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

Our first question comes from Guillaume Delmas from UBS.

So two questions for me, please. The first one on North America because in Q2, both EMEA, LatAm and APAC were well within your medium-term 4% to 6% organic sales growth guidance but North America was a clear outlier with a, I think, nearly 2% organic sales growth decline. So could you maybe help us unpack this performance in North America in Q2? And in particular, do you think it was primarily down to temporarily lower category growth? Is it down to significant discrepancy between sell-in and sell-out? Or are you also seeing some share erosion? And I guess last question on this. Would you expect North America to return to growth and ultimately back to the 4% to 6% range over the coming quarters or it may take a bit longer as the challenges persist? And then my second question is on A&P, increased significantly in the first half. I think it was up 130 basis points. A question here is in which areas are you disproportionately reinvesting? Do you feel you get some great returns on this incremental spend? And I guess, looking ahead, what should we expect for A&P spend as in was the first half a bit of a one-off? Or should we expect another marked step-up in H2 and beyond?

Thanks, Guillaume. I appreciate the questions. Let me address the first one about North America, and then I'll pass it to Dawn for the second question. As I discuss North America, I want to note that we feel positive about EMEA, LatAm, and APAC, and we are optimistic about the second half in those regions. We are also pleased with the organic profit growth driven by a 160 basis point increase in gross margin and strong cash flow. However, North America has presented challenges. There are two market dynamics to consider, along with our performance. First, the consumer environment is indeed difficult, and consumer confidence is low, though our categories hold up better than most in this situation. We are experiencing challenges in certain categories, particularly smoking cessation, which falls in the $30 to $40 price range, leading to a trade-down in that segment. Overall, though, we are not witnessing a trade-down in the business, even though it has hindered our growth. The second dynamic is the shift towards Dollar and Club stores, which cater to value-seeking consumers, as well as an increase in e-commerce. We have a strong presence in these channels, with 16 of our top 18 brands achieving better shares online than offline, making it manageable. However, we still face inventory pressures in drug retailers, which are common across U.S. retailers. Regarding our performance, our consumption is growing faster than the market. While the market is slightly down by about 0.5%, our consumption has increased by about 0.5%. So, while we are ahead of the market, the growth isn't significant. We are seeing notable growth and market share gains in Oral Health, and strong performance in Digestive Health, particularly with brands like Tums and Benefiber. However, we are not fully satisfied with our overall performance and have a mixed result in Pain Relief and VMS. In the Pain Relief category, we've experienced a slight loss of share on Advil in the first half. We have new plans in place and have launched a new media campaign. We have seen early signs of improvement, with share growth returning for Advil in the latter part of Q2. In the VMS category, we have Emergen-C and Centrum. Emergen-C shows robust consumption and share gains, although sales were up only in the low single digits due to higher inventories at the beginning of the year following a low cold and flu season. Overall, the brand remains strong. Centrum, on the other hand, has faced challenges. While it grew mid-single digits outside the U.S. and saw high single-digit growth in Q2, it has declined in the U.S. Last year, we saw significant growth in Centrum Silver after activating cognitive claims, so we are starting from a strong base. Nevertheless, we expect continued share growth. We have solidified our plans, reactivating Centrum Silver with a new claim regarding cognitive aging and have innovations planned for the second half. We are also launching a new partnership with U.S. women’s soccer, which we are optimistic about. I expect to see improved share positions for both Centrum and Advil in the second half, although we anticipate continued inventory reductions. Retailers have been proactive in managing their inventory levels as they face challenges in meeting their targets. We aim to work more collaboratively with them to ensure we maintain the right inventory levels as we approach year-end. With our guidance around 3.5%, we are not expecting significant improvement in the U.S. market and foresee ongoing inventory pressures. However, looking ahead, we have a strong business in the U.S. We are particularly pleased with Oral Health, where we gained 0.5 share point in the first half, and we are confident about our prospects in 2025, 2026, and beyond as we strengthen the business in the second half. Now, I'll hand it over to Dawn to discuss A&P.

Yes. Thanks, Guillaume. So I think the first thing to say is, as we laid out at our Capital Markets Day, we have significant opportunity in supply chain productivity. And you saw that come through in the half and the benefit that's come through in gross margin has enabled us to continue to invest in A&P and R&D, and that provides the flexibility and agility that we talked about across the P&L. So in terms of, if I focus then on A&P. So A&P is up 6.8% in the half to 20.8%, and we are leveraging A&P to focus on the three growth drivers that we've outlined: closing the incidence treatment gap, driving premiumization with our innovation and expanding reach to lower-income consumers. And if I think about from an innovation perspective, we've been rolling out very successful innovation, particularly around our clinical range, Nasal Mist on Otrivin and Panadol Dual Action. So the first area that we've been focusing on in terms of spend is around supporting the innovation. If I think from a geographic perspective, we've been focusing on driving growth in key markets, so particular markets like India, where we saw just under double-digit growth, in EMEA, in Central Europe and also in China. And obviously, expert recommendations for our brands is a critical part, and that's the other area of our investment. But it's not just about increasing the investment. It's also about the effectiveness of that investment. And in the half, we've improved ROI by 4%, and we continue to look at the balance of working, nonworking and I think there's more opportunity for us to go on that. So I wouldn't say this is about phasing. If I look to the second half, I would expect us to continue with a similar shape, and I would expect us to continue to invest across those areas that I talked about in terms of our A&P.

Our next question comes from Rashad Kawan from Morgan Stanley.

I have a couple of questions. First, regarding North America and the 3.5% growth expected for this year. You mentioned you do not foresee a significant improvement in the U.S. during the second half. The general expectation was to see a notable increase in Q3, especially considering the late end of the cold and flu season last year and retailers starting from a low point. What has changed in those expectations? Is it primarily due to ongoing destocking trends or perhaps a greater caution among retailers than anticipated? Additionally, Smokers' Health seems to be performing weaker. I'm trying to understand the main differences from what you shared with us in Q1 compared to the current situation. My second question is about the business percentage gaining or maintaining market share, which has decreased from 71% in 2024 to 58%. Can you discuss the primary factors behind this change? In the past, you've mentioned that our target share should be in the 60% range; is that still a valid longer-term perspective?

Thank you, Rashad. I'll address both of your questions. First, regarding North America in Q3, a few factors are at play. Last year, we reduced our cold and flu PE products in Q2 and adjusted in Q3. However, this year, it didn’t reflect in the results due to a low allergy season, which we haven’t discussed yet, but it affects us as Flonase is a significant brand in the U.S. market. Q3 must account for that sell-in base. The reality is the situation is uncertain and challenging in the U.S., particularly for retailers managing stock and trade. To be clear, I don’t believe our stock and trade levels are excessively high compared to historical figures or peers, but retailers are carefully managing these as they face issues like foot traffic and sales growth in a tough environment. Now about maintaining share, I acknowledge last year’s strong result of 71% and that it was an outstanding achievement. While my goal is always to enhance that number, I recognize that it was high and difficult to maintain. I’ve previously stated that we aim for around 60% or more, and we are slightly below that in the first half. If you look at the drop from 71% to 58%, the two main factors are U.S. Advil, which had growth in share last year but isn’t this year, and Centrum, which is not growing share either in the first half and has seen consumption decline from a high base. We are working on strategies to stabilize this in the latter half of the year. If those two brands were growing share, we would be well within the 60% range. While I believe 58% is a solid figure, it is slightly lower than my desired consistent performance.

Our next question comes from Callum Elliott from Bernstein.

I wanted to start with the U.S. and discuss the retail environment mentioned in the presentation. My first question is twofold. Can you provide a sense of the channel split for your U.S. business, particularly how significant the drug channel is as a percentage of revenues? This seems to be the issue you're highlighting. More broadly, regarding the challenges you mentioned, what can Haleon do to address this? Or is it simply something we need to accept as an external factor? My second question pertains to your strategy from the recent CMD. Given that the core business is currently facing difficulties and considering the negative revisions to the full-year guidance we've seen today, does this diminish or deprioritize some of the ambitious strategic plans you laid out, such as expanding access to lower-income consumers and offering lower price points while you work on stabilizing the core business? Or do you see these as entirely separate initiatives?

Thank you for the question, Callum. I'll begin by discussing the current state of the U.S. retail environment. Like many companies, Walmart is our largest customer, accounting for about a quarter of our business. Our focus tends to lean more towards the drug channel, which, while significant, is not as large as Walmart’s overall contribution. Ultimately, we need to prioritize performance and market share growth in the U.S. Despite the market facing challenges, we have a role in driving market growth, especially in categories where we lead. We have successfully achieved this before, and we must continue to do so, particularly in Oral Health, where we are seeing category growth and will maintain our focus. Regarding our ambitions communicated at the Capital Markets Day, nothing has changed on that front. I am confident about our medium-term prospects, although we are contending with some business headwinds in the U.S. As Dawn pointed out, part of our investment strategy includes low-income consumer packs in India, such as the INR 20 Sensodyne pack, and we plan to introduce more SKUs for Sensodyne as we progress through the year and into the next. Other initiatives in India include Centrum Recharge and our INR 10 pack for ENO, along with our launch in Brazil featuring Sonridor, aimed at providing systemic pain relief for lower-income consumers. Innovation-driven premiumization is central to our strategy, and we will continue this approach. Additionally, our focus on core penetration involves closing the incident gap. We remain committed to the growth strategies discussed at Capital Markets Day, and I believe we will achieve our objectives in the medium term. Regarding productivity, as I mentioned during Capital Markets Day, I'm pleased with our progress. We previously discussed the reduction of SKUs we implemented in 2024, which is yielding positive results in gross margin, with a 160 basis point improvement in the first half. This progress allows us to navigate growth challenges, invest in competitiveness, and maintain operating leverage. As Dawn noted, it gives us significant flexibility in managing our financials while we address growth headwinds in the U.S.

Our next question is from Celine Pannuti from JPMorgan.

My first question is about the broader view of the short-term discussion. If I examine your volume performance, it was 0.8% this year compared to 1.3% last year and 1% the year before. I assume this year we'll end up around 1%. So we have three years of 1% volume mix. What gives you the confidence to achieve 4% to 6% in the midterm? It seems we need a significant increase in volume, which we are not currently observing. Could you explain what hasn't worked and why you remain confident about reaching 4% to 6% in the midterm? Additionally, my second question relates to your perspective on Latin America. While you express optimism about that region, we've heard other companies mention weaknesses in Europe. I would like to know your outlook for Europe.

Thank you. I'll address the first question and then hand it over to Dawn regarding EMEA and LatAm. If we break down our results, in EMEA and LatAm, volume growth increased from 0.5% in Q1 to 1.6% in Q2. In the Asia Pacific region, the volume mix went up from 3.3% to 3.9%. However, we noted a 0.8% growth in the half, which is tied to the dynamics and challenges we're facing in the U.S. where volume dropped by 1.8% in Q2 and 0.6% in the half. It's clear that we are encountering difficulties in the U.S. market, and we're actively addressing them. I've mentioned some of the strategies we're implementing to strengthen our performance for the latter half of the year. Since May 1, we also have a new leader in the U.S. and I am very optimistic about our leadership there. I believe we will take the necessary steps for the second half and set the stage for growth in 2026, and I remain confident in our medium-term guidance. Dawn?

Yes. I'll expand on that and then address the situation in Europe. As Brian mentioned, our volume has improved in Q2 compared to Q1 across other regions. In Asia Pacific, two-thirds of our growth in Q2 came from volume, and we expect that trend to continue. Over the past three years, our growth in Asia Pacific has been a solid 4.6%. In EMEA and Latin America, we also see an improving trajectory in Q2 versus Q1. Looking ahead, we anticipate a balanced mix of price and volume growth for the remainder of the year. This trend in volume growth has been consistent in that region over the last three years. Regarding the U.S. market, we've discussed challenges in the consumer and retailer environments impacting some of our brands. However, apart from the U.S., we are observing the expected growth patterns in other regions, and I foresee this trend continuing in the second half. Specifically in Europe, we find a resilient performance, with high single-digit growth in Central Europe and mid-single-digit growth in Continental or Western Europe. This stability can be attributed to strong performance in Oral Health, which has become a key driver for us, complemented by successful innovations across the regions.

Can I follow up on the previous question that Callum asked? You have a target of high single-digit organic EBIT growth going forward. If we consider my question about mid-term volume, if growth becomes less important, would you consider reallocating some of your potential profit growth back into the business, meaning growing less but trying to stimulate volume?

Thank you for the follow-up, Celine. We are expecting high single-digit growth in operating profit at constant currency, driven by the opportunities in our gross margin. Although this year we are facing more challenges in growth, particularly in the U.S., the improvements in gross margin and the leverage in our P&L have enabled us to invest in advertising and promotion, as well as research and development, while still contributing positively to organic operating profit. We do have a couple of divestments that will impact us until after Q3. However, I remain confident in the growth strategy we outlined at Capital Markets Day and in the fundamental productivity opportunities we are beginning to realize.

Our next question is from Warren Ackerman from Barclays.

Warren here at Barclays. I'm sorry some of these have been asked. I had a few technicals. So the first one, Brian, on Advil, you talked about some green shoots on that brand. What are you doing to fix it? I think it's been losing share for a long time. I'd be interested to get any perspective on that specific brand. And then secondly, on Smokers' Health, are you able to tell us how big it is in the U.S. and what your expectations are for Smokers' Health in the second half of the year? I mean, do you need to take pricing down to make it more competitive versus private label or something else? And then thirdly, on Centrum, thanks for your comments on Q2. Is there anything happening on Centrum on innovation in the back half where we should feel a bit brighter in terms of the outlook for Centrum in the U.S.?

Yes. There are a few points to discuss. Firstly, regarding Advil, it has been a mixed experience. We ended last year with growth in our share of Advil, which significantly contributed to our overall performance and was a positive signal as we closed out the year. However, the journey has had its ups and downs. The positive aspects include a new media campaign and strong promotional strategies in the latter half of the year, which gives us confidence in Advil's future. We are aware that we are competing with Kenvue on Tylenol, which they have invested heavily in, but we remain optimistic about our brand and our plans for the upcoming months. As for Smokers' Health, it represents a business worth a couple of hundred million for us. We anticipate a slower decline in the second half as we roll out our strategies, although we do not foresee it returning to growth right away, particularly given the current state of the U.S. consumer market. If that scenario changes, our outlook may shift. We also have an innovation in Smokers' Health, a dual-layer tablet that has received FDA approval. This product will launch in e-commerce in the second half of the year with a full launch planned for 2026, which should provide us with a unique market offering that could benefit our position. What was the third question?

Centrum.

Oh, Centrum, apologize. Listen, on Centrum, a couple of things. I mentioned the new claim. Again, one of the things that drove Centrum tremendously in the U.S. last year was the Centrum Silver claim we had on cognition. We're reactivating with a new claim. I think I mentioned it, it's slightly different, but it's meaningful and the new claim being slows cognitive aging by 60%. Aging, obviously, is also a very big topic for consumers in that cohort. So we have that. We do have a couple of innovations that are going out. I won't talk specifics of them because I don't think they've been announced to the market, but a couple of things that we think will also help firm up. And listen, it's a big focus for us. Like I said, Centrum is a great brand. It's doing quite well outside the U.S., but clearly facing headwinds in the U.S. on a base of tremendous performance a year ago. But again, we want to grow despite what the base is, to be clear. So that's a big focus for us going forward.

Our next question comes from David Hayes from Jefferies.

So a couple from us, one nicotine replacement, and one on the margin. So nicotine replacement, just to come back to this, we may have missed this, but could you just quantify the drag that it had on the second quarter? And also, can you quantify what impact it has in that new guidance of 3.5% or around 3.5% growth for the full year? And staying with that topic, you just talked about new innovation, but it always feels like this is a little bit of a periphery category for you. I think it's a partnership with Kenvue and even Sanofi as well. So is it fair to say it's less of a focus for investment? How do you account for it given you've got these partnerships? Is it fully consolidated with the minority? And then given the partnership structure, is that why you've kept this business in the U.S. whereas obviously, you've exited in Europe? Is this something you're kind of stuck with? Or could we just see it as it could go at some point? And then the margin question was just on putting it all together, high single digit on organic, the FX and the M&A dynamics. Is the guide effectively for flattish margin year-on-year on a headline reported basis? Is that the right kind of conclusion?

Thank you for the questions, David. I'll pass the growth and margin questions to Dawn, but I want to start with our nicotine business and its structure. It's essentially a three-way venture in the U.S. One part involves Opella, which is a joint venture, and Kenvue supplies Nicorette. As you may know, Kenvue owns the Nicorette brand outside the U.S., making them our supplier for that business. It's a partnership that involves multiple parties. The category is challenging to innovate in, to be honest. Any innovation we plan will require FDA approval, which is a lengthy process. There's no doubt that this business is more difficult to innovate in, but it's part of our portfolio, and we'll continue our efforts to achieve growth. It plays a significant role for consumers and healthcare systems alike. However, the ownership structure is quite complex. Dawn?

Yes. Let me provide some specifics on Smokers' Health first. To Brian's point, it represents about 5% to 6% of our U.S. business, and we experienced a significant decline in the quarter. This had a 60 basis points impact on the total group, bringing us to 3.6%. In North America, the impact changed North America from minus 1.8% to minus 0.2%. This represents a substantial shift in the quarter and has a disproportionate effect. Regarding margin, we are very pleased with the 9.9% growth in the first half, which is up 140 basis points. It’s not only about the numbers; the quality of our earnings is also important, attributed to our gross margin delivery, investments in A&P and R&D, and effective cost control in G&A that has allowed this margin growth. For the second half, I anticipate a similar performance in terms of gross margin strength, ongoing investments in A&P, and sustained good cost control. This is why we have updated our guidance to a high single-digit growth in operating profits for the year. Other factors like FX, M&A, interest, and tax guidance remain unchanged. Overall, we are comfortable with where consensus stands today.

Regarding the full year, it seems that NRT is a headwind of 50 to 60 basis points. I understand your reluctance to focus solely on the negative aspects, but it seems reasonable to conclude that, without that impact, you would be around 4%, moving down to the guidance point of 3.5%. Is that accurate?

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

Our next question comes from Tom Sykes from Deutsche Bank.

Yes. I apologize for focusing on U.S. retailer trends again. There are two key issues here. One is the stock levels per channel, and the other is the channel shift. Considering the headwinds you’re facing, could you break down the volume headwinds between channels that are destocking and those experiencing channel shifts? For instance, Amazon has seen its scanner sales grow by over 30% in the last year, while the rest of your business remains flat overall. This indicates significant channel shifts. It would be helpful to understand the impact of these shifts compared to destocking on a channel basis. Also, why aren’t we seeing this issue arise in other countries? I understand there are regulatory differences, but you have a significant presence in the pharma channel across Europe. It seems likely that this trend will eventually become widespread across all economies. I’m interested in hearing your perspective on this.

Yes. Thanks for the questions, Tom. So listen, destocking by channel in the U.S. Listen, the channel shift is something that's been happening over time for quite a while. The drug channel does tend to have higher inventory levels. So there's a bit of an impact there. But the biggest impact is, frankly, I think you're seeing inventory pressure across channels, maybe a bit disproportionately in drug because they're struggling more. And again, if you look at the Amazon growth, we do have stronger shares on Amazon. I talked about Sensodyne in the past, where we're in the low 20s in bricks and mortars and more like 28% on Amazon. So as we see more move to there, we're moving to a channel with higher share. So I think it would be hard to break down exactly, but I think the bigger impact is the downward pressure as retailers in the U.S. are feeling the pressure of the economic environment, the foot traffic and all those things and trying to manage that situation because again, outside of our categories, there's other categories that they deal with that are much more affected than we are, and that impacts their overall financial performance. When I think about other countries, to be honest with you, if you think about pharmacies in Europe. In Mainland Europe, 70% of our business goes through pharmacies, very, very low inventory levels in pharmacies. There is no real stocking up. We have people that call on pharmacies weekly in some cases for the bigger pharmacies and taking orders. So it's not like there is a massive stock-up opportunity or that they carry really high levels. Now there are distributors in between sometimes our pharmacy channel and us. And distributors in general, are pretty good at managing inventory levels and things like that. So I think that's really the dynamic. I think, is very different in the U.S. than, let's say, in Mainland Europe, where the pharmacy model is just very different.

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

No. Listen, on balance, if I look at e-com on a global basis and I look at that, it's all relatively similar, and it's all within our outlook and guidance. We expect that e-com will continue to grow. And by the way, Amazon is becoming less and less a piece of that as omnichannel has become more important. Walmart were really strong in walmart.com, and that's grown well. So that's all within the context of our outlook and the medium-term guidance we gave.

Our next question comes from Olivier Nicolai from Goldman Sachs.

Just one question on my side actually. Going back the U.S. performance for VMS and for Respiratory Health. Would you say that you are losing share against private labels? Or is it more against other branded players?

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

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

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