Haleon plc (HLN) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to this session. It's my great pleasure to introduce Filippo Lanzi, President of the EMEA and LatAm division of Haleon. Filippo, over to you.

Thank you. Thank you very much, Tom. Can you hear me well? Thank you. So good afternoon, everyone. My name is Filippo Lanzi. I have the privilege to lead EMEA, LatAm at Haleon. As you can easily figure out from my accent, I am Italian. My background is mostly FMCG and consumer health care, having worked before with Nestle, with J&J and then Novartis. I joined Haleon in 2015 and have worked and lived in different geographies in Asia and in Europe. Today, for me, it's a great pleasure to be together with you and to really have the opportunity to drive you through some information and discussion about the track record of sustainable growth that we have been having in EMEA, LatAm. EMEA, LatAm is a region which offers a wide portfolio of category-leading brands. We have a balanced growth profile in EMEA, LatAm between developed and emerging markets, and we will talk more about that. We have a compelling route to market with the strength across the different channels and with a unique competitive advantage in the pharmacy channel. I really want to give you a sense of the opportunity that we have in this region to keep growing and to contribute to the overall strategy of Haleon. So to start with, let's get a little bit more into the details of the region. So EMEA, LatAm is a region which is home to 44% of the global population. We account for 40% of the revenues of Haleon in total. Last year, the revenues accounted for GBP 4.5 billion. We have quite a wide footprint across EMEA, LatAm as we serve more than 100 markets. And in several of these markets, we have a leading competitive position. We are organized in -- across 7 business units, who are in charge of the entire portfolio within the geographical remit. And we have a setup with -- where we are fully integrated with 13 factories that are serving our different markets. In some cases, we have dedicated supply to the geographies. So for instance, LatAm is fully supplied from within. I think starting from this wide footprint, it's important to share a bit more about how we have maximized -- how we have been maximizing the potential of growth in this region. And this is really about a portfolio of categories, which is fairly balanced. So 1/3 of our revenues come from Oral Health. Next, a bit less than 1/4 comes from Pain Relief. And later, I will talk a little bit more about these 2 categories in terms of our strategy, in terms of the drivers for growth. We have been delivering a good progression of strong organic growth in the last 3 years, as you can see from the slide here, at an attractive margin level, which has been delivered through initiatives in terms of net revenue management, which is a key driver for the region; in terms of efficiencies in the COGS, but in the overall operations that we run, in terms also of mix and choices across the region. I started to refer to the portfolio and the categories we play in. And I want to go a little bit deeper into that and to share more about the portfolio we leverage. It's a portfolio which is well positioned to tackle the 60 billion addressable market in EMEA, LatAm. We have the leading position -- we are #1 in Pain Relief and Respiratory Health. And we have a leading competitive position in Oral Health and VMS, Vitamins and Supplements. 2/3 of the revenues in the region comes from power brands, which are well-known category-leading brands such as Panadol, Sensodyne, Voltaren, Parodontax, so without naming all of them. And this portfolio of power brand is complemented with local growth brands, which have an important equity footprint and heritage in some markets with a more limited geographical footprint. You see some of them here at the bottom of the slide. And I want to call out a couple of examples. The first one being BeTotal. BeTotal is B12 VMS brand in Italy. I mentioned it because I remember when I was a child, which means several years ago, whenever I had cold and flu, the pediatrician would have recommended my mom to give me a BeTotal to gain back energy and to regain shape. So this is really a brand with a meaningful heritage, at least for the Italian consumer because it's a truly Italian brand. Another example is Grand-Pa. So Grand-Pa is the #1 analgesic brand in South Africa. For those of you who had the opportunity to be in South Africa, I'm sure you have noticed how iconic is this brand, to the point that when you visit some neighbors in Johannesburg, the spaza, which are these small stores runs by mamas and papas, they have the Grand-Pa advertising painted on the wall of the shops. So this is just to give you a sense of how these brands are rooted in the habits of the consumer. Now, as I mentioned before, the -- I mean the organic growth development of our portfolio over time. And as I said, in terms of the 2 categories I would like to talk, I want to go a little bit deeper into Oral Health first and Pain Relief after. So Oral Health, we have a significant opportunity to still grow in Oral Health by serving more consumer and tackling their needs. Now here, there are some examples. I know that Brian, our CEO, and Tobias, our CFO; they have spoken a lot in the past about Sensodyne and how big is the opportunity for Sensodyne. Therefore, today, I want to give you a bit of context about Polident and mostly Parodontax. So when talking about Polident, we know that 1 person out of 5 wore either a denture or any kind of dental appliance. And still, 80% of these people do not use any kind of fixative. Now using a fixative does not mean that denture is not done well. It's simply an addition to avoid some issues like food occlusion or to improve the experience of the denture. I want to talk a little bit more about Parodontax. It's a brand which is very close to my heart. Now, half of the adult population suffer of different gum conditions, could be bleeding an or could be gingivitis. And these are diseases that if not well treated, that could even lead to tooth loss. Still, more than 60% of these people do not use a specific toothpaste in order to manage their condition. So that's why I really want to share more about the way we have been tackling this opportunity to serve more consumers with our Parodontax brand. It's a history about having built a strong brand equity with this brand, and we have done it through 3 main pillars, if you want. The first one is really about showcasing the science behind the product, primarily to the expert, which means dentists, either face to face or through teaching session or webinars. But it's really about demonstrating how the product works, how it could be beneficial for these people. Second, it's about consumer education, especially in terms of the so-called Parodontax routine, which is about cleaning, brushing and rinsing. And it's also about the access of the brand because this typically is a brand which was born in pharmacy and then exported and expanded in mass market and in digital commerce. These initiatives have led to a growth rate which was double digit over the past 3 years for the brand. We do have meaningful opportunities for further accelerating the growth. When you look at Q1 this year, the brand has delivered 20% growth in EMEA, LatAm. As you -- we are currently in France. If you look at the business here, since 2018, we have doubled the size of the business. Now, besides the word, I really would like to share with a very short video how we've been activating the brand and how we have brought it to the consumer. [Presentation]

I think it's really about the synergy between the right point-of-sales activation at the point of purchase for the consumer but also the engagement with consumers and expert, which has made the difference for Parodontax. As I said before, I want also to share a little bit about the work we have been doing within the Pain Relief category. This is a sizable category in growth. And that's not a surprise because pain affects almost every single adult with different nuances, with different need states as, for instance, 1 out of 5 adults suffer of headache every week, whereas 1 out [ 3 ] have back pain issues every week. So you can really understand the extent to which this is a meaningful category. And we are well positioned with our 2 brands, Voltaren and Panadol, in order to provide the best possible solutions to these people. Voltaren is the #1 OTC brand in EMEA, LatAm. Panadol is the second largest brand in the region in terms of -- within the sustaining Pain Relief category. And then as you can see from the right, we have an opportunity to generate more growth across the different need states that people are experiencing, and that require different answers -- kind of different solutions. Could be -- I mean, the way we are doing that is about delivering messages about the benefit, the superior science. It's about, again, education of consumer and pharmacies. It's about having a range which is articulated across the different need states, including the dimension of access, which is something that we have been [ dialed ] up more recently. Again, similarly to what we've done before, I really would like to go a little bit deeper into Panadol because I think it's a good example of bringing to life how we have hunting for the growth opportunities in Pain Relief. Now, Panadol is a brand which has delivered double-digit growth in the past 3 years. And Panadol play across the entire life cycle of the consumer. So we have a solution for kids until senior people, chronic sufferers. We have -- we covered multiple need states from general pain to period pain, to migraine. And you can see here an example of how the range has been spanning across this need state and across different format because we have formulations in tablets, in syrups, in suppository. Also, it's important to remember that Panadol stands for safety and efficacy. And that's an important dimension of the brand which was further strengthened during the COVID period. Some of you might remember the Take Care campaign that Panadol sponsored and executed and -- which strengthened the trust dimension of the brand. Now similarly to what we've seen for Parodontax, I want to show you two quick videos. The first one is an example of a consumer activation, so one advertising that we've been airing. The second is more of an example of how we are managing Panadol in Middle East, Africa, where we are the #1 OTC company. [Presentation]

So the intent was really to bring to life the way we move, we bring the product to the consumers in Middle East, Africa, in this specific case. And it's really about showcasing the strength of the brand, but also how we offer different solutions and how important is the impact in terms of the communication initiatives, including point-of-sale activation. Now building on that, which means about the importance to bring more products in the hands of more consumer, there is -- I want now to shift gear a little bit and talk to you about our route to market. It's a compelling multichannel route to market with strength which are standing from the more traditional trade environment to the most sophisticated environment such as mass market, modern trade or digital commerce. If you look at our portfolio, today, pharmacy channel account for more than 60% of our revenues. So it's the leading channel for Haleon in EMEA, LatAm. And we are the leader company in this channel with the size of the business which is almost twice the size of the next competitor. Now, in pharmacy, it is not just about the reach or the effective -- the coverage or the effectiveness of the commercial operation. It's also about reinventing the approach to the channel in order to deliver added value to the consumers and to the shopper. Next is mass market. Mass market accounts for about a bit more than 30% of our revenues. We have a very good reach in the channel as well. But most importantly, when you look at our position with customers, so we are ranked in the top-tier supplier in more than 60% of the market, which is a combination of the way we engage with customers on developing the categories, the way we offer our supply chain services and the other elements, which are foundational in terms of relationship. Lastly, digital commerce. This plays a smaller part compared to the other 2 channels, less than 10% of the revenues. You -- I mean we have to remember that in this channel, we sell mostly oral care and sometimes VMS. But in several countries, we cannot sell OTC. And that's why the percentage of sales from digital commerce span from 1% to 14%, 15%, which depends a lot, country by country, on the regulatory environment as well as on the digital maturity of the environment in these countries. I think it's really about the diversity of the environment, of the landscape of the retail environment in EMEA, LatAm. And I want to play one last video, which is meant at really giving a flavor of how different it is to play within this diverse environment. [Presentation]

I always find fascinating to see -- to notice how we are spanning from a situation where OTC products can be sold, can be found on shelf in Tesco in the U.K. But behind the shelf in Paris, in France, in several pharmacies to see the difference between Carrefour here in Paris and spaza store in South Africa. So it's a huge diversity. It's a very different landscape. And still, I think we have strong capabilities to compete effectively in these different [ trade ] environments. And that's because of -- and also because this diversity requires the flexibility to be agile and to cope with a different situation, but most importantly, the capability to make know-how, learnings and commercial capability to travel across the region. So we have identified some focus areas that we believe are important to drive effectively the route-to-market strategy. But today, I really would like to cover those on the upper part, so customer collaboration, pharmacy -- leadership in pharmacy channel and how to reach more consumer in emerging markets. I want to start from customer collaboration because at the end, it's really the foundational element of the commercial relationship. And the key focus areas are really to work in order to grow the categories with the customers, and we do it in different ways. So first of all, our [ Shopper Science Lab ] facilities provide customers with real-life or digital store environment simulation across the different formats in the different geographical realities being said with shopper insight in order really to understand how shoppers behave. This is important because it's at the foundation of all the discussions we've been having in terms of how to grow the categories, how to improve shelf performance, how to improve the shopper experience, which is also part of a journey which goes beyond the [ EDR ] activation. And then, as I said's, it's about the shopper engagement, how to translate the strategy at shelf? The picture you see here, the one which is called the perfect store, is related to a pharmacy. It's really how -- it's really to show how this kind of approach is not only true to the mass market environment, but also to the pharmacy one. And as I said before, pharmacy is really a key channel for us. More than 60% of the revenue is coming from there. It's a channel which stands for primary care access for consumers. As I said to some of you before, 58% of the European citizen live 5 minutes walk from a pharmacy, and that's really a point to go for in order to get support consultation. Now we have a number of competitive advantage in this channel. First of all, our wide footprint in terms of dedicated sales force for the pharmacy channel, digitally enabled and with strong competence in terms of merchandising, but also in terms of execution and [ key ] account management capabilities. We have been evolving, and we have a distinctive expert engagement in the channel, in not only face-to-face but also by leveraging proprietary expert portal, webinars, digital apps, et cetera. And then the piece, which is important, which is the interaction with the experts, with the pharmacist, not only from a commercial standpoint, but also in terms of education, in terms of equipping them with all the product knowledge to then serve the consumer needs. Let's not forget that 80% of pharmacies recommendation drive to a purchase in the pharmacy channel. So that's really an important element to bear in mind. The third point was about reaching more consumers in emerging markets. Emerging markets account for 46% of our portfolio. And geographically, we have a very strong success model in Middle East, Africa. Middle East, Africa, it's about GBP 0.8 billion for the region. We are market leader, 3x the size of the next competitor in that geography. And we have been growing double digit in the last 3 years. Latin America is a bit smaller compared to Middle East, Africa, significant room for growth. We have been doing well from a competitive standpoint in the last couple of years. From a portfolio standpoint, 70% of the revenues comes from power brands, where we really leverage the know-how, the scale of the power brands. But we also have a local growth brand, which plays an important role in the portfolio. I already shared about Grand-Pa before. I want to mention ENO, which is the #2 OTC brand in Brazil. ENO plays in the anti-acid category. And again, it's -- what is in common to the 2 products is that they really cover, from a brand architecture, different solution to the consumer in different price tier. Now, it's also about understanding how we have been bringing to life the strategy of increasing the reach and gaining more consumers. And a great example in emerging market is Centrum. We have been growing Centrum through 3 main levers: geo expansion, increased activation and expanding the consumer reach. Geographical expansion. As an example, we have launched the brand in Egypt back in 2022. And now we have a 20% share in multivitamins in the segment. In several countries, we have increased the activation behind the brands, either because before, there was no real support from a consumer, from a commercial standpoint. And this has led to meaningful revenue growth. And finally, the way we have expanded the consumer reach is really through initiatives like -- the examples, like the one where that I want to show you here, which is the launch of Centrum Essencial in Brazil. This is a product which has been designed entirely for low-income consumers in Brazil, leveraging the local insight from the formulation to the packaging design, to the price positioning. And a few months after the launch, the product has reached 2 points of share in the vitamin segment, making Centrum become #1 brand in Brazil. Now when I think of Centrum Essencial, this remind me about something which is at the heart of what we do at Haleon, which is about really running the business responsibly. And therefore, I want to briefly touch about something which is very relevant to every employee at Haleon because our purpose is really about delivering better everyday health with humanity. And out of the several initiatives that we have been running, there is one which I believe is very important, which is about water neutrality. So our factory in Cape Town, South Africa has reached both water neutrality last year and has been recommended for the [ AWS ] certification. That is part of the broader initiative in terms of water replenishment project in a part of the world where there is an imbalance between demand and supply of water. And also, we have partnered in South Africa with WWF to rebalance the ecosystem with native plants in order to help the environment and to keep fueling this water balance action and initiatives. I think it's time to wrap up. And I want to close this presentation by sharing that overall, I do feel confident in the ability of Haleon in EMEA and LatAm to keep building strong growth in the future. This is really underpinned by our portfolio of leading brands, which is spanning across different categories. It's also grounded on the compelling route to market that we have and that will allow us to compete across the different channel with a competitive advantage in the pharmacy, one. I also think we have an opportunity to grow overall, so not only in emerging markets, but also in Europe, in the Western -- in the developed market by meeting different consumer need states and for sure, by expanding our presence in emerging markets. This is what we will drive. This is what is part of our agenda. And now, I think I want to hand back finally to Tom and to open up for questions from his side or from people here.

Great. Thank you. Thank you very much, indeed. Thank you very much indeed, Filippo for that. Take a seat. Thank you. I think it would be really interesting for people to hear your perspective on the changes you've seen within the company following the split and the demerger from GSK, if that's possible, please?

That's the question that me and Sonya, we have been asked multiple times during the day because I think it's really relevant as an important change in moving out from a situation where we were part of a broader pharma setup. And we had to acknowledge what was needed to compete differently in the FMCG, FMCH environment. I think, to me, the main change -- there are a few things. I will start from the main change, which is about the acknowledgment of the business levers that would allow consumer health care business to succeed versus operating within the pharma environment. So what I mean by that, consumer centricity is something that is absolutely critical, having the right focus on how to satisfy the customers' need as well. If you think about supply chain, I have shared the example of supply chain many times. I mean supply chain in pharma is more of a global function, which has more limited connection with the business. This is not the case in the consumer health care space because the success of the business is interconnected with the supply chain operations in many ways. It's really about the capability to serve customers in full, in real-time, I mean, within the right commitment -- the agreed commitment. But supply chain is also about enabling through the supply network strategy, the expansion in some part of the region. It's also about supporting the innovation agenda and being agile in following the rhythm of innovation, which is different from what used to be in GSK before. It's also about supply chain being more focused on delivering efficiencies to make the gross margin improve and then to invest money in the business. So consumer centricity, interaction with supply chain, customer focus, speed and agility, these are levers that are critical in any consumer business. The piece around speed and agility is something I really want to insist on because it's also about relooking at the processes, relooking at the way operations and processes are executed within the company. And finally, there is an element of culture in that. Because I think it was really about making all our colleagues understand that the environment in which we compete is different, the competitive set is absolutely fierce. And if we really want to grab the right -- the opportunities that are in front of us, that requires the right level of ambition, the right level of speed, a degree of execution which has to go for more. So these are the big things that I've been noticing in this change. And ultimately, the interaction with the Board because before, we were not really used to interact with the GSK Board or at least not in my role. Now, there is a more frequent interaction with the Chairman especially, with the Board on strategy. And this is reaching the discussion, of course.

Yes. Very interesting, indeed. Thank you. Related to that, it's quite unusual to have a structure where Europe, Middle East, Africa and LatAm are combined in one region. What's the logic for structuring it this way? And why does that make sense?

I believe it's really about leveraging the opportunities across these different geographies. Let me better elaborate. For me, there are really two dimensions in it. First of all, if we look at the emerging markets dimension, when we were just EMEA, within EMEA, we had Middle East, Africa, which was a relevant part of our business, we had emerging markets in Central, Eastern Europe. So we started to develop some learnings that we really applied and scale in the different markets when proven to be successful. Adding LatAm to the dimension of EMEA has allowed us to look at emerging markets in full, in a broader way. And LatAm has benefited from all these learnings that we have generated out of the other cluster of emerging market. But there is also another dimension that normally we don't think about because if you think of Europe, as I said before, more than 60% of our revenues come from pharmacy. Pharmacy is a highly fragmented channel in Europe. And we had to develop technicalities, capabilities, approach to really evolve the way we were working within that channel. Several of these learnings and these success factors have been translated to EMEA first and then to LatAm. I have shared with some people the example of, I don't know, image recognition tool, was something that we deployed in Europe in the pharmacy channel. And then we applied the same in EMEA because we found that in that environment, was really important to equip our sales force, the distributor sales force, with something that would have allowed us to control end-to-end the operations, and we have a great benefit out of that. So these are two reasons why -- then also, when you look at innovation, when you look at initiatives that are meaningful to the consumer, there's really the opportunity to make them travel from one place to another. I'm very [ curious ] if the success of Centrum Essencial will last, as I do believe it's something we can consider to reapply in other parts of the region.

Right. We're at the end of time, but maybe one last question is that oral care accounts for around about 1/3 of the divisional sales, and the division accounts for around half of oral care sales. You've seen double-digit growth in LatAm and Middle East, Africa in oral care. How does the size of the therapeutic market in those 2 regions compared to Europe? And are the same drivers of demographics and consumer need evident there as they are in Europe?

So when you look at the therapeutical segment in Europe, accounts for about 40% of the total [ to pay ]. So it's quite developed if you think about that. It's less developed in EMEA and much less developed in LatAm, just to give a sense of how it is today. Now, what is interesting is that when you look at the consumer need states, they're not too different. What I mean, the incidents of the pathologies I mentioned before, is fairly similar across the different geographies. What is very different is the awareness of that and the understanding of how to cope with that, which solution to go for. What is very different is also the access and the availability of the solution to cope with this need state. So that's why what is important for us is to look at the different situation, the different life stages of the brands and to act accordingly. I shared before, so this is the last launch, Sensodyne Clinical White, which has been launched for now in 5 markets across EMEA, LatAm and especially in those markets where the brand is already sizable and where there is an opportunity to further expand the presence of Sensodyne into the whitening segment. But when I think of Brazil, we still have to develop the foundation. And we already have an offering, which is enough to satisfy need of the Brazilian consumers. On the other side, in Brazil, we have launched dedicated SKUs for the cash-and-carry channel, which is an important one for Brazil. So it's really about understanding how to follow the strategy, but with different nuances, according to the different markets.

Okay. Thank you. Unfortunately, we've come to the end of our time. [ We had ] fascinating insights from you, and thank you very much for sharing them with us. And thank you very much, everybody, for attending this afternoon session. Thank you very much.

Thank you, Tom. Thanks a lot.