Tobias Hestler: Thanks Vic. So, let me start with U.S. pain relief. So, we have gained share in U.S. pain relief in Q1. And this means the green shoots we have been saying have continued to progress that and over – that’s good to see. But look, I mean it’s early in the journey, right. I mean, this is two quarters into a turnaround plan. So, I think let’s be cautious on that, also given the overall environment in the U.S. with inflation continue to be high. So, I think we just have to be mindful of that. That probably answers then also a little bit your second question, right. I think we are very pleased to see that sellout is good in the U.S. I think driven by, I think oral care driven by the VMS brands and also us gaining share across the other categories.
But again, I think I wouldn’t immediately roll this forward into the next quarter, just given the overall situation. And then on your volume shape of recovery, I think it’s a gradual step-up. So, it will be better than Q1. So, it’s a gradual improvement. But of course, I think – or of course, more phased to the second half of the year, as we always expected, because we have to still cycle through Fenbid. I mean I think you should take some comfort from Europe or EMEA, LatAm being back in volume growth, which was a drag in the second half of the year. And also I think APAC, which had a good quarter. And then we will see where we get to with the U.S. and also on the inventory side as well.
Victoria Petrova: Thank you very and Tobias, you will be missed. Thank you so much for your help.
Tobias Hestler: Thanks Vic. And I am around for eight moments to help and look forward to seeing you.
Victoria Petrova: Thank you.
Operator: Thank you. Our next question comes from the line of Celine Pannuti with JPMorgan. Please go ahead.
Celine Pannuti: Thanks. Good morning. And I have a follow-up and two questions. My follow-up is about pricing. So, you have the strong pricing which was the rollover pricing improvement. Can you just help on how we should think about the phasing of the same balance pricing through the year? I mean was it really a Q1 benefit and then we have a set down into Q2 is the progress we have organization. My two questions, number one, I wanted to understand if you could give what growth rates we have in China? And within that, the win performance, you mentioned that some is going to get something that you could – was China will negative and we actually put a push out the different business performance? And then you just mentioned Europe, Latin America volume, can you talk about where that volume come from and what you saw from the category perspective? Thank you.
Tobias Hestler: Good. So, let me maybe start with your pricing question. So, yes, I mean pricing was good in Q1, right. I think we expected good pricing going into the year. And I think that, that came through, which I think is positive. So, I think what we have planned for the year is coming through, through the pricing negotiations, as I mentioned earlier, before. So, I think that is encouraging. Of course, there is still some rollover pricing looking at when Europe to pricing. So, I wouldn’t expect 7.5% price growth in EMEA for the rest of the year. So, that’s the one that probably comes down, whereas I think in the others, I mean it’s probably more stable there, right. I think APAC wasn’t that high and/or it’s normal.
And then I think also the U.S. is pretty stable. But again, in the U.S., it’s a bit more spiky because we take pricing at different points of the year and depending on when we roll over. But it’s really EMEA and LatAm that I think will – I would expect to come down slightly from the levels they have spend, right. But again, if you take the bigger step back, I think for the full year, I think we won’t be in this roughly half and half split where I think consensus currently sits, right. I think that’s an important message for me to add. I think there is more pricing – there is more pricing this year than what the – compared to what the consensus is seeing. Then on China, I think – look, I think overall, you have seen from some of the commentary, I mean not surprising, I think I mean pain relief was down significantly given our cycling over Fenbid.
So, that was a massive double-digit decline on pain, very much as expected and then that would even be a bit more in Q2. I don’t forget, Fenbid is one of our top three brands in China. And then on the flip side, we had really good growth in VMS, so high-single digit growth across the category. So, I think that is positive and good. And then I think respiratory was slightly down, so despite cycling over the benefit and then oral care had a really good quarter in Q1. You remember, oral care was a bit struggling in China in half one, so I said before, look, while we had all this benefit from Fenbid, there is also a bit of a not all – not the business wasn’t firing from all cylinders last year. So – and we are starting to see that come through with Sensodyne and a few other brands doing well.
But in aggregate, it’s correct, China was down. It was down in Q1, which again, I think gives you a bit – and even despite that, emerging markets were up high-single digits. So, it shows you a bit of the strength of the portfolio again that from a geographic basis. Even with the biggest market was a nearly 10% weight of our business, that being down or being a third of our emerging markets, we are still able to grow the emerging market at high-single digit, which I think are supportive to the 4%, 4% to 6% growth algorithm that we had. And then on EMEA, LatAm, I think look, volume growth, I mean I think EMEA was down a bit. I think there is a bit of delays from the Red Sea, so we had some shipping delays there. Also we see a bit consumers under pressure in Turkey, so smaller markets as well.
But – so that means the volume growth really came from both Central Europe and also from Western Europe, which I think is encouraging because that was sort of the areas that we were probably a bit more concerned about consumers and how they are behaving. And I think this just again shows the strength, but also probably the strength of our distribution model as a big part of the business is sold through pharmacies.
Sonya Ghobrial: Downtime was actually slightly positive in volume as well.
Tobias Hestler: Thanks Sonya.
Operator: Thank you. The next question comes from the line of Tom Sykes with Deutsche Bank. Please go ahead.
Tom Sykes: Yes. Good morning. Thank you. Three quick questions, please. Firstly, just how much of the revenue line, if at all, is from products that are sold in one currency, which is different to the local currency, please? And is there an effect on that on organic growth, particularly in given FX moves, particularly in emerging markets? On COGS and the gross margin, is there much of a gap between when you take price increases and when you see increases in, say, third-party manufacturing costs, in particular? And is there anything that would lead to a impact – a closing of the gap in gross margin at all? And then just on the JV, in China, can you just let this lapse, or do you – would you have to pay to exit prior to September, if you at all wanted to exit. And if you did exit that JV, do you think it makes any difference to your distribution capability, please?
Tobias Hestler: Let me start with some action on the revenue line, no, I think look, there might be here or there, some of the odds one where we export to a distributor market. But I think we have own businesses in over 45 countries in the world where we sell in local currencies and then this gets translated back, we see that come through in the translational currencies. Of course, there might be here or there, a bit a small market that exports, but I think this is tiny and not a material factor for us just given the global and large distribution footprint that we have and that we have maintained and that we have kept. Then let me talk the joint venture in China. So, first of all, the JV agreement expires, right. There isn’t any payment in either direction, right.
So, could we let it lapse, yes, you could, but there is absolutely no interest for either side to do so because I think this is one where I think – and I said that, I think before, we really depend on each other. This brings benefits to both sides and both sides are very, very much I wouldn’t say dependent, but both sides benefit from that collaboration, especially because the skills and the capabilities that both sides bring are complementary, right. We are bringing marketing skills. We are bringing our brands. We bring IT. We run a good part of the administration of that joint venture. The other side brings manufacturing capabilities, but we also supplement that with capabilities we bring in, in globally. So, it is very, very much joint venture, not – look, this is an operational joint venture.
It is not a joint venture where you just sort of have an entity and one part own X percent and the other one. It’s not a financial asset. This is a joint operation of the business, and we are in very cordial discussions with the other side to how we continue this going forward, right. So, I think there is no benefit to either side of letting that lapse. Then I wasn’t – I really didn’t – I couldn’t track your question on cost of goods and how pricing impacts probably pricing. So, could you just help me either repeat this, or…
Tom Sykes: Thank you. Yes, it was just on the timing of any cost increases for your third-party manufacturers. Would you say that is in sync with the pricing that you are taking, or is there basically, what are the cost increases in third-party manufacturing to be expected this year, I guess is it?
Tobias Hestler: No. Okay. Look, I think as I said before, right, so third-party manufacturers, I mean they all battled with the same thing that we do, which is labor cost increases because a big part of what they do for us has a big labor cost component. Usually, these prices are – we have hugely long-term contracts because these are long-standing relationships, given the regulatory environment we are in. And these deals, usually have a built-in price mechanism. They are different across the contracts, but it usually hits its once a year. So, you can actually plan for it, and you can build it into your forecast for the year. So, our units know when this is coming. It was a bit more extreme when there was a lot of commodity cost pressure, which were passed on it a bit more quickly.
But sort of the general conversion cost increases, I think we have good pre-warning and we can plan for those. So, I don’t think there is a significant change in that from a timing point of view when we can take pricing. And I think anyway on pricing, I mean certain things are more given when you do them, right. I think the European mass market pricing, you negotiate once a year that usually happens in Q1. In India, you take pricing once a year because you need to re-stick or label all your products. In the U.S., you tend to take pricing if and when the shelf is resetting. So, you try and combine it together with when the retailers do their work. So, it’s all a bit different drivers of that. But again, I don’t see a major time gap in either direction of that.
The only thing to keep in mind, it always takes with the inventory we have on hand, it takes several months until it hits the P&L on the negative as well as on the positive as well. I hope that answered the question, Tom?
Tom Sykes: Yes, that’s great. Thank you very much.
Tobias Hestler: Thank you.
Operator: Next question comes from the line of Mikheil Omanadze with BNP Paribas Exane. Please go ahead.
Mikheil Omanadze: Good morning Tobias. Good morning Sonya. Thanks for taking my questions. I have two. The first is on oral care, so could you please comment on the market share evolution of Sensodyne in the U.S. and other major geographies? And also how did Aquafresh performed in Q1? And my second question is on RX-OTC switches, if there is any update on the process? Thanks.
Tobias Hestler: Good. So, let me work backwards. RX-OTC switches as you remember, we had said we had two in the pipeline, but we also said that those – we are working with the FDA, and those are a bit later than what we had originally said at the Capital Markets Day. We are still working on both of them. Remember that all the switches, hours, but also competitive on, they all have certain complexities as to ours. So, I think really nothing to update on that. Also just to remind that the switches are outside our 4 to 6 guidance. So, when they come, I think in quotation marks, I see them as icing on the cake. We continue to work on them. And I think the more immediate one that could come is the erectile dysfunction treatment that Bruno asked before earlier in the call.
And then on oral care, so I mean look, as I said, I think we gained share overall in oral care, I mean which we should, with a double-digit growth rate. So, the sellout continues to be strong. I think we are doing well on Sensodyne globally as well. So, I think with the innovations and the launches and good execution, I think there is two things happening. It’s one, we grow the market. So, some of the growth comes from expanding the market, which actually benefits us and it benefits the retailer because their share of the pie becomes bigger, which is positive. So, it’s not just about share. So, I think – so when you think about Sensodyne again, what makes this such an attractive proposition is that you have 40% of the population at sensitive teeth.
Only 30% of those use sensitivity toothpaste. So this is about getting more people using the sensitivity toothpaste. This isn’t about fighting for share in an already well-established segment. This is still you could call it an emerging segment, even if the Sensodyne is very, very big, there is a lot of penetration opportunity in this brand. So, I think that’s probably the more important driver than actually looking at, are you gaining share everywhere because it’s unlocking the penetration. And if you unlock that and people are moving from a $3, $4 toothpaste or $2 toothpaste to $5, $6, $7, $8 toothpaste and everybody wins when that happens. The consumer wins because they are treating their conditions. The retailer wins because their share and size of the category setting is growing, and we are growing because our brands are growing.
