Good morning, everyone. Welcome to Haleon's Full Year 2024 Q&A call. I'm Jo Russell, Head of Investor Relations. And I'm joined this morning by Brian McNamara, 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 UK and SEC filings for more details, including factors that could lead to actual results differing materially from those expressed in or implied by such forward-looking statements. We have posted today's presentation on the website this morning with prepared remarks and our video running through the results in detail. So hopefully, you all had the chance to see that ahead of this call. And with that, I'll go straight to opening the Q&A. Thank you, and over to Brian and Dawn.

Okay. Let's open it up for Q&A.

Thank you, Brian. We now have a question from Guillaume Delmas from UBS. Please go ahead.

Thank you very much and good morning, Brian and Dawn. A couple of questions for me please. The first one is on your performance being skewed toward the second half of the year in 2025. So, given the strong momentum you're currently seeing in emerging markets, I'm thinking India and China in particular, but also the strong momentum in oral health, would it be fair to assume that the soft start to the year will be predominantly attributable to mature markets, notably the US, and also mostly your OTC divisions? And then looking at the second half, what underpins your confidence in some reacceleration? Is it mostly down to the current sell-in, sell-out discrepancy that will correct, or any other factors you would mention? And then my second question is on Oral Health. How sustainable do you think the current performance of the division is? In particular, how far do you think you are in the Clinical White journey in terms of opportunities for distribution expansion and geographical rollout? And maybe a tricky question for you, Brian, but do you think you have another Clinical White in your innovation pipeline that could be launched soon? Thank you very much.

Great. Thanks, Guillaume. Thanks for the two questions. Let me address those questions and I'll ask Dawn if she has any comments on top. First of all, on the performance, I think there are a couple of points to note. What we saw towards the end of the year was a low cold and flu season. To provide some perspective, in the US, the cold and flu category was down 15%. It was also down 15% in the rest of the world. You may remember that we're less exposed to the US for cold and flu, which means we're more exposed to the rest of the world. That's been a benefit, but both areas have seen a decline of 15%. The dynamic this created is that sell-in occurred, but consumption didn't happen at the level we expected. We anticipated an average season which wouldn't have been down. So as a result, we have higher inventory levels in the trade. This primarily impacts respiratory health, but it also has a lesser impact on the pain relief category and on emergency products specifically, which include the immunity brand in the US. That's where the impact is felt. Regarding our confidence for the full year, we are confident in our guidance of 4% to 6% growth. The underlying business is performing well; 71% of the business gained and maintained market share for the full year. We feel good about that. We are also positive about the innovation we're launching this year. We acknowledge that Q1 is off to a slow start because of these dynamics, particularly in the US, and there is an inventory situation affecting some drug retailers who are currently struggling. Regarding Oral Health, I must say Clinical White has been fantastic. We're planning to roll it out in about 12 more markets this year. We’ve also launched clinical repair, so Clinical is a significant platform for us. We've introduced it in Germany and three other markets, with plans for more rollouts this year. We just launched Clinical Enamel Repair in February in the US. So think of clinical as a vital platform for our innovation. I’m very optimistic about our Oral Health business; it's not only Sensodyne that shows growth; we have seen paradontax growing at healthy double digits, as well as Denture Care. This performance is strongly underpinned by innovation.

Yes, I think just to build on that, I want to mention three specific points that give us confidence for the second half. Brian mentioned innovation, and let's be clear, innovation is working really well across all categories, whether it's Otrivin Nasal Mist, Centrum Silver, the daily sachets we've launched, or Centrum Essentials, and Sensodyne Kids as examples. Innovation continues to drive category growth and results in share gains. That gives us confidence. The second factor is our route to market. We're investing in India regarding our own sales force, and we've also made a joint venture investment in China to enhance our market reach. Building distribution is a critical lever for us. Lastly, during 2024, we increased our advertising and promotional investment by 10.2%, which was up 100 basis points, and we continue to invest in expert coverage and in the number of product samples. If you look at the fundamental drivers supporting the strength of the business and what underpins our confidence moving forward, those key areas are what stand out.

Thank you very much.

We now have a question from David Hayes from Jefferies. Please go ahead.

Thank you. Good morning, all. So a couple for me, one on FX and one on balance sheet, I guess. Firstly, on FX, you've mentioned that there's still this FX headwind coming in 2025. I recall that when we spoke towards the end of last year and the beginning of this year, it felt like FX might provide a small tailwind in terms of top line and margin. Can you help me understand what has changed over the past month or two, and if there are dynamics affecting your visibility on the FX effects as you approach this period? Regarding the balance sheet, you mentioned a £500 million share buyback reloaded. Does that leave you with scope for M&A? It seems investors suggest that you've been looking for acquisitions following your divestments to tidy up the portfolio. Is that something you're actively exploring? Also, concerning Eroxon, Futura mentioned a few weeks ago that they were cutting their 2025 outlook. Can you share your perspective on that? Have those results been disappointing? Regarding M&A, is that a business you could potentially participate in to alter the strategy and possibly improve the momentum? Thank you.

Okay. Thank you, David. I'll start with Eroxon and make a brief comment on the balance sheet before passing it to Dawn for the rest. On Eroxon, we launched in October. I have always stated this is a new OTC category with a new brand and new consumer behavior. We expected a slow startup, and there's no question that the early trials and results have been slower than we anticipated. We continue to believe this represents a significant unmet need for consumers, and we're studying it closely. However, I want to be clear that it's underperforming our expectations. That said, this is factored into our guidance of 4% to 6% for the upcoming year, so we're still very confident in our outlook. Regarding M&A and the balance sheet, our capital allocation strategy is quite clear: invest in growth, pursue bolt-on M&A, and return cash to shareholders. Given our strong outlook and cash flow, we are confident in our ability to increase dividends and execute a £500 million stock buyback. We still have room for bolt-on M&A, and if an opportunity arises that could enhance our portfolio, we would absolutely consider it. Dawn?

Yes. Thanks, Brian. Let me first address the currency question. The geographical diversification of the group presents a key strength and offers attractive growth opportunities, but it also leads to currency impact and fluctuations that we do not control. Regarding the guidance we provide, we've tried to give our best view on the forecast using the Bloomberg forward rate, anticipating a headwind of minus 1% to minus 2.5% on both the top line and the bottom line. We’ve taken this approach because of the influence from emerging markets where we see higher inflation levels, leading to devaluation in currency. If we were forecasting based on spot rates, the impact would be a negative 0.5% on revenue and a 1% impact on the bottom line. During 2024, we experienced a significant negative impact in Q3. The expected impact this year is anticipated to be greater in the first half compared to the second half. We acknowledge the frustration surrounding currency fluctuations, but while we cannot control them, we are seeking ways to mitigate their impact through strategic choices such as optimizing our supply chain and pricing strategies amidst inflation. On the balance sheet front, we assess available capital each year to determine the optimal use. In line with that assessment, we deemed returning £500 million of surplus cash to shareholders as the best use of capital. Given our strong free cash flow, we remain focused on future opportunities for bolt-on M&A.

That’s great. Thank you.

We now have a question from Rashad Kawan from Morgan Stanley. Please go ahead.

Hey, good morning, Brian. Thanks for taking my questions. Just a couple for me. First, regarding VMS, you mentioned a high single-digit growth forecast for 2024. How do you see the category evolving from here? Do you feel that outside of the emergency fluctuations, it's back to where you expected it to be a few years ago, around your Capital Markets Day? Also, could you discuss the innovation pipeline in that area? Secondly, I wanted to touch on the second half weighting. I understand you flagged inventory revaluation as one reason why profit growth may be second half weighted. I don't recall that being discussed last year. Can you remind us of what that relates to and how it benefited last year? How does that impact the base this year? Thank you.

Great. Thanks, Rashad. I'll address the VMS question and pass it to Dawn regarding inventory revaluation and the phasing across the year. I do believe the VMS category is back to where we initially expected it to be during our Capital Markets Day, which took place right after the situation in Ukraine escalated, causing significant global disruptions and inflation. The category feels stable now. Emergency products have performed well for us and have proven to be a strong sub-category, though they possess a seasonal element. Outside of that seasonality, we feel positive about this business, especially with Centrum, being the world’s only global VMS brand in 68 countries, with a solid presence in China with Caltrate and Centrum. We see the category stabilizing in line with our expectations apart from seasonal changes. Dawn?

Regarding the first half and second half weighting, there are two factors at play. First, we've discussed the seasonality impact on cough, cold, and flu. Secondly, as you mentioned, inventory revaluation factors into this. It’s worth noting that we are confident in delivering our full year guidance as previously outlined. The reason we mention inventory revaluation is that it affects phasing since it provided a benefit in the first half of last year. For context, we hadn’t done inventory revaluation since the demerger, and 2024 was the first year we implemented it. The rise in inflation in 2022 and 2023 impacted this. Going forward, we will perform this exercise annually, and as I mentioned, the impact for this year is minimal. However, the key takeaway is our confidence in the guidance.

Thank you very much.

We now have a question from Chris Pitcher from Redburn. Please go ahead.

Thanks so much. A general question, please. You're discussing retailer stock levels and issues related to cold and flu. Can you provide insight into the broader retail landscape in the US? We have heard from numerous companies that shipments are lagging underlying demand. Is there a deeper issue with customers trying to conserve cash or growing more conservative about consumer demand? Additionally, Dawn, there’s been a good performance on working capital. Now that you've been in the role a while, how significant do you see opportunities for working capital efficiencies? I understand this is the last year for the operating efficiency program, but is there still room for improvement? If so, could you help quantify that?

Thanks for the questions, Chris. I'll address the first question about the US retail environment, then pass it to Dawn. I think there are a few retailers struggling in the US drug channel. We're observing some pressure on inventory levels there. They have full year results due at the end of February and are managing their full year results. I don’t think there's anything fundamentally deeper going on; just a couple of retailers are facing challenges as they work to manage their cash. The larger impact we're experiencing seems to be seasonality, rather than a more systemic issue, which is something we also experience. That said, the seasonality primarily affects respiratory categories, but also a few others that I've mentioned. Dawn?

Regarding working capital, we made significant progress in 2024, improving working capital by 13 days. Part of this was driven by reductions in inventory. There's still a considerable opportunity to optimize working capital further, including payment terms with suppliers, optimizing receivable days in our cash collection processes, and continuing improvements in inventory management. This includes optimizing demand planning and supply chain processes as well as reviewing our SKU and formulation numbers. There remains substantial opportunity, and like we did this year, we will continue to focus on unlocking that potential.

Thank you.

We now have a question from Tom Sykes from Deutsche Bank. Please go ahead.

Yes. Good morning. Thank you. I have a couple of questions. First, as you've increased ownership of the China joint venture, are there any changes in accounting or oversight that stand out compared to when your ownership level was lower? Also, regarding inventory revaluation, can you tell me if any of that is related to China? Lastly, regarding M&A and the innovation cycle, could you share your focus? Are you aiming more at innovation, health products, or are regular consumer purchases like oral care, VMS, and functional nutrition also areas of interest?

Thanks for the question, Tom. To begin addressing your inquiry regarding the China joint venture, our prior partnership involved 40% of our business in China, which was the OTC segment; the remaining 60% was fully owned and managed by us. Owning the business outright provides us with EPS accretion and allows us to operate a more efficient organization. Before, we had two separate sales forces calling on the same customers, which was necessary due to the JV structure requiring separate accounting. Having complete control enables us to drive greater efficiency. I remain optimistic about our prospects in China. Regarding inventory revaluation's impact, I’ll pass this to Dawn to provide further details.

Certainly. On the inventory revaluation, the historical impact of inflation was most significant in Europe, so the benefits in the inventory valuation are more closely linked to Europe rather than China. As for accounting, we've been efficiently managing the China segment and maintain a strong internal audit process in place. That gives us robust oversight. The focus on M&A as it pertains to innovation is strategic; we continually assess opportunities that can strengthen our portfolio, whether in health-focused products or regular consumer purchases like oral care and VMS. If a potential acquisition aligns with our strategy, we will evaluate it thoroughly.

Thanks, Dawn. Tom, regarding the notion of Oral Health being a want rather than a need, it’s important to note these innovations deliver real benefits. We've witnessed consumer demand particularly for Clinical White which has received repeated endorsements from dental professionals. Given the demand for these innovations across new categories, they’ve performed exceptionally well. While I won’t discuss specific M&A targets today, we are open to potential bolt-on opportunities that enhance our business.

Okay. Thank you.

Sorry. We currently have no further questions. So I'll hand back to the team.

Okay. Great. Listen, thanks so much for joining us. I look forward to catching up during upcoming roadshows and meetings. Please feel free to reach out to our IR team with any questions, and thanks for your continued interest and support in Haleon. Have a good day.