Ladies and gentlemen, welcome to the Haleon Q1 2024 Trading Update Conference Call. I am Davin, the chorus call operator. The conference is being recorded. At this time, it is my pleasure to hand over the conference to Sonya Ghobrial, Head of Investor Relations. Please go ahead, madam.

Thanks very much. Good morning, everyone, and welcome to Haleon’s First Quarter Trading Statement Conference Call. I’m Sonya Ghobrial, Head of Investor Relations. 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 that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. As usual, we will take you through some prepared remarks before opening the call to Q&A. For those listening to our webcast, who’d like to ask a question, please use the dial-in details on Page 3 of today’s release. Also, while the focus today is on revenue performance, we’ve also provided group profit and margin detail on both a reported and an adjusted basis, with a full reconciliation, including one for organic revenue growth in the appendix. As a reminder and for information, we do not intend to provide quarterly profit data on an ongoing basis, and we’ll only do this for as long as reports our results as part of its financial statements and until our registration rights agreement. With that, I’d like to hand the call over to Tobias.

Thank you, Sonya, and good morning, everyone. Let me first start with our highlights for the quarter. We had a solid start to the year with 3% organic revenue growth, driven by 5% price and volume/mix down 2%. Positive volume/mix in EMEA, LATAM, and APAC was offset by a decline in North America. However, growth was held back in the U.S. from inventory adjustments by some retailers. Haleon’s consumption in the U.S. was up mid-single digit and ahead of the market. Adjusted operating profit of £707 million was up 12.8% on an organic basis, with gross profit up 5% organically, funding strong growth in A&P. As pricing is normalizing and cost inflation easing, combined with our productivity program, you can see that our growth algorithm is delivering even in a low-growth quarter, enabling increased reinvestment. We have made continued progress in the evolution of Haleon to become more agile and competitive and we are now seeing the results of the productivity program announced last year. We also should in today’s release the proposed closure of our manufacturing facility, transferring our Levicesite in Slovakia over the next 2 years, an important step in Haleon building a more efficient global supply chain. As a reminder, with our full year results in February, we announced that we expect to allocate £500 million to share buybacks in 2024. To date, we have purchased 102 million ordinary shares or approximately £350 million. The solid start to the year gives us confidence in delivering our full year 2024 guidance after in our release this morning. So let’s look in more detail at our Q1 results. Revenue of £2.9 billion reflected 3% organic revenue growth. Our strong operating organic profit growth resulted in a 24.2% margin, up 110 basis points on a reported basis and up to 120 basis points organically. Turning to Slide 6. Coming back to organic revenue, we had guided that Q1 revenue would be just below the lower end of our 4% to 6% full year organic growth guidance range. However, in this quarter, we also saw some inventory adjustments in the U.S. resulting in volume/mix being a little weaker than expected. Overall, volume/mix declined 2%, with EMEA and LATAM returning to volume growth after two quarters of volume decline. Asia-Pacific also saw a positive volume/mix despite lapping tough prior year comparatives in China following the end of COVID-19 lockdown. And although North America volume/mix was down, consumption was good, reiterating healthy demand for our brands. Price was up 5% and included both carry forward price from last year as well as incremental pricing taken during the quarter. Going forward, we expect the carry-forward benefit to reduce a level through the year. Organic revenue growth was more than offset by a 460 basis point adverse impact from translational foreign exchange. Year-on-year sterling strength relative to the dollar and Chinese renminbi were the main drivers. Given how FX rates evolved through 2023, we always expect that the impact of foreign exchange to be most pronounced in the first quarter. Therefore, no change to our full year outlook. Net M&A was minimal and reduced revenue by 0.6%. Looking now at performance across our categories, I was particularly pleased that our Health revenues grew 10.6%, with Sensodyne, Paradontax, and Polident all up double digits, further building on last year’s strong performance. This was underpinned by a number of successful innovations such as Sensodyne clinical wide, scientifically proven to whiten teeth by 2 shades without worsening or causing sensitivity. VMS revenue grew 9.9%, continuing momentum from Q4 2023 and demonstrating our brands remain well positioned and continue to outperform. Health rates were up double digits with strong growth in China. Strong Centrum growth was underpinned by performance in North America and continued activation of cognitive function claims for Centrum Silver. Emergen-C grew mid-single digit, gaining share and outperforming the immunity category in the U.S. Pain relief revenue declined 4.8%, mainly reflecting tough comparatives from Q1 2023 with Fenbid in China, and also Advil declined double digits, partly due to elevated demand in Canada last year as well as inventory adjustments by some retailers. Panadol declined low single digit, driven by a softer performance in Asia-Pacific, given the decline in Australia, grew mid-single digits with strength in Europe. As we expected, respiratory revenues were down, lapping the strong prior year comparatives. In Q1 2023 from Contact in China as well as the prior year rebuild of inventories, mainly in the U.S., given low levels at the end of 2022 and cold and flu incidents spiked late in the year. Finally, as and other revenue increased 2.4%, with Health and Skin Health up low single digits, smokers health declined low single digits. Turning to regional performance. Emerging markets, which are 36% of revenue, saw 7.7% organic revenue growth. With the benefit from pricing and hyperinflation economies now capped. And we spotted China being down low single digits. Developed markets grew 0.5% organically. Looking at each region in more detail, starting with North America. Organic revenue declined 3.3%, with a positive price, up 4.5% and volume/mix down 7.8%. Our health mid-single digit growth was driven by Sensodyne. VMS was up double-digits and pain relief and respiratory health both declined due to challenging comparatives and inventory management by some U.S. retailers. Let me take you through this in a bit more detail. While some inventory management is expected through the quarter, this quarter was a little unusual. You will remember that the cold and flu season had an early and strong spike in Q4 2022, very much towards the end of the year. And this resulted in restocking of depleted inventories in Q1 of 2023. Normally, what we would expect and what we saw in Q1 this year was destocking in the quarter. As retailers sell out stock and reduce inventories towards the end of the season. As a result of this and given the comparatives, there was a much higher-than-usual year-on-year change in sales, resulting in the majority of the volume decline seen in the region. Additionally, and to a lesser extent, we saw some inventory adjustments by some U.S. retailers on other categories, which also impacted. However, looking at consumption data on the market, our consumption increased mid-single digits, and both the market and Haleon performance improved in Q1 compared to the last 12 months. More importantly, Haleon outperformed the market, both in value and volume, demonstrating consumer demand for our brands remains healthy. Turning to Europe, Middle East, Africa and Latin America, organic revenue increased 8.6%, with 7.5% price and 1.1% growth in volume/mix. Pricing partly benefited from carry forward from 2023 and also the benefit of incremental pricing taken in the first quarter. Volume/mix was positive despite some offset from a decline in Middle East and Africa. Across the categories, our health had double-digit growth driven by all three power brands. VMS increased mid-single digits with good growth in both Centrum as well as local brands. Pain relief in the region saw mid-single-digit growth, reflecting good growth from Voltaren and respiratory sales increased mid-single digits despite lapping a challenging prior year comparator. Finally, turning to Asia-Pacific. Organic revenue increased 3.3%, evenly balanced between price up 1.7% and volume/mix up 1.6%. A really good performance, particularly given the expected decline in China in Q1. Within the categories, Oral Health saw double-digit growth, underpinned by strong growth across key markets, including China and India. In VMS, we saw high single-digit growth underpinned by Caltrate. Respiratory Health grew high single digits despite the challenging comparative and pain relief declined. Turning now to our operating performance. We delivered £707 million of adjusted operating profit, an increase of £16 million. Solid revenue growth with pricing, easing of inflationary cost pressure, and efficiencies from the productivity program allowed us to strongly invest into the business and into A&P. Net M&A had a negative impact of £12 million and was a 30 basis point drag on adjusted operating margin. Finally, there was a £59 million or 80 basis point adverse impact from translational foreign exchange. This mainly reflected movements against the U.S. dollar and Chinese renminbi. Taken together, this resulted in a 2.3% increase in adjusted operating profit and a 24.2% margin. Remember, as you’ve seen in prior years, the quarters are very volatile, and as such, neither the Q1 absolute margin nor the organic profit growth should be extrapolated for the full year. We continue to evolve and implement change across the business to become a more agile and competitive organization. The productivity program is delivering the expected savings and is funding increased investment in the business and driving growth. In addition, we announced plans for the proposed closure of our manufacturing facility in Maidenhead, which is expected to result in a total restructuring cost of around £90 million over the next 2 years, the majority of which is non-cash. There is no change to Lamisil and ChapStick impact, which I guided at with the full year results. And I can confirm that we expect ChapStick to close in May 2024. Also in the quarter, we completed a share buyback of £315 million for £102 million ordinary shares, all of which were subsequently canceled, reducing the number of shares in issue by circa 1.1%. This was part of the £500 million share buyback we expect to complete in 2024 announced with our full year results. The expected impact of translational effects remained unchanged with an adverse impact of 2% on full year 2024 revenue and 3% on adjusted operating profit. This assumes rates as of the 31st of March ‘24, hold for the rest of the year. All other full year 2024 guidance remains unchanged. So to sum it up, Haleon delivered a solid first quarter performance despite lapping challenging comparatives. We delivered organic profit growth ahead of organic revenue growth, benefiting from improved gross profit as well as efficiencies in the business. Our business is evolving as we implement change to improve agility in our competitiveness. Finally, following Q1, I remain confident that we are all well-placed to deliver upon our full year guidance. Before we move to Q&A, I wanted to briefly say a few words on my own personal news from last week. As you will have seen, I’ll be leaving Haleon at the end of the year. It wasn’t an easy decision to make, but I’m really proud of the strong foundations we’ve built and what we have achieved. It’s been an amazing period, both professionally and personally. I was very open about wanting and needing to create more balance in my life, not least because as you get older, managing type 1 diabetes becomes more and more important. So, that’s been a driving factor in my decision. I’ll be focusing on advisory and non-executive work from next year, which is an exciting new phase for me. You also have seen we announced that Don Ellen, R&D, the CFO will be joining at the end of October to succeed me. He is an exceptional leader and will bring deep consumer and international experience to the business. Haleon is in good hands. In the meantime, it’s very much business as usual. I will be leading us through Q3 and then working with Don for a couple of months handover before leaving at the end of the year. Anyway, with that, let’s now move to Q&A. And I will hand back to the operator to open up for questions.

Thank you. We have the first question from the line of Rashad Kawan with Morgan Stanley. Please go ahead.

Hey, good morning Sonya and Tobias. Thanks for taking my question and congrats Tobias on all that you’ve achieved at Haleon. So a couple of questions for me please. First, from a volume/mix perspective, I guess you shouldn’t have much noise in Q2 outside of the cold and flu dynamics in China and North America should be clean. So is it fair to assume that we should expect volume/mix to be positive for the remaining three quarters? And in terms of pricing, I noticed obviously some more incremental pricing being taken, which is consistent with what you’ve said at the full year. Are you broadly done for the year? Or is there more selective pricing to take? And then just second question on the Maidenhead facility, if I can. How should we think about the phasing of the £90 million restructuring over the next two years? And what level of cost savings are you expecting? Thank you.

Great. Thanks. Hi, Rashad. Thank you – thank you very much. So let me start with your volume question on Q2. So in Q2, as you mentioned, there’s still noise or prior impact on Fenbid in the base. So – and remember last year for Fenbid, China went into the second wave of COVID infection. So it was actually the impact on Fenbid in Q2 was bigger than in Q1. So that is pretty much what’s left in the base. I think all the respiratory, the respiratory swing, also the U.S. swing is a base effect that impacted Q1, that is behind us. So onto your question for volume for the year, I think we’re confident in volume growth for the year. I’m not going to guide to the quarter. But you would expect from that the big gap is behind us from the base, but you see an improving trend from Q1 forward. Then on pricing, so overall, I think very pleased with the pricing, how it started. I think very much on track, what I had guided for the full year, where I said that from a price volume/mix, 2024 is a stepping stone, and I also said we wouldn’t be at a 50-50 mix between price volume in 2024. So I think we’re going to get back to that, but not in ‘24. So last year, as you remember, 15% was volume driven, 85% was price driven, ‘24 should be a steppingstone to more balance, but not the balance yet. We’ve taken the majority of the pricing in Europe. So, for example, European retailers, you do that once a year. So most of these negotiations have completed, and we’re very much on track on what we expected. But then, of course, we have countries like in the U.S. where we take pricing not at a given time in the year, but you try and do pricing together when shelf resets are done. So, we will see how the situation evolves and you might see pricing here or there come through. And then, of course, in the emerging markets, we take pricing on a more regular basis to be aligned with that. And then on Maidenhead, so the £90 million, I mean, it’s largely non-cash. I would assume probably roughly half and half for ‘24 and ‘25. I mean, ‘24 is mainly the write-down of the assets. And then you would have the severance cost roll through a bit later on. The savings are incremental £200 million to £300 million productivity program. And they’ll start to come over the next two years as we shift production to other facilities and to third parties as well.

Thank you.

Thank you. Next question comes from Guillaume Delmas with UBS. Please go ahead.

Good morning. Tobias and Sonya. I’ve got two questions. The first one is on the volume contraction in Q1 in North America. Tobias, could you maybe provide a bit more granularity on how much of this Q1 weakness in North America was attributable to Advil in Canada to the last year’s unusual reordering pattern in the U.S. and then this unexpected from the sound of it, inventory reduction in the quarter? And I guess related to this, I would expect the first two factors, so Advil in Canada and last year’s unusual ordering pattern to be a non-factor in Q2, but do you expect further inventory adjustment affecting your Q2 performance or do you think retailers stock levels in the U.S. are now quite low at least? So any indications on when sell-in and sell-out should be a bit more aligned would be helpful? And then my second question is on your gross margin improvement in the first quarter because it was quite significant despite what I would think were as a negative mix with OTC down, negative volumes, FX headwinds. So, what were the key drivers behind this improvement? And would it be fair to assume that mix, FX, operational leverage should all improve at the gross margin level going forward? And if so, is your current mindset that most of this gross margin benefit should be reinvested, particularly in A&P spend? Thank you very much.

Thanks, Guillaume. So let me talk to volume on the volume point first. So as I said in my remarks before, the majority and the vast majority of the volume decline in North America is driven by the two things you mentioned, which is the Advil Canada. And in the U.S., it is between an inventory burn normal this year and an inventory build unusual last year. So that’s the vast majority of the swing. And as a result, that is in the base and will not repeat going forward. So, I think from that point of view, we know we are leaving that behind us. Then as you said, there were some additional, as I mentioned, there were some additional inventory adjustments by some retailers that impacted other categories. Look, I think what we’ve been seeing is that retailers are focusing more on working capital. I mean, when you look at the drug channel, clearly, their overall situation, that doesn’t surprise you that they did focus more also on the cash side on the working capital. And also, I think, what we’ve seen over the last 6 to 9 months is that the supply chain is not just for us but in general, a much, much more stabilizing. Volumes are much more stabilizing. So, I think that allows you to better and improve your inventory management, and that’s what we’ve seen retailers do. It’s very hard to predict what they’re going to do because they’re not going to tell you exactly what they’re doing. So I can’t tell you if this is all done. We’re watching it very tightly. What I can say is that at the moment, we’re having about 1 week less of inventory compared to what we have seen historically. So I never felt the inventory was too high, at least compared to historical trends, and it’s about 1 week lower than what I’ve experienced in the past. So I think it’s in a pretty normal level from what I can say, but we’ll keep you updated on it. But most importantly, I think it’s really the U.S. consumption. It was strong. I mean we’re growing mid-single digits. We’re outgrowing all the categories that we’re playing in, in the U.S. And also, we see the market a bit improving in the U.S. I mean the market was in quite a bit of volume decline last year, which I had shared at full year. It’s now still in a small volume decline, but we’ve been growing volume in that market, which I think speaks to the performance of our brands and our execution in the market that is moving in the right direction. Then let me move to your gross margin improvement. So as you say, I mean, we had a strong start to the year. Gross margin improved by about 100 – a bit more than 100 basis points, which is just great of a combination of easing inflation at the pricing coming through and the efficiencies we’re driving mix isn’t really a factor, Guillaume. I think Oral Health has done very well. Oral Health has very similar margins to OTC. So that helps us carry through over 10% increase in oral care carries us especially on very premiumized products like the ones we have launched as well. Now also take a look back at last year. Last year, Q1 was the quarter when we took the biggest hit because we had exactly the opposite effect happening last year, we still had the impact of increasing inflation that then from the second half of the year that really came through to the P&L in Q1, coupled with not all the pricing yet being in place. So, I think you see a bit of the offsetting effect. As we have said, we believe gross margins will improve for the full year, are very much on track with that. We’ve done that in Q4. So in Q4, it came up 70 bps. We’ve had another gross margin improvement in Q1. But, of course, then by the end of the year, we’ll also start cycling over that a little bit. And then yes, absolutely, the intent is to continue to invest in A&P. We’ve increased A&P invest strongly in Q1. And we intend to do that going forward to really capitalize on the opportunities we have in the market and also to drive continued growth for the rest of the year, and that gives us confidence in the 4% to 6% outlook.

Thank you very much.

Thank you. The next question comes from David Hayes from Jefferies. Please go ahead.

I’ve got one follow-up and two questions, if I can. Just following up, you mentioned the 50-50 midterm on price volume. I think you said 40-60 is what you were thinking roughly when you talked at the full year stage. So just a question whether has what could you say whether that’s changed at all based on what you’ve seen in the first quarter? And then the two questions are on the Maidenhead closure, two things on that. I don’t think, as I missed it, apologies, but you quantified the savings from that closure. But also, is this part of a bigger plan that’s going on in terms of supply chain savings initiatives beyond the £300 million, as you talked about under the new supply chain ahead? Should we expect more of these kinds of announcements to come over the next couple of years? And is that something you could quantify roughly as additional savings over the next couple of years? And then the final one for me, just in terms of the price increases in the quarter, was there any pre-buying at all ahead of price increases through the period? And were those price increases across the regions or was it mostly focused in Europe and again, apologies if I missed that. Thanks so much.

Thanks, David. So on your follow-up question, right? I mean, what I’ve always said pricing and volumes about it’s about half and half. So it could be 40-60 or it could be 60-40 in a year, right? It depends on when do you take volume and when do you take price, right? So I would say anything that is between 40 and 60 in either year in either direction is sort of the approximate balance between the two, right? It’s not an accurate 50-50 balance, but somewhere between those two. And that’s what we have seen historically. And I think we’re going to get back to this broad balance over probably the next 2 years or so. But thanks for the clarifying question on that. On Maidenhead, so first of all, the savings are incremental. We’re not specifying them, but I think there are good savings. I mean it’s a site with 430 people in Europe, we’re shifting that to a much bigger site in Slovakia, which is our key manufacturing site for oral care products. And as a result, it will have a very fast payback on the one-time cost or the cash costs that are associated with that. We’re doing that, I mean, pretty much, I mean, we said that, I think, when we – even at the Capital Markets Day, that there will be a phase where I think we’re going to make Haleon an agile and competitive company, and that is part of that, that we look at where our opportunities to make this a business and where can we free up – where it can be free up resources to then reinvest in the business and with that to accelerate growth. So, it’s part of this program. But I think given it’s incremental to the £300 million productivity program, we also announced that separately. So you see that there are additional benefits that we’re delivering but also against the incremental one-time costs that are coming through. And then on price increases, we do not tend to see massive forward buying. And also, we try and limit that, right? And I think also, don’t forget, a lot of our sales are to a lot of individual pharmacies and customers. So there isn’t – so I’ve not seen any trends on that. I think both – and you see most of the pricing was taken in Europe. Pricing in the U.S. has taken at different times throughout the year here. And then APAC also, I think, look, has a much lower inflation environment, and also the pricing was lower. But I think so no concerns about anything from pricing that does not tend to be the case in our business.

Thank you.

Thank you. The next question comes from the line of Iain Simpson from Barclays. Please go ahead.

Thank you very much. A couple of questions from me, but Tobias, very sorry to hear the departure at the end of this year and the support you’ve given the analyst community since the spin will be much missed. So quick questions for me, if I can. Firstly, just thinking about the moving parts going into Q2, I think you’ve got a slightly tougher comp in China, but clearly a significantly easier U.S. comp. Would it be reasonable to expect Q2 being back in that 4% to 6% medium-term range then? And just as a kind of a jump to that, I think you made a comment about where inventory levels were versus pre-COVID, but I wasn’t clear if inventory levels were a week more or a week less than they were pre-COVID. So any clarification there would be very helpful. And then secondly, just looking at Oral Care and VMS, a 10% growth in the clean parts of your business is pretty impressive. I wondered if you could provide any color as to how much of that 10% was pricing that we might expect to see sort of fade a bit as the year progresses and how much of that 10% was volume growth from all the usual stuff of share gain and rolling out into white space and innovation and all those things. Thanks very much.

Good. Thanks, Iain, and thanks very much for the initial comment, I appreciate that. But we’ll have 8 months together to celebrate and to spend time together, so we’ll see each other along the way. So I think that’s time for that. But going back to business. So it’s 1 week less of inventory than what we had historically seen. So I think right now when I look at my week of stock coverage, it is 1 week down. So that means 1 week less in the sitting in the retailers and in the store compared to where it was historically and what we – what I’ve experienced for a very, very long time, which gives me a bit of confidence that I don’t think overstocking is occurring. But clearly, as I said, retailers are now more focusing on it where they are. So we’ll keep you updated on it as we track this. You can imagine we track this very tightly with our retailers. On the moving parts in Q2, so I think you mentioned, right, tougher comp in China to cycle over an easier comp, a much easier comp in the U.S. So I think clearly an improving trend from Q1, but I don’t want to get into guiding for quarterly growth rates. I think ultimately, we should take some comfort into us having very much confirmed our 4% to 6% guidance for the year. And then, look, thanks for also asking a question on the stuff that’s going great. So Oral Care, really good quarter with 10.6% growth. What’s driven that partly was driven by the launches we have. So really strong innovation come through, and that is on top of innovation we had pretty much a year ago. So I think, last year, we launched Active Shield in the U.S., also in Q1. We now had another big innovation within 12 months. I mean the more normal thing is probably 18 or so. So I think we got two big innovations through. Of course, there’s still growth coming from that innovation that we launched a year ago. So that continues to go well. And then, of course, now we launched on top Sensodyne clinical worldwide and also taking that to other markets. So there’s a bit of sell-in and piping impact on that. But – and then overall, I think not now, it was both. It was volume and it was price, and it was more volume than price for Oral Care. And I think it’s just a combination of launches, good execution. And then also I think denture care is still benefiting from the innovations we had in the last 12 months in that business. It really looks like now, I think all the three big brands really firing from all cylinders, which is, of course, great as you see. And then look, on VMS, I mean, we’ve always said very consistently that we believe is a category that is growing. The category growth is now back to mid-single digits in Q1. So which you always said it would. And then we also said, we believe our brands are doing well and are well positioned in that and that has exactly happened in Q1. By the way, very similar to the numbers I shared at full year when I share with you the sellout data. And of course, very much as expected, the drag from Emergen-C on the vitamin C category has now ended. So you have all three brands going well, because a little bit of help in China with a competitor that had some supply issues. So the team was able to capitalize on that. But in aggregate, I think, really good performance, and it’s a mid-single-digit growth category that we’re playing in, and we’re outperforming that category. And that’s where we would love to see that, Iain. I hope I answered all your questions.

You did, you did. Thank you very much.

Thank you. The next question comes from the line of Bruno Monteyne from Bernstein. Please go ahead.

Hi, good morning, Tobias. As we hear a bit less these days about Voltaren, then the growth rates aren’t necessarily as they were historically, but together with Haleon, just discussed, it should be one of those engines that pulls Haleon forward. Is there a need for more innovation in Voltaren something like that coming like you’ve done with Sensodyne and new pro variety? Can you comment on that? The second one, I think you did talk about A&P being up as a percentage of sales. How much is it up? Is it comparable increase in gross margin that we talked about as percentages for the group? And last but not least, I think there is still some hold by expectations for direct or the sanction cream to land in the U.S., I think in quarter four, is that on track and do you think it makes any difference to your distribution capability, please?

Thanks, Bruno. Under your last question, I didn’t get the topic. So could you just repeat the third one? The other two I got, yes.

Yes. The erectile dysfunction cream that you meant to launch in the U.S. I think at the end of the year, is that on track? Do we still expect some good volume from that?

Perfect. I did hear it on the ED cream. That is good. Thank you. Got it. So look, let me start with Voltaren. So mid-single-digit growth brands in growth. Always, we said it’s a brand that topical pain relief usually, if there’s a lot of cold and flu going around, people take a lot of Panadol or Advil, then they do use a bit less topicals. I think now also that’s stabilizing usually gives us a bit of a benefit on Voltaren. So, there’s been an offset in the portfolio with that. So I think at least to see the performance being good on Voltaren in the quarter. From an innovation point of view, I think given its OTC, this has much slower innovation cycles. I mean the last big innovation cycle we did this with Voltaren was the double strength or extra strength formulation which I think it’s now nearly everybody in the world, but not fully. So, there’s a few markets to go with that. These innovation cycles take a bit longer. So, I mean, it took us 8 or 9 years to roll this out globally, whereas an innovation like in Oral Care, you get rolled out probably within 12 months or 18 months across the world, at least to the markets where it makes sense to have that innovation. Of course, what’s happening on Voltaren is in smaller innovations on packaging sizes as well. So I would always expect much less innovation in the OTC brands and then the continued fast-paced innovation in Oral Care and also in VMS, which I think we’re both delivering. On A&P, we haven’t specified it’s a trading update. We carefully use the word strong after taking guidance from Sonya. Strong means, she told me all of you will be able to translate that, and it means more than sales growth because sales growth was solid. And also, I think we reinvested a good part of the gross margin expansion back into A&P. So I think really executing on what we promised we would do there. And then on the erectile dysfunction cream, we have said at full year that we would intend to launch it in 12 months. So that means now with intent, we’re making good progress on ramping up and building the production. So all these plans are tracking along nicely. And then sort of once we get closer to the launch date, we would, of course, inform you about it. So excited about it. The progress is very much as planned. So in the next 10 months, this should come to the market then as well.

Thank you.

Thanks, Bruno.

Thank you. The next question comes from the line of Victoria Petrova from Bank of America. Please go ahead.

Thank you so much. My first question is on Advil U.S. market share. Last time we talked, you commented that your market share has stabilized. Were you seeing any improvement in Q1? How should we think about it into the end of the year? And my second question, once again, let me try to ask it slightly differently. How should we think about the volume shape of recovery? We still have negative – sort of a negative impact from comps in China in Q2, but it’s obviously much smaller than only in Q1. And then we should have very positive support in comps in the second half of the year. Is it fair to assume that volume would turn positive immediately? And should we also think about it in terms of making your comment on sales on sellout in North America in Q2 with what you saw in Q1 only on the sell – only on the sellout part when you commented on mid-single digit dynamics, should we see it already in the second quarter on your results? Thank you very much.

Thanks, Vic. So, let me start with U.S. pain relief. So, we have gained share in U.S. pain relief in Q1. And this means the green shoots we have been saying have continued to progress, and that’s good to see. But look, I mean it’s early in the journey, right? I mean, this is two quarters into a turnaround plan. So, I think let’s be cautious on that, also given the overall environment in the U.S. with inflation continuing to be high. So, I think we just have to be mindful of that. That probably answers then also a little bit your second question, right. I think we are very pleased to see that the sellout is good in the U.S. I think driven by oral care, driven by the VMS brands and also us gaining share across the other categories. But again, I think I wouldn’t immediately roll this forward into the next quarter, just given the overall situation. And then on your volume shape of recovery, I think it’s a gradual step-up. So, it will be better than Q1. So, it’s a gradual improvement. But of course, I think – or of course, more phased to the second half of the year, as we always expected, because we have to still cycle through Fenbid. I mean I think you should take some comfort from Europe or EMEA, LatAm being back in volume growth, which was a drag in the second half of the year. And also, I think APAC, which had a good quarter. And then we will see where we get to with the U.S. and also on the inventory side as well.

Thank you very much and Tobias, you will be missed. Thank you so much for your help.

Thanks, Vic. And I am around for eight months to help and look forward to seeing you.

Thank you. Our next question comes from the line of Celine Pannuti with JPMorgan. Please go ahead.

Thanks. Good morning. And I have a follow-up and two questions. My follow-up is about pricing. So, you have the strong pricing which was the rollover pricing improvement. Can you just help on how we should think about the phasing of the same balance pricing through the year? I mean was it really a Q1 benefit and then we have a set down into Q2 is the progress we have organization? My two questions, number one, I wanted to understand if you could give what growth rates we have in China? And within that, the win performance, you mentioned that some is going to get something that you could – was China will be negative and we actually put a push out the different business performance? And then you just mentioned Europe, Latin America volume, can you talk about where that volume came from and what you saw from the category perspective? Thank you.

Good. So, let me maybe start with your pricing question. So, yes, I mean pricing was good in Q1, right. I think we expected good pricing going into the year. And I think that that came through, which I think is positive. So, I think what we have planned for the year is coming through the pricing negotiations, as I mentioned earlier before. So, I think that is encouraging. Of course, there is still some rollover pricing looking at when Europe to pricing. So, I wouldn’t expect 7.5% price growth in EMEA for the rest of the year. So, that’s the one that probably comes down, whereas I think in the others, it’s probably more stable. And then I think also the U.S. is pretty stable. But again, in the U.S., it’s a bit more spiky because we take pricing at different points of the year and depending on when we roll over. But it’s really EMEA and LatAm that I think will – I would expect to come down slightly from the levels they have spent, right. But again, if you take the bigger step back, I think for the full year, I think we won’t be in this roughly half and half split where I think the consensus currently sits, right. I think there is more pricing this year than what the consensus is seeing. Then on China, I think – look, I think overall, you have seen from some of the commentary, I mean not surprising, I think pain relief was down significantly given our cycling over Fenbid. So, that was a massive double-digit decline on pain, very much as expected and then that would even be a bit more in Q2. I don’t forget, Fenbid is one of our top three brands in China. And then on the flip side, we had really good growth in VMS, so high-single digit growth across the category. So, I think that is positive and good. And then I think respiratory was slightly down, so despite cycling over the benefit and then oral care had a really good quarter in Q1. You remember, oral care was a bit struggling in China in half one, so I said before, look, while we had all this benefit from Fenbid, there is also a bit of a not all – not the business wasn’t firing on all cylinders last year. So – and we are starting to see that come through with Sensodyne and a few other brands doing well. But in aggregate, it’s correct, China was down. It was down in Q1, which again, I think gives you a bit – and even despite that, emerging markets were up high-single digits. So, it shows you a bit of the strength of the portfolio again that from a geographic basis. Even with the biggest market was nearly a 10% weight of our business, that being down or being a third of our emerging markets, we are still able to grow the emerging market at high-single digit, which I think are supportive to the 4%, 4% to 6% growth algorithm that we had. And then on EMEA, LatAm, I think look, volume growth, I mean I think EMEA was down a bit. I think there is a bit of delays from the Red Sea, so we had some shipping delays there. Also, we see a bit consumers under pressure in Turkey, so smaller markets as well. But – so that means the volume growth really came from both Central Europe and also from Western Europe, which I think is encouraging because that was sort of the areas that we were probably a bit more concerned about consumers and how they are behaving. And I think this just again shows the strength, but also probably the strength of our distribution model as a big part of the business is sold through pharmacies.

Downtime was actually slightly positive in volume as well.

Thanks, Sonya.

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

Yes. Good morning. Thank you. Three quick questions, please. Firstly, just how much of the revenue line, if at all, is from products that are sold in one currency, which is different from the local currency, please? And is there an effect on that on organic growth, particularly in given FX moves, particularly in emerging markets? On COGS and the gross margin, is there much of a gap between when you take price increases and when you see increases in, say, third-party manufacturing costs, in particular? And is there anything that would lead to an impact – a closing of the gap in gross margin at all? And then just on the JV, in China, can you just let this lapse, or do you – would you have to pay to exit prior to September, if you at all wanted to exit? And if you did exit that JV, do you think it makes any difference to your distribution capability, please?

Let me start with some action on the revenue line, no, I think look, there might be here or there, some of the odds one where we export to a distributor market. But I think we have our own businesses in over 45 countries in the world where we sell in local currencies and then this gets translated back, we see that come through in the translational currencies. Of course, there might be here or there, a bit of a small market that exports, but I think this is tiny and not a material factor for us just given the global and large distribution footprint that we have and that we have maintained and that we have kept. Then let me talk the joint venture in China. So, first of all, the JV agreement expires, right. There isn’t any payment in either direction, right. So, could we let it lapse? Yes, you could, but there is absolutely no interest for either side to do so because I think this is one where I think – and I said that, I think before, we really depend on each other. This brings benefits to both sides and both sides are very, very much I wouldn’t say dependent but both sides benefit from that collaboration, especially because the skills and the capabilities that both sides bring are complementary. We are bringing marketing skills. We are bringing our brands. We bring IT. We run a good part of the administration of that joint venture. The other side brings manufacturing capabilities, but we also supplement that with capabilities we bring in globally. So, it is very, very much a joint venture, not – look, this is an operational joint venture. It is not a joint venture where you just sort of have an entity and one part owns X percent and the other one. It’s not a financial asset. This is a joint operation of the business, and we are in very cordial discussions with the other side to how we continue this going forward, right. So, I think there is no benefit to either side of letting that lapse. Then I wasn’t – I really didn’t – I couldn’t track your question on cost of goods and how pricing impacts probably pricing. So, could you just help me either repeat this, or…

Thank you. Yes, it was just on the timing of any cost increases for your third-party manufacturers. Would you say that is in sync with the pricing that you are taking, or is there basically, what are the cost increases in third-party manufacturing to be expected this year, I guess is it?

No. Okay. Look, I think as I said before, right, so third-party manufacturers, I mean they all battled with the same thing that we do, which is labor cost increases because a big part of what they do for us has a big labor cost component. Usually, these prices are – we have hugely long-term contracts because these are long-standing relationships, given the regulatory environment we are in. And these deals usually have a built-in price mechanism. They are different across the contracts, but it usually hits once a year. So, you can actually plan for it, and you can build it into your forecast for the year. So, our units know when this is coming. It was a bit more extreme when there was a lot of commodity cost pressure, which were passed on it a bit more quickly. But sort of the general conversion cost increases, I think we have good pre-warning and we can plan for those. So, I don’t think there is a significant change in that from a timing point of view when we can take pricing. And I think anyway on pricing, I mean certain things are more given when you do them, right. I think the European mass market pricing, you negotiate once a year that usually happens in Q1. In India, you take pricing once a year because you need to re-stick or label all your products. In the U.S., you tend to take pricing if and when the shelf is resetting. So, you try and combine it together with when the retailers do their work. So, it’s all a bit different drivers of that. But again, I don’t see a major time gap in either direction of that. The only thing to keep in mind, it always takes with the inventory we have on hand, it takes several months until it hits the P&L on the negative as well as on the positive as well. I hope that answered the question, Tom?

Yes, that’s great. Thank you very much.

Thank you.

Next question comes from the line of Mikheil Omanadze with BNP Paribas Exane. Please go ahead.

Good morning, Tobias. Good morning, Sonya. Thanks for taking my questions. I have two. The first is on oral care, so could you please comment on the market share evolution of Sensodyne in the U.S. and other major geographies? And also how did Aquafresh perform in Q1? And my second question is on RX-OTC switches, if there is any update on the process? Thanks.

Good. So, let me work backwards. RX-OTC switches as you remember, we had said we had two in the pipeline, but we also said those – we are working with the FDA, and those are a bit later than what we had originally said at the Capital Markets Day. We are still working on both of them. Remember that all the switches, ours, but also competitive ones, they all have certain complexities to them. So, I think really nothing to update on that. Also just to remind that the switches are outside our 4 to 6 guidance. So, when they come, I think in quotation marks, I see them as icing on the cake. We continue to work on them. And I think the more immediate one that could come is the erectile dysfunction treatment that Bruno asked about earlier in the call. And then on oral care, so I mean look, as I said, I think we gained share overall in oral care, which we should do with a double-digit growth rate. So, the sellout continues to be strong. I think we are doing well on Sensodyne globally as well. So, I think with the innovations and the launches and good execution, I think there are two things happening. It’s one, we grow the market. So, some of the growth comes from expanding the market, which actually benefits us and it benefits the retailer because their share of the pie becomes bigger, which is positive. So, it’s not just about share. I think – so when you think about Sensodyne again, what makes this such an attractive proposition is that you have 40% of the population with sensitive teeth. Only 30% of those use sensitivity toothpaste. So, this is about getting more people using sensitivity toothpaste. This isn’t about fighting for share in an already well-established segment. This is still you could call it an emerging segment, even if Sensodyne is very, very big, there is a lot of penetration opportunity in this brand. So, I think that’s probably the more important driver than actually looking at, are you gaining share everywhere because it’s unlocking the penetration. And if you unlock that and people are moving from a $3, $4 toothpaste or $2 toothpaste to $5, $6, $7, $8 toothpaste, and everybody wins when that happens. The consumer wins because they are treating their conditions. The retailer wins because their share and size of the category setting is growing, and we are growing because our brands are growing. And then look, Aquafresh, I think it benefited the middle – you saw that rather last year given the overall environment. I think that has come probably down to what is more normal. This is a brand that’s been flattish, sometimes slightly declining, so nothing to particularly call out. If it would generate a major up or down in the category, we have called it out, but I think it’s now back to what was always done. I think it’s a non-strategic brand for us. It is the exception of a few markets here or there. And it’s rather small as it also doesn’t impact the overall growth of the category dramatically.

Very clear. Thank you.

Thanks, Mikheil.

Thank you. Ladies and gentlemen, we will end the question-and-answer session. Sorry, we do have a last-minute question. The next question is from the line of Chris Pitcher with Redburn. Please go ahead.

Hi. Good morning. Sonya, hopefully, you can hear me, I am on a mobile?

Yes.

Tobias, I appreciate you still have eight months to go and a couple of quarters to deliver. So, I will take my thanks and appreciation for the last meeting. It’s been noted you have delivered a lot over your time. What’s coming in? What’s to do? I mean clearly, there is a productivity program to deliver. There is – is there more to do on working capital that you did make some improvements in ‘22, ‘23? Is it M&A? And just can you be a bit more specific, what skill set is it that you think made a good fit? Thanks.

Thanks Chris. So, look, I don’t think the journey is done, right. I mean even when we came out at the Capital Markets Day, right. Brian and I said, look, there is a phase now that we stand up as a company and establish it as a self-standing company. I think we have done that well. And then there is a second phase of making this a more agile and more competitive consumer company, and which is starting on that phase, right. I think that’s why we started the productivity program, but there is way more and much more to do on that journey because that is a multi-year journey. And I think that is something that I am working on right now, and I will continue to do so. And I think then this is something that I have to do – have absolute belief in that, that Don will be able to continue on that because she brings over two decades of deep, deep, deep consumer experience even more than I had. She spent her whole career in the consumer world, given that she has done and she has had local roles, regional roles, global roles, sales roles, marketing, so it’s really a deep consumer expert, which I think will be good for the business going forward. So, I truly believe that the business will be in good hands with her as well. And I think the continuation of the journey that the company is on. So, pleased with what we have delivered, but I think way more to do and go. And I look forward to catching up with you and seeing you in person, Chris.

Thank you.

Thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Tobias Hestler for any closing remarks.

Thank you and thanks everyone for joining today. I look forward to speaking in the coming days. And as always, if there are any questions contact Sonya, the IR team, they are ready there for you, and I look forward to seeing all of you later in the year as well in person. So, thanks very much and have a great rest of the day.