Haleon plc (NYSE:HLN) Q1 2024 Earnings Call Transcript

Haleon plc (NYSE:HLN) Q1 2024 Earnings Call Transcript May 2, 2024

Haleon plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, welcome to the Haleon Q1 2024 Trading Update Conference Call. I am Davin, the chorus call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over the conference to Sonya Ghobrial, Head of Investor Relations. Please go ahead, madam.

Sonya Ghobrial: Thanks very much. Good morning, everyone, and welcome to Haleon’s First Quarter Trading Statement Conference Call. I’m Sonya Ghobrial, Head of Investor Relations. I’m joined this morning by Tobias Hestler, our Chief Financial Officer. Just to remind listeners on the call that in the discussions today, the company may make certain forward-looking statements including those that refer to our estimates, plans and expectations. Please refer to this morning’s announcement and the company’s UK and SEC filings for more details, including factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. As usual, we will take you through some prepared remarks before opening the call to Q&A.

For those listening to our webcast, who’d like to ask a question, please use the dial-in details on Page 3 of today’s release. Also, while the focus today is on revenue performance, we’ve also provided group profit and margin detail on both a reported and an adjusted basis, with a full reconciliation, including one for organic revenue growth in the appendix. As a reminder and for information, we do not intend to provide quarterly profit data on an ongoing basis, and we’ll only do this for as long as reports our results as part of its financial statements and until our registration rights agreement. With that, I’d like to hand the call over to Tobias.

Tobias Hestler: Thank you, Sonya, and good morning, everyone. Let me first start with our highlights for the quarter. We had a solid start to the year with 3% organic revenue growth, driven by 5% price and volume/mix down 2%. Positive volume/mix in EMEA LATAM and APAC was offset by a decline in North America. However, growth was held back in the U.S. from inventory adjustments by some retailers, Haleon’s consumption in the U.S. was up mid-single digit and ahead of the market. . Adjusted operating profit of £707 million was up 12.8% on an organic basis, with gross profit up 5% organically, funding strong growth in A&P. As pricing is normalizing and cost inflation easing, combined with our productivity program, you can see that our growth algorithm is delivering even in a low growth quarter, enabling increased reinvestment.

We have made continued process in the evolution of Haleon to become more agile and competitive and we are now seeing the results of the productivity program announced last year. We also should in today’s release the proposed closure of our manufacturing facility, transferring our Levicesite in Slovakia over the next 2 years, an important step in Haleon building a more efficient global supply chain. As a reminder, with our full year results in February, we announced that we expect to allocate £500 million to share buybacks in 2024. To date, we have purchased 102 million ordinary shares or approximately £350 million. The solid start to the year gives us confidence in delivering our full year 2024 guidance after in our release this morning.

So let’s look in more detail at our Q1 results. Revenue of £2.9 billion reflected 3% organic revenue growth. Our strong operating organic profit growth resulted in a 24.2% margin, up 110 basis points on a reported basis and up to 120 basis points organically. Turning to Slide 6. Coming back to organic revenue, we had guided that Q1 revenue would be just below the lower end on our 4% to 6% full year organic growth guidance range. However, in this quarter, we also saw some inventory adjustments in the U.S. resulting in volume/mix, a little weaker than expected. Overall, volume/mix declined 2%, with EMEA and LATAM returning to volume growth after two quarters of volume decline. Asia-Pacific also saw a positive volume/mix despite lapping tough prior year comparatives in China following the end of COVID-19 knockdown.

And although North America volume/mix was down, consumption was good, reiterating healthy demand for our brands. Price was up 5% and included both carry forward price from last year as well as incremental pricing taken during the quarter. Going forward, we expect the carry-forward benefit to reduce a level through the year. Organic revenue growth was more than offset by a 460 basis point adverse impact from translational foreign exchange. Year-on-year sterling strength relative to the dollar and Chinese renminbi were the main drivers. Given how FX rates evolved through 2023, we always expect that the impact of foreign exchange to be most pronounced in the first quarter. Therefore, no change to our full year outlook. Net M&A was minimal and reduced revenue by 0.6%.

Looking now at performance across our categories, I was particularly pleased that our Health revenues grew 10.6% and with Sensodyne, Paradontax and Polident all up double digit, further building on last year’s strong performance. This was underpinned by a number of successful innovations such as Sensodyne clinical wide, scientifically proven to whiten teeth by 2 shades without worsening or causing sensitivity. VMS revenue grew 9.9%, continuing momentum from Q4 2023 and demonstrating our brands remain well positioned and continue to outperform. Health rates was up double digit with strong growth in China. Strong Centrum growth was underpinned by performance in North America and continued activation of cognitive function claims for Centrum Silver.

Emergen-C grew mid single digit, gaining share and outperforming the immunity category in the U.S. Pain relief revenue declined 4.8%, mainly reflecting tough comparatives from Q1 2023 with Fenbid in China, and also Advil declined double digits, partly due to elevated demand in Canada last year as well as inventory adjustments by some retailers. Panadol declined low single digit, driven by a softer performance in Asia-Pacific, given the decline in Australia, grew mid-single digits with strength in Europe. As we expected, respiratory revenues were down, lapping the strong prior year comparatives. In Q1 2023 from Contact in China as well as the prior year rebuild of inventories, mainly in the U.S., given low levels at the end of 2022 and cold and flu incidents spiked late in the year.

Finally, as and other revenue increased 2.4%, with Health and Skin Health up low single digits, smokers health declined low single digits. Turning to regional performance. Emerging markets, which are 36% of revenue, saw 7.7% organic revenue growth. With the benefit from pricing and hyperinflation economies now capped. And we spotted China being down low single digits. Developed markets grew 0.5% organically. Looking at each region in more detail, starting with North America. Organic revenue declined 3.3% with a positive price, up 4.5% and volume/mix down 7.8%. Our health mid-single digit, driven by Sensodyne, VMS was up double-digits and pain relief and respiratory health, both was declined due to challenging comparatives and inventory management by some U.S. retailers.

Let me take you through this in a bit more detail. While some inventory management is expected through the quarter, this quarter was a little unusual. You will remember that the cold and flu season had an early and strong spike in Q4 2022, very much towards the end of the year. And this resulted in restocking of depleted inventories in Q1 of 2023. Normally, what we would expect and what we saw in Q1 this year was destocking in the quarter. As retailers sell out stock and reduce inventories towards the end of the season. As a result of this and given the comparatives, there was a much higher-than-usual year-on-year change in sale, resulting in the majority of the volume decline seen in the region. Additionally, and to a lesser extent, we saw some inventory adjustments by some U.S. retailers on other categories, which also impacted.

However, looking at consumption data on the market, our consumption increased mid-single digits, and both the market and Haleon performance improved in Q1 compared to the last 12 months. More importantly, Haleon outperformed the market, both in value and volume, demonstrating consumer demand for our brands remains healthy. Turning to Europe, Middle East, Africa and Latin America, organic revenue increased 8.6%, with 7.5% price and 1.1% growth in volume/mix. Pricing partly benefited from carry forward from 2023 and also the benefit of incremental pricing taken in the first quarter. Volume/mix was positive despite some offset from a decline in Middle East and Africa. Across the categories our health of double-digit growth was driven by all three power brands.

VMS increased mid-single digits with good growth in both Centrum as well as local brands. Pain relief in the region saw mid-single-digit growth, reflecting good growth from Voltaren and respiratory sales increased mid-single digits despite lapping a challenging prior year comparator. Finally, turning to Asia-Pacific. Organic revenue increased 3.3%, evenly balanced between price up 1.7% and volume/mix up 1.6%. A really good performance, particularly given the expected decline in China in Q1. Within the categories, Oral Health saw double-digit growth, underpinned by strong growth across key markets, including China and India. In VMS, we saw high single-digit growth underpinned by Caltrate. Respiratory Health grew high single-digits despite the challenging comparative and pain relief declined.

Turning now to our operating performance. We delivered £707 million of adjusted operating profit, an increase of £16 million. Solid revenue growth with pricing, easing of inflationary cost pressure and efficiencies from the productivity program allowed us to strongly invest into the business and into A&P. Net M&A had a negative impact of £12 million and was a 30 basis point drag on adjusted operating margin. Finally, there was a £59 million or 80 basis point adverse impacts from translational foreign exchange. This mainly reflected movements against the U.S. dollar and Chinese renminbi. Taken together, this resulted in a 2.3% increase in adjusted operating profit and a 24.2% margin. Remember, as you’ve seen in prior years, the quarters are very volatile, and as such, neither the Q1 absolute margin nor the organic profit growth should be extrapolated for the full year.

We continue to evolve and implement change across the business to become a more agile and competitive organization. The productivity program is delivering the expected savings and is funding increased investment in the business and driving growth. In addition, we announced plans for the proposed to closure of our manufacturing facility in Maidenhead, which is expected to result in a total restructuring cost of around £90 million over the next 2 years the majority of which is non-cash. There is no change to Lamisil and ChapStick impact, which I guided at with the full year results. And I can confirm that we expect ChapStick to close in May 2024. Also in the quarter, we completed a share buyback of £315 million for £102 million ordinary shares, all of which were subsequently canceled, reducing the number of shares in issue by circa 1.1%.

This was part of the £500 million share buyback. We expect to complete in 2024 announced with our full year results. The expected impact of translational effects remained unchanged with an adverse impact of 2% on full year 2024 revenue and 3% on adjusted operating profit. This assumes rates as at the 31st of March ‘24, hold for the rest of the year. All other full year 2024 guidance remains unchanged. So to sum it up, Haleon delivered a solid first quarter performance despite lapping challenging comparatives. We delivered organic profit growth ahead of organic revenue growth, benefiting from improved gross profit as well as efficiencies in the business. Our business is evolving as we implement change to improve agility in our competitiveness.

Finally, following Q1, I remain confident that we are all well placed to deliver up on our full year guidance. Before we move to Q&A, I wanted to briefly say a few words on my own personal news from last week. As you will have seen, I’ll be leaving Haleon at the end of the year. It wasn’t an easy decision to make, but I’m really proud of the strong foundations we’ve built and what we have achieved. It’s been an amazing period, both professionally and personally. I was very open about wanting a needing to create more balance in my life, not least because as you get older, managing type 1 diabetes becomes more and more important. So that’s been a driving factor in. I’ll be focusing on advisory and non-executive work from next year, which is an exciting new phase for me.

You also have seen we announced that Don Ellen, R&D, the CFO, [indiscernible] be joining at the end of October to succeed me. He is an exceptional leader and will bring deep consumer and international experience to the business. Haleon is in good hands. In the meantime, it’s very much business as usual. I will be leading us through Q3 and then working with Don for a couple of month’s handover before leaving at the end of the year. Anyway, with that, let’s now move to Q&A. And I will hand back to the operator to open up for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] We have the first question from the line of Rashad Kawan with Morgan Stanley. Please go ahead.

Rashad Kawan: Hey, good morning Sonya and Tobias. Thanks for taking my question and congrats Tobias on all that you’ve achieved at Haleon. So a couple of questions for me please. First, from a volume/mix perspective, I guess, you shouldn’t have much noise in Q2 outside of the cold and fluid dynamics in China and North America should be clean. So is it fair to assume that we should expect volume/mix to be positive for the remaining 3 quarters? And in terms of pricing, I noticed obviously some more incremental pricing being taken, which is consistent with what you’ve said at the full year. Are you broadly done for the year? Or is there more selective pricing to take? And then just second question on the Maidenhead facility, if I can. How should we think about the phasing of the £90 million restructuring over the next 2 years? And what level of cost savings are you expecting? Thank you.

Tobias Hestler: Great. Thanks. Hi, Rashad. Thank you – thank you very much. So let me start with your volume question on Q2. So in Q2, as you mentioned, there’s still noise or prior impact on Fenbid in the base. So – and remember last year for Fenbid, China went into the second wave of COVID infection. So it was actually the impact on Fenbid in Q2 was bigger than in Q1. So that is pretty much what’s left in the base. I think all the respiratory, the respiratory swing, also the U.S. swing is a base effect that impacted Q1, that is behind us. So onto your question for volume for the year, I think we’re confident in volume growth for the year. I’m not going to guide to the quarter. But you would say would expect from that the big gap is behind us from the base, but you see an improving trend from Q1 forward.

Then on pricing, so overall, I think very pleased with the pricing, how it started. I think very much on track, what I had guided for the full year, where I said that from a price volume/mix, 2024 is a stepping stone, and I also said we wouldn’t be at a 50-50 mix between price volume in 2024. So I think we’re going to get back to that, but not in ‘24. So last year, as you remember, 15% was volume driven, 85% was price driven, ‘24 should be a steppingstone to more balance, but not the balance yet. We’ve taken the majority of the pricing in Europe. So I mean, for example, European retailers, you do that once a year. So most of these negotiations have completed, and we’re very much on track on what we expected. But then, of course, we have countries like in the U.S. where we take pricing not at a given time in the year, but you try and do pricing together when shelf resets are done.

So, we will see how the in situation evolves and you might see pricing here or there come through. And then, of course, in the emerging markets, we take pricing on a more regular basis to be aligned with that. And then on Maidenhead, so the £90 million, I mean, it’s largely non-cash. I would assume probably roughly half and half for ‘24 and ‘25. I mean, ‘24 is mainly the write-down of the assets. And then you would have the severance cost roll through a bit later on. The savings are incremental £200 million to £300 million productivity program. And they’ll start to come over the next 2 years as we shift production to [indiscernible] and to third parties as well so.

Rashad Kawan: Thank you.

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

Guillaume Delmas: Good morning. Tobias and Sonya. I’ve got two questions. The first one is on the volume contraction in Q1 in North America. Tobias, could you maybe provide a bit more granularity on how much of this Q1 weakness in North America was attributable to Advil in Canada to the last year’s unusual reordering pattern in the U.S. and then this unexpected from the sound of it, inventory reduction in the quarter? And I guess related to this, I would expect the first two factors, so Advil in Canada and last year’s unusual ordering pattern to be a nonfactor in Q2, but do you expect further inventory adjustment affecting your Q2 performance or do you think retailers stock levels in the U.S. are now quite low at least?

So any indications on when sell-in and sell-out should be a bit more aligned would be helpful? And then my second question is on your gross margin improvement in the first quarter because it was quite significant despite what I would think were as a negative mix with OTC down, negative volumes, FX headwinds. So what were the key drivers behind this improvement? And would it be fair to assume that mix, FX, operational leverage should all improve at the gross margin level going forward? And if so, is your current mindset that most of this gross margin benefit should be reinvested, particularly in A&P spend? Thank you very much.

Tobias Hestler: Thanks, Guillaume. So let me talk to volume on the volume point first. So as I said in my remarks before, the majority and the vast majority of the volume decline in North America is driven by the two things you mentioned, which is the Advil the Advil Canada. And in the U.S., it is between an inventory burn normal this year and an inventory build unusual last year. So that’s the vast majority of the swing. And as a result, that is in the base and will not repeat going forward. So I think from that point of view, we know we are leaving that behind us. Then as you said, there were some additional, as I mentioned, there were some additional inventory adjustments by some retailers that impacted other categories.

Look, I think what we’ve been seeing is that retailers are focusing more on working capital. I mean, when you look at the drug channel, clearly, their overall situation, that doesn’t surprise you that did you focus more also on the cash side on the working capital. And also, I think, what we’ve seen over the last 6 to 9 months is that the supply chain is not just for us but in general, a much, much more stabilizing. Volumes are much more stabilizing. So I think that allows you to better and improve your inventory management, and that’s what we’ve seen retailers do, right? It’s very hard to predict what they’re going to do because they’re not going to tell you exactly what they’re doing. So I can’t tell you if this is all done.

We’re watching it very tightly. What I can say is that at the moment, we’re having about 1 week less of inventory compared to what we have seen historically. So I never felt the inventory was too high, at least compared to historical trends, and it’s about 1 week lower than what I’ve experienced in the past. So I think it’s in a pretty normal level from what I can say, but we’ll keep you updated on it. But most importantly, I think it’s really the U.S. consumption. It was strong. I mean we’re growing mid-single digits. We’re outgrowing all the categories that we’re playing in, in the U.S. And also, we see the market a bit improving in the U.S. I mean the market was in quite a bit of volume decline last year, which I had shared at full year.

It’s now still in a small volume decline, but we’ve been growing volume in that market, which I think speaks to the performance of our brands and our execution in the market that is moving in the right direction. Then let me move to the – your gross margin improvement. So as you say, I mean, we had a strong start to the year. Gross margin improved by about 100 – bit more than 100 basis points, which is just great of a combination of easing inflation at the pricing coming through and the efficiencies we’re driving mix isn’t really a factor, Guillaume. I think Oral Health has done very well. Oral Health has very similar margins to OTC. So that helps us carry through over 10% increase in oral care carries us especially on very premiumized products like the ones we have launched as well.

Now also take the look back at last year. And last year, Q1 was the quarter when we took the biggest hit because we had exactly the opposite effect happening last year, we still had the impact of increasing inflation that then from the second half of the year that really came through to the P&L in Q1, coupled with not all the pricing yet being in place. So I think you see a bit the offsetting effect. As we have said, we believe gross margins will improve for the full year, are very much on track with that. We’ve done that in Q4. So in Q4, it came up 70 bps. We’ve had another gross margin improvement in Q1. But of course, then by the end of the year, we’ll also start cycling over that a little bit. And then yes, absolutely, the intent is to continue to invest in A&P.

We’ve increased A&P invest strongly in Q1. And we intend to do that going forward to really capitalize on the opportunities we have in the market and also to drive continued growth for the rest of the year, and that gives us confidence in the 4% to 6% outlook.

Guillaume Delmas: Thank you very much.

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

David Hayes: I’ve got one follow-up and two questions, if I can. Just following up, you mentioned the 50-50 a midterm on price volume. I think you said 40-60 is what you were thinking roughly when you talked at the full year stage. So just a question whether has what could you say whether that’s changed at all based on what you’ve seen in the first quarter? And then the two questions are on the Maidenhead closure, two things on that. I don’t think, as I missed it, apologies, but you quantified the savings from that closure. But also, is this part of a bigger plan that’s going on in terms of supply chain savings initiatives beyond the £300 million, as you talked about under the new supply chain ahead? Should we expect more of these kind of announcements to come over the next couple of years?

And is that something you could maybe quantify roughly as additional savings over the next couple of years? And then the final one for me, just in terms of the price increases in the quarter, was there any pre-buying at all ahead of price increases through the period? And were those price increases across the regions or was it mostly focused in Europe and again, apologies if I missed that. Thanks so much.

Tobias Hestler: Thanks, David. So on your follow-up question, right? I mean, what I’ve always said pricing and volumes about it’s about half and half. So it could be 40-60 or it could be 60-40 in a year, right? It depends on when do you take volume and when do you take price, right? So I would say anything that is between 40 and 60 in either year in either direction is sort of the approximate balance between the two, right? It’s not an accurate 50-50 balance, but somewhere between those two. And that’s what we have seen historically. And I think we’re going to get back to this broad balance over probably the next 2 years or so. But thanks for the clarifying question on that. On Maidenhead, so first of all, the savings are incremental.

We’re not specifying them, but I think there are good savings. I mean it’s a site with 430 people in Europe, we’re shifting that to a much bigger site in in Slovakia, which is our key manufacturing site for oral care product. And as a result, it will have a very fast payback on the onetime cost or the cash costs that are associated with that. We’re doing that, I mean, pretty much, I mean, we said that, I think, when we – even at the Capital Markets Day, that there will be a phase where I think we’re going to make highly on and very in the middle of this, and we’re agile and more competitive company and that is part of that, that we look at where our opportunities to make this a business and where can we free up – where it can be free up resources to then reinvest in the business and with that to accelerate growth.

So it’s part of this program. But I think given it’s incremental to the £300 million productivity program, we also announced that separately. So you see that there is additional benefits that we’re delivering but also against the incremental one-time costs that are coming through, yes. And then on price increases, we do not tend to see massive forward buying. And also we try and limit that, right? And I think also, don’t forget, a lot of our sales are to a lot of individual pharmacies and customers. So there isn’t – so I’ve not seen any trends on that. I think both – and you see most of the pricing was taken in Europe. Pricing in the U.S. has taken at different times throughout the year here. And then APAC also, I think, look, has a much lower inflation environment and also the pricing was lower.

But I think so no concerns about anything from pricing that does not tend to be the case in our business.

David Hayes: Thank you.

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

Iain Simpson: Thank you very much. A couple of questions from me, but Tobias, very sorry to hear the departure at the end of this year and the support you’ve given the analyst community since spin will be much missed. So quick questions for me, if I can. Firstly, just thinking about the moving parts going into Q2, I think you’ve got a slightly tougher comp in China, but clearly a significantly easier U.S. comp. Would it be reasonable to expect Q2 being back in that 4% to 6% medium-term range then? And just as a kind of a jump to that, I think you made a comment about where inventory levels were versus pre-COVID, but I wasn’t clear if inventory levels were a week more or a week less than they were pre-Covid. So any clarification there would be very helpful.

And then secondly, just looking at Oral Care and VMS, a 10% growth in the clean parts of your business is pretty impressive. I wondered if you could provide any color as to how much of that 10% was pricing that we might expect to see sort of fade a bit as the year progresses and how much of that 10% was volume growth from all the usual stuff of share gain and rolling out into white space and innovation and all those things. Thanks very much.

Tobias Hestler: Good. Thanks, Iain, and thanks very much or the initial comment, I appreciate that. But we’ll have 8 months together to celebrate and to spend we’ll see each other along the way. So I think that’s time for that. But going back to business. So it’s 1 week less of inventory than what we had historically seen. So I think right now, when I look at my week of stock coverage, it is 1 week down. So that means 1 week less in the sitting in the retailers and in the store compared to where it was historically and what we – what I’ve experienced for a very, very long time, which gives me a bit of confidence that I don’t think overstock. But clearly, as I said, retailers are now more focusing on it where they are.

So we’ll keep you updating on it as we track this, you can imagine, we track this very tightly with our retailers. On the moving parts in Q2, so I think you mentioned, right, tougher comp in China to cycle over an easier comp, a much easier comp in the U.S. So I think clearly an improving trend from Q1, but I don’t want to get into guiding for quarterly growth rates. I think ultimately, we should take some comfort into us having very much confirmed our 4% to 6% guidance for the year. And then, look, thanks for also asking a question on the stuff that’s going great. So Oral Care, really good quarter with 10.6% growth. What’s driven that partly was driven by the launches we have. So really strong innovation come through, and that is on top of innovation we had pretty much a year ago.

So I think, last year, we launched Active Shield in the U.S., also in Q1. We now had a big – another big innovation within 12 months. I mean the more normal thing is probably 18 or so. So I think we got two big innovations true. Of course, there’s still growth coming from that innovation that we launched a year ago. So that continues to go well. And then of course, now we launched on top Sensodyne clinical worldwide and also taking that to other markets. So there’s a bit of sell-in and piping impact on that. But – and then overall, I think not now, it was both. It was volume and it was price, and it was more volume than price for Oral Care. And I think it’s just a combination of launches, good execution. And then also I think denture care is still benefiting from the innovations we had in the last 12 months in that business.

It really looks like now, I think all the three big brands really firing from all cylinders, which is, of course, great as you see. And then look, on VMS, I mean, we’ve always said very consistently that we believe is a category that is growing. The category growth is now back to mid-single digits in Q1. So which you always said it would. And then we also said, we believe our brands are doing well and are well positioned in that and that has exactly happened in Q1. By the way, very similar to the numbers I shared at full year when I share with you the sellout on the. And of course, very much as expected, the drag from Emergen-C on the vitamin C category has now ended. So you have all the three brands going well, because a little bit of help in China with a competitor that had some supply issues.

So the team was able to capitalize on that. But in aggregate, I think, really good performance, and it’s a mid-single-digit growth category that we’re playing in, and we’re outperforming that category. And that’s where we would love to see that, Iain. I hope I answered all your questions.

Iain Simpson: You did, you did. Thank you very much.

Tobias Hestler: Thanks, Iain. Appreciate it.

Operator: Thank you. We now have a question from the line of Bruno Monteyne from Bernstein. Please go ahead.

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

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

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

Tobias Hestler: Perfect. I did hear it on the ED cream. That is good. Thank you. Got it. So look, let me start with Voltaren. So mid-single-digit growth brands in growth. Always, we said it’s a brand that topical pain relief usually if there’s a lot of cold and flu going around, people take a lot of Panadol or Advil, then they do use a bit less topicals. I think now also that’s stabilizing usually gives us a bit of a benefit on Voltaren. So there’s been an offset in the portfolio with that. So I think, at least to see the performance being good on Voltaren in the quarter. From an innovation point of view, I think given its OTC, this has much slower innovation cycles. I mean the last big innovation cycle, we did this with Voltaren was the double strength or extra strength formulation which I think it’s now nearly everybody in the world, but not fully.

So there’s a few markets to go with that. These innovation cycles take a bit longer. So I mean, it took us 8 or 9 years to roll this out, to roll this out globally, whereas an innovation like in Oral Care, you get rolled out probably within 12 months or 18 months across the world, at least to the markets where it makes sense to have that innovation. Of course, what’s happening on Voltaren is in smaller innovations on packaging sizes as well. So I would always expect much less innovation in the OTC brands and then the continued fast-paced innovation in Oral Care and also in VMS, which I think we’re both delivering. On A&P, we haven’t specified it’s a trading update. We carefully use the word strong after taking guidance from Sonya strong means.

She told me all of you will be able to translate that and it means more than sales growth because sales growth was solid. And also, I think we reinvested a good part of the gross margin expansion back into A&P. So I think really executing on what we promised we would do there. And then on the – erectile dysfunction cream. So we have said at full year that we would intend to launch it in 12 months. So that means now with intent, we’re making good progress on ramping up and building the production. So all these plans are tracking along nicely. And then sort of once we get closer to the launch date, we would, of course, inform you about it. So excited about it. The progress is very much as planned. So next 10 months, this should come to the market then as well.

Bruno Monteyne: Thank you.

Tobias Hestler: Thanks, Bruno.

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

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