact on sales, I think our fourth quarter, The Street was a little ahead of us and where we came in at fourth quarter sales, there were a couple of things we'd probably bucket into productivity. We had a commercial dispute with a third-party packer for us on infant formula. It was not quality. It was a pure commercial dispute. We actually had to take legal action to get it resolved, but that affected infant formula and it affected the early part of this year. The second was cough/cold, which is a productivity issue. From earlier in the year, but we literally didn't have enough people that run third shift consistently. We are. We did the whole fourth quarter. So you get the productivity benefit of that within 2023, not in 2022. And then I think the last little bit of that gap on sales versus The Street forecast was some inventory reductions by our customers. Our consumer takeaway was through the roof. It was one of the strongest quarter of the year. It was plus 9%, I believe, for the U.S., for the Americas division and that was well ahead of our factory shipments. And you know that's right when we're in 2023, and we've started the year very strong.

So as a result of all the government actions during the infant formula shortage crisis, has the competitive environment been altered permanently from an international capacity standpoint?

I might need Alison or Jim to help me a little bit on the -- that there were some temporary approvals. You've got a couple of share [indiscernible], but can you speak to those Yes, it hasn't hurt us. I'll start, and then I'll hand it to Jim. We have north of 10 million pounds of unmet demand. That has nothing to do with the Abbott recall or anything else that we have been chasing after for years that we're starting to address but won't fully address. So sort of competition in the marketplace is good for Perrigo. We're not 1 of those 2 big dominant players. And were where people come when they want to go to get into the market in the U.S. But talk to the regulations, the temporary approvals, you gave all that stuff.

Yes. I'll see if I can do it justice, Alison can jump in right after me as well. But let me talk about the market a little bit. So what you've seen is, obviously, the largest player in the market has gained the most market share. We have done very well over this period of time, and we believe that we can keep a large part of the market share that we've been able to gain. But what we have seen are competitors that have come in from European and New Zealand -- Europe and New Zealand. And it started with some temporary -- some temporary permits to be able to sell during the height of the crisis. And then it has changed a little bit here just towards the end of the year, which is the companies that are going to stay are need to be in -- they need to be in compliance with the current FDA regulation. So I think what we'll see -- this is my prediction. I think what we'll see is maybe 1 strong player that has gained some market share continue to sell in the United States. I think most of the other temporary manufacturers once you add in shipping a formula or air freighting a formula, it's just not going to compete on price.

And Daniel, I'm not sure whether you know it or not, but a couple of those small brands that are doing incredibly well besides the store brand, we make them. So there are 2 national brands -- 2 or 3 national brands, Almost all the organics, we make it. Bobbie Baby we make it. I mean, so -- it's been good. This is -- this will be a big area of growth for Perrigo in 2023 and beyond.

If I could squeeze 1 last one in. [indiscernible] M&A environment changed with the recent announced consumer health care company spin-offs and also the higher interest rates? And should we expect any further divestments than that was outlined in that 1 chart? Does the 3-year plan include anything beyond what you sort of like put in a little bit of the red?

I think you could expect to see us to continue to refine our portfolio from a divestment standpoint, but you won't see any major bolt-on M&A for the next couple of years. We -- this sort of -- the amount of M&A activity we've done over the last few years is significant. But I got $150 million of operating income coming in from HRA and the Wisconsin acquisition that has to be executed flawlessly. And we believe it is the right time to strengthen our balance sheet and get that leverage number down. We think it holds back our multiple a bit. So -- but to answer your question fully, the M&A environment from an availability standpoint because of the mergers and the spin-offs, et cetera, we get calls all the time. There is smaller brands, bigger brands. There is a lot of things available. I think that if you're buying in cash, that's fine. If you're buying -- and you need to get leverage or you need to borrow to do it. Interest rates are still high, and it slowed down the marketplace, especially on bigger deals, significantly. I think the outlook is there's starting to be more money available. There are signs of that, that is more positive. But in general, it's been a bit of a quiet period, and there's a lot of -- there's a lot of private equity companies that need to put money to work, and I do think some brands will come out. But for Perrigo right now, the message is we're going to execute these integrations. We're going to pay down some debt. That ought to put us in a nice position to be able to revisit some deals again from 2025, but only if they further enhance our strategy. They're not like they were the first time around which -- and by the way, we probably will do some divestitures because we haven't while we have -- I say we're a pure-play consumer self-care company, there's still some work to do to refine the portfolio, and that will help give us as Eduardo said some of the cash for paying down the debt next year.

For our next question, we'll return to Elliot Wilbur from Raymond James.

That was a great set of a question that I've been anxious to ask you for some time. So if you think about the M&A environment, a lot of very good assets seem to be coming to market. Haleon, there were suggestions they may be looking to sell the ChapStick brand. [ Beatrice ] is putting up a very large portfolio of very high-quality, European assets and some of the other large players have been willing to -- be selling assets as well. So it seems like it's a rather unique time in terms of just sort of the richness of asset availability. And everyone seems to be speaking about -- seems to be sort of -- get kind of stuck on the leverage issue in terms of that being sort of a limiting factor of why companies can't be a little bit more aggressive in terms of M&A. So the question is really this. Why not or would you consider equity to purchase some of these large attractive assets. I mean, it seems like it will be delevering and you're not the only company in the consumer space that I could think of that could actually get a multiple upgrade with an equity-based acquisition for the right assets.

Ed, Do you want to take that one?

Yes. So I would tell you, Elliot, it's -- again, would like to see further stock appreciation to make sure that, that really reflects the value of Perrigo before we'll do anything on the equity side, right? So -- and there are some interesting opportunities coming up. But as you look into our next 3 years opportunity and it's a lot focused on how do we really integrate and execute flawlessly on these opportunity. That's really our main objective. There may be some opportunities at a smaller scale on certain categories that's more opportunistic, but that's not our main priority at this stage.

We're not, not doing it because of the leverage or -- we're not doing it because of focus right now. After all that number of deals, and we've just done these 2 big ones, there is a massive amount of work that has to do to execute flawlessly and the distributor conversions and everything else. So that has got to be what this organization focuses on at the moment. I like your idea. As I think about, and I'm listening to what Eduardo speak, which means it's not top of mind to be doing that at the moment, but I think it'd be expensive at the moment right now, given our valuation, that would be an expensive way to buy. So help us get that multiple back up to [ '18 and '20 ], and then we'll talk.

Help me, help you. Exactly. So 2 quick additional questions. First for Eduardo. And thinking about the targeted gross margin improvement and ultimately your gross margin goal. Obviously, the majority of that is going to be driven by CSCA. But how important, I guess, are some of the initiatives that are underway in CSCI in terms of sort of driving that margin target? And then maybe I'll ask my last question as well. In the deck, you showed a slide talking or discussing the pipeline and essentially a very large percentage of the pipeline seem to be committed to revenue opportunities that ultimately represent kind of a small portion of the total bucket. I'm just sort of thinking about how efficient is that? Is that something that you're looking to address, rationalize or is that just sort of the way that the pipeline is always going to be, you're going to have just a small percentage represent the bulk of the opportunities. Just thinking about sort of -- just the cost efficiencies of pursuing a lot of these endeavors that don't seem to have much incremental impact in terms of revenue, at least direct impact.

Well, I do think the last part of the question is a very big difference between a pharma company and a consumer company of our scale with the amount of brands. It -- women's health and the Opill that's a big idea and a big launch, but I've been in this for 40 years, and it's very normal that each of the brands has -- you should have hundreds of initiatives. The big thing is when I took over this company with a 0 pipeline. Alison, what's our pipeline now is like?

Well, north of $500 million.

Yes. I mean approaching $1 billion, right? And -- so think of it a different way. Right now, think of it that we would like to get to, and we're about halfway there to where about 20% of our volume comes from products launched [indiscernible] or refresh within the last 3 years. I don't know if that number is down around 10% or 12% now, but we're trying to drive that number. Most industry benchmarks would say that a company that is in the top quartile of revenue performance in the CPG industry tends to be approaching the 20% number of new products, innovation, renovated, new and approved, but it tends to be singles and doubles with an occasional triple or home run, and we're hoping the Opill is that. You asked a lot of questions. I only have answered one, Ed...

Yes. So for the first piece of your question, in terms of the contribution of CSCI on the gross margin improvement in 2023, first of all, I would say, we have 4 months of HRA that will help for sure because of the differential margin that contributes there. And also, in 2022, mainly in the second half of the year, we saw a lot of the productivity issues that also Ron mentioned about. So we do expect that to be normalized. Again, the only key question is how much inflation could keep on creeping on here in Europe, given the uncertainty on Russia and Ukraine. But from a portfolio standpoint, I think with the addition that we had in HRA and the way we position our brands, I think we are going to be able to offset that pricing. And I don't know Svend if you want to add anything on your side on CSCI.

That is true that more than 90% of our operating income comes from a branded business where we have pricing power and everything we are doing is accretive price on its own. HRA and, of course, new products that we are launching to a higher extent in '23 versus '22 is also margin accretive.

Yes. And Elliot, we -- we are in the 90-plus on service, and we'll be in the 95-plus on service. So if you look at our map in the middle of Ron's presentation, there was a -- within this strategic planning horizon, where it was really driven by forecasting, planning, capacity on infant formula and that spending, that's all CSCA. Then the back half, the longer, bigger manufacturing and distribution footprint initiatives, those are longer to do, but that's more of a CSCI opportunity. So there is big opportunity for CSCI, but they're probably years 4 and 5. Anything you want to add to that, Ron?

That's perfect.

I'll now hand over to Brad to take questions from the online audience. Thank you.

Great. Thank you. So there were a couple of questions that did come through that weren't asked already. The first one, I think, might be for spend. The question comes as -- so a big portion of the plan is spend on HRA. So the question direct is, how is the integration process coming along? What is going right, what could not go right? Just a big picture question on the -- on HRA.

Yes, from my lens, I would say we're off to a really good start. And keep in mind, this is based on a phenomenal performance of HRA last year. I've done more than 20 deals in my life, and this is probably the best planned integration in the first 2 months of this year looks really good, both on sales and synergies. And that actually included a substantial part of in-sourcing of the distributors. But we did start 18 months ago with 13 working projects, as I showed in the presentation, and we took some help [indiscernible]. So I'm really confident about executing on integration.

Yes. I mean, from what we had said in the deal. I mean, we're pretty much right on track with HRA on all of our original estimates, what it delivered in '22. Okay, I didn't know that I wasn't able to [indiscernible] the distributor $32 million next year in distributor charges, but that's a onetime charge and everybody can see that. And Eduardo in his presentation showed you what that onetime cost was. And then other than that, I mean, it's pretty much right on track, a little bit of timing on some of the synergies that roll into '24, although the synergy target has been raised twice based on what we know. That's a star business.

Great. Next question, I think, might be for Grainne here is on the ESG section. Can you talk about how you've incorporated ESG metrics into the executive performance awards? And have you thought about making them more quantifiable.

Sure. Thank you for the question. Look, as an organization as a whole, and you certainly saw it in Murray's piece and in my piece, we've been very clear about how much we care about how we do business, right? We've aligned with and partnered with multiple third parties and frameworks and best practices that help to create our strategy, assessing our maturity in various areas about how and what and when we report, auditing us, we self audit. And these are all linked to the corporate goals then and all of that is, of course, outlined in both our ESG and the DEI reports that are on perrigo.com. And I think in addition to all of that, yes, I mean Murray and the entire operating committee have ESG-related performance object that were generally in line with the individual strategic area of focus, an example, expanding things like human capital, sustainability, health and safety, et cetera, et cetera.

Wonderful. Really important. Thanks, Grainne. And I think we have reached now a lot of time in the Q&A portion here. And with that, I can turn it back over to Murray.

Sure. Thank you for listening to the Perrigo Investor Day webcast. We hope you are as excited as we are on how far the company has come over the past 4 years. And on the opportunity as we move on to the next phase of our strategy, which we've termed optimization and acceleration. Simply said, we believe all the pieces are in place. And our story can be boiled down to this. We will be focused on execution of the integration, simplification. And if we do that well, we will deliver outsized growth that is predictable and create a lot of value. And most importantly, we'll make lives better all around the world for people that use Perrigo products. Thank you for your interest in Perrigo.