Haleon PLC (HLN) 2022 Q4 法說會逐字稿

Hello and welcome to the Haleon Full Year 2022 Results Q&A. My name is Harry, and I'll be coordinating the call today. (Operator Instructions)

And I would now like to hand you over to Sonya Ghobrial to begin. Sonya, please go ahead.

Thanks very much. Good morning, everyone, and welcome to Haleon's Full Year 2022 Q&A Conference Call. I'm Sonya Ghobrial, Head of Investor Relations, and I'm joined this morning by Brian McNamara, our Chief Executive Officer; and 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 U.K. and SEC filings for more detail, including factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. We posted today's presentation on the website this morning with prepared remarks running through the results in detail.

So with that, we'll go straight to opening the call for Q&A. Thanks. If I can hand back to the operator.

(Operator Instructions) And our first question of the day is from the line of Iain Simpson from Barclays.

A couple of questions from me, if I could. Firstly, could you just give us a clue as to how we should think about the phasing of organic sales growth as we move through 2023? Because clearly, there's some sort of volatility in the comps given the shape of cold and flu and I guess a bit of unknown as to what that trend -- how that trends towards the end of the year.

And then secondly, not sure if it's something you'll be able to comment on, but there was some press speculation a few weeks ago that you might be considering a very sizable acquisition, namely the Sanofi Consumer Health business. I'm not asking you to comment on that or on any specific transaction, but in general terms, is an acquisition of a decent size a likelihood near term? Or does your priority for the next few years very much remain deleverage and getting the debt down?

So Iain, thanks for the questions. And I'll answer that second question first, and then I'll pass it to Tobias on the phasing. So I mean, as you said, as you would expect, we won't comment on any rumors or speculation around M&A. I think what I would say is this business was created from the 2 largest transactions in the industry the last 8 years and divestments of [15] growth diluted brands. So result of that is an incredibly strong portfolio. We love the portfolio, and I think the organic sales opportunity is there and really strong. And we reconfirmed our guidance this year.

But as we also mentioned in the press release, we'll be proactive about managing that portfolio and looking for opportunities to strengthen it, either that's through bolt-on M&A or through potential divestments. But we've also been clear on our capital allocation priorities. The first is to invest in growth; the second, to strengthen the balance sheet; then bolt-on M&A; and then return excess cash to shareholders. So that's our focus.

And obviously, if anything comes up, we would evaluate and look at it. But at this point, our focus is primarily on delivering the organic sales growth and following those capital allocation priorities.

Tobias, do you want to touch on phasing?

Thanks, Iain. On the phasing, so -- I mean, first of all, I mean, yes, as you noted, we had a very strong half 1 last year. But having said that, I mean, we -- and you heard it in Brian's presentation earlier today, we're seeing positive momentum going in, in Q1 in both cold and flu and in pain trends this quarter with continued positive growth.

Then secondly, when you look at pricing last year, we started the year with a bit more than 2% in pricing in Q1, and then that went up to 4% and then 5% and 5.5%. So you should also see some pricing benefits come through as we cycle over the pricing that we did in half 2 of last year.

And other than that, you continue to monitor the trends. I mean, I think I've provided a slide in the back half that shows you a little bit what to keep in mind what happened in '22. So I hope that is model may help for you. But let me just maybe take the bigger step back. When you look at the last few years, there were certain categories that are up, others were down. We really feel good about the strength of our portfolio and our ability to deliver in the 4% to 6% guidance range. And that's also why we've guided to 4% to 6% for this year.

Our next question is from the line of Faham Baig from Credit Suisse.

Tobias, can I come back to the first question from Iain on price versus volume? How do you see the balance of price and volume for the full year in 2023? And what will -- what are the key moving parts that will differentiate your growth from being at the bottom end of the range to the top end of the range?

And secondly, a slightly more broader question. There clearly are at least a couple more of your peers that's looking to become stand-alone businesses over the next couple of years. How do you see this impacting the competitive dynamics, both short term and long term?

Yes. Thanks, Faham. So look, on the price/volume, and we're not guiding to price and then volume for the year. I mean, as I said in my presentation earlier today, we would expect that from a mix point of view that we're a bit more weighted to price initially. I mean, as I said earlier, there's a bit more pricing coming through as we cycle the increases we did throughout the year.

Look, I mean, overall, we feel good about the 4% to 6% volume across the strong portfolio we have and I think at that our ability to navigate the environment that we're seeing out there in the market.

And maybe on the second question around other stand-alone businesses and competitive environment, I mean the one that's obviously been announced is J&J's Consumer business, Kenvue, listing at some point in 2023. Overall, one, I think the listing of another consumer health care business is a good thing. It's a good thing.

One, it reinforces, I think, the attractiveness of these categories and the attractiveness of consumer health. And I also think it will create more interest and dialogue around this new sector that we were first out there. So it's always been a competitive environment we compete in. I don't necessarily see that getting any easier or any harder as we go forward.

Competitively, we feel really good about where we're at. And actually, when I look at last year, this growing and maintaining share in 2/3 of our business, we feel really good about, and that was consistent throughout the year. That was the number in the first half and the number for full year. So overall, we feel like with our portfolio and our brands, we're in a really good place to compete.

Our next question is from the line of Rashad Kawan of Morgan Stanley.

A couple for me, please. First one, can you talk about the productivity program you announced today? Where do you see the savings coming from? And maybe talk about the phasing of that over '24 and '25.

And then the second question, just about your innovation pipeline for the year. How is it shaping up? Where are you looking to focus in terms of the level of innovations, areas that you're most focused on, et cetera?

Great. Thanks, Rashad. On the productivity program, let me maybe take a step back and give some perspective. Obviously, separating from GSK and standing up a listed company is a pretty big undertaking, and it's quite complex to do. So our focus was to ensure that we did that smoothly with no business interruption and continued the momentum in the business. And we feel great about that. We feel like we achieved that, and I think that shows up in the results of that.

But now that we've been running the company for 7 months, we see the opportunity to streamline the organization, simplify the way we work, become more agile and productive, which will in turn give us the capacity to invest and the growth opportunities and the innovation. And we see those growth opportunities. So it even gives me more confidence. I was already very confident on our medium-term guidance.

From a phasing, what we announced today was GBP 300 million saving, the majority of that in '24 and '25. Tobias, if you have anything to add.

Yes. And then just I think -- and I think the restructuring costs to come through, which are front-faced, so split between '23 and '24. And then as we go through the year, of course, we'll update you when there's more to update on that.

On innovation, listen, we don't necessarily talk about future innovations that haven't launched yet or specifics around them, but I have to say, I feel really good about our innovation next year and especially in Oral Health, which is a really important category for us and a place where we feel like we've really led in innovation, certainly on the toothpaste segment.

And we saw some great innovation this year across the board, like Emergen-C Kidz in the U.S., which really opened a new segment for us in the immunity segment or Centrum Benefit Blends, which really expanded Centrum out and gave us runway room for growth in places like Middle East, Africa and Latin America; or launching new brands like parodontax in India; launching brands in new markets like South Africa and India for parodontax and Centrum for India. So I feel really good about what we've been able to do in 2022 and the outlook for 2023.

Our next question is from the line of Guillaume Delmas of UBS.

Two questions for me, please. The first one, going back to your savings program. You're basically signaling that this will be additional fuel for your brands and growth opportunities. So my question here is, what kind of return do you expect on these incremental investments? Because unless something has changed, deteriorated since the time of your listing, this investment should effectively drive an acceleration in your like-for-like sales growth. So basically, when you talk about greater confidence in achieving the 4% to 6% like-for-like, should we interpret this as a signal that your ambition is clearly not to be at the bottom end of the 4% to 6%, where consensus currently is for the next 3 years?

And then my second question is on your local strategic brands. I think you said in the presentation, it's 20% of your turnover, 20% of your growth last year. Can you maybe shed some light on how many brands you've gotten there? And are they just like the power brands accretive to your gross margin? And maybe could you see some of these local brands getting power brand status over time, as in significant opportunities, an international rollout or category adjacency expansion?

Yes. Thanks, Guillaume. And I'll answer that second one first and then touch on the first question and go back to Tobias on that. So first, in the local growth brands. Listen, we feel great about our portfolio. I think as we went -- separated from GSK, took a step back and, frankly, engaged with our Board and looked at the strategy of the business. We confirm we feel great about our strategy, our ability to deliver.

But we also do see some additional growth opportunities, frankly, and some of those are in those local growth brands. So we have over 20 brands in that local growth bucket now. And some of those brands are just really powerful brands at the local level. So one example, Be-Total, which is a VMS supplement in Italy, grew double digits this year as did [Calcita], a calcium supplement we have, which is more at the local level.

We've talked about ENO in India and Brazil, Tums in the U.S., Emergen-C. So we really see a lot of opportunities in growth in local growth brands. And as we look at our plan and intent to invest in A&P and R&D ahead of sales, it's really because we see the opportunities to invest and drive the growth across the portfolio, and which is why we're even more optimistic today than I was 6 months ago, where I was quite confident in our medium-term guidance. But we really see those growth opportunities.

On the -- I'll turn it to Tobias on the productivity and where that plays out. Certainly, we think we have a fantastic portfolio. And from a growth perspective, our ambition is to grow as much as we can on this business, and we see those opportunities. And as we see those opportunities, we want to go after them and we want to build the capacity to invest in that. Tobias?

Yes. And Guillaume, I think it's what you said, right? I think we really believe and are confident in this 4% to 6% growth outlook, right? And as you mentioned, isn't necessarily reflected yet in the consensus that is out there. So I think this bit -- for us, this is just another reason to believe in the growth algorithm that we put out because it gives us the capacity to fully invest behind these opportunities that Brian just described and also in an environment out there that is also fluctuating.

So I think from that point of view, I think it's, a, the right thing to do for the business because the business, as Brian described before, it's a phase we enter. I said at the Capital Markets Day, that's the phase, we're going to reduce other SG&A over time. So we're doing what we said we would do because we want to be an agile company.

But secondly, it allows and gives the capacity to invest behind the brands. And then ultimately, that is a reconfirmation of the value-creation model that we put out there and we fully believe in.

Our next question is from the line of Chris Pitcher of Redburn.

A couple of questions from me as well. In terms of the growth story, geographic rollout is an important part. Is it important -- is it fair to say that you've got the broadest sales and distribution network, the competitive environment that you're talking about earlier? And could you help us sort of understand the scale advantage that gives? Are you able to give us an idea of how much of your growth in sales has come from brands launched in new markets over the last couple of years? Is it the tens or hundreds of millions?

And then perhaps using India as an example, can you say precisely how much India was over the 20% you discussed in the statement? And how much of that growth was in the core Sensodyne and ENO? And how much came from the rollout of Centrum and parodontax?

Great. Thanks, Chris. Appreciate the question. I think on the rollout, we do see those opportunities to drive growth. We haven't given any specific guidance on what that rollout is driving versus other areas.

What you said on the broader sales and distribution, I think we have a fantastic geographic footprint, and we see opportunities in that. And we've said 2/3 in developed markets, 1/3 in emerging markets and real strength across emerging markets, if it's Middle East, Africa, Latin America, Central Eastern Europe, India, China, Southeast Asia. So we see very broad opportunities there. And we've mentioned in the past, we see that in Middle East, Africa, in places like India, where we have those opportunities to drive growth.

Your specific question on India, India had a very strong year this year, grew double digits. We see that as -- and India was up double digits every quarter in 2023 (sic) [2022]. So a very strong business for us. Centrum, for me, in India is really a midterm to long-term play. It's a category that's developing there. We believe that it has huge potential. We started with an online launch, which will now move to physical distribution in 2023 and very quickly took a ten share of the category on that online piece.

So -- and we see it as a key part of our strategy. And as we've laid out, it's about household penetration, increasing household penetration. And we see those opportunities across the portfolio. And it's also about new and emerging channels and geographies and expanding the portfolio.

And Chris, also when you look at the emerging market footprint, I mean, as Brian said, it's 1/3 of our business, 33%. So even with some currencies that went negative on the emerging market, it is up by a full percent, right, from 32% last year to 33%. And emerging markets in aggregate grow -- grew 16% last year. I think this is a key part of our growth story. And a big part of that growth story in the emerging markets is the geographic expansion, but also the existing growth in this brand, capitalizing on the footprint that we have built and I think, again, also with opportunities to invest behind further growth as we do more of these things that Brian just described.

Our next question is from the line of Victoria Nice of Societe Generale.

My first question is on A&P, which was up 6% in constant currency in the first half and flat for the full year. Can you walk us through in more detail what was driving that? And does spend step up again in the first half? And then during the presentation, Tobias flagged a reduction in retail inventory in the U.S. Where is this impacting specifically? And should we expect it to continue into the first quarter? And then also, you called out oral was weak in the fourth quarter in the U.S. What was driving that? And does that continue into the first quarter?

Thanks, Victoria. First of all, on A&P, listen, we're a branded consumer health care company. So we take investment in our brands, both in A&P and innovation, very seriously, and we're committed to it. As you look at the 2022 A&P spend, our consumer-facing A&P was up 6%, excluding Russia, where we ceased all advertising by the end of Q2. And importantly, we saw growth in that consumer-facing A&P in both the first and second half.

So we continue to invest in growth and brand building. And I think that investment showed up in our results. We grew or maintained share in 2/3 of the business with really consistent performance throughout the year. That number was what we shared for half 1 and was the same number for full year results. So we're -- and we feel really good about that number.

And as we look at 2023, our plan is to invest A&P ahead of sales growth with continued focus on areas where we see the most growth opportunities, which are our power brands and our local growth brands.

Tobias, you want to take the second question?

Yes. So on Oral Health, I mean, first of all, the -- if you look at consumption, we continued to grow share in Q2 -- in Q4. So I think from a sell-out point of view, we continue to grow ahead of the market across Oral Health business. We grew about 2x the market with some brands doing better than that. I think overall, we feel good about the consumption on that.

There were 2 impacts in Q4, as you mentioned. One is there was some inventory reduction in U.S. retailers. Look, it's very hard to predict what they're doing. Ultimately, it will even out over time. We don't have -- we don't believe we have excess inventories anywhere, but it's very hard to say or predict what retailers are doing. I'm not concerned about it going forward because the most important thing is to sell out what's strong and continues to be strong.

Secondly, China was down. The Oral Health market in China was down given the lockdown. We also think this will come back. So actually, we've grown share through that period as well but in a declining market. So those were the 2 things to keep in mind for Oral Health. And Brian already mentioned earlier, I feel good about our innovation pipeline and continued growth in Oral Health overall.

Yes. And maybe the only thing I'd add is still feel fantastic about Sensodyne, and it grew in single digits this year. And Tobias mentioned some of the some of the things that impacted Q4. We also grew share on Sensodyne in 2022, and the consumption remained strong.

But our Oral Health business has 3 power brands. We don't tend to talk about them as much, but they're very strong. So parodontax, which is our gum health brand; and Polygrip Polident, which is our denture care brand. Both of them grew high single digits on the year and both of those brands also grew share. So I continue to be optimistic about Oral Health overall, Sensodyne within that, and our ability to drive above market performance across those 3 brands.

Our next question is from the line of Martin Deboo of Jefferies.

I've got some key ones on FX, I'm afraid. And what lies behind the question is, I think as we get to know you, FX is becoming part of the narrative, particularly on margins. So if I could just unpack it a bit. I think you were saying that the margin miss for FY '22 was driven by translational FX on margin getting a bit more adverse towards the end of the year, if I understand you correctly. So I'd just value a bit of color on that. Second component is this guide down in '23 margins on transactional FX of 40 bps. Can I just understand what your transactional FX exposures are so we can just get behind that number a bit?

And then thirdly, net debt was better than we expected. I think because FX translation on net debt was a lot better than we expected. So again, are the hedges playing into that? Can we just understand how you're managing your FX risk on net debt? So some technical ones from me. So those are the questions.

Right. Thanks, Martin. And there are no geeky questions. I just want to be clear about that. One thing I would say on the leverage is this is a big focus for us, and we feel great that we're down now at 3.6x at the end of the year. Cash flow is really strong in 2022. And we're also now confident that we will deliver ahead of our commitment of leverage below 3 by the end of 2024. We'll deliver that during the year in 2024. So just want to reinforce that point. We feel really good about that performance.

But Tobias, you want to talk to the...

Good. Let me just -- working backwards because Brian started on the net debt, right? So I think on the net debt, I think our -- in the long term, we've aligned the currencies of our debt with the currencies of our earnings. We've also switched some of the debt and interest to Chinese renminbi in Q4. So I think -- which even brought that closer together in -- by the end of last year. So I think we have a good -- that we have good coverage. So that the FX on the debt and on our earnings are broadly aligned with each other.

The FX impact on the debt for the year, as you mentioned, was very low. You see that the bridge I have in my deck, it was only GBP 70 million negative between the demerger date and year-end. Of course, at the end of Q3, it was a massive number given where the currencies have moved. So I think it's a nonmaterial movement from 18th of July to 1st of December, so GBP 70 million but on a GBP 10 billion number.

And then let me just talk you go through the other 2 questions. You asked about the '22 miss. So what we have said in November is that we would expect an increase in the adverse actual FX of up to 30 bps. And also we had said, given the recent favorable translation movements that margin would be slightly above last year, and that was at October rates.

So since then, basically, 2 things happened. One is the transactional component got slightly worse. That comes from our Swiss cost base, and also there was massive volatility in some emerging market currencies where there's a mismatch in the operational versus the trading currency. So example is Pakistani rupee, the Turkish lira are examples of that. And I think these are really unprecedented moves. I think both in the Swiss franc and also in these emerging -- in a number of these emerging market currencies that all came together over a few months. As a result, the transactional we had was right at the top end of the 30 bps expectations that I had set.

And then on the translational side, that impact was a bit less, and that comes from a stronger dollar because the dollar actually was up 5% in those 8 weeks between the time we had guided and year-end. And also the Russian ruble came back up by over 25%. So those are the 2 things against the '22 guidance.

And then you asked about the '23, the transactional, so I think this is simply the full year effect of the effects that we have seen come through in late Q3 and in Q4 on the transactional side. So they're going to hit in -- predominantly in half 1 as we work through those effects.

The other piece is we have historically not hedged transactional exposure to GSK. It's not a capability that we have. We've now built those capabilities. So we're looking at hedging where we can. I think probably not -- will not be possible on the Pakistani rupee. But clearly, on the Swiss francs, we can do that going forward. So I would expect, once we're through -- have worked through these short-term impacts, that impact came from half 2, that these things will diminish over time going forward.

Our next question is from the line of Celine Pannuti of JPMorgan.

I have a few. So maybe since we are talking about margin, I'll start with this one. I mean, net-net, I think FX exposure is something that a group like you on a global basis exposed to, so I think that's not new. And I think if I look at the net benefit of FX was a positive of 30 bps for this year for '22, if I add transaction and translation together. So the underlying was still down 30 basis points. So my question would be why is it that the business did not manage to get margin expansion. But more importantly, for '23, if you could give us the bridge on the building blocks. Do you expect gross margin to be up in '23? And if you could talk about the different moving parts that gets you to a guide of [22.8].

My second question is on oral care because at the time of the listing last year, that clearly has been one of your key engine for growth. Sensodyne has been growing mid-single digits, I think double-digit historical rate. And if I look at P&G and Proctor in oral care, they grew high single digit last year versus you doing mid-single digits. So is the environment becoming more competitive? And does it make it harder for you now to outperform in oral care?

And then lastly, if I just can ask one on restructuring costs. Am I right -- so you said there will be about GBP 150 million restructuring costs this year and I think GBP 100 million next year? And then on the separation costs, is there still GBP 100 million? Or can you talk about what other one-off costs we should expect?

Right. Thanks, Celine. And Tobias, why don't you start on the margin question and hit restructuring costs, and I'll come back on the oral care.

Yes. Thanks, Celine. So I mean, yes, what you said is correct, right? That was a net 30 bps positive impact from currencies in 2022. But I think the reason why was the margin down, I think, simply comes from the fact that we just separated out and there were 2 things that weren't in the prior year base: one is the cost of running the company as a stand-alone entity and all that entails; and then secondly, the synergies that -- the rest of the synergies of Pfizer that came through. And between the 2, that was a net 60 bps drag on the margin.

So if Haleon would have been fully standalone with all the synergies in there, the '21 margin would have been 60 bps less. So I think from my point of view, we have delivered operating leverage in the year, but I think it's just that full year annualization impact of us just having separated out that, that comes through.

And then for '23, I mean, we guided to the margins broadly flat after taking these 40 bps of transaction impacts that I just explained earlier on the call, which, again, I think, means that from an operational basis, the margin would go up, right? And I think -- and I would see how we do this pretty much with the model that we have laid out of the -- and the long-term model is that we see gross margin increasing. That comes from the stronger growth in the power brand. So that drives positive mix. And that gives us the freedom to invest. And Brian said it earlier, we were planning to invest heavily into A&P and R&D in 2023, yes?

And then, of course, you have to show some things to work through, which are these transactional losses. And then secondly, we have the full year impact of the inflation as we roll off of the fixed price contracts. But the flip side to that is you also get a bit more pricing as the pricing impact our annualizing.

Then on your restructuring costs, yes, that's correct. GBP 150 million in '23 and another GBP 150 million in the following year. We'll update you as the year goes as we have more color when that hits. So from that, you see, we would expect to pay that back -- pay back the restructuring costs very quickly.

And on separation costs, no change to the guidance. We had said about 80% of the spend we expect in '22, and that pretty much came through with about GBP 400 million. And that was the bulk of it that came through. And I think there is just some final stuff to work through as we switch all our brands to Haleon packaging and a few final separation things to consist in.

Yes. Thanks, Tobias. And Celine, on oral care, and I mentioned a little bit of this earlier, first of all, oral care has always been a very competitive environment. And we are really confident in our strategy around therapeutic oral care, which has really delivered the consistent growth in share growth on Sensodyne and across our power brand portfolio.

I won't comment on anyone else's growth, but there are portfolio differences. We're not in electronic toothbrushes, and that's not a place where we play per se. In the toothpaste business where parodontax and Sensodyne play, we've been consistently able to grow share, and that was no different in 2022. Tobias mentioned a few of the things that impacted Sensodyne in Q4, so ended up mid-single digits on Sensodyne, 5.6% on Oral Health on the year, again, with really strong growth on Polygrip, Polident and parodontax, where we also see now growth opportunities as we go forward.

So listen, nothing in my mind has really changed. It's always been a competitive category. We know how to compete. Our focus and strategy in therapeutic oral health, which is a faster-growing subsegment that we've driven, we believe is -- will continue to pay dividends for us for the foreseeable future.

Our next question is from the line of Karel Zoete of Kepler Cheuvreux.

I have 2 questions. The first one is on your e-commerce growth, and particularly in the U.S. In the U.S., you grew by 7%, more or less in line with the -- with your overall growth in the U.S., which was a bit of a surprise. But what's driving the depth, particularly in the U.S.? And in general, the incremental investments you plan, will some of those also fly -- go towards, yes, strengthening e-commerce capabilities?

Then the second question is on U.S. private label. Obviously, a bit of concern that in difficult times, it might win share. Have you seen that in any of your categories? And yesterday, a private label player announced to be entering the Advil dual-action brand. How do you look at that?

And then the third question on the U.S. is Voltaren. The brand grew high single digit last year. How do you judge that progress versus the opportunity you see for Voltaren in the United States?

Great. Great. Thanks, Karel, for the question. First, on e-commerce. And again, taking a step back, we grew in the high teens on e-commerce overall globally. E-commerce is now 9% of our sales, which is up from 4% from pre-pandemic levels. It is a place where we feel good about our capabilities.

If you look at the U.S., you're right that there -- our growth this year was 7%. Our growth in China was significant double-digit growth. in the U.S., the net sales growth is also impacted by movements in inventory and phasing of sales. What I will say is we are overdeveloped on 11 of our top 16 brands online versus off-line. That includes Sensodyne, where off-line, we're approximately a 20 share of the market and online were closer to -- well, we're in the high 20s. So that disproportionate share is what we really look at because that means we're winning online versus off-line. So we feel good about those capabilities, and we feel good about this is a channel where consumers are going. We want to be where our consumers are. We've invested in the capability, and our focus is to have stronger shares online than off-line, and that's been our focus.

Tobias, you want to touch on the questions on the U.S.?

Yes. Yes. So overall on private label, when you look at the categories we play in, private label shares in those categories were flat. So there is no pickup overall on private label, yes?

Now when you double-click on it, there's a brand, there's a subcategory here or there where it went up. So for example, when you look at the PPI category, Nexium brand plays there, the private label share went up. But I mean overall, private label did not move, and we gained share against private label overall in the U.S. So I think -- as we have said before, I think not a concern. We believe even through crisis times, private label shares are staying broadly flat. And last year, they have stayed flat. So I think this is exactly as we had expected and forecasted.

Now you asked about Advil Dual. So I think this is what we expected. So depending on the route you take to bring a new product to the market, you get exclusivity. On Advil Dual, we had exclusivity of that of 3 years. That exclusivity now expires. So you would expect that the private label manufacturers have in 3 years' time to prepare for that, they would launch a private label, usually around the time or shortly after when that happens. So nothing unusual and has happened pretty much in every and every launch. So it's just a normal part of our business, yes?

So I think -- look, overall, feel good now. We're not complacent. We know -- I think it's ultimately the strength of our brands, the trust these brands have in resolving health needs. So no issue on the private label.

And then I think you asked another question on incremental investments and where they go. So I think on e-commerce, I mean -- clearly, I mean, you see that the shares are significantly different across the market. So I think there is -- we keep investing in the markets where private label -- where e-commerce business isn't developed as much. So I think there are opportunities as the market evolves that we are there, and we want to participate in that growth. So we continue to invest in those, not just in the U.S. and China, where it's big, but also in the other markets where it's still underdeveloped.

Our next question is from the line of Mikheil Omanadze of BNP Paribas.

So I have 2. The first one is on the VMS. How do you view the prospects of this category in the near term? A number of your peers have commented on the category softening. So I was wondering what you're seeing from your perspective.

And the second question is on Chapstick. So recently, there were press comments that you may potentially explore the sale of the brand. Now I understand that you may not be able to comment on the validity of this report. However, could you please just give us a color on the relative size of the brand, its profitability and growth rate in recent years?

Thanks, Mikheil, for the question. I'll start on VMS. Listen, we feel very good about the VMS category. Now that said, no doubt there will be swings quarter-to-quarter as we cycle on spikes in demand and when we brought on additional capacity.

If you take a step back, our growth over the last 3 years, since 2019, averaged 9% CAGR on VMS, which means the business is bigger than it was in previous pre-COVID. And we saw a 5% growth this year. Now the growth, again, varied first half and second half, and that had a lot to do with what happened in the base when we brought on new capacity and spikes in demand.

The consumer behavior of more proactively managing their health is still there and is continuing. And if we look at our VMS portfolio and the potential, we feel great about the portfolio where we play. And we think there's opportunities both in innovation. And you saw that this year in our Emergen-C Kidz launch, which was really successful. And I talked earlier, geographic expansion opportunities in places like Middle East, Africa and Latin America and India. So we see the growth opportunities.

I've talked a lot about the Centrum kind of revenue synergy opportunity, which is our structure in places like Middle East, Africa is so much bigger and stronger, able to run that business through where it has been on market but hasn't been invested in has really shown a good opportunity for us. And we're still very optimistic about China.

And then on your other question, I think as Brian mentioned before, look, I mean, as matter of principle, we're not commenting on any M&A speculation that's out there in the marketplace. I mean, as you know, as Brian said and also, I think as we put in the press release, I think we're disciplined about looking at our portfolio, which is about exploring bolt-on M&A opportunities, but also -- and you would expect that from us as a consumer company with a large number of brands to be also disciplined to look at our portfolio and how we invest in our brands. So I think this is what we have done. We've done that successfully in the past, and we're continuing to do that.

And then on your Chapstick questions, I mean we're not commenting specifically on any brand. I think there is a note somewhere in the press release about skin health, which has grown slightly, but we're not commenting on individual brand performance.

Our next question is from the line of Graham Parry of Bank of America.

The first one is on the Nexium Prevacid settlement. Just -- can you just remind us of how many cases you have outstanding there? And then how many of those have been settled? Can you confirm that the cost of that has all gone through the SG&A line in the GBP 44 million adjustment to IFRS on Page 26 of the release? And does that provision anticipate further settlements? Or is it just those that you've actually settled to date included in that?

And then second question is on interest and tax, just the guide in '23. They look worse than where consensus was coming out. So can you just help us to understand the phasing of interest expenses through the year as you manage the balance sheet with debt repurchases being announced as well?

And on tax, is the '23 guide a good sort of midrange guide as well for your tax rate going forward? Or are there other mix or tax benefit effects that could improve that over time?

Thanks, Graham. So on the Nexium settlement, so I think -- first of all, on the number of cases, I think there is I think around 3,000 cases. We settled the vast majority of those. I think, as in every settlement, there might be a very small amount that does not -- where participants might not choose, but we expect that the vast majority gets settled. So I think overall, I think we feel good about the settlement. And the reason we do is I think it was a nonmaterial amount. We cannot -- the settlement terms are confidential.

But as you have pointed out, Page 26 of the press release, that is where it has been booked and accounted for, which ultimately means it is a nonmaterial amount for us. So I think it's good to have this out of the way. But there could be another single case here or there. But I mean we really expect those to be totally nonmaterial as you would have in every settlement.

And then you asked about the tax outlook. So I mean, look, key driver -- I mean the U.K. government announced a tax increase and enacted it. So I think that's, I think, the biggest step-up. And then also at half year, we had said that we will be taxed on a different U.S. state tax mix. The reason is in the past when we were part of GSK, our U.S. state taxes were done based on the profit and the sales and the business mix that GSK has in the U.S. overall. I think now we have to look at what the Haleon mix of business is across the state tax, and there is a small increase on the U.S. state tax mix as a result of that. So those are the 2 reasons: one separation-related; the other one, government -- the U.K. government decision.

Great. And interest charges, just the phasing through the year? And do you expect to see that managed down through the course of the year?

No. Okay. These are -- on the interest charge, I mean, I think, one, you have the annualization impact. So that's why the step-up is there, which I had laid out in my comments in Q3. So overall, I mean, 87% of the debt is fixed by the end of the year. So you would expect us as we pay down our debt that we first pay down the floating part. So I would expect that ratio to continue to decrease. So I think the risk on the floating part is very, very small. So not concerned about that. And then, of course, as we pay down the debt, you would see that also the interest charge come down. But of course, you have to take the annualization impact of that because there were no interest expense in Q1. And also in the first half last year, we had interest income because we owe land fees, the 9 billion of bonds we have taken to GSK adviser. And that will not be there in 2023 anymore.

(Operator Instructions) And our next question is from the line of Alicia Forry of Investec.

I was wondering if you could talk about whether you feel you have any additional levers to address, some of these transactional FX mismatches besides simply hedging? Now that you're a stand-alone business, are there opportunities to change where certain costs are located?

And then second question is, I wonder if you could discuss your expected evolution for some of the cost components for FY '23. I know you've touched on A&P, but a bit more color on what you're seeing with regards to conversion costs, freight costs, distribution costs, et cetera?

Good. So let me start on your hedging question. So I think it depends a bit on where they arise, right? I think on the Swiss franc cost bank -- Swiss franc cost base, I think hedging is the best path forward. I mean overall, I think we benefit as a company from having a Swiss franc base, having a big part of our IP there. So it helps on the overall tax charge and the overall tax mix. So I think having that presence in Switzerland is actually helpful for the company overall. And I think we can remove some of the short-term impacts by using a hedging approach.

When you look at emerging market currencies, I think here, there is -- I mean, for example, in Pakistan, we have a local production site. So we already manufacture locally, but there are still components that you have to buy outside the country because they're not available inside the country. So there's probably less you can do about those.

But -- so I think there is a small exposure on that, but I hope it's not as massive where 4 or 5 of these emerging markets have those over time. So I think that's probably the bigger thing of what happened on the hedging side.

And then you asked about the cost components. So look, I mean, more broadly, I think we're seeing a flattening of the material cost. We're also seeing a flattening or come down on freight and distribution costs. Now what will happen in '23 is as we switch from fixed price contracts that we have locked in for '22 into the new pricing for '23, there is still a step-up, but that step-up is in the single digits versus in the double digits as it was in 2022.

And against that, of course, we have the annualization impact of the pricing to cover that. We're -- and then we will see and we'll track where the early inflation headwinds are going and ensure with our suppliers that if it goes positive that we can also participate in that. I mean I think there's one -- there's at least one big component glycerine, for us or we start seeing the prices come down. That's where we've also chosen not to take a fixed price contract, which we believe we're seeing it reduced.

But look, I think the situation is still volatile out there, so we will stay vigilant in that as we look into it. And then I think from a freight point of view, I would expect those will come down over time.

Our final question is from the line of Tom Sykes of Deutsche Bank.

Firstly, just on cost inflation. Could you give some comments on cost inflation? And in Q3, you said you were renegotiating some of your contracts with third-party manufacturers and looking at fixing some freight costs. So any timing of any cost relief over the course of the year would be helpful.

Just a follow-up on the tax rate question. As you have more emerging market growth, is that going to pressure upwards the tax rate on a net basis at all, please? And sorry, a final one on FX. Is there much revenue where you're invoicing in a currency which is different to that, what you're calculating the organic growth in, please?

Good. So let me start with the last question. So the organic revenue growth is fully currency-adjusted. So the organic growth is the true organic growth rate of removing all currency components, yes?

And on the tax rate question, so in our -- I mean, more broadly, our -- look, I mean, emerging market mix does not drive up our tax mix dramatically. I think most of our countries are what you would call limited-risk distributor. So I think they have normal local distribution margins where our intellectual property sits in the U.K., Switzerland and the U.S. So from that point of view, our biggest tax exposures are to the Swiss rates, the U.S. rate and the U.K. rates. I think those have the biggest impact. And given those movements, that's also why you see the tax rate overall go up.

And then on cost inflation, I mean -- look, I mean, where we are this year, we're around 70% on the materials where we have fixed agreements done. So we have good visibility on those. And some we consciously decided not to take it given we believe the cost will come down. As you would expect, the expiry of '22 contracts to '23, which means there was a step-up in costs that's coming from the year. And then we need to see if we're moving into a much more beneficial environment in half 2 or not, but then we'll ensure that we are able to participate in that, yes?

But clearly, I mean more broadly, we don't see the same pressures in '23 compared to what we have seen in '22, where I think everything came together on commodities, on energy, on transportation, on freight. So from that point of view, I think we're seeing the lower pressure overall.

Great. Listen, I think we'll close out here. Thanks, everyone, for joining today and your interest in Haleon. As I said in my presentation, 2023 has started well. I look forward to updating you as we go through the year. And as always, if you have any queries, questions or follow-up, please let Sonya and the IR team know. Thanks and have a good day.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.