Haleon - Q3 2023 TU

Transcript

Operator (participant)

Ladies and gentlemen, welcome to the Q3 2023 Results Conference Call. I am Shari, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sonya Ghobrial, Head of Investor Relations. Please go ahead, madam.

Sonya Ghobrial (Head of Investor Relations)

Thank you. Good morning, everyone, and welcome to Haleon's conference call for our third quarter trading statement. I'm Sonya Ghobrial, Head of Investor Relations, and I'm joined this morning by Tobias Hestler, 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 UK and SEC filings for more details, including factors which could lead to actual results to differ materially from those expressed in or implied by any such forward-looking statements. Tobias plans to run through some slides before opening the call for Q&A. For those listening on our webcast who would like to ask a question, you can find the dial-in details on page two of today's press release.

As you know, whilst the focus today is on revenue performance, we've also provided group profit and margin detail on both the reported and an adjusted basis, with a full reconciliation, including for organic revenue growth in our appendix. For information, we do not intend to provide quarterly profit data on an ongoing basis and would only do this for as long as Pfizer reports our results as part of its financial statements and until our registration rights agreement with Pfizer and GSK terminates. With that, I'd like to hand the call over to Tobias.

Tobias Hestler (Executive Director)

Thanks, Sonya, and good morning, everyone. Let me first start with our third quarter highlights. As you have seen from our release this morning, we had a good third quarter, with 5% organic revenue growth, split 6.6% price, and a 1.6% decline in volume mix. This performance was underpinned by continued share gains across our business. Across the quarter, growth was driven by a number of categories, including continued strength in both Oral Health and Pain Relief, and it's encouraging to see VMS being back to growth. Respiratory also had a good quarter, with normal seasonal cold and flu selling. Digestive Health saw good consumption growth, but our results were negatively impacted by one-off inventory movements from some U.S. retailers. The latter was the primary driver for the volume mix decline in Q3.

Equally important, we saw continued good operating leverage, with inflationary cost pressures more than offset by price and efficiencies across the business, resulting in operating margin expansion of 90 basis points. On the back of today's strong numbers, I'm pleased to reiterate that we remain firmly on track to meet our full year guidance to grow organic revenues by 7%-8%, and operating profit 9%-11% constant currency, resulting in margin expansion. Finally, it's worth highlighting that we closed the sale of Lamisil in the last couple of days, earlier than we expected. You'll recall that we announced the sale of the brand with our half year results. This demonstrates our commitment to optimize the portfolio through active brand management. Now, turning to our third quarter results. Revenue of GBP 2.8 billion reflected 5% organic revenue growth.

Adjusted operating profit was up 8.8% constant currency, resulting in a 24.6% margin, up 90 basis points constant currency. As expected, the adverse impact of FX was most pronounced in the third quarter due to year-on-year strength in sterling against the U.S. dollar and the movement in a number of emerging market currencies, which negatively impacted margin at actual rates. Looking at the drivers of revenue growth in more detail. We delivered 5% organic sales growth, comprising 6.6% price and a 1.6% decline in volume mix. Pricing in the quarter included some incremental price as well as the carryover of pricing taken over the last twelve months.

As I have said previously, we will continue to take price as needed and remain confident in our ability to do so, given the strength of our innovation and brand and market positions, albeit going forward, this will be at a lower level than seen so far this year. In Q3, we also had a one-point benefit from high inflation economies, Turkey and Argentina. We saw continued volume mix growth in APAC, in our Oral Health business, although overall, this was offset by two factors. One, the anticipated decline in Emergen-C, where the category has reverted to its pre-pandemic level, which has now stabilized. And two, one-off retailer inventory stock adjustments in Digestive Health in North America. Here, we had an inventory build last year following a temporary supply shortage, which we have now lapped, and we saw some U.S. retailers reduce their inventory this year.

Importantly, consumption in Digestive Health continues to see good growth. Including both these impacts, volume mix would have been flat across the group, and I would expect improved volume mix in the fourth quarter compared with what we have reported for Q3 today. Turning now to our performance across the categories. Looking at the quarter, I was particularly pleased that our Health revenues grew 9%, with healthy growth in price and volume mix. Sensodyne was up double digits, underpinned by continued share gains, benefiting from innovation and strong growth across a number of markets, including India, Japan, as well as good performance in the US. VMS is back in growth with continued strong performance of Centrum, which more than offsets the expected decline in Emergen-C.

The double-digit revenue growth of Centrum was driven by positive price and volume mix, helped by geographic expansion and activation in a number of markets. Pain relief also delivered good revenue growth, up 6%, with Panadol driven by strength in Middle East and Africa, and Voltaren growth underpinned by performance in Europe from new innovations. Advil declined mid-single digits, largely due to more competitive market conditions. Respiratory revenue was up 4%, with strong growth in Theraflu and Robitussin from selling ahead of the cold and flu season, which more than offset both the lower out-of-season use of cold and flu products and a decline in Flonase following a weak allergy season. Altogether, we demonstrate the strength and the diversity of our portfolio, delivering 5% organic growth for the group. Let me now move to look at geographic segment performance.

Looking across the regions, we saw slightly differing trends from one region to another, with strong growth across EMEA and Latin America and Asia Pacific, and a slight decline in North America. Our emerging markets saw 11% growth, which included the benefit from pricing taken in high inflation economies. Emerging markets made up a third of our revenues and included double-digit growth in India and broad-based growth in other emerging markets. Developed markets grew 2%. Looking at each region in more detail, starting with North America. Organic revenue declined 1.5%, with a 2.6% price increase and a 4.1% decline in volume mix. As I mentioned earlier, this decline in volume mix largely reflect the two factors. First, a one-off reduction in Digestive Health brand inventories from retailer stocking movements, and second, an expected decline in Emergen-C.

Including both of those impacts, volume mix would have been slightly positive. Across the categories, we saw mid-single-digit growth in Oral Health, led by Sensodyne, underpinned by consumption and new innovation, including Pronamel Active Shield. VMS increased low single digits, with strong performance of Centrum that more than offset the decline in Emergen-C, where demand has now stabilized. Centrum benefited from the activation of cognitive function claims on Centrum Silver and the launch of our prenatal blends. Pain relief declined mid-single digits, driven by Advil. Respiratory Health was down low single digits, with growth in cold and flu offset by a decline in allergy products due to a weak season, resulting in inventories being run down to normalized levels. Finally, Digestive Health and Other fell mid-single digits, largely due to a double-digit fall in Digestive Health revenue, as I've already explained. Turning to Europe, Middle East, Africa, and Latin America.

Organic revenue increased 10.8%, split 12.7% price, and a 1.9% decline in volume mix. As you will recall, this region is the most exposed to higher inflation economies, Turkey and Argentina, which had a 3% impact on organic growth. The decline in volume mix was driven by Latin America, where volumes declined double digits from weakness in Colombia and Mexico, which was more than offset by strong pricing. Looking across the segment, we have strong growth in Middle East and Africa, helped by Panadol. In Europe, revenue was up mid-single digits, with broad-based growth, including strong results in Germany. Across the categories, Oral Health saw double-digit growth, largely driven by Sensodyne and Denture Care. We are seeing good consumer uptake for a number of brand innovations, including Parodontax Active Gum Repair.

In VMS, the region saw a low single-digit decline driven by some local brands. In Vitamins, Centrum was up strongly, helped by continued activation and strong execution in markets across the region. Pain relief revenue was up double digits, reflecting strong growth from Panadol and a number of successful campaigns featuring our specialist ranges and growth in Voltaren. Respiratory sales increased in the mid-single-digit range, driven by price and the selling of cold and flu products ahead of the season. We continue to drive innovation in this category and recently launched Otrivin Nasal Mist, which delivers an improved consumer experience through both comfort, ergonomics, and efficacy. Digestive Health and Other saw sales up double digits, with good growth across most of our brands. Finally, turning to Asia Pacific.

Organic revenue increased 5.9%, with 2.9% from price and 3% from volume mix. China, our second largest market overall, was up mid-single digits after a very strong first half, following the easing of COVID-related lockdown restrictions, leaving China at mid-single for the nine months. Elsewhere, India grew double digits, and Australia and New Zealand was up low single digits. Within the categories, Oral Health saw high single-digit growth, underpinned by strong growth in Sensodyne, particularly in India, Japan, and China. In VMS, we saw low single-digit growth, helped by successful consumer campaigns for Centrum, partly offset by Caltrate. In pain relief, Voltaren saw strong growth, particularly in China and Australia. As expected, Fenbid revenues declined after extraordinary strong growth in China during the first half, and we have ensured inventories have returned to a more normalized level.

Respiratory revenues were up double digits, driven by strong growth in Theraflu. Turning now to our operating performance. Adjusted operating profit was up 90% constant currency, driven by positive operating bridge. Looking at the bridge in more detail, standalone costs were GBP 10 million lower than last year as we run down our TSAs with GSK. I'm pleased to report strong execution with pricing and efficiencies, offsetting inflationary cost pressures and negative volume, resulting in positive operating leverage. Importantly, we ensured continued investment in consumer-facing A&P, which grew ahead of organic growth. Finally, as expected, there was GBP 100 million or 140 basis points headwind from material movements in foreign exchange on a translational basis, which particularly impacted the quarter. Together, this resulted in a 5% decline in adjusted operating profit at actual exchange rate and a 24.6% margin.

As a reminder, Q3 is typically our higher margin quarter in the year, given advanced sales of cold and flu products ahead of the season. This takes our year-to-date adjusted operating profit constant currency growth to 9% and a margin of 23%, up 10 basis points constant currency. As I mentioned earlier, we're pleased to reiterate our confidence in our full-year outlook. We continue to expect to achieve organic sales growth of between 7% and 8%. We see another year of positive operating leverage and expect adjusted operating profit to grow between 9% and 11% constant currency. This will therefore result in adjusted operating margin expansion on a constant currency basis. To sum it up, Haleon has delivered a strong third quarter performance, demonstrating the strength and diversity of our portfolio and execution across our markets.

We delivered 9% Adjusted Operating Profit growth at Constant Currency and strong positive operating leverage across the business. As such, we have reiterated our full-year guidance. Given the momentum across the business in what remains a challenging market environment, we remain confident of delivering on our medium-term guidance, as we stated in this morning's results release. With that, I would like to hand back to the operator to open up for questions.

Operator (participant)

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tune to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Rashad Kawan, Morgan Stanley. Please go ahead.

Rashad Kawan (Equity Analyst)

Hey, good morning, Tobias and Sonya. Thanks for taking my questions. A couple for me, please. The first one on the negative volume mix in EMEA and LatAm. You talked about the decline, largely a function of weakness in Mexico and Colombia. Can you get into that a bit more? What's driving that? Is it increased elasticity as a result of price increases, more competitive dynamics from peers? Any color there would be helpful. And then the second point, you're calling out the one-off retailer inventory adjustment in Digestive Health in North America, which means obviously it's material enough. Can you quantify that, and is that something that you'd expect to reverse into Q4? Thank you.

Tobias Hestler (Executive Director)

Sure. Thanks, Rashad. So first on Latam. So I think not concerned about the overall price volume pricing dynamics. I mean, overall, you've seen Latam had still a strong quarter, up double digits in revenue. When you look at Colombia, they still had a COVID wave in Q3, so they're cycling over that. I think in Mexico, it has more to do with shipments of cold and flu that are a little bit different between the quarters this year. So nothing particularly concerning to call out. I believe the team in Latam has done a really good job and keep pushing up pricing in, you know, a very dynamic environment, but also maintaining overall the ability to hold volumes.

On North America, so, I think you have to get two things. So I think the year-over-year... So first of all, I mean, the decline in digestive health, that's the biggest driver of why volumes were down, both for the North American market but also for the group overall. So that's the primary, that's the primary driver. What made Q3 a bit bigger is because last year we had built inventory, because we had an out-of-stock situation, that we repiped inventory and built. There was an inventory build last year. This year, there was an inventory burn because some retailers decided to hold a little bit less inventory at the beginning of the quarter. Most importantly, consumption is still strong.

So we had, when you look at both the half year and also now the Q3 numbers, consumption on these products is still up, which is the most important thing, and I don't expect that to reverse. Look, I mean, it's hard to predict what retailers are doing, but we-- this will not repeat or come back in Q4 from our perspective, yeah?

Operator (participant)

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

Guillaume Delmas (Equity Research Analyst)

Thank you, and good morning, Tobias and Sonya. Two questions from me as well, please. The first one is on VMS. I mean, Tobias, can you shed a bit more light on the various brands' developments in Q3? Because it seemed that Centrum, your largest brand there, accelerated very nicely from low single digit in Q2 to double digits in Q3. But then Emergen-C remained a drag, Caltrate was unusually weak, and the local brand in EMEA LATAM had another soft quarter. So first, you know, in terms of category growth, are you seeing an improvement in VMS?

And then is it fair to assume that now that Emergen-C is fully normalized, and that I would assume Caltrate should be back to growth in Q4, that VMS could very soon be back to its medium-term growth range ambition of mid- to high single digits? And then my second question is on your multi-year organic sales growth guidance of 4%-6%. Appreciate it's early days, but can you already confirm that your ambition is to achieve 4%-6% next year, so in 2024, despite the uncertainty around the respiratory division and the tough comps in China? Thank you.

Tobias Hestler (Executive Director)

Thanks. Thanks, Guillaume. So let me start with VMS, right? So, I mean, you started out Centrum, so feel really strong about this brand. I mean, geographic expansion, activating on the clinical trials and the claims that we're rolling out globally. So I think the brand is really strong. And look, overall, it was pleasing to see that VMS is back to growth. And then, you mentioned there were a few of the local brands, for example, Polase in Italy, which is more of a seasonal brand. It's a very mild summer in Italy, so there's a bit of, you know, ups and downs on those, so not broadly concerned about these brands.

Also, we have a VMS brand in Russia that we stopped distributing, so wouldn't be too concerned about those. And then Caltrate was also more of a one-time thing. There was a distributor change in China, and then last year Southeast Asia was very strong. So again, I think not concerned about Caltrate. Also, particularly also not for China, where the biggest market is. On Emergen-C, what is good to see over the last few months is that consumption has now stabilized. So, and it's stabilized at pretty much the 2019 levels in units, and then you add on top of that the innovation and the pricing we did. So it's been stabilized, and it's now following the patterns where it was pre-COVID.

Of course, it's gonna take us probably two more quarters to land there, but until we fully cycle over it. But I think it's good to see that it's found the place at 19, and now going into the season, you know, it's coming and starting to grow again. But so I think that will be behind us, I would say, in the not too distant future. And more broadly on VMS, I think, you know, we remain confident in the category, and I think it's back to growth now. So we had two strong years of growth in VMS, and I think now it's coming back with, you know, Emergen-C a bit down, but Centrum more than making up for that. Yeah.

Then on your multi-year question, yes, I think look, we'll guide, we'll guide for full year with our, with our full year results. But I mean, maybe I mean, for us, the four to six guidance is an annual guidance, right? This is our ambition, that we grow four to six every year, and not just over a seven-year period. That's the first thing. The other piece is, you take a step back. At half year, we guided for seven to eight for the full year. That's four to six in the second half, and we're right in the middle on that growth guidance with what we delivered in Q3.

We're very confident in our guidance and being in this guidance range for the year as well, given, you know, the strength of the portfolio and of the business that we have, the continued ability to take price as well.

Guillaume Delmas (Equity Research Analyst)

Thank you very much.

Tobias Hestler (Executive Director)

Thanks, Guillaume.

Operator (participant)

Next question comes from the line of Celine Pannuti, J.P. Morgan. Please go ahead.

Celine Pannuti (Managing Director)

Thank you. Good morning, Tobias and Sonya. My first question is a follow-up on what you just said in terms of the pricing. You said ability to tell the price, but I think early on in your commentary, you were talking about going forward, a lower level of pricing that we have achieved this year. Can you talk about, you know, what kind of underlying pricing now we should be looking at? And then maybe, is there any commentary you can make on costs that you are facing this year and how 2014 cost bill is shaping up? 2024, excuse me, cost is shaping up. My second question is on volume. So you are guiding for volume to improve in Q4.

If I take out the benefit or sorry, the impact, sorry, of the one-off issue in the digestive in the US, I get to -0.6 volume at the group level. Is that the ballpark of what you are, we should be aiming for in Q4? And then in 2024, maybe coming back on the previous question on that volume point, you know, like we are seeing this unwind of volume that you benefited from in 2022. So here as well, I mean, do you expect that unwind to be an issue in the first half of the year?

Tobias Hestler (Executive Director)

... Good. Thanks. Thanks, Celine. So, so on, on pricing. So when, when you look at what we did in Q2, we had the peak in pricing. It was 7.9%. It came down to 6.6% in Q3, as I had said at half year, right? And I would expect that trend to continue. So now it doesn't mean we're not taking any pricing, right? So the team continues to take pricing, of course, clearly in the emerging markets, where there's high inflation environment. But we also, for example, we took more price in the U.S. in September, mid-single digit to low double digit on about a quarter of the portfolio. So I think we feel good about our ability to take price. Also, we have seen limited price elasticity today.

So from that point, we get a reassurance of our ability to take and doing that forward. Now, of course, we're mindful on the consumer backdrop, but I think when you look, I think what the team has done, I think we found probably the good spots between pricing and volume. But of course, we're going to be responsible in the pricing we're taking overall in this environment. On the cost inflation, I think we're down into the mid single digits, so that is clear.

There are, you know, a few of the commodities start coming down, but then I think there's others that still stay high, stubbornly high, like sugar, anything that is sugar related, but also, of course, I think for this, I think the bigger topic right now is labor costs and how labor costs evolve. But again, I think what was said before with pricing, I think we should have the ability to offset inflationary headwinds with the price that is coming through. And then on your volume question. So I think for us, I think, as I said, it's gonna be better than Q3 was. When you look at Q4, so the puts and takes. Last year, there was a recall that helped.

We don't expect to have a recall this year. And then, of course, the other direction is last year, Fenbid in China, and Contac took off after the change in COVID strategy in China. And then you had, then we had this very early peak on the cold and flu season in the U.S. So as I had guided at half year, we would still expect volume to be down on cold and flu in the second half of the year, particularly in Q4 as well, given that dynamic, right?

But if you again take a step back from it, in aggregate for the business, very confident about the four to six guidance we had given for H2, and that then puts us very well into the 7%-8% range. And then going into next year, I think it's exactly the same comment, right? I mean, you've seen we did 5% growth in Q3 with ups and down, with puts and takes on a day set. So I think this, the beauty in this business, in my view, is the diversity of this portfolio from a brand perspective. And you saw, I mean, the high single-digit, nearly double-digit growth on our power brands that carry that forward.

The categories, sort of strengths across four categories that carry the growth, and then also the geographic mix, with a good third of the business being in emerging markets versus developed markets. I think, and that gives us the ability, and I think, the strong confidence that we can grow and then continue to grow in this 4%-6% range going forward.

Operator (participant)

Thank you.

Tobias Hestler (Executive Director)

Thanks, Celine.

Operator (participant)

The next question comes from the line of Kareen Zutshi, Kepler Cheuvreux. Please go ahead.

Karel Zoete (Head of Netherlands Equity Research)

Yes, good morning, all. Thanks. Thanks for taking the question. I have two questions. First one is especially a follow-up on China. You already provided some insights highlighting the difficult comparison base for the pain franchise. How should we look at the coming quarters ahead? Is that going to be something where you would anticipate therefore a decline, or are there also offsets in China? And the other thing is on the U.S. pain franchise, you mentioned Advil was down mid-single digits. And regarding Voltaren, you particularly mentioned the progress in the European markets. How is the brand doing in the United States? Thank you.

Tobias Hestler (Executive Director)

Sorry, I didn't get your last one. I got China, the pain portfolio, Advil US, but then you said something Voltaren.

Karel Zoete (Head of Netherlands Equity Research)

Yeah, Voltaren. Yeah. Yeah, you, you highlighted that Voltaren is doing well in Europe, and that's good.

Tobias Hestler (Executive Director)

Yeah.

Karel Zoete (Head of Netherlands Equity Research)

Probably improvement in Germany, too. But how is Voltaren doing in the U.S.?

Tobias Hestler (Executive Director)

Okay, good. Thank you. I got it. So then let me start with, let me start with China. So, I think, let me first explain a little bit what happened on Fenbid. Yeah, so I think on Fenbid, or in China, there was a second COVID wave in May. That was over May, June. Then the government in China expected another third wave, so they told retailers and pharmacies to keep stocking products. That didn't happen. So what it—So luckily for our colleagues in China, so ultimately what then we decided during the third quarter is to ramp inventory down to normalized level, given there was not another wave.

Now, last year, of course, you had the big pickup in Q4 and Q1, so we would expect a drag from that on the pain relief portfolio. But when you look at the rest of the portfolio in China, I think very strong brands. We see continued growth in the oral care business, in the culture business and in the rest of the portfolio. So I think, yes, there's got to be a bit of a drag on the pain relief, and on the China business as we cycle that over, but overall, feel good about our ability to grow the Chinese business. On Advil in the U.S., you know, very competitive situation. Of course, you know, Advil, key competitor is Tylenol. They have done very well.

So I think we got a bit of work to do now. Nothing surprising in a big portfolio like we have, right? And look, pain relief overall grew 6%. All the brands did well in that, even with the small drag or the drag they had from Fenbid in it, and then Advil was down. So key focus for us to put attention to that, we just took a price increase on it, which will support. But yes, I think it's, you know, it's one of those where we go head-to-head with a very strong competitor. Yeah.

And then I think on Voltaren, I mean, overall, I think this year, I think we've seen good growth on the brand in aggregate. So I think also, it's doing well in the U.S. It's done particularly well in Europe now. I think coming off, you know, higher use of systemic pain relief products, that helps Voltaren, because in times when people use a lot of tablets, they then tend to reduce the use of topical pain relief medicines. Yeah. Thank you.

Operator (participant)

As a reminder, to ask a question, please press Star and One. The next question comes from the line of Chris Pitcher from Redburn. Please go ahead.

Chris Pitcher (Head of Consumer Staples Research)

Thank you very much. I've got a couple of follow-ups and a, and a question. Are you able to say what China growth would have been ex the destocking impact of Fenbid and Contac? I appreciate it's going to be an issue in the next couple of quarters. Just get the underlying growth there. And then on the question about volume growth into Q4, can you give us a bit of color about the mix effect you would expect within that, particularly with lower, potentially lower respiratory sales? And then an underlying question, India, you highlight the strength of oral health, but can you say how digestive health performed and how the rollout of Centrum is doing? Thanks.

Tobias Hestler (Executive Director)

Yeah. Look, I think for me, I mean, look, I mean, China overall has grown, right? So I, I really don't want to go so into the up, the ups and downs, right? I think, I mean, ultimately, I think, the China performance overall is strong. The Fenbid was, you know, was a small drag there on both the pain relief category globally and that, but I think, I mean, ultimately, what the team's been doing, I think they've offset these impacts very well, very well so far. And the good news is, you know, we have a broad portfolio in China that, that carries us, through. I think on, on Q4, I mean, yes, I think as you mentioned, right, I mean, we would, part of our guidance, we would expect volumes to be down in, in respiratory.

Now, look, this is an assumption, so we need to see what the season does, but I think that is clear. There's gonna be another drag clearly on Fenbid in Fenbid, because that's when the consumption started. And then when you look at digestive health and others, there should be a small help, because last year we had a recall on Tums. I think that's probably the biggest puts and takes in the portfolio. And then, of course, you have to remove Lamisil from the model as well. I know it's small, but I think given we closed that a bit earlier than we expected.

And then I think the rest of the portfolio, I think, would expect continued strong, strong momentum and performance. Yeah. And then you asked about India, yeah, Sonya?

Sonya Ghobrial (Head of Investor Relations)

Yeah. I think on India, what I would say in digestive, it was pretty strong, so it was double digits. So I mean, that's obviously Eno doing particularly well in the market and the quarter.

Chris Pitcher (Head of Consumer Staples Research)

The rollout of Centrum still going to plan?

Sonya Ghobrial (Head of Investor Relations)

Yes.

Tobias Hestler (Executive Director)

Yes. Yeah.

Chris Pitcher (Head of Consumer Staples Research)

Thanks.

Tobias Hestler (Executive Director)

Thanks, Chris.

Operator (participant)

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

Tom Sykes (Managing Director of Equity Research)

Yeah. Morning, everybody. Firstly, just on the gross cost savings, the GBP 300 million, I wondered if you could maybe just give us an update on when those should hit the PNL, and perhaps how much of the GBP 150 million, just to be clear, you would expect to spend in full year 2023. And just on standalone costs, I mean, will there be any difference in seasonality in full year 2024 versus 2023, like there has been obviously in 2023 versus 2022? And if I can, just a quick one, is there any part of your VMS business that has seen a GLP-1 impact at all? And do you expect an impact of at all people taking vitamin supplements at all, if they start embarking on taking those medicines? Thank you.

Tobias Hestler (Executive Director)

... Thanks. Thanks, Tom. So, look, on the cost savings, we said the impacts are going to be in 2024 and 2025. We are making good progress, so we made announcements. So we are, and given the announcement, you know, largely impact populations in, in Europe, we're in the middle of the rent consultation phase, so it always takes a bit of time then for the savings to realize, because as per labor law, that we have in those countries, you have to get, get before people are, before people can exit the company. So from our perspective, we've made good progress, on that. But we would expect, you know, the, the savings to hit in 2024 and, and 2025. On the standalone cost, I think, that is now stable.

I mean, we're just ramping down now the TSA. They've earned a big amount, but year-over-year, you get the small benefit, and I think that's going to be complete quite soon. So from that point of view, this is history, and I would hope that from next quarter on, I don't need to talk about standalone costs anymore because they're in the base. There is no phasing. There is nothing to to worry about that going going forward. We just, you know, I put it in the bridge now, even if it's only GBP 10 million, because it was such a topic before, but that's going to be, you know, history history now, very soon. And then, look, on your GLP-1 question, we don't think we have a direct impact on from from GLP-1 from from consumers potentially changing changing behaviors.

I mean, ultimately, we believe it's a good thing if people want to take care of their health and want to live live healthier. So I think that should be, you know, overall benefit us, in my view, but I don't think there's any direct impact, and it's also way too early to tell, what it could do, but I don't see any direct consequences, on our business, at this point. Okay. Thank you.

Operator (participant)

There are no more questions at this time.

Tobias Hestler (Executive Director)

All right. All right, thank you. So, I think we just finish with a couple of quick comments. Yeah, that's good. So look, thanks, everyone, for your time and your interest in Haleon. And as you've seen, we had a good quarter. I look forward to updating you on our progress next year together with Brian. And if you have any questions, please do reach out to our IR team. And also worth mentioning, we'll be hosting our first Haleon Highlights mini deep dive. That will be on oral health on the seventh of December in London, and we'll also webcast that. So thank you, and bye-bye for now. Thanks very much. Thank you.

Operator (participant)

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call.