Haleon plc ($HLN)

Okay. Good afternoon, everybody, and thank you very much for joining this session. And thank you very much, indeed, Brian for joining for joining us here in Paris. It's good to see you here.

So Brian, perhaps before we dive into the business, you've been the CEO of Helion now for 4 years. how have your priorities changed over that time period? And what are your key strategic priorities now?

Yes. Listen, I think if you take a step back, we listed in July of '22. So coming up on 4 years. I think a Stage 1 was separate from GSK, focus on delivering continuity of the business, delivering the growth, delivering on the commitments, building the corporate function tax, treasury, new board, all those kind of things. think we successfully did that. We also had 2 big things we needed to address 4x leverage and 45% overhang of our previous owners, Pfizer and GSK. So 2 years in, we kind of dealt with all of that. Built the company, stood it up, got rid of the overhang, leverage down to around 2.5, then I think the next phase for me was then building out the leadership team. A team that took us a separation was fantastic, but probably needed a different group of people to realize the full potential and we started that journey a couple of years ago, first hire was Namrata Patel, my supply chain head, 15 members of my team, 13 of them are new since the separation. Then and about a year ago, we did a Capital Markets Day, and that's when we laid out kind of the priority going forward. So simply put, I'd say #1 priority is growth. And listen, we guided the 4% to 6% growth in the medium term. Last year, we delivered 3%. This year, we guided to 3% to 5%. So I realize we're below that algorithm, but we're very focused on getting that growth back. A lot of the drag in that growth was seasonality and things like that. So we're working through that. And the other big focus for us within that is -- while growth this year, we've guided 3% to 5% competitiveness, market share is a big, big focus. We ended last year at 60% of the business maintaining and growing share. That's improved, and we share that number at half year results, but we're seeing real improvements in our competitiveness across the area geographically. The ability to do that links to priority #2, which is the productivity. A year ago, we laid out the GBP 800 million of really supply chain savings, productivity savings, which lead to 50 to 80 basis points of gross margin improvement over the next number of years. What that's allowed us -- and last year, we delivered 220 basis points of gross margin improvement, taking us to 65%. So what that's allowed us to do is it gives us tremendous flexibility. One, to continue to invest in the business, even though top line has been a bit more challenged, so making ourselves more competitive but also being quite confident in high single-digit operating profit growth, which will translate into very strong EPS growth on the business. In a year where we're guiding 3% to 5% and not not really confident in our ability to deliver that, and it's going extremely well. And again, at half year, we would review where we're at on that journey. I think the third is culture, and it has to do with the new team we put in place, but also the announcements we made in January about a new operating model. And basically, we've now structured in 6 operating units, 3 global categories. We've taken an entire layout out of the organization, 2 layers in some cases, and they're really streamlining and simplifying how we're doing work. In the U.S., we were able to do that on January top to bottom. Right now, we're in consultation across European markets. We expect the new operating model to be fully in place in mid-July. And for me, that was the last step in this transition of division of a big pharma company to a stand-alone CPG company. So it's really -- it's about growth, #1 priority, productivity culture.

Okay. Fantastic. Thank you. So perhaps before -- well, if we could talk about the business through geographic lens. First, you're building out your capabilities in emerging markets. How much larger is that investment now across EMs? To what extent do you feel you need want to build out the capabilities in distribution or A&P? And what are some of the successes for you in the bigger markets?

Yes. Why don't I take that through the lens of our 2 most important and bigger emerging markets, so China and India. If you step back and look at China, we invested about GBP 600 million. We closed out a year ago in buying out our joint venture partner. So we own 100% of that business. We had a joint venture on the OTC part of the portfolio. So now we fully own that business. financially made a lot of sense, EPS accretive, but it also gives us now full control of our business in China. We felt like that was important. I was in Shanghai 6 weeks ago or so, we announced we're building a new plant in Shanghai. This has supported our oral health business because we have a fantastic oral health business in China. We launched Paradinax as a second brand, a Sensodyne in China about a year ago, and we see significant opportunities there. Now if we look at it from a distribution perspective, 40% of our business in China is online, breaks down into 3 areas. First is traditional e-comm. Good business for us, growing really well. Margin-wise, is kind of maybe in line with our business. There's online to off-line, which is quick commerce through the pharmacy, extremely profitable business for us, and we're very, very strong there, and it plays to our OTC portfolio. Third is Douyin, TikTok and social commerce. On social commerce, OTC cannot -- you can't market OTC on the Douyin platform. And 2/3 of our portfolio is in OTC in China. Even some of our VMS are classified as -- that's an area where we're doubling down and we're investing both in capability but also in portfolio. So we have a number of innovations that we're going to bring in, some of the cross-border e-commerce, some of the local to really get our portfolio more fit for purpose for Douyin. Harder channel to make money on a modest, it's less profitable, but that's where consumers are. And again, with our gross margin and the gross margin improvement, we have the flexibility to make those kind of investments and ensure that we're growing in a very fast-growing channel. Separate from that, Tier 2, Tier 3 city is still an opportunity. Our market share of Sensodyne in Tier 1 cities versus Tier 2, 3, still low. So we're expanding our distribution and our footprint there. Looking at India. India is a market that grew for double digits the last number of years, double digits in Q1, super confident going forward in India. About 2 years ago now, we built our own -- began building our own sales force initially when GSK Consumer Household Horlicks to Hindustan Unilever. Hindustan Unilever was the distribution arm for that business. We decided strategically, it was time for us to take control of that. At the same time, we've launched low-income products to reach a different consumer cohort, specifically Sensodyne 20 rupee pack. We already have a INR 10 pack on ENO we see huge opportunities. We are investing heavily already. So we're investing in A&P. We're investing in the infrastructure, in the people but we are seeing the returns come because the growth is really, really strong, and our gross margins in the -- even on the 10 pack of are quite strong. So I would say that, listen, we are investing in things. It's part of our algorithm going forward. We expect emerging markets to be in that high single-digit kind of range on a continuous basis. And last year, the numbers are a bit hard to dissect because there was just a -- there was a cold and flu impact across both developed and emerging markets. But we feel like we have a really strong business, really strong share growth in emerging markets and quite optimistic about where we can take it.

Okay. Great. Thank you. Maybe if we look at the EMEA LATAM business now, this obviously had a tough start to the year because of gold and flu. But what was the performance outside of the the seasonal product like? And do you see any impact of the Gulf conflict either, I guess, here or anywhere else.

Yes. And it's worth Europe, Middle East, Africa -- by the way, when I changed the operating model of the business, we created Europe as a stand-alone operating unit in Latin America and Middle East, Africa and India. So when we report half year results, you'll have visibility on Europe as an entity as opposed to EM and LatAm. So let me take it in 3 chunks. So I'd say in Europe, I'd say the business has been stable in the sense that it hasn't been declining, hasn't been growing aggressively, we've been growing market share impact by cold and flu, that's a lot of noise in a lot of the numbers. But we feel like it's a good market, and we would expect that market to grow in the 2 kind of percent, and we'd expect to be able to grow ahead of that. It's been more flat to slightly down, cold and flu in there and some things. We don't think there's a big impact yet of Middle East crisis on Europe at this point. It's certainly a tougher economic environment. Because we're going through pharmacies for a majority of our business and pharmacist recommendation that play such a big role. We feel like we're positioned okay in Europe to kind of withstand that situation. But we're not seeing it as a high-growth market and a big growth driver, but it's a very profitable market and is quite challenging but stable for us. If I look at Latin America, Latin America was tough for us in Q1. It is something we elevated to my leadership team. We brought a new leader in -- we did that because we think there's significant opportunities in Latin America. We don't feel like we were capitalizing on them. I think we learned some things as the new leader came in, who's got tremendous Latin American and CPG experience. We've already made some changes. Q1 was quite challenging. Q2 is going to be much better, and we're quite optimistic going forward. Middle East Africa was 1 that was growing quite well for us, grew quite well in Q1. And we are seeing just a direct impact in places like UAE. For prospective Middle East is about Five of our business, UAE is 25% of that chunk of business. So we are seeing some impact on it, but not particularly significant, but we're seeing a downturn in some of the consumption in markets like UAE. Now from an overall impact of Middle East, Africa and the cost situation, we just feel like we're better positioned than most because we have high gross margins, quite low exposure to petroleum-based derivatives and raw materials and stuff like that. So we estimate it's about 3% of our cost base. because the productivity is going so well, because gross margin is so strong, it gives us a lot of flexibility to continue to drive that high single-digit operating profit growth deal with some of these cost headwinds that may come, but also make sure that we're investing in driving growth in R&D for the business and making sure we're showing share growth, and we're strengthening our business even at a time where top line is a bit tougher than it has been in previous years.

Okay. Interesting. Thank you very much. So perhaps now we could spend time on North America. Firstly, how would you describe the consumer backdrop that you're seeing at the moment?

Yes. So again, what I would say is in Q1, we saw a negative market cold and flu being a big impact. I know that continues to be a theme here, but it is a reality of what we saw. I'd say, again, that's a market we never expect to be super high growth, a couple of percent kind of thing. -- maybe a bit more flattish than a couple percent kind of thing. So not massive in the categories that we're in kind of drag on growth at all. I look at oral health, for instance, slightly less growth than we have expected, but our business actually performed as well, if not better than we expected. So our market share has actually been better than we thought. The the launch of clinical repair in the U.S. and the accumulation of clinical wage and clinical enamel strength is really just continuing to build momentum. Oral health grew -- Sensodyne grew double digits in Q1, it's quite strong. So we expect that strength to continue Cold and flu is primarily a Q4, Q1 thing. It still is something that exists in Q2. So -- but it's less of a drag than it would be it would be elsewhere. So listen, it's -- I would say it's relatively stable. We're not seeing big declines. We're not seeing aggressive growth. So our focus is really on our commercial execution, growing market share. And with Natalie and her team in the U.S., we have some wins in Q2. Changes happened kind of in April into May and now in early June, it's probably all set, which is we saw some real wins in distribution in places like Walmart, with Sensodyne, with Oral Health with Advil, Centrum moving up to a middle shelf from the bottom shelf, wins in Target and in Costco. So we know that we have some good good wins that will help us be even more competitive in that market. We grew 1% in Q1. We expect to see better growth in Q2 and expect to see a progression throughout the year.

Okay. Thank you. And perhaps we could spend a bit of time talking about the different channels and some of the channel shift as well. I mean, firstly, we have the destocking within the drug channel, -- is that over and annualizing that? And is that like less of a drag?

Yes. Listen, what I would say is 2 things. So the channel shift where drug channel is not really growing, and Walmart, Amazon, Costco, tend to be the big winners. That shift is something that's been happening for a while. The difference was last year, I think as the drug channel customers we're under real pressure to deliver their financial results. They took their inventory levels down from a week's perspective. We believe that's behind us because actually -- we're at a level now where it will result in out of stocks and it will impact top line sales, and we think that's done. The channel shift will continue to happen. But listen, as the drug channel becomes a smaller part of the business, Amazon, Walmart does. They will also need more inventory to support growth. So we think that's just very manageable. And so as far as the step change in inventory that was being hold by the drug channel, we believe that's behind us. The channel shift will continue. And then we look at something like Amazon, 18 brands make up about 90% of our sales on Amazon. -- those 18 brands, we have higher shares on Amazon than we do in bricks and mortar. Sensodyne for instance, has about 6 share points higher share online than offline. So from that sense, your channel shift is going to channels where we have higher shares, and we're even more competitive.

Okay. Thank you. So we're hearing a lot about Agentic AI at this conference. How much are you seeing it on the retailer side at the moment, they're in price negotiations with the larger buyers. And how important is it on the product discovery side.

Yes. I mean, listen, we're doing -- I'll start with the product discovery side. We're doing a lot of work because obviously, large language models, Agentic AI, pulls from different sources than than like a regular search. The other thing is that the logic by which decisions are made by the large language models are different than the way it would be for consumers. So how you present data, how you put data in there and how that works is something that you need to be very conscious about. So we're on that and we're working that. We don't think that's something that's had a significant impact on the business yet, but we're prepared for the fact that, that will become a bigger, bigger part of Agentic shopping potentially in the future. We have tremendous amount of product data, clinical studies, claims studies, consumer research, even on our oral health portfolio, have a significant amount of clinical studies and things like that. Internally in the company, that was all digitized. Now that all sits within a large language model that allows us to get answers on can we make x claim on this product in this market? What would take months of regulatory people sifting through things is now a couple of minutes coming back. We believe that in this future world, having great data on your products is an advantage where it's not being advantaged in a world of Agentic shopping the way the large enigmatic works because we have data that show the efficacy of the products, data that show superiority and things like that. So it's a work in progress. I think everyone is figuring it out on it. We believe it's something that could be much bigger. And we believe that given our portfolio and given all the data we have and all the clinicals, this should be something that shouldn't be a headwind for us. It's something that we should be able to navigate pretty well and maybe be an advantage. On the customer side, listen, I don't price negotiations are always difficult with customers. We're not looking to take pricing at this kind of thing. So we haven't really seen as much, I think, on side at least to date.

Okay. Thank you. So if we put all this together, you previously stated that once you annualize some of the smokers health headwinds and the destockings on drug channel as well as having the shelf resets, et cetera, as you'd outlined this would lead to accelerating growth in the U.S. How are you feeling about that and the level of growth that you can get to?

Yes. Listen, I think 1% growth in Q1, Q2 will be better I think you'll see progression throughout the year as some of these things get embedded. The new operating model gets embedded. The new team in the U.S. gets embedded. I see the U.S. as a business that should grow 3% plus on a consistent basis going forward. That's kind of where we would expect to be as we go into 2027 on the kind of growth -- can it be 4% going to be higher? I mean, to be clear, our ambition is to really maximize that business. We feel like we have a great portfolio. We feel like we have a new team in place that's on it and is going to bring a whole different level of capability. So I feel good about the progression in the U.S., but it will be something that kind of kind of works throughout the year.

Okay. Thank you. So perhaps we can move on to the cost side of the business and the product that you mentioned before. So you've announced GBP 800 million in cost savings by 2030. These were grouped into immediate accelerators, operational excellence and build for tomorrow. Do the immediate accelerators contribute incrementally both to '26 and '27 in terms of cost savings? And what's the line of sight that you have on these for next year?

Yes. So again, we announced GBP 800 million, and we said 50 to 80 basis points of gross margin improvement over the next 5 years. What we saw in 2025 was 220 basis points of gross margin improvement. And honestly, as you model kind of gross margin improvement and you simplify the portfolio and things like that, I always believe there's so much more there. But it's hard to -- so as we simplified the portfolio, 26% less cues, 22% less packaging, 12% less formulations. The operational efficiency of our plants went through the roof, and it just -- the net savings were tremendous, and that drove the gross margin improvement. That 220 million is not a accelerator, meaning that 50% to 80% won't be 50-80 going forward. We're quite confident in the 50% to 80% going forward because we'll still see benefits from those immediate accelerated, but we're already on the second tranche, which is automation in the plant, capital investment in our plants to automate more, to create more efficiencies. That's already in train. And then the third, which is really about our supply footprint, which is more in-housing manufacturing, we're like 60-40 in-house and CMOs. We announced a plant in Shanghai in about a week or so, we're going to announce another investment in another plant in an emerging market. And those are things that in the 2- to 3-year time frame, we'll start paying dividends for us. So we feel really good about what we laid out, the GBP 800 million, saw more benefit in year 1 than we thought, seeing good momentum coming into year 2. And again, back to the answer to the first question, you said that gives us a tremendous amount of flexibility to invest in growth to deal with potential cost headwinds that come from what price is staying high to make sure that we're doing everything to keep the business really healthy. and drop high single-digit operating profit growth which will then cascade to EPS. We believe that's a great formula for us to drive real shareholder value at a time where everyone is facing a bit of growth headwinds.

Okay. So you mentioned 1 of the interesting differences to to your peers that you have a higher level of contract manufacturing, although you're looking to change that in the future. But I believe these prices are largely fixed for '26. So when we consider the COGS inflation, is that really more issue rather than 26% and is pricing something you're actually considering mentioned it before, but pricing is something you're considering it.

Listen, I think -- I would say pricing is -- and certainly in the U.S. environment is the last port of call, where we're going to go. By the way, we did take pricing in Q4 of 2025 on our Oral Health portfolio. And what I can say is the business is performing extremely well. We felt like the strength of that brand and the innovation that we had will enable us to do that. We're still driving great volume growth and great overall growth on that business. So we've done that already. We're not looking for more pricing in the U.S. environment. We always take a couple -- 1% or 2% of price would be a typical thing you would do in Europe and other places. We're being very conscious about not getting to a place where we outprice our consumers. We don't feel like we have major pricing issues in places, maybe a bit of a brand combination here. if we need to invest in pricing, we will also because growth is the priority, and we want to make sure that we get to a place where we can be delivering that medium term 4% to 6% growth on a regular basis. So factor or just overall on the cost structure, all of that plays into how we're looking at this year and how we're looking at next year. And again, we feel like that the situation is navigatable for us, and we're probably position than most just because we have higher gross margins to start with. We have a productivity program that's kind of hitting on all cylinders, and we're a bit less exposed the commodity-related costs, certainly petroleum-based raw materials and things.

Okay. Thank you -- very clear. So looking now at AMP, when you look at the returns that you're making on A&P, are you happy this is rating, in particular, the incremental growth that you expect from it? And how are you optimizing that and where could you get to as a proportion of sales?

Listen, we're at about 20% A&P as a percent of sales. So we think we're well invested in the business. If you look at where, over the last few years, a lot of that incremental A&P has gone because we've grown our percentage of A&P. It's been put like oral health we've invested a lot more on oral health and that has paid dividends. emerging markets, places like India and now places like China, and we believe that we'll get really good returns there, launching things like Pro Namal in India and Paradigma in China, and these are places where we're investing that incremental money. I think we're very focused on growth. We think those places where we are investing the incremental A&P to seating into more growth. On the balance of the portfolio, we want to see more growth, and we're focused on it, and we think we'll get there. other measure for AMP, though when you have a market which is the market growth isn't quite that way, it's due to cold and flu or other situations is share growth. And that's where I do feel good. And for me, that's an indication that our investment is working because the competitiveness of the business is strengthening. And for me, that's a long-term thing that higher market shares growing market shares in our business getting momentum. Cold and flu is going to grow off of a 2-year lower base. The stronger we are going into when the markets get a little more buoyant, the better off we are.

Okay. Thank you. So if you look at the cadence of innovation that you've had as a company, we've seen consistent value-creating innovation coming out of oral health, as you spoken about -- are you happy that the innovation is coming through in the rest of the business at the pace that you'd like and what are the innovation you're most excited about?

Yes. So listen, I think -- I don't -- not to talk to the Oral story, you captured it. Yes, we're very happy. It's well. It's also a very different category than OTC. And what the drivers of those categories are. So when I talk about pain relief, respiratory health, skin health, a bit of digestive health. The innovation cycle is different because the approval cycle is very different because especially if you think about across Europe and many many countries. It's almost like individual approvals need to happen. So just to give you a sense of the history of what happens. -- we launched Voltaren 2% for the first time in 2008 in Portugal. Last market was Saudi Arabia 2018. Not because we're not good and we don't know how to do it. It's the nature of the business. So the OTC portfolio has less of a fast innovation cycle and commercial execution and pharmacist recommendation plays a bigger role than it would, let's say, in other categories. That said, we think we can do better on innovation in OTC. We're very focused on it. number of things that are being rolled out as we speak. We've talked about our ultra nasal mist, which we're rolling out and has done extremely well. We launched Adville dual action in the U.S., which is a combination ibuprofen acetaminophen kind of pain reliever that is more effective with less dose. We're launching that around the world under the Panadol brand because we don't have Advil everywhere else around the world. On Voltaren. We have 24-hour patches that we're launching. The patch market is very robust. The challenge with the innovation is it tends to be a bit over time and not quite the big bang where you launched clinical white and boom, you see the clinical white and how it impacts it. That said, that OTC business is tremendous because with that innovation cycle comes major barriers to entry and a regulatory moat around it, commercial excellence, pharmacist recommendation plays a big role. We're the #1 pharmacy sales force in the world. So it's a fantastic business, less A&P-intensive, than some other businesses. So I think it plays a really important role. New Head of R&D joined us in August. We are very focused on how do we -- despite all of those challenges, how do we create a different pace of innovation in OTC. We don't see anyone else doing that, we think we're positioned to really accelerate that. So it's a big focus for us. And then VMS is a faster pace of innovation. We're launching age to FY in the U.S. under Center. We've launched a GLP-1 variant under Centrum in the U.S., we've launched done extremely well in China, personalized daily kits, which are based on interviews or questionnaire with consumers, super premium product that gives you a packet of customized vitamins you take in a given day, that's more premium. So -- we think we -- but we also feel like we can do better in VMS innovation, and that's another big focus.

Okay. Thank you. But perhaps linked to this is your capital allocation. been focused on executing growth, particularly in the power brands. But we've seen high growth in areas like hydration and other VMS categories with significant growth in either adjacent categories, I suppose, or in disruptors. Do you believe that M&A plays an important part in value creation? And what's your view on acquiring smaller growth brands versus much larger cost synergistic M&A.

I think, first of all, capital allocation priorities, investing growth, bolt-on M&A, return excess cash to shareholders. Bolt-on M&A is a big focus. And Tom, we do feel like there's some higher growth areas, specifically in what I'd call wellness, which is we think about wellness is like it's a -- it's like the overlap of digestive health and VMS, right? The wellness, the more proactively managing health. We think there are faster growth areas. We want to shift the portfolio into. We think it plays a big role in value creation up until in our first couple of years, we didn't really have the flexibility to that because we had high leverage, we needed to do some divestments. We needed to get to a place where we have the strategic flexibility to do that. We have that now. It's a big focus for me. And again, it's not about, hey, we need to do a bunch of stuff to get us to our medium-term guidance. But I think we have an opportunity to get us to a place where we can be even more confident in the mid-to-higher end of that range. We can shift the portfolio. Some is also about divesting a few things, which are lower growth areas that we think we can move on from. But we also want to do that as we bring in some higher growth things because we do want to manage the dilution. We did 3 divestments in the first couple of years of the business strategically made sense. It got rid of lower growth areas. Simplified the portfolio, helped us pay down debt, which was really important. But they were also a drag to our operating margin, and it was dilutive in some areas. And we want to manage that better as we go forward. But big focus on bolt-on M&A and taking the opportunity to get into higher growth areas.

I guess to sort of flesh that out a little bit, do you want to move into more adjacent categories where there's if you like, more of a daily use aspect, more sort of CPG aspect to growth versus, say, less frequent, but important consumer health aspect.

Yes. I think, listen, what I would say is we want to be in consumer health. I think there are subcategories in that kind of wellness subset I talked about that are more daily-use products. If you think about performance products or gut health and things like that. So we definitely want to get more into that shift the portfolio then more into proactive management of health. Obviously, our oral health business is a daily health daily use category, and we've kind of proven we know how to run that category, and we're very good at it. So I see the shift, but I still see us being in consumer health. So I don't know what you meant by adjacencies, but I don't see getting into completely other categories that are outside of the health space. We think there's plenty of opportunity on where we play. And by the way, that both we talked about wellness and that. It also goes into opportunities in higher-growth markets. So there's a portfolio piece and there's a market piece. India would be a priority for us also in bolt-on M&A because we have a great business there. It's growing well. We've got great capabilities. We think we can leverage that and continue to strengthen the portfolio.

Okay. Well, thank you, Brian. We've come towards the end of the session. But before we finish, would you like to sum up the current outlook for us and for the company as we look into the second half of this year.

Yes. Listen, we guided to 3% to 5% this year. That is below our medium-term guidance. We did that because we knew we had headwinds in cold and flu, and we knew we were heading into a tougher market. We continue to be confident in that 3% to 5% growth on the year. We believe the back half will continue to strengthen as we go we are very confident within that to deliver that high single-digit operating profit growth linked to all the productivity things that we said. I feel like the changes in the operating model that we're doing, the new structure of the company, -- the teams will give us more capacity even going forward to invest in capabilities in AI and agentic AI and in technology and help set us up for 2020 and beyond to get back to that medium-term guidance and growth algorithm. And this year, my objective is let's drive growth, let's become more competitive, let's drive share growth and let's enter next year with momentum so we can deliver that.

Well, Brian, thank you very much indeed for your answers today.

Thank you.

For your perspective, and thank you very much, indeed, everybody, for joining us. Brian, thank you.

Thank very much, Tom. Appreciate it.

Thank you.