Haleon plc (HLN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Haleon Full Year 2023 Results Q&A Conference Call. I am Shai, the chorus call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sonya Ghobrial, Head of Investor Relations. Please go ahead, madam.

Thanks, Shai, and good morning, everyone. Thanks very much for joining us for our full year results Q&A. Hopefully, by now, you've had time to look at our presentation as well as the press release and watch the video in the Investors section of our Haleon website. As usual, I'm joined by Brian McNamara, our CEO; and Tobias Hestler, CFO. So with that, we'd like to get started with Q&A and hand over to the first question. Thanks.

The first question comes from the line of Rashad Kawan, Morgan Stanley.

Congrats on the results. Two for me, please. The first one, in terms of absolute margin developments, you're calling out 3% transactional FX impact, another 3% from M&A, so that's about a GBP 150 million headwind. I think you likely get about GBP 100 million from cost savings to partly offset that, some more from kind of operating leverage. So you've taken some pricing obviously in the back half of last year. Can you just talk about how you expect gross margin to develop over the year? How much of the GBP 100 million in savings you plan on reinvesting, et cetera? Just trying to get a sense for the margin evolution over the year? And then my second question, just on the shape of the P&L for this year. You've given guidance on Q1. But how should we think about the different moving parts over the year in terms of price mix and volume. Again, you're still benefiting from some carryover pricing. So do you expect growth to be priced like that again? Do you plan on taking more pricing? Any color there is helpful.

Okay. Thanks, Rashad. Tobias, I'll pass that to you.

Great. So on your margin question, so for '24. So I think we've given you, as you say, the building blocks with translational FX, 2% and 3% down so that gives you about 20 bps negative. That's largely driven by the dollar and the euro. So it's a big currencies, of course, we'll update you as we go through the year and our aide-memoire is each quarter how that evolves. We've given you the M&A building blocks, which is down 1% and 3%, that gives you another about 40 bps of margin that is negative. And then I think, as you said, we said, we're very confident in our guidance. One, we're very confident in the 4% to 6% sales growth guidance, but we're also very confident in being able to grow organic profit ahead of the rate of sales growth. And if you just want to put it a little bit into perspective, you see what we delivered in '23. We delivered 60 bps of margin improvement. So operating profit grew nearly 3 points ahead of the rate of sales growth. And then on your question on how we see that going through the P&L line? So on gross margin, we expect gross margin to grow ahead of the rate of sales growth. You've seen that come through in Q4. So in Q4, gross margin was up 70 bps, given easing of inflationary pressures, the pricing coming through a little bit of help because we didn't have to recall we had in the prior year. But overall, I think the algorithm will start working on that. And then as you mentioned, the productivity program, we said about 1/3 of the GBP 300 million to come through. Again, we feel confident in the GBP 300 million delivery, about 1/3 of that is a drop to help us next year, but it's not going to drop to the bottom line because we're going to use and want to have the flexibility to use that to invest in the business. And investing in a business for us means: one, systems, tools, processes because, as you know, we're doing this program because we need to make the business more agile and faster, and we have to reinvest a bit in the business on that; secondly, investing in R&D, clinical trials. We've seen great results we had last year on VMS trials on Centrum, other things we have done. So investment there. And then lastly, investing in A&P because we want to grow A&P more than we did in '23. So all of that with the productivity program and gross margin going up gives us confidence that we'll have operating leverage also in 2024. And then your second question was on price volume and how to think about that going into the new year? So let me maybe take a step back. So first of all, we've grown volume for the year, not just last year, also throughout the prior year. So I think this business has been, and we've delivered a very resilient business, and we've been very mindful on how much price we took. So I think, it shows you the resilience of the business. So we believe also next year, we'll be able to do both grow price and grow volume. Now last year, as we had said, was more price led. So last year, 85% of the growth came from price. 15% came from volume. In the longer run, we want to be back to about 50-50 between the 2, '24 will be a stepping stone in that direction, but we won't be back to 50-50. So I think -- that's how I would see that going into '24.

The next question comes from the line of Guillaume Delmas, UBS.

So I've got 2 questions. The first one is on your Respiratory Health division, which had a very strong finish to the year, quite in sharp contrast to most of your listed competitors. So could you maybe shed some light on this surprisingly strong performance in Q4? And also, I guess, making sure that there were no one-offs or any particular sell-in, sell-out discrepancy that could explain this good Q4. And then my second question is on your VMS operation because there's been a clear improvement towards the end of the year, led it sounds by Caltrate in China, Centrum and also some stabilization for emergency. So with additional marketing support put behind this business and also against the backdrop of improved category growth, would it be fair to assume that VMS should return to its medium-term ambition of mid- to high single-digit growth as early as in 2024?

Let me -- I'll take those questions. Let me start with respiratory performance. I think you're right, we did see good growth in Q4 of our Respiratory portfolio, just under 11%, and it was 7.5% in the back half. Now I think one of the reasons that those results look different than some of our competitors is, it also has to do with our portfolio and geographic footprint. So for example, the U.S. is about 32% of our Respiratory business. Now in the U.S., in the back half, our business was basically flat in Respiratory, but the market was down kind of mid- to high single digits. Now -- so 68% of our business is outside the U.S. And we saw a much higher instances in some other geographies, specifically places like Central Eastern Europe, Japan and Turkey, and we've performed quite well in those environments. So as we look, though, the outlook, we're looking for a more normal season now, of course, what's normal is always a debatable question. But Tobias shared some slides in the presentation that showed, if you look at the U.S. environment, it's getting back to kind of pre-COVID levels, where we expect this to be a business that fluctuates plus or minus 0.5% on a very extreme good or high season or low season. So overall, I think that's the difference. Nothing particularly in one-offs or discrepancies and inventories or anything like that, that I would highlight. On VMS, you're right, we continue to see a more normalization of that category. Tobias, again, shared in the presentation some market share slide, you see that Caltrate and Centrum have done quite well. And frankly, emergency has won share. Now they won share in a declining market, and we're seeing that stabilize as we get towards the end of the year. But we continue to be optimistic on this category. I'm not going to give any specific guidance for next year on it. But we think the category will -- overall, will get back to more pre-COVID kind of growth levels. And honestly, this is also an area where I just highlight Centrum, what's happening there, really strong performance on Centrum last year, driven by the clinical study, which now we have 3 different outputs of that clinical study that show that Centrum Silver increases cognitive function by 60% among the population of people 60 and older. We're seeing that really drive differentiation in the marketplace. So we're excited about those kind of things where we can really make a difference in VMS.

And maybe let me add one thing, Guillaume, going back to the cold and flu topic. So there's another differentiator for us is in our product portfolio. So we have Theraflu, NeoCitran in some European markets and in Canada, which is a hot drink, and that tends to do better in season where you have more flu-like symptoms. So when you really feel under the weather, when you're in bed, when you have a fever. So and the type of box that went around, especially in Europe in Q4 were more of this heavier nature. So I think that helps again. So I think it shows you a bit the strength of our geographic portfolio, but also the strength of our -- and the diversity of our product portfolio, which makes this business very resilient.

The next question comes from the line of Iain Simpson, Barclays.

A couple of questions from me, if I may. Firstly, just to go through that margin point again to make sure I've understood you correctly. So you've quantified the headwind from portfolio and FX effects. That's the sort of 60, 70 basis point headwind. You've got some cost saves, but I assume that it sounds like a lot of those will be reinvested to further drive growth. So effectively, in order to get margins flat for this year, we probably have to assume that organic margin expansion would be, I know, let's call it, 50 bps plus, which I guess is possible, that also might be a bit of a stretch. So perhaps as we think about reported margin this year versus '23, we should be thinking about it maybe flat to small down. Would that be a fair characterization just to make sure I've understood you? And then secondly, just getting on to that capital return, that GBP 500 million buyback, very welcome. Is that something that you will be doing through the year as a kind of everyday buyback program? Or is that GBP 500 million buyback headroom, something that you will kind of hold in your back pocket to potentially allow you to participate in any future placings?

So on the margin, right? So I think first of all, knock on to guide on the reported margin, right? Because there's 2 pieces in the reported margin. One is the translational FX, that's going to move up and down. So we're going to update you every quarter on what that is going to be. The numbers I've given you are now the dollar and the euro, as I said earlier, M&A is also moving, right? We might acquire somewhat. You might have a another divestment. You might -- the closing of the divest might be 2 months earlier, 2 months later. So that's a moving piece. Again, we'll update you on that as part of our aide-memoire was, right? And then I think on the organic profit growth, I think you should, I think, take some comfort from us being able to deliver 10.8% organic profit growth against the sales growth -- organic sales growth of 8%. So that's nearly 3 points ahead of that. And that was in a year where gross margin was actually down in percent of sales. And we didn't have GBP 100 million plus from a productivity program come through. So I think we have more room to reinvest. But of course, I don't know what's in your model, but I think Q4 should give you a bit of an indication that gross margin growing ahead of the rate of sales growth will help. Yes, we'll have some inflation still, but the inflation pressures are lower. We'll have less pricing, of course, as well. But I think we're getting back to a more normal. So I think, in my view, overall, this growth algorithm is realy working and it's yielding result. And then, I think that's for me a great segue to the share buyback, I think, ultimately because that algorithm is working and the strong cash conversion is working and we did a bit of the divestments we announced. I think that gave us the option to do two things. One, to update our capital allocation priorities, probably a year earlier than what we have committed 2 years ago. So you've seen in the slide deck the new capital allocation framework. And with that we're able to announce both, an increase in the dividend, also in the commitment that dividend going forward will grow at least in line with earnings, and then secondly announcing a GBP 500 million buyback. Now specifically on the share buyback, we said we're going to do it during 2024, and we're going to do it either on the open market or buying it back from GSK or Pfizer, if and when they do a listing. I mean, clearly, doing it in a placing would be preferred because you can get it at a discount. But of course, that's outside of my control because that's the Pfizer and GSK decision, but of course, the best value and the highest shareholder value creation you're going to get if we can go through placings. But if the placings wouldn't happen, then of course, we would go and do this and execute this on the open market. So we're ready for both of those things, and we're going to do it during 2024. So again, in summary, I think, the new capital allocation framework really shows you the value creation we're driving and also I think the optionality we have in that is returning now cash back to shareholders. And also then don't forget, that's on top of us having reduced debt by over GBP 2 billion within 18 months. And with the dividend we announced, that's GBP 800 million of dividend going back to shareholders plus another GBP 500 million. So you're in the high GBP 3 billion of debt reduction and returning money to shareholders. As a result of that, again, proving the model, in my view, that's really coming through.

Very clear on the margin and congratulations for cranking the cash regime.

The next question is from Chris Pitcher, Redburn.

A couple of questions for me. So following on from the cash question. Clearly, you've done some divestments, you're under no pressure to do divestments, but you're talking in the statement about sort of active portfolio management. On the acquisition side, there hasn't been much on that front. Are you now in a position? Do you have greater capacity to pursue deals? Was it just an issue of availability and price that was perhaps we haven't seen as much on that side of the equation? And then on India, could we just have a bit more detail on that? I mean, India sales were up high single digit, but Sensodyne was up double digit, implying the rest of the portfolio was quite a bit slower. Can you give us a share of how the business now splits between Sensodyne, Centrum, et cetera, for their launch? And was there any disruption from the transition from Hindustan Unilever that maybe affected some of those brands? I see you're going to ramp up marketing. Clearly, we should expect an acceleration in India. I just wanted to check that was right.

Let me take the first question. So on active portfolio management, which we said we want to do and a year ago we said, divesting both-on acquisition and expect divestment first, feel good about the 2 divestments we made both Lamisil and ChapStick. In both cases, fantastic brands, just not strategic for us and not growth drivers for us. And in both cases, I think we got really good value for those businesses. So value accretive to the shareholders. And we'll continue to look for opportunities to simplify the portfolio and strengthen the portfolio. But we are under no pressure to do that. We only do that if it makes sense, sentiment creates value, going there helps ultimately create the company we want to create. As far as -- we do have capacity to do bolt-on M&A. And if we find something that is attractive and strategically makes sense and brings the value in, we would have the capacity and ability to do that. But I probably wouldn't make any more comments beyond that. Tobias, do you want to talk, Indian?

Yes. So look, on India, I think, first of all, I think the shift and the change in the business model, building up our own sales forces and getting out of the distribution deal with Unilever worked very well. Of course, this is a heavy, heavy undertaking and you always have a small bubble here or there, but I think the team has landed that very, very well. As a result, shifting all that over, probably sales growth and sales growth into the distribution channel was a little bit lower in Q4 than what you would normally would see. But from a sell-out perspective, the business is doing really, really well and the numbers for the year where I think we're close to double digit. So I think overall, they performed well. And also, they started the year with very strong momentum, yes. So I think overall, I think as we always said, this is a market for us that should grow in the double-digit, in the teens for us. And I think we're also very heavily investing into the market, right? So I think we both in '23, but also into '24, we continue to support that market, not just with the investment in the sales forces and in building the machines do it ourselves, but also in terms of A&P and was launching further brands in the market like taking Centrum into brick-and-mortars and other things. So overall, the big switch was done, executed successfully, and I think now really see that as a growth driver for us in the future as well.

The next question is from David Hayes, Jefferies.

I have 1 follow-up and 2 questions, if I can. Just to follow up and may appreciate a bit more on the net cost savings versus the gross cost savings. So I'm interpreting it as GBP 100 million of gross, none of it falling through to the bottom line this year really. And then looking to next year, GBP 200 million gross. Is there any way you can give us an indication of what the net benefit might be budgeted for in 2025 as you phase in those savings? And then on the 2 other questions. A&P spend, I think, done 80 basis points potential sales in '23. Can you just talk us through the drivers of that? I'm assuming there's a bit of Russia suspension of A&P, maybe some agency continued rationalization post filing out of GSK, but just a bit of dynamics on that 80 basis points, would be helpful. And then my final one, on the first quarter guidance that you're giving close to 4% OSG, could you commit to the volumes you think will be positive within that number in the first quarter? Just to push on that as well.

Listen, I'll answer the A&P question and then pass it to Tobias to do your follow-up in the Q1 guidance. So first of all, on A&P, I just want to be very clear that we are absolutely committed to investing in our brands, and we believe investing in A&P is important. Also investing in R&D and in our case, in the expert side of our business model, which is really important in oral health with dentists, but also with pharmacists with our OTC business. We do start A&P as a percent of sales in a relatively healthy place at 17.9%. But as you said, this year, we grew A&P 3%. And as the year goes on, we're very active in the way we manage A&P and ensure we get the best returns. So for example, in 2023, our A&P investment will find oral health was very strong, and you've seen that come out in results. And actually, we continue to invest in VMS, and we're able to take share, an example on emergency, which to be showed in the presentation in a declining market, which I think positions us and strengthens us for the future. On the contrary, in respiratory, in the U.S., where we saw lower incidences and some disruption due to some ingredient questions on PE, Phenylephrine, we actually pulled back from our A&P spend there, is a conscious choice because we feel like the returns weren't there in that level of market. So -- and so when we look across the portfolio, we are actively managing that and making sure that we're investing for growth and we're investing in the right places, but not investing just to invest. And then as you said, within that, there is efficiencies we're always looking to be more efficient in our non-working A&P, and we see that obviously grow slower than overall A&P. So there's a number of dynamics in there. But we feel good about the investment, as Tobias said earlier, we expect in 2024 to continue to invest in A&P and drive growth and invested really higher than this year.

Good. And so coming back to the productivity question. So look, we're not going to split out what's the productivity program and how much of that drops to the bottom line. But I mean, let me go back to why we did the productivity program. We did it because we want to and have to drive agility in that business, to make the business faster, more agile. And then secondly, we also did it because it gives us the comfort that we can invest into the business in R&D and A&P. And I think that's, I think, we're -- there are slight differences to '23. We didn't have the tailwind from a productivity program. Going into '24, we have this tailwind. And that helps us being able to fund the things we want to fund. And actually, that helps us that we will be able to be -- to continue to be competitive in still a difficult market environment where in some places, we have seen volumes declining, and we have to battle for the volume growth that also we're committed to get. And I think that gives us, I think, the confidence that to be in this 4% to 6% range. And secondly, that we can grow operating profit ahead of the rate of sales growth in '24, even in an environment out there where people might be putting more money back into A&P that they had taken out earlier. And then just on Q1. So we're not going to split out and give quarterly guidance on price and volume, right? But if you just -- I think in the backup of my deck, you see a little bit of consideration for sales growth. So look, oral care, VMS, digestive health and other pretty clean from a run rate point of view, there's nothing undue in the base. And then there is -- we have to cycle over pain-relief and respiratory health. And you see that in the backup, and we mentioned it earlier in the call. And look, if you want to take a little bit of a step back, take comfort for what we delivered in Q4. We did 6.5% sales growth cycling over tough comps with some volume growth as well, right? And then again, that's the strength of the portfolio geographically and from a product mix point of view that the categories give us.

The next question comes from the line of Bruno Monteyne, Bernstein.

My first question is on innovation and R&D. If I read the slides correctly, R&D is down as a percentage of sales. I just wanted to understand, is that linked to the -- our activity see switches that are maybe further delayed or maybe off the table? And if you could say anything about the sexual health product license that you gained a little while ago, when will that start impacting organic growth for the business? My second question is coming back to hyperinflation. I'm totally clear how hyperinflation capping will impact the pricing and the organic growth. But my question is on your margin bridges, you talked about operating leverage, let's say, the plus 50, 60 basis points this year and then you have the negative effects. Clearly, a big part of the operating leverage and the FX is Argentina and the like. So will your new approach to hyperinflation also reduce the amount of kind of operating leverage you would have quoted for 2023, and therefore the effect? So will that new approach also impact the way you report those EBIT margin bridges?

And I'll start with the innovation R&D and then pass it on to Tobias. So on innovation and R&D, we believe in investing in that. What you saw coming through in the numbers was a bit of the efficiencies and effectiveness of the things we're driving across the business on some structured things and some we exited some TSAs, for instance, with GSK on pharmacovigilance and kind of took that in. So those -- that's the slight percentage of sales decline that you see. We're very committed to delivering this year. We had 67 new product launches this year. Very proud of some of the innovation that went and you look at the U.S. market where we launched Sensodyne Active Pronamel Shield, year 2 of Sensodyne sensitivity gum, the 2 biggest innovations in the U.S. toothpaste market. Things like emergency crystals, which is a new form and be able to take emergency without water, again off to a really nice start. PanaNatra is in Australia, which is a natural pain relief brand with clinical claims, we think, is a new frontier and opportunity we're working our way into. So we feel good about the innovation. Or we feel like we can do better and always pushing for more there. But we're going to invest where we need to invest in that space. Your question on the sexual health, we haven't given much of an update. We expect to launch that within the next 12 months, and we'll update the market as we have more clarity and can give more perspective on that. Tobias, you want to...

Yes. Just one small build in R&D. There's also a small accounting change we made. There were certain G&A costs that in the old days as we spun out of [indiscernible] reported in R&D. We simplified our accounting. So some of it moved into the SG&A line just to be more consistent. So that was also another reason for -- you saw a little bit less on the R&D line, which has shifted over into another line, but that's also now also out of the base going forward. And then on your hyperinflation question, yes, Bruno, you are absolutely right. I think the Argentina and Turkey because we did not apply hyperinflation accounting in 2023, gave us a bit of a tailwind of -- give us a bit of a tailwind on both the sales numbers, but also on the operating profit number. Now of course, there's also transactional losses in that because these markets tend to import. So I think in Turkey, we do not have our own manufacturing. So they have to import from -- mostly from hard currencies production size. In Argentina, we have our own production, but they're still raw materials and certain materials that you can't get in the country that's offset. So -- but look, in the mix, I'm not concerned about the ability to drive operating margin going forward even with applying hyperinflation accounting going forward.

And anything on the Rx/OTC switches and the innovation, is any update there?

No, no update to speak of. I think as we said, again, 2 years ago, we said we'd expect that in the pipeline, we have 2 switches that come potentially launched in '25 and '26. We -- since those have been delayed, based on discussions with the FDA, so really no update on that. And obviously, we've done the deal on sexual health, which is in a way an Rx/OTC switch is a direct to OTC and we're excited about that opportunity there.

The next question comes from the line of Celine Pannuti, JPMorgan.

My first question is on the balance sheet or the leverage. So you said you are 3x. Do you still have a goal of 2.5x given that you are going to do that, that's the share buyback and you announced the dividend, so actually could update us on that? My second question is on pricing. Can you talk about your ability to price and what kind of regions or quantum of pricing we should be looking forward as additional pricing in 2024, if any? And then lastly, can you talk about the volume performance in EMEA, LATAM, which was negative, as negative as in Q3, one in Q3, there were some, I think, one-off issues. So could you shed light on that?

First, let me just talk the pricing ability thing. I think as we look at next year, we continue to expect to see pricing. We also expect to have volume growth through for the full year. And as we've always said, we try to keep very conscious of how we take pricing because we want to continue to see that volume growth, very proud of 2022 and 2023 and what we've been able to deliver. The pricing environment certainly in mass markets, places like U.S. and across Europe is challenging, but we believe that we have still the ability to take price. And certainly, in pharmacies across Europe, it's much more about the decision we want to make on the pricing we can take and the consumer elasticity because they're really not a retailer in between us and the ability to take pricing as it's mostly independent pharmacy. And our OTC portfolio in Europe pretty much goes 100% through that channel. And then overall, listen, we feel good about the performance of our business in Europe, Middle East, Africa, and Latin America. We did see some volume declines there, as you noted. We've been able to take good price and the volume decline is really differentiated geographically. So place like Latin America, you would see a bit more volume decline, and it links a little bit to Tobias' point also in the hyperinflation comments in Argentina. But overall, we feel good about the makeup of the business. And then you have regions like Asia, where we had low inflation, and we continue to see really strong volume growth in that region and expect to continue to see good volume growth. Tobias?

Yes, look, on your -- on the leverage question, right, we said our medium-term target is to be around 2.5, right? It doesn't mean 2.5 sharp, but around that, the 2.5 number. We think that when you -- with all the analysis we've done, we think this is the right longer term, more medium term leverage range, taking all the components into account, interest rate and all the other capital allocation priorities. So I think that's why we aligned with the Board to target around 2.5 number over the medium term. Now I think how we get there. I mean, I think you should take some confidence from our deleveraging path. We started around 4, so slightly above 4, 18 months ago, and we're down to 3.0 now. And I think we -- I think the strong cash generation of this business will not change going forward. So I think as we keep executing in the model, there we can do both, we can deleverage. And then also, I think when you think about the share buyback now, we have the income from the divest that helped to partially fund that. And lastly, also, I mean, if you just take at our cash position, we ended the year with a strong cash position. So ended the year with GBP 1 billion of cash on the balance sheet, no commercial paper outstanding. And I think that allows us to pay back the bond, the $700 million bond that's due now in March from cash and also to pay out the dividend. So I think overall, I think the business is in a very strong place from a cash position. And I think it's delivering exactly on what we have promised to do and even ahead of time on that.

The next question comes from the line of Olivier Nicolai, Goldman Sachs.

I've got 2 questions, please. First, going back to oral health. Could you give us a bit more details on the strong growth acceleration you've seen throughout the year? How much of this growth could be explained by the distribution gain that you still got on the non-tax or [indiscernible]? And if that will continue to be a boost in 2024? And then just a follow-up, if I may, on the marketing spend, which grew 3% constant currency, but declining as a percentage of sales to 17.9%. Now you mentioned that some of the reduction was in respiratory, but did not prevented you from outperforming your peers. So keen to hear your thoughts there? But also going forward, is 18% roughly a percentage of sales? Is that roughly the correctly that we should think about?

Let me start on oral health. So yes, very good about the oral health performance. And as you saw from the presentation, really strong share growth across the 3 power brands, which is the vast majority of our business and different dynamics of growth all 3. So Sensodyne continues to see strong growth. Obviously, there was pricing but also volume growth on that business. And I think that growth was really driven by some very good innovations and performance by innovation. So I mentioned Sensodyne Proactive enamel repair, year 2 in many places, the Sensodyne sensitivity gum. So we're really seeing the model, which is the dental detail model, the innovation, the recommendation continue to be very strong and hold up very well in a volatile kind of economic environment. Also, we just launched in the U.S. and a few other markets, Sensodyne Clinical White in Q1, which is an innovation we are very, very excited about. As you may know, whitening is a big trend in the market. But whitening toothpaste actually are very bad for set people with sensitive teeth, and we have a product that actually does both, 2 shades whiter and 24/7 sensitivity protection. So feel good about that. Parodontax is a bit of us continuing to activate where it's been in market but maybe we haven't had the capacity to resource allocate. We're seeing it react very well to brands and also to investment and to the growth. And then I would say on denture care. Denture care is a bit of a bounce back from COVID. So what happened during COVID in that population, an older population, less disposable income as social occasions went down, the usage of the category went down. Obviously, we're about half of that category on a global basis. And now we're seeing that come back, but also strong innovation there, too, because our [ Max Grip ] Polident product that went out truly, truly has made a difference for that consumer segment. But you wouldn't expect to see that level of growth going forward because there's a bit of a base effect. So overall, feel good about that. On the A&P investment and on respiratory, again, as I mentioned, and Tobias mentioned a bit on our brands, but the geographic footprint, our respiratory portfolio is very different than our competitors. So yes, we decided to invest less in certain markets where we weren't seeing it and we were still able to deliver. We believe in investing in A&P, no question about it. I'm not going to put a number on what I think the right level is because we do want to be active in the way we manage that and in the way we drive growth and we drive returns of our A&P. But feel good about the choices. And I think the big data point for me is if you remember, at half year, we were at 55% of the business gaining and maintaining share. At full year for all of 2023 we're at 58%. So while we're making those choices, we're continuing to see the competitiveness strengthened. We've always, by the way, are wanting to do more and be more competitive and even see that number go up. But we feel really good about where we ended for the full year and the choices we made.

And maybe just to add too little builds to what Brian said on -- just on the 58% of the business gaining share, just a reminder, that covers over 90% of our revenue. So this is really our full business, all the brands, all the markets wherever we get market share data, so it's a really holistic measure against the GBP 11 billion of revenue that we have. And I think I just want to point that out a bit. So I think, really strong number overall.

The next question comes from Mikheil Omanadze, BNP Paribas.

One question, one follow-up for me, please. Can you please comment on the consumer environment in your categories? Are you observing any down trading at all in your key markets? And in terms of the follow-up, just to make sure I understood correctly, you said that longer term, you are targeting your organic growth to be roughly half and half split between volume and price and that 2024 will be a step in that direction. Does that mean that you expect pricing to still be a higher contributor of growth in 2024? Just to make sure I understood this correctly.

Let me take the first and I'll pass it to Tobias on the pricing. As far as the consumer environment in key markets, I think we mentioned a bit it does change geographically a bit on what we see. And as I mentioned before, Asia continues to be quite strong, low inflation in that market, and we can see this good volume growth. If you look at the U.S. environment, it's been a bit tougher environment in the sense that we've seen kind of volume declines in certain categories. But what I would say is it's really a category-by-category story. So as immunity category, as we shared, saw a significant decline because of the explosive growth that happened during COVID. If you look at respiratory, in the first half, we saw good growth and then in the back half due to seasonality, we saw that category decline. And on oral health, we've continued to see real strength in that category going on. As far as down-trading and private label and U.S. would be the largest private label market, we're really not seeing that on a broad basis and across our portfolio. Actually, overall, in private label in the U.S., we've gained share. Now it's different category-by-category, smoking cessation, a little different. It's a higher-priced product. But I'd say, overall, nothing material is happening that's impacting the business overall in that way. Tobias?

Yes, I think you understood this correctly. So there will be more of our growth coming from price than from volume next year. So it's a stepping stone in that direction. In the medium term, we think we're going to be back at the round of 50-50, and outlooks the 50-50 was 60-40, 40-60, depending on the year when you launch and how you take price. But a stepping stone in that direction, but clearly still more skewed to price. But significantly less than it was last year with the 7 and 1 or 85-15 between the 2 years.

The next question comes from the line of Tom Sykes, Deutsche Bank.

Firstly, just on China OTC, and I guess, the renewal of the China route JV is due in September, is there anything you can say on that and whether any terms will change and maybe what phasing of China OTC does to the phasing of group profitability? And then just on North American growth, are you seeing any impact of increased OTC allowances from insurance companies? And do you get a sort of flushing of FSA eligible or accounts for FSA eligible product in Q4, which rather accentuates the seasonality at all of OTC?

Great. Let me do this. Let me mention OTC China. I'll touch on your U.S. question. I'll have Tobias talk about the status of the joint venture. So first of all, in OTC in China, if you remember a year ago, when COVID lockdowns came off, also, sales restrictions on our products like Fenbid, which is an ibuprofen pain reliever and contact holden flu product. We saw a significant demand for 2 reasons. On sales, restrictions were taken off and COVID went through the country and we treat those symptoms. So very proud of the way our China organization will react from a supply chain demand with [indiscernible] overnight, and we're able to really react and help meet that demand. And that certainly will be a factor for our China business in Q1 and Q2 as we look forward now. That's already incorporated into our Q1 guidance. We said we'll be slightly below our full year 4% to 6% guidance. But overall, we feel very good about that market and our business there, and it grew at healthy double digits in 2023. Our North American growth and the impact of the FSA, really no impact to speak up. We think they're good to have in place, and it's good that people can use those funds in a tax-free way to buy OTC products, but I would say there would be no analysis that we have to say ahead of any material impact on our business. Tobias, do you want to talk the China joint venture?

Yes. So look, on the China joint venture. So we're in -- as you can imagine, we're in discussions with our partner. I mean, I've said before, this is a joint venture, I think, where both partners need each other. And I think so we're very confident on the continuation of the joint venture, and we would update throughout the year if there's anything that would change us in that. I think this is a joint venture that has done well for us. We're very happy with the performance. Our partner is very happy with the performance. So I think from our perspective, no concerns on that. And if there's any material change, we would, of course, tell you timely. And also from a phasing point of view, I think, in the back of my deck, you see, I mean, remember Fenbid but not all the Fenbid growth last year is going to disappear again because Fenbid came back from a reduced use because it was blocked for sales before. So we're going to retain some of that upside. And then, you also -- we have seen very strong and continued success on the other categories in China. Caltrate, you've seen that in my deck, I've shared the sellout numbers that we had on that brand. That's our largest brand in China. Sensodyne had a weaker half 1 last year and started to perform very well in the second half of the year, so we go with good momentum into the year. So you have some offsets in other part of the category in China. So it's not just the Fenbid. And as a result, confident that China will be a growth contributor and will be additive to good growth in 2024 as well for the full year.

Maybe we'll take one more question.

We have a follow-up question from David Hayes, Jefferies.

Sorry to come back. Just want to completely clarify the share buyback, which I may have not quite cool. So the GBP 500 million, you kind of mentioned that, that may be impacted the way you use that by what GSK and Pfizer do. So just to be clear, you could, for example, GBP 500 million in the first 6 months of the year, nothing in the back half if the dynamics are what they choose to do made that attractive? And then I guess if you are maybe to do more divestments in the year, that GBP 500 million could change? This is not something you agreed locked in with the Board. You could be flexible on that and maybe do more in the second half of the balance sheet flexibility was to get more favorable, is that is that both fair comments?

So first of all, look, I think we've allocated GBP 500 million of capital for share buybacks. We're going to do GBP 500 million. How we do it? We want to do it in the best possible way. And I think preferably if there would be a placing, it would be through that because we get a discount, yes. Now we're going to do it in 2024. So that's the timing we have set for that. So we have to -- have the cash, and we'll do that flexibly in the most efficient way for the shareholders. I think you understood that part correctly. In terms of capital allocation decision. So I mean, look, if we would do a exactly, we laid out the thing in my presentation, the new capital allocation framework, right? And I think one thing that doesn't change is the high cash-generative nature of that business. So if we're in a situation that we have excess cash, like we have now coming through towards the end of the year and plus the divestment. We sit down and go through the 3 buckets, have we invested properly in the business. Tick. We've done that, then you move on to either any bolt-on or any M&A opportunities that are commercially compelling and accretive in value. And then lastly, if none of those exist, then we will look at what to do with the excess cash. So we would look at, does it make sense to pay down more of the debt? Or does it make sense to return it, for example, via shareholders? And we're going to share via buybacks or via dividends. So -- and I think, that's exactly how we came to the decision because share buybacks are at the moment the best way and the most value-accretive way what we can do with that excess cash, and that's why we made a decision to allocate GBP 500 million to share buyback. We would go exactly to that same logic if and when the situation would arise that we have excess cash on our hands.

Okay. Great. Great. Thanks, David. Okay. Great. Listen, thanks very much, everyone. I always appreciate your time and the engagement and your questions. It's been another successful year of delivery for Haleon, building on our track record as a stand-alone company. I feel really confident about the year ahead, and we remain well positioned to deliver our 2024 and our medium-term guidance. So I hope you all have a good rest of the day. And if there's any further questions, as always, feel free to reach out to Sonya and the Investor Relations team. Thanks again.

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