Haleon - Earnings Call - H1 2025

Transcript

Jo Russell (Head of Investor Relations)

Good morning, everyone, and welcome to Haleon's half-year 2025 results Q&A conference call. I'm Jo Russell, Head of Investor Relations, and I'm joined this morning by Brian McNamara, our Chief Executive Officer, and Dawn Allen, our Chief Financial Officer. Just to remind listeners on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans, and expectations. Please refer to this morning's announcement and the company's U.K. and SEC filings for more details, including factors that could lead to actual results to differ materially from those expressed in or implied by such forward-looking statements. We have posted today's presentation on the website this morning, along with a video running through the results in detail, so hopefully you've all had the chance to see that ahead of this call.

With that, let's open the call for Q&A, and I'll hand back to the operator.

Operator (participant)

Thank you. Just as a reminder, to ask your question, please press star followed by one on your telephone keypads. When it is your time to ask your question, please ensure your device is unmuted locally. Our first question comes from Guillaume Delmas from UBS. Your line is now open. Please go ahead.

Guillaume Delmas (Executive Director and Equity Research Analyst)

Thank you very much, and good morning, Brian, Dawn, and Jo. Two questions for me, please. The first one on North America, because in Q2, both EMEA, LATAM, and APAC were well within your medium-term 4%-6% organic sales growth guidance, but North America was a clear outlier with a, I think, nearly 2% organic sales growth decline. Could you maybe help us unpack this performance in North America in Q2? In particular, do you think it was primarily down to temporarily lower category growth? Is it down to significant discrepancy between sell-in and sell-out, or are you also seeing some share erosion? Last question on this, would you expect North America to return to growth and ultimately back to the 4%-6% range over the coming quarters, or it may take a bit longer as the challenges persist?

My second question is on A&P, increased significantly in the first half, I think it was up 130 basis points. The question here is, in which areas are you disproportionately reinvesting? Do you feel you get some great returns on this incremental spend? Looking ahead, what should we expect for A&P spend, as in, was the first half a bit of a one-off, or should we expect another marked step up in H2 and beyond? Thank you very much.

Brian McNamara (CEO)

Thanks, Guillaume. Appreciate the questions. Let me take the first one on North America, and I'll pass it to Dawn for the second question. Maybe just as I get into North America, we do feel good about EMEA, LATAM, and APAC, and also feel good about the back half in both those areas. We also feel great about the organic profit growth driven by the gross margin, 160 basis points, and the strong cash flow. There is no doubt that North America has been a challenge. Taking a step back, I think there are two market dynamics, and then let me touch on our own performance. First, there is no doubt that there is a challenging consumer environment, and consumer confidence is at a low.

I think our categories are more resilient than most in that context, but we are impacted in certain categories, and smoking cessation is definitely one of them. I talked about it in the past. This is the $30-$40 price point range, so we are seeing trade down in that category. Outside of that, we're not seeing trade down overall in the business, and that has been a drag on growth. The second thing is we continue to see the shift to Dollar and Club, which are more value channels, which is what we're seeing in this consumer environment, and e-commerce. In all cases, we have strong presence in those channels, and I've talked about e-commerce, where 16 of our top 18 brands actually have better shares online than offline.

That is very manageable, but we are continuing to see these inventory pressures, drug retailers, but I think everybody, all retailers in the U.S. are dealing with that kind of environment. As far as our performance, our consumption is growing ahead of the market. To be clear, the market is slightly down about 0.5%, and our consumption is slightly up about 0.5%. We are growing ahead of the market, but not significantly, to be clear. We are seeing strong growth in market share gains in oral health and market share gains across digestive health. Brands like TUMS and Benefiber are doing extremely well. Overall, we're not satisfied with the performance, and we have a bit mixed performance in pain relief and VMS, so let me unpick that a bit. In pain, in the first half, we have slightly lost share on Advil. We have taken action.

We have new plans in place. We have a new media campaign that's on air live now, and we see early signs. I mean, the back half of Q2, we were back to share growth on Advil. Now, on VMS, we have two brands, Emergen-C and Centrum. On Emergen-C, we continue to see really strong consumption and share gains. Now, sales were up low single digits. Emergen-C was one of the brands that at the end of last year, when we saw that very low cold influences in December, we started the year with a bit of higher inventories, but overall, the brand's very healthy. Centrum's been a challenge. Now, overall on Centrum, really good growth, mid-single digit growth outside the us, high single digit growth in Q2 outside the us, but we saw declines in the us

A year ago is when we first activated our cognitive aging claim on Centrum Silver, and we grew high teens consumption, about four times the market. We're indexing across a high base. That said, even with a high base, our expectation is we continue to grow share. We've firmed up our plans. We are reactivating the Centrum Silver with a new claim, slows cognitive aging by 60%. We saw some innovations in the U.S. on Centrum in the back half, and we have a new partnership with U.S. Women’s Soccer that we're beginning to activate that we're optimistic about. In the back half, I definitely expect to see improved share positions on Centrum and Advil, but we do believe the inventory reduction will continue to happen.

As we look at inventories across retailers, I think they've been much more proactively managing their inventory levels as they're seeing issues with them delivering on their numbers and the whole environment. We want to more proactively manage that with them going forward. Really, really important that we do what we need to this year to make sure that we're at the right levels as we exit the year into next year. In our around 3.5% guidance, we are not looking for a significant improvement in the U.S. environment at all, and we're expecting to continue to see inventory pressure. I will say, though, looking forward to the medium term, we have a fantastic business in the U.S. Really, really pleased with oral health in the us, where we gained a half a share point in the first half and continue to go from strength to strength.

We're confident in 2025, 2026, and beyond as we strengthen the business in the back half. Why don't I pass it to Dawn to talk about A&P?

Dawn Allen (CFO)

Yeah, thanks, Guillaume. Good morning, everyone. I think the first thing to say is, as we laid out at Capital Markets Day, we have significant opportunity in supply chain productivity, and you saw that come through in the half. The benefit that's come through in gross margin has enabled us to continue to invest in A&P and R&D, and that provides the flexibility and agility that we talked about across the P&L. In terms of, if I focus then on A&P, A&P is up 6.8% in the half to 20.8%. We are leveraging A&P to focus on the three growth drivers that we've outlined: closing the incidence treatment gap, driving premiumization with our innovation, and expanding reach to lower-income consumers. If I think about from an innovation perspective, we've been rolling out very successful innovation, particularly around our clinical range, nasal mist on Otrivin, and Panadol dual action.

The first area that we've been focusing on in terms of spend is around supporting the innovations. If I think from a geographic perspective, we've been focusing on driving growth in key markets, so particular markets like India, where we saw just under double-digit growth, in MEA, in Central Europe, and also in China. Obviously, experts and our recommendation by experts for our brands is a critical part, and that's the other area of our investment. It's not just about increasing the investment. It's also about the effectiveness of that investment. In the half, we've improved ROI by 4%, and we continue to look at the balance of working, non-working, and I think there's more opportunity for us to go on that. I wouldn't say this is about phasing.

If I look to the second half, I would expect us to continue with similar shape, and I would expect us to continue to invest across those areas that I talked about in terms of our A&P.

Guillaume Delmas (Executive Director and Equity Research Analyst)

Thank you very much.

Operator (participant)

Thank you. Our next question comes from Rashad Kawan from Morgan Stanley. Your line is now open. Please go ahead.

Rashad Kawan (Equity Analyst)

Hey, good morning, Brian and Dawn. Thanks for taking my questions. A couple for me, please. First one on North America again and the 3.5% growth for this year. You said you're not expecting a significant improvement in the U.S. in the second half. I think the expectation obviously was that you'll see quite a meaningful step up in Q3 in particular, given the late end to the cold and flu season last year and retailers starting from a low base. What's changed around expectations there? Is it just the destocking trends, maybe costs from retailers continued more so than you expected, smokers' health being weaker? Just trying to unpack kind of the key changes from when you spoke to us in Q1 versus where we are today. Second question on the percentage of business gaining or maintaining share, decelerating from the 71% in 2024 to 58%.

Can you just kind of talk about what the key drivers of those are? I think you've said in the past, kind of think of where we want to be as somewhere in the 60% range. Is that the right way to think about it longer term? Thank you.

Brian McNamara (CEO)

Thanks, Rashad. I'll take both of those. I think, first of all, on North America, and we look at Q3, a couple of dynamics are happening. If you remember last year, we did reduce our PE products in cold and flu in Q2, and we re-piped in Q3. This year, it didn't show up in the numbers because we had a low allergy season. We haven't talked about that yet, but that has an impact on us, as Flonase is a pretty significant brand in the U.S. environment. Q3 needs to deal with that base on the sell-in. The reality is the environment is uncertain. The environment is difficult in the U.S. and the retailer environment and the stock and trade.

To be clear, I don't think our stock and trade levels are too high from historical or versus tiers, but it's really the retailers tightly managing that as they're struggling with things like foot traffic and sales growth and things in that difficult environment. Then the second question.

Oh, yeah, gain to maintain share. I apologize. Yeah. No, thank you, Rashad. Last year, we had a very strong result at 71%. I think I said it was a fantastic result. I think I said at the time, my objective and ambition is always to maximize that number to be clear. I felt like that was a high number that would be difficult to sustain. You are correct. I've always said that where I feel like we want to be is at 60%+. We are slightly below that in the first half. If you look at the two big drivers of that going from 71%-58%, it is the two that I talked about both in the U.S. Advil grew share for full year last year and 2024. This year, in these numbers, it's not growing share.

We've seen green shoots, and we're growing in the back half of Q2, but this is a year-to-date number. Centrum is not growing share in the first half. We've seen consumption decline against that high base. We are working on plans to kind of stabilize that in the back half. Those are two big things. With those two growing share, we would be well in the 60% range. We want to maximize that number. I think 58% is a good number, but it is a bit below what I'd like to see on a consistent basis.

Rashad Kawan (Equity Analyst)

Thank you very much.

Operator (participant)

Thank you. Our next question comes from Callum Elliott from Bernstein. Your line is now open. Please go ahead.

Callum Elliott (Analyst)

Perfect. Good morning, everyone. Thanks for the questions. I wanted to start with the U.S. again, hoping that we can talk about the retailer environment, which you call out again in the presentation. I guess my question is twofold. Firstly, maybe can you give me a sense or give us a sense of the channel split for your U.S. business and specifically how big the drug channel is as a percentage of revenues, which I guess is the problem that you're calling out? More broadly, the drag that you talk about. I love your thoughts, Brian, on whether there's anything that Haleon as a company can actively do to offset this, or do you just have to accept that it's an externality, so to speak? My second question is on some of the strategy from the CMD.

You had obviously set out some very ambitious strategic plans just a few months ago. My question here is, with the core business clearly struggling a little bit and sort of the negative revisions to full-year guidance that we've seen today, does that de-emphasize or deprioritize some of the strategic push that you had spoken about at CMD in terms of democratizing, expanding access to lower-income consumers, lower price points whilst you fix the core business, so to speak? Do you think of these as two completely separate things, Brian? Thank you.

Brian McNamara (CEO)

Thanks, Haleon. Appreciate the questions. Let me start first on the U.S. retailer environment. Listen, we're like most companies that Walmart is our number one customer in the U.S. and roughly a quarter of the business. We tend to be a little more skewed toward the drug channel given our portfolio. The combination of the drug channel is less than what Walmart would be in the business, and then it cascades down from there for all the big companies. Listen, in the end, what we own and control and need to actively do is perform and deliver market share in the U.S. and also drive market growth. Listen, we are category leaders. Part of our role is, while the market is struggling a bit, to grow those markets. We've done that in the past. We need to continue to do it.

Obviously, the one place we continue to do it is in oral health. I mean, we are driving category growth in oral health, and that is our focus. We need to deal with the current environment, but we're very focused on our performance and our share growth. Listen, as far as CMD ambitions, absolutely nothing changes. I feel really confident about the medium term. We are clearly dealing with some headwinds on the business, and in the U.S. it is a challenging environment, and we're not immune to that right now. As Dawn mentioned, as we look at our investment, part of our investment is that low-income consumer packs we're doing in India, the INR 20 Sensodyne pack, and we'll be launching more SKus on Sensodyne as we look at the balance of the year and the next year.

Centrum Recharge in India, Eno or INR 10 pack in India, our launch in Brazil that we talked about at Capital Markets Day, Somridor, which is our foray into systemic pain relief there with low-income offerings, so that continues to be there. The innovation-led premiumization has always been core to our strategy, and we're going to continue doing it. Core penetration is all about closing this incidence treatment gap. Listen, we're staying very committed to what we said at Capital Markets Day. On the growth side, I feel medium-term, we will be where we need to be. Productivity, which is the other thing I laid out at Capital Markets Day, I feel really, really good about our progress, to be honest with you. We had talked at Capital Markets Day, the reduction of SKus that we did in 2024, that we weren't starting from zero.

We are seeing that pay dividends in the gross margin, 160 basis points in the first half. Feel great about that. That enables us to deal with these growth headwinds, invest to make sure we're competitive going forward, and deliver the operating leverage on the business. As Dawn said, it gives us an awful lot of flexibility on how we can manage the P&L while we're facing a bit of the growth headwinds in the us

Callum Elliott (Analyst)

Thank you very much.

Operator (participant)

Thank you. Our next question is from Celine Panutti from JP Morgan. Your line is now open. Please go ahead.

Celine Pannuti (Managing Director and Equity Research Analyst)

Thank you. Good morning, everyone. My first question is trying to, a bit, zoom out of the discussion on the short term. If I look at your volume performance, 0.8% this year, it was 1.3% last year, it was 1% the year before. I presume for this year, we'll land around 1%. So three years of 1% volume mix. What gives you confidence that you can deliver 4%-6% in the midterm? I think we would need a step up in volume, and we are not seeing that. If you could explain what you think has not worked and why you think confident that you can still do 4%-6% in the midterm. My second question may be somehow related. You said you feel strong about Latin America, Europe. We've seen some other companies talking about weakness there.

I would like to hear a bit your outlook in that region. Thank you.

Brian McNamara (CEO)

Thank you. I'll answer the first question. I'll pass it to Dawn on the question about EMEA LATAM. If you look and unpick our results a little bit, if you look at EMEA LATAM, volume growth accelerated from 0.5% in Q1 to 1.6% in Q2. In APAC, volume mix accelerated from 3.3%-3.9%. We were 0.8% in the half, and that's completely linked to the dynamics and the challenges we're seeing in the U.S. us volume was down 1.8% in Q2 and 0.6% in the half. There is no question that we see the challenges and we're on it in the U.S. environment. I talked about some of the actions we're taking to firm up the business in the back half. We do have new leadership in the U.S. as of May 1.

I feel great about our leader there, and I'm confident that we'll do what we need to in the back half and really be set up to return to growth in 2026. I'm absolutely continuing to be confident on our medium-term guidance. Dawn?

Dawn Allen (CFO)

Let me just build on that and then come to the Europe piece. I think, as Brian said, if you look across the other regions, volume has improved in Q2 versus Q1. If you look at APAC, two-thirds of our growth in Q2 came from volume. Actually, we continue to see that accelerate, and I would expect second half, the growth in APAC, to be more weighted to volume. If I look over the last three years in APAC, our growth is actually 4.6%. It's very strong. It's consistent. If you look at EMEA LATAM, again, improving trajectory in Q2 versus Q1. If I look to the balance of the year, we'd expect a more balanced price-volume mix growth. If you look over the last three years, we've been seeing that trend in that region in terms of volume growth.

To Brian's point, we've talked about the situation in the U.S. in terms of consumer environment, retailer environment, and a couple of our brands. When I look at the volume piece, it is to do with the us, and we're seeing the shape we would expect to see across the other regions. As I said, I would expect to see that shape in second half. If I then talk about Europe in particular, we're seeing Europe is pretty resilient. We're seeing a good performance. We're seeing high single-digit growth in Central Europe, mid-single-digit growth in what you might call kind of continental or Western Europe. For us, that's holding up pretty well. Why is it holding up so well? We feel real strength in oral health is a core driver of that, and we've talked about some of the innovations, the successful innovations across the regions.

Celine Pannuti (Managing Director and Equity Research Analyst)

Thank you. May I just follow up and maybe on the previous question I think that Callum asked. I mean, you have a high single-digit organic, sorry, reported EBIT growth as a target going forward. If you think about my question about volume midterm, does that kind of like if the growth is less important, would you want to reshuffle some of your potential profit growth back into the business, i.e., grow less but try to stimulate volume?

Brian McNamara (CEO)

Thanks for the follow-up, Celine. Listen, we guided to high single-digit growth, operating profit growth at constant currency driven by the gross margin opportunity we have. You can see this year, while again, we're a bit more challenged than we've been in the past on growth, and specifically in the us, the gross margin improvement and with the leverage in the P&L has allowed us to invest in A&P and R&D in a healthy way and still drop the organic operating profits at the bottom line. Obviously, we still have a drag of a couple of divestments that we will anniversary once we get through Q3. I feel very confident about the algorithm we set out at Capital Markets Day and the fundamental tenet of the opportunity we have in productivity, which is coming through.

Operator (participant)

Excellent. Thank you. Thank you. Our next question is from Warren Ackerman from Barclays. Your line is now open. Please go ahead.

Warren Ackerman (Managing Director and Head of EU Consumer Staples Research)

Yeah. Hi, Brian. Dawn, Jo, it's Warren here at Barclays. I'm sorry some of these have been asked. I had a few technicals. The first one, Brian, on Advil, you talked about some green shoots on that brand. What are you doing to fix it? I think it's been losing share for a long time. I'd be interested to get any perspective on that specific brand. Secondly, on smokers' health, are you able to tell us how big it is in the us, and what your expectations are for smokers' health in the second half of the year? Do you need to take pricing down to make it more competitive versus private label or something else? Thirdly, on Centrum, thanks for your comments on Q2.

Is there anything happening on Centrum on innovation in the back half where we should feel a bit brighter in terms of the outlook for Centrum in the us? Thanks.

Brian McNamara (CEO)

Yeah. A couple of things. I think first on Advil, it has been a bit of an up-and-down story, to be honest with you. We did exit last year for the full year growing share on Advil. It was one of the things that contributed to 71%. That was a bit of strength as we exited the year, and it brought us into share growth for the full year. It's been a bit up and down, without question. The green shoots that we're seeing are, listen, we've had new media campaign with strong promotional plans in the back half. We feel good about Advil and where we're being. There's no question this has been a battle with Kenview on Tylenol, which I said in the past. It is one thing that was working well for them, and they doubled down.

We feel good about our brand, and we feel good about the plans we have in the back half. Smokers' health for us is a couple hundred million kind of business for us, that kind of range. Listen, we're looking at it. We expect that in the back half, as we look at our plans, that we'll see less decline in the back half on smokers' health. We're not at a point where we think we'll get that back to growth. We don't expect much change in the U.S. consumer environment. If that changes, then something would be different. We also do have an innovation on smokers' health, a dual-layered nicotine tablet that we have FDA approval on. It will launch in e-commerce in the back half and a dual full launch in 2026.

That gives us some reason to believe that we'll have something that's differentiated in the market that can help us there. What was the third question? Oh, Centrum. Apologize. Listen, on Centrum, a couple of things. I mentioned the new claim. Again, one of the things that drove Centrum tremendously in the U.S. last year was the Centrum Silver claim we had on cognition. We're reactivating with a new claim. I think I mentioned it. It's slightly different, but it's meaningful. The new claim being slows cognitive aging by 60%. Aging, obviously, also a very big topic for consumers in that cohort. We have that. We do have a couple of innovations that are going out. I won't talk specifically about them because I don't think they've been announced to the market, but a couple of things that we think will also help firm up.

Listen, it's a big focus for us. Like I said, Centrum is a great brand. It's doing quite well outside the us, but clearly facing headwinds in the U.S. on a base of tremendous performance a year ago. We want to grow despite what the base is, to be clear. That's a big focus for us going forward.

Warren Ackerman (Managing Director and Head of EU Consumer Staples Research)

Super. Thank you.

Operator (participant)

Thank you. Our next question comes from David Hayes from Jefferies. Your line is now open. Please go ahead.

David Hayes (Managing Director and Equity Research Analyst)

Thank you. Good morning. A couple of them asked, one on the nicotine replacement and one on the margin. On nicotine replacement, just to come back to this, we may have missed this, but could you just quantify the drag that it had on the second quarter? Also, can you quantify what impact it has in that new guidance of 3.5% or around 3.5% growth for the full year? Staying with that topic, you just talked about a new innovation, but it always feels like this is a little bit of a periphery category for you. I think it's a partnership with Kenvue and even Sanofi as well. Is it fair to say it's less of a focus for investment? How do you account for it, given you've got these partnerships? Is it fully consolidated with the minority?

Given the partnership structure, is that why you've kept this business in the us, whereas obviously you've exited in Europe? Is this something you're kind of stuck with, or could we just see it as could go at some point? The margin question was just on putting it all together, high single digit on organic, the FX and the M&A dynamics. Is the guide effectively for flattish margin year-on-year on a headline reported basis? Is that the right kind of conclusion? Thank you so much.

Brian McNamara (CEO)

Thanks for the questions, David. I'll pass the growth question, margin question to Dawn. Let me start with the nicotine business and the structure. It is a bit of a three-way venture in the U.S. Part of it is with Perrigo. Perrigo has a joint venture with Haleon, and then Kenvue is a supplier of Nicorette. As you know, Nicorette is a brand that Kenvue owns outside of the us, so they are a supplier on that business, and there is a three-way partnership there. It's a category that's quite difficult to innovate in, if I'm being honest with you. The innovation that we're going to do, that we will have, takes FDA approval, and it takes quite a bit to do it.

There's no question that that's a business that is, I think, harder to innovate on, but it is in our portfolio, and we'll continue to do what we need to get the growth. It plays a really important role, to be honest with you, with consumers and in healthcare systems and things like that. It is a complicated ownership structure, to say the least. Dawn?

Dawn Allen (CFO)

Yeah. Let me just give you some specifics on smokers' health first. To Brian's point, it is about 5, 6% of the kind of U.S. business. In the quarter, we did see significant decline. The impact, so it has a 60 basis points impact on the total group. In terms of that, it would take us to 3.6%. For North America, it would take North America from -1.8% to -0.2%. It is a big change in the quarter, and it has a disproportionate impact. That's the first thing to say. The second thing to say in terms of the margin, to Brian's point, we're really pleased with the margin in the first half, 9.9% growth of 140 basis points. It's not just the number.

It's also the quality of that earnings in terms of the delivery through gross margin, investment in A&P and R&D, good cost control in G&A, which has then enabled that margin to come through. If I look to the second half, the shape that we've delivered in the first half, I would expect a similar type of shape in the second half in terms of strength in gross margin, investment in A&P, and continued good cost control. If you think about the, which is why we've updated the guidance to high single-digit operating profit growth for the year. If you look at the other moving parts, obviously, we've given the guidance on FX, M&A, interest, and tax remain unchanged. When you put all of that together, I would say that we are comfortable where consensus is today.

Thank you. Just on the full year, it looks like NRT, to your point, is 50 or 60 basis points of headwind. I know you just want to take out bits that aren't going well and get into that game. I guess it would be fair to say that without that, you'd have been around a 4, I guess, to the guidance point, going down to 3.5%. Is that a fair conclusion?

Brian McNamara (CEO)

I think, Dave, it's hard to kind of speculate on that kind of thing. I think we don't expect that drag to continue at that level in the back half. We'll see where it ends up the full year. There is no question it will be a drag on the growth in a full year, and it's made it more challenging for us to hit that low end of the guidance.

Warren Ackerman (Managing Director and Head of EU Consumer Staples Research)

Okay, got it. Thank you so much.

Operator (participant)

Thank you. Our next question comes from Tom Sykes from Deutsche Bank. Your line is now open. Please go ahead.

Tom Sykes (Head of European Consumer Equity Research)

Morning. Sorry to bang on about the U.S. retailer trends again. There are obviously two issues. One is the stock levels per channel, and then another is the channel shift. Of the headwinds you've got at the moment, would you be able to split the volume headwinds between channels that are destocking and the channel shift? Amazon, I think, in your scanner sales has grown by over 30% the last 12 months, and the rest of your business is flat in aggregate. Therefore, there's massive channel shifts occurring. It would be helpful to try and understand what the shift impact versus destocking by channel is. Why wouldn't this occur in other countries? I appreciate that there are differences in regulation, but you're very overweight, clearly, the pharma channel in Europe. It feels like this is something that's going to be pervasive across all economies eventually.

Just interested in your thoughts on that, please.

Brian McNamara (CEO)

Yeah. Thanks for the question, Stan. Listen, destocking by channel in the U.S. The channel shift is something that's been happening over time for quite a while. The drug channel does tend to have higher inventory levels, so there's a bit of an impact there. The biggest impact is, frankly, I think you're seeing inventory pressure across channels, maybe a bit disproportionately in drug because they're struggling more. If you look at the Amazon growth, we do have stronger shares on Amazon. I've talked about Sensodyne in the past, where we're in the low 20s in bricks and mortars and more like 28% on Amazon. As we see more move to there, we're moving to a channel with higher shares. I think it'd be hard to break down exactly, but I think the bigger impact is the downward pressure as retailers in the us

are feeling the pressure of the economic environment, the foot traffic, and all those things, and trying to manage that situation. Outside of our categories, there's other categories that they deal with that are much more affected than we are, and that impacts their overall financial performance. If I think about other countries, to be honest with you, if you think about pharmacies in Europe, in mainland Europe, 70% of our business goes through pharmacies, very, very low inventory levels in pharmacies. There is no real stocking up. We have people that call on pharmacies weekly in some cases for the bigger pharmacies and taking orders. It's not like there is a massive stock-up opportunity or that they carry really high levels. There are distributors in between sometimes, our pharmacy channel and us. Distributors in general are pretty good at managing inventory levels and things like that.

I think that's really the dynamic, I think, is very different in the U.S. than, let's say, in mainland Europe, where the pharmacy model is just very different.

Tom Sykes (Head of European Consumer Equity Research)

Sorry, just one follow-up. Would you see the channel shift at all impacting your operating margin? Is Amazon lower margin than other parts of the business, please?

Brian McNamara (CEO)

No, listen. On balance, if I look at e-commerce on a global basis and I look at things, it's all relatively similar, and it's all within our outlook and guidance. We expect that e-commerce will continue to grow. By the way, Amazon is becoming less and less a piece of that as omnichannel has become more important. Walmart, we're really strong in Walmart.com, and that's grown well. That's all within the context of our outlook and the medium-term guidance we give.

Tom Sykes (Head of European Consumer Equity Research)

Okay. Thank you.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star followed by one. Our next question comes from Oliver Nikolai from Goldman Sachs. Your line is now open. Please go ahead.

Olivier Nicolai (Head of Consumer Staples Research)

Hi, good morning, Ryan. Just one question on my side, actually. Going back to the U.S. performance for VMS and for respiratory health, would you say that you are losing share against private labels, or is it more against other branded players there?

Brian McNamara (CEO)

In respiratory health, to be clear, we're growing share on the balance of respiratory health. If you remember, we've now put smoking and respiratory health. That is a move to private label. Frankly, we're primarily the branded player in the us, so that would be private label. In VMS, it's probably more competitive pressures that we see. Where we gained significant share a year ago, some of that we are now giving up. As I said earlier, it's not our intention, and we're very focused on getting that back. I would say that's probably the dynamic with the two. If you look at respiratory, Theraflu has grown share really well, Robitussin okay, even Flonase in a down market. It's really about the smoking business, which is a down trade.

Tom Sykes (Head of European Consumer Equity Research)

Thank you.

Operator (participant)

Thank you. We currently have no further questions, so I'll hand back to our speaker team for closing remarks.

Brian McNamara (CEO)

All right. Thanks, everyone, for joining us today. I look forward to catching up with all of you on upcoming roadshows and meetings. Please feel free to reach out to the IR team with any first questions. Thanks for the continued interest and support in Haleon.