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Operator: Good morning. Thank you for attending today's Haleon 2025 Quarter 3 Trading Statement. My name is Sarah, and I'll be your moderator today. [Operator Instructions] I would like to pass the conference over to our host, Jo Russell, Head of Investor Relations. Please go ahead.
Joanne Russell: Good morning, everyone, and welcome to Haleon's conference call for our third quarter trading statement. I'm Jo Russell, Head of Investor Relations. And with me today is Dawn Allen, our CFO. Just to remind listeners on the call that in discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans and expectations. Please refer to this morning's announcement and the company's U.K. and SEC filings for more details, including factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. Following Dawn's remarks, we will take your questions. For those listening to our webcast who would like to ask a question, you can find the dial-in details on Page 3 of today's press release. And with that, I'll hand over to Dawn.
Dawn Allen: Thank you, Jo, and good morning, everyone. We made good progress in the third quarter, driven by strong in-market execution and the continued rollout of our innovation pipeline, leaving us on track for our full year guidance. We delivered 3.4% organic revenue growth in the quarter with a good balance between price at 1.8% and volume mix of 1.6%. Looking across the regions, we saw consistent growth and sequential volume improvement across EMEA and LatAm and Asia Pacific, with emerging markets in both these regions up 7% led by India and strong growth in a number of smaller markets, including Thailand and Malaysia. In North America, despite the challenging consumer backdrop on consumption, we have outperformed the market each quarter this year, with particular strength in Oral Health, Respiratory and Digestive Health. Oral Health was once again the standout performer as Sensodyne continues to drive penetration with strong growth in a number of key markets, including the U.S., India and China. In India, we are continuing to make good progress by expanding our reach through expert coverage, which is up 70% since the start of the year. And we are bringing new innovations, including Sensodyne Pronamel to market. Our Sensodyne offering for lower-income consumers is now in over 500,000 outlets across 10,000 villages. From a strategic perspective, we are making great progress against our objectives as outlined at our Capital Markets Day. From a growth perspective, we continue to focus on driving category growth through innovation-led premiumization with a number of new market launches in Q3, closing the incidence treatment gap, an example is Otrivin Nasal Mist, which is seeing an over 80% repurchase intent amongst users and expanding reach to lower-income consumers with household penetration gains in India and Brazil. We also continue to deliver against our value creation framework. Our supply chain productivity agenda continues to move at pace. We have made significant progress across service, cost and inventory. And since the beginning of 2024, we have reduced the number of our SKUs by 19%, and we have improved overall equipment effectiveness by double digit. This improves both gross margin and results in better working capital and improved cash conversion. On A&P, we continue to invest at healthy levels as well as making progress on effectiveness and efficiency, where we are focused on improving both contribution to revenue and ROI. We are also continue to be disciplined in our cost base and are on track to deliver the remainder of our GBP 300 million target savings this year. All of this provides us with flexibility and agility in our P&L, enabling healthy investment in our brands and further strengthening our innovation pipeline to drive future growth. And finally, we are delivering on our capital allocation principles, having completed in the quarter the GBP 500 million we allocated to share buybacks for 2025. Now let's look at the quarter in more detail. Organic revenue growth was 3.4%, balanced between 1.8% from price and 1.6% from volume mix. Volume mix saw sequential improvement in the third quarter in EMEA and LatAm and Asia Pacific. Reported revenue grew 0.7% in the third quarter, impacted by the drag from divestments of 2.3% and 0.4% from foreign exchange. It's worth bearing in mind that this is the final quarter with a drag on reported revenue growth from announced divestments. Now let's look at the growth drivers, starting with our performance across the categories. Oral Health continued to deliver strong growth, up 6.9% in Q3. Growth was underpinned by innovation-led premiumization and geographic expansion. The key drivers of this were penetration growth in more than 80% of our major brand market combinations, high single-digit growth on Sensodyne, more than 2/3 of which came from volume and innovations, including the Sensodyne Clinical Platform and Pronamel Kids, and continued double-digit growth on parodontax, driven by innovation and our continued successful rollout in China. With exciting plans for continued innovations across our Oral Health business, the runway for future growth is strong. VMS grew 4.9% in Q3 with double-digit growth in Centrum. Key highlights were premium innovations, including Centrum Daily Kits in China and Korea, strength in Philippines from increased distribution of lower-income consumer packs and expanding distribution of local brands such as Caltrate in Latin America. In Pain Relief, we grew 3.7% for Q3. Panadol was up high single digit, underpinned by outperformance in U.K. and Southern Europe. Improved consumption in Voltaren, supported by innovations, including Voltamed, our new natural herbal product. Growth in these brands was partly offset by Advil. Whilst consumption continues to improve following the activation of new campaigns, performance was impacted by short-term supply constraint on Liqui-gels, which has now been resolved. Respiratory Health declined 1.8%, lapping elevated COVID cases in Q3 last year. The impact of declines in Smokers' Health moderated in Q3 compared to Q2. Otrivin continues to perform really well with Nasal Mist bringing new consumers into the spray category in markets, including Sweden, Poland and the U.K. Ahead of the start of the cold and flu season, we saw the sell-in of cold and flu products in Q3 at relatively normal levels. And Digestive Health grew 2.1%, including growth in Tums, thanks to innovations, including Tums Gummy Bites+, a strong performance in Benefiber from our Grow What Feels Good campaign and an improved performance from ENO in India. This performance overall was partly offset by a decline in Nexium. And finally, Therapeutic, Skin Health and Other declined 1.1% with strength in Bactroban in China, offset by a decline in Fenistil from a weak mosquito season in Europe. Turning now to the regions, starting with North America. In North America, we delivered organic revenue growth of 0.4%, driven by 0.7% price with volume/mix down 0.3%. In the quarter, we continued to drive market share with our consumption outperformance widening as we progress through the year. Organic revenue growth was driven by continued strength in Oral Health, driven by innovation, including Pronamel Clinical Enamel strength and successful activations, including Gum Expert on parodontax, a better VMS performance with Centrum growth and a strong performance from Benefiber and Tums. All of this was partly offset by Respiratory Health, which declined due to the continued weakness in Smokers' Health and from Pain with growth in Voltaren offset by a decline in Advil that I mentioned earlier. As we shared at half year, we feel there is more growth to be had from our North America business. We are focused on a number of initiatives, which will drive stronger results. These include further strengthening our innovation pipeline, accelerating net revenue management through strategic pricing, price pack architecture and channel mix and reinforcing our relationships with partners through key activations. And collectively, these actions, combined with our focus on ensuring inventory is in an appropriate level by the end of the year, sets us up well to return to growth next year. Turning now to Europe, Middle East, Africa and Latin America. Organic revenue increased 5.3% with sequential improvement in volume mix of 1.8% and price at 3.5%. Growth was driven by innovation-led premiumization across the clinical platform on Sensodyne Pronamel Kids and Otrivin Nasal Mist, a strong performance in VMS with Centrum up double digit, underpinned by a number of new launches, including Centrum Vital+ nutrient. And in Pain Relief, growth came from higher consumption of Voltaren and Panadol from innovation launches like Voltamed that I mentioned earlier. Looking across the region, Europe performed well with particular strength across the pharmacy channel, which makes up the majority of our revenue in the region. Whilst category growth slowed, we continue to outperform given our innovation and excellent in-market execution. Latin America grew double digit, driven by Colombia and Mexico. This was partly offset by weakness in Brazil, given a softer macroeconomic environment impacting category growth. And finally, turning to Asia Pacific. Organic revenue increased 5.1% with strong growth across India and Southeast Asia and sequential improvement in China. Across the region, volume/mix, which was up 4.4% and price was up 0.7%. With a relatively stable consumer market backdrop, we continue to drive category growth and expand our offering to lower-income consumers. India delivered double-digit growth. This was largely driven by strength in Sensodyne as we further increase distribution and drive penetration. We expect continued strong growth in the fourth quarter, driven by our sales force investment and an improving macro environment. Also in the quarter, China saw mid-single-digit growth with continued strength in Oral Health and VMS supported by key innovations, including Caltrate for Kids, Voltaren 2% and Fenbid Gold. Across China, consumers continue to invest in health and wellness, and we are well placed to capture on this trend given our focus on building trusted brands, closing the incident treatment gap and innovation-led premiumization. Our products are available across different channels, including pharmacies, hospitals and digital platforms, ensuring we can effectively serve a wide audience with different shopping habits. Digital has been a particular strength, growing 20% with our online to offline platform growing 25% and representing 1/3 of our e-commerce business. We have now fully integrated the OTC joint venture and are realizing the benefits of a more efficient route to market. We expect growth in China to improve further in the fourth quarter, helped by distribution and increased investment in the faster-growing e-com channel. Turning now to our 2025 guidance. We expect organic revenue growth of around 3.5%, assuming a normal cold and flu season. In North America, we expect growth in the second half to be broadly similar to the first half, with Q4 reflecting further action on inventory at slower-growing channels. We expect this to be completed by the end of the year. In Asia Pacific, we should see an acceleration in Q4, driven by stronger growth in China and India. And in EMEA and LatAm, we continue to expect a good performance driven by Europe with market share gains, offsetting a slightly softening macro picture. And in Latin America, we are closely watching the macro environment given the consumer pressures in the region. Finally, the pace of progress on our supply chain productivity initiatives provide a strong underpin to our expectation of high single-digit organic operating profit growth. So in conclusion, we delivered a good performance in Q3 and remain on track to deliver our full year guidance. We are pleased with the actions we are taking in the U.S., which sets us up to return to growth next year. We're continuing to invest behind our brands to build flexibility and agility in our P&L by unlocking productivity savings. Altogether, this should give us confidence in delivering against our value creation framework and our medium-term guidance. Now let's turn to questions. Operator, please, can you open up the lines?
Operator: [Operator Instructions] Our first question comes from Guillaume Delmas from UBS.
Guillaume Gerard Delmas: 2 questions for me, please. The first one on North America. Dawn, I was wondering if you could talk a bit more about your performance in the region in the third quarter, which was clearly better than expected. I mean, what were the main drivers behind this sequential improvement? And were there any one-offs restocking benefits we should be aware of that may have flattered your performance in the region in Q3? And still on North America, looking ahead, so your guidance for the second half to be similar to the first half seems to suggest around minus 1% organic sales growth in Q4. So maybe if you could talk a little bit about the reasons for this anticipated slowdown sequentially? And last question on North America. I know it's early days, but for 2026, what would be your expectations? Because looking at the last 3 years, you've been growing by an average of, let's say, 1.5%. Wondering if your ambition is to materially accelerate next year versus this 1.5% run rate? And then the second question, shorter one, I promise, on Asia Pacific, strong but decelerating sequentially despite India being in double digits. So it would be helpful if you could shed some light on the main moving parts behind this slowdown. You sound confident about a Q4 uptick. Do you think you can maintain this momentum going into 2026?
Dawn Allen: Thanks, Guillaume. So let me take your 3 questions in turn, and I'll start with North America. So as we said at the half year, we expect half 2 to be broadly similar to half 1, and we're tracking in line with our expectations. As we know, it's a challenging environment in the U.S. We have outperformed the market in terms of consumption every quarter this year with particular strength across Oral Health and Digestive, and that gap has actually widened as we've moved through the year. Obviously, in our results, that's been masked by the inventory movements, the difference between sell-in and sell-out as retailers have managed their inventory and working capital. And if we look at Q3, there's a few moving parts. So of the 220 basis point swing from Q2 to Q3, there's 2 main things to call out. The first one is the drag from Smokers' Health has halved. So in Q2, this was 160 basis points drag. In Q3, it's now 80 basis points drag. And the remainder of the difference comes from better performance in Oral Health and Digestive Health, as I mentioned. If we then look forward to Q4, if we're working on the assumption that we expect half 2 to be broadly similar to half 1, that implies, as you said, around about a 1% decline in Q4. and that reflects tough comparatives from the prior year. Obviously, we're lapping the launch of Eroxon, and we have some further action to do inventory. So I think when we look towards next year, as I said, we expect the region to return to growth. You talked about where it had been historically. We would expect to get back to that level. I think as I referenced in the overview, we feel really good about the actions that we're taking in North America. Obviously, next year, we won't have the drag between sell-in and sellout. We would expect that to be -- we would expect that drag to kind of disappear, but as I said, I think with Natalie, I mean, Natalie is bringing deep consumer expertise and execution. We are focused on net revenue management, got new innovations coming to market. So I think we feel good about return to growth next year. So if I step out of North America and the U.S. and talk about Asia Pac, I'd say, overall, we're really pleased with our performance in Asia Pac. We've got double-digit growth in India. We've got mid-single-digit growth in China. And actually, in those markets, we continue to perform incredibly well. Yes, we are lapping some phasing in the prior year in terms of North Asia, particularly given the price increase phasing that we put through in Japan last year. But actually, given the momentum in that region, given that we expect the macro environment to improve in India in Q4 on the back of GST and on the back of tax changes as well as our activations and expanded distribution, I think we feel really good about that. And I'd say the same in China as well.
Guillaume Gerard Delmas: And Dawn, just to follow up and to confirm, so no one-offs in the third quarter in your performance in North America?
Dawn Allen: Yes, I wouldn't say that. I mean I'd say in Q3, that's the quarter where we sell-in ahead of the season. So we're obviously shipping in, in terms of the season. We have a price increase that goes live early November in the U.S. So -- but I guess, quarter 3 is still -- there's still quite a big time lag between those 2 pieces. And if you remember, in terms of tariffs, we always said that they were in the low tens of millions, and we're taking supply chain actions to mitigate that. The other piece, obviously, that we see is the pricing action that we're taking.
Operator: Our next question is from Olivier Nicolai from Goldman Sachs.
Olivier Nicolai: Just 2 questions, please. First of all, at group level, you had a strong pipeline of innovation across many categories in this year in 2025. Looking at next year, how do you see the strength of the pipeline? And is there any Rx to OTC that we should expect as well for full year '26? And then just going back to your guidance, I know it's early stage, but you did mention that you assume a normal cold and flu season. I know that the U.S. does not provide data at the moment. But perhaps anecdotally, how do you see things for the coming cold and flu season?
Dawn Allen: Yes. So let me kind of take the innovation pipeline question first, Olivier. So as I said, across actually all of our categories, we've seen real strength in terms of our innovation pipeline. From an Oral Health perspective, the Clinical range on Sensodyne continues to perform really well in terms of bringing new users into the category. We're actually gaining or holding share in more than 80% of our brand market combinations on Sensodyne. And actually, if you think about on Clinical, we've got 5 variants. On average, you've maybe got 2 of those variants in the market. So actually, there's huge, huge runway in terms of Oral Health. I also talked about Nasal Mist in terms of respiratory, in terms of Otrivin Nasal Mist. We are -- that innovation is recruiting new users into the category. I referenced purchase intent is now over 80%, and we've obviously got further rollout behind that. And maybe just to mention another one in VMS. So on Centrum, we have a new claim in terms of slowing cognitive aging that we've just launched as well as Centrum Essentials and Daily Kits. So actually, across all of our -- I could talk about that across all of our categories. We have an incredibly strong innovation pipeline that's actually performing really well, not only for us, but it's also growing the categories where we've launched it as well. I think from -- in terms of switches, we've always said that, that would be on top. We don't need switches in terms of our growth forecast. So I would focus more on the innovations that I've talked about in terms of driving growth. We have 2 that we're progressing, but I mean, it just continued -- it continues to progress. I wouldn't take that into account in terms of our growth at the moment. I think if we look at the second question, your question in terms of cough, cold and flu and our guidance, I mean, it's fair to say we have a great portfolio in cough, cold and flu. It's an attractive and relevant category for consumers. As you know, it's more seasonal. We have shared in the past, you'll see in the appendix, we've shared our normal chart that we show for the U.S. in terms of incidences. What you will see from that chart is obviously no 2 years are the same. It depends on the size of the peak and the timing of the peak. Sometimes it can be in Q4, sometimes it can be in Q1. if you remember, about 1/3 of our business for cough, cold and flu is in North America. We've got about half in EMEA, LatAm. And the thing I would say about that is the variability of when that peak happens and the size of the peak, that's the variability around the -- around 3.5% guidance for the year. So we plan for a normal season, but we obviously stay agile from a supply chain point of view in terms of is it better or worse.
Operator: Our next question is from David Hayes from Jefferies.
David Hayes: Just going to follow up on Guillaume's question if I can, in the U.S., just to sort of maybe quantify or get the dynamics a bit more. So just to be clear that you're saying there wasn't really any prebuying into the price increases that you've taken in oral and cough and cold in the quarter. Is that a fair summary? And then just in terms of the channel dynamics, can you talk us through maybe the growth rate comparisons in new channels, if we call them that like Amazon and Walmart versus the pharma channels? And is there an element of as the shift continues to happen, Amazon and Walmart are stocking up more as they're getting more of the market? Or is there no really offset in that sense? And then the second question is just on the supply chain cost savings all running to plan and very extensive. Is there any incidence or evidence that, that affects the service levels, the sales performance at all? Is there an inevitability that as you go through some of those changes there are some hindrances that will dissipate? Or would you say it's a completely separate dynamic?
Dawn Allen: Yes. David, so I think I obviously talked about the pricing piece coming early November. Let me talk a bit more about some of the other moving parts in terms of inventory and the channel dynamic. So as you know, we work closely with our retail partners on inventory levels. There isn't a one size fits all, and it obviously depends upon consumption. So for example, in the drug channel, our inventory is down double digit compared to this time last year. But obviously, in faster-growing channels like [ decom ], Actually, our inventory levels have increased, as you would expect on the back of more traffic and stronger consumption trends. And just to say there's obviously more work to do in Q4 on inventory, as I referenced. And our objective is to exit the year in a clean place on inventory and obviously grow on the back of that next year. I think from a channel dynamic, I mean, we continue to see really strong growth in the U.S. actually on digital. We're growing kind of double digit on Amazon. And I think we continue to partner really well. In terms of your other question, in terms of supply chain, I mean, as I talked about in the brief, we're actually making progress across service cost and inventory. And the reason that we're doing that, a, we're working closely with our customers, but also we're rolling out new supply chain, new systems and processes in terms of improving our forecast accuracy. And that's also helping us not only to reduce inventory, but also to improve service.
Operator: Our next question is from Jeremy Fialko from HSBC.
Jeremy Fialko: I know we've had quite a lot on the U.S. But I wanted to ask one more, but more a general question on the consumer because it feels like it's a very bifurcated environment where you've got certain things that are doing well, certain things that are struggling. So perhaps you could sort of break your business down a bit and explain from a consumer standpoint, which -- what stuff is going well, what things are going badly and why that's the case? And then secondly, you could talk a bit more about China. As you say, you're kind of most of the way through this merger of the sales forces from the 2 businesses that you bought together. So perhaps you could just talk about the progress that you've made there and how you think that you can be more effective over the coming quarters as a bigger combined organization?
Dawn Allen: Yes. Thanks, Jeremy. So let me talk about the U.S. first. So I think from a consumer perspective, I mean, we have seen consumption in the market track down this year. As I said, we are outperforming the market on consumption, and that gap has widened. So in Q3, we're outperforming around 100 basis points versus the market. So I think we're tracking well. I think from a consumer perspective, what's important for us is that we are across all channels, which we are so that we are where consumers are shopping. We have seen types of behaviors that we're seeing. We're seeing consumers buy either larger packs where the unit price is lower. We're also seeing consumers buy lower price point packs, for example, from dollar stores. So we are seeing them adjusting their purchasing behavior across the piece. And as I said, what's important to us is that we are across all channels so that we can cater for that behavior and also that we have a variation around our price pack architecture. In terms of China, I mean, we're really pleased with the joint venture. We have integrated the sales force. That means that we are able to optimize our visits to retailers. It also means that we are expanding our distribution to more tiers in terms of cities in China. And we continue to invest in that space. And I'd say I referenced it in the brief, we are across all channels in China. And we're actually outperforming the market across every channel. So I think there's a real underpin in terms of excellence in execution in that market.
Operator: Our next question is from Celine Pannuti from JPMorgan.
Celine Pannuti: So I have 2 questions, but I'm sorry, I just want to clarify something on the U.S. So first of all, thank you for providing clarity on Q4 expectation. But just to put it simple, you basically are guiding at minus 0.5% for the U.S. this year. And I think sellout is somewhere between minus 1% and minus 1.5%. So -- and you're saying that you are -- so like it seems that your sell-in has been better than your sellout, yet you talk about easy stock levels for next year. So I just want to understand this part. And then my 2 questions. First, on Latin America and EMEA. If you can talk about the pricing evolution. We've seen that pricing has been a bit weaker and you were commenting about softness in consumer there. So we've seen sequential pricing deterioration. Should we expect that to continue? And maybe as well, whether that pricing in APAC, you were mentioning lapping Japan would improve or not in the fourth quarter. So that's on pricing. And then my second question is on the outlook for the year. So if I look at what you said for Q4, minus 1% Europe, U.S., EMEA, good and then an acceleration in APAC, I get to a growth rate that's lower in Q4 versus the 9 months. Is that the right level?
Dawn Allen: Yes. Let me take the -- I'll take the middle question first in terms of pricing. I think what we always see when we see a softer consumption environment, there's always the competitive pressure increases, the promotional activity increases. And as I talked about, we see a shift in terms of consumer behavior, either buying larger packs, cheaper unit price or smaller packs in terms of smaller initial outlay, and that obviously impacts pricing. The other thing I would say is actually in EMEA, LatAm, we have seen sequential volume improvement this year, which I think is good. The other thing to say is whilst we are seeing softness in consumption, actually, in Europe, we're pretty resilient. I'd say we're holding our own and Oral Health is the one category that is seeing -- that is not seeing the same level of softness. And the other thing to say in Europe is given our strength in pharmacy channels, we're also -- we've also got the resilience around that as well. I think when I look at the outlook for the year, I talked about an acceleration in Asia Pac, particularly in India and strong continued growth in China. In Europe, I talked about challenging consumption in some categories, but actually a resilient performance from us in terms of holding up. LatAm, we're obviously looking at -- we're obviously monitoring the macro environment. Whilst we had a good performance in Q3, driven by Colombia and Mexico, that macro environment, we're watching that closely. And obviously, I've talked through the moving parts in North America. And what's important there is that half is broadly similar to half 1. In terms of consumption in the U.S. and sell-in and sell-out, I think what I would say is we said at the beginning of the year, we had roughly 200 basis points difference between sell-in and sell-out. We've seen that gap narrow as we progress through the year. And as I talked, that's been different across different channels depending upon the consumptions in those channels. I think the other thing to say within that, I mean, Oral Health continues to be strong consumption. We continue to see strong growth. And in decom, I talked about our continued strength. I mean, our top 18 brands that, for example, that are on Amazon, 16 of those, we have a higher share online than we do offline. So I think that reflects the strength in that channel. And as I said, Q3, we always have the sell-in of cough, cold and flu. But as we look to Q4, we want to close that final gap in sell-in, sell-out. I probably think about that depending upon consumption is probably broadly another week, I think, to come out. And as I said, what's important for us is that we exit the year clean and that we return to growth in North America next year.
Operator: Our next question is from Karel Zoete from Kepler Cheuvreux.
Karel Zoete: I have a follow-up question with regards to the contribution of innovations in the third quarter and how that might look going forward because you highlighted a lot of things that you're enthusiastic about, part already answered on it. But can you quantify a bit more the contribution during Q3, some of the listing of it? And then how that might develop in the quarters thereafter? And then the second question is on Pain. The Pain franchise looked better, but the U.S. was quite soft. So can you speak about your Pain franchise, what goes well? And how should we look at the U.S?
Dawn Allen: Yes. Let me take the pain question first. I think, look, we talked about Advil. We launched our No Pain, More Gain campaign in July this year. That has -- we have seen improvement in some of our key metrics. So purchase intent is up. The messaging around relevancy is also up and actually ahead of the benchmark. Yes, we did see some supply issues in the third quarter in terms of Advil Liqui-gels, but that has now been resolved. And I think on Advil, what I would say is, whilst it's early days, we are seeing green shoots in terms of some of the metrics on Advil. And I think that should give us confidence, but it is early days. I think when we look at innovation, I talked about it. We had a number of new market launches in Q3. That's making a good contribution in terms of our growth and market expansion. I talked about some examples earlier in terms of our Clinical range, Otrivin Nasal Mist. If I give some others, I mean, across pain, if I reference pain a bit more, I mean, Voltaren and 2% in China, our natural Voltamed products in Germany, and also on Panadol in terms of whether it's Dual Action or whether it's our Panadol Four Count in Indonesia. So actually, what you see is across every category, innovation plays a really important role in our growth strategy, not only in terms of reaching lower-income consumers, but also in terms of driving premiumization through innovation. And I think that the science and the strength of the product differentiation is also what's setting us apart in terms of driving growth. So this is a really important growth lever. The contribution to growth varies across the categories. but we have significant headroom in terms of continued rollout across all of the pipeline of innovations that we have.
Operator: Our next question is from Ms. Misha Omanadze from BNP Paribas.
Mikheil Omanadze: I have 2, please. So the first one would be on how you view the category in general terms. From the moment that Haleon came to market, you were saying that consumer health is relatively insulated from down-trading pressures. This is a category where brands matter a lot. Has 2025 and particularly the U.S. market, the evolution there changed your view in any sense on this category being not so much affected by down-trading? And I guess a follow-up question on that is that do you -- in the plus 4 to 6 medium-term growth target, has the regional composition of your growth expectation changed compared to 2022? Do you expect less growth to come from North America and more growth to come from the other 2 regions or not?
Dawn Allen: Thanks, Misha. So I think -- look, I think in terms of consumer health and in terms of our categories, I mean, there's incredible growth opportunity across all of our categories that we talked about at Capital Markets Day, whether it's broadening our reach to lower-income consumers, whether it's driving premiumization through innovation or whether it's closing the incidence treatment gap. So I think we continue to see huge headroom in terms of category growth. Consumers are increasingly more aware in terms of health. They're more focused on health and improving kind of daily lives in terms of health. So I think that continues. I think I would say also compared to other categories, we are a lot more resilient. I mean you see that. And if you think about Oral Health, it's been pretty resilient this year, in particular. Obviously, we're not immune to the macro environment, of course, that will have an impact. But I think what's important is the relative resilience versus other categories that's important. So I think that would be one thing to say. I think in terms of our regional expectations, I mean, we continue to see runway in terms of emerging markets growth, and you see that in our performance. In terms of North America, the size of the North America consumer health market, the consumer trends that underpin it, we do see growth potential in North America. We have said that we think there's more runway to go in terms of what we've seen versus our historic performance, and that is the proactive actions that the team are taking to ensure that we unlock that growth and that it plays an important role in terms of our 4% to 6%. So I think we feel really confident in terms of our medium-term guidance of 4% to 6% growth.
Operator: Our next question is from Tom Sykes from Deutsche Bank.
Tom Sykes: Sorry, I'm going to flog the U.S. horse again. But just in terms of the drag from the drug channel in Q4 versus Q3, are you expecting that drag to be similar? And then in terms of the budgeting for next year on the drug channel, are you saying that your inventories are in the right place for the existing drug channel footprint? Or are your inventories below where they would normally be because you're expecting the drug channel sellout to be worse next year? And then, please, just on China, sorry, I may have missed what the offline, online exposure you have is -- and sorry, whether you gave the sort of old e-com versus sort of the live streaming new e-com split, if it's possible to have that, please? And just are you targeting 11/11 in a different way to last year because that seems to be quite important to the Asia Pac or China pickup, please?
Dawn Allen: Yes. Let me take the China first. So as I talked about, we are present across all channels in China. E-com represents broadly 1/3 of our business. Within that, in terms of the different parts of that channel, obviously, Douyin, we're growing -- that channel is growing very fast and we are growing incredibly fast on the back of that. Online to offline actually also continues. We have strong presence there. That also continues to drive strongly double-digit growth and the same on e-com. So I think we're across -- we see growth across categories, driven by innovation on parodontax and VMS in terms of decom in China. And I think we're well placed to unlock that growth. And in terms of 11/11, you're right, it is an important event. It's a good growth driver. We are increasing our investment in that -- in the quarter. And that is one of the reasons that underpins our confidence in terms of Q4 growth in China. I think in terms of the U.S., I mean, I talked about it. We're working closely with retailers across every channel in terms of ensuring that we exit the year with the right level of stock so that we can grow next year. Obviously, it's not an exact science because it depends on consumption. But I think what we're demonstrating is that we're working closely. We're being agile to what's happening in terms of the different dynamics. The other thing I would say is this dynamic is not new. We have been dealing with this dynamic for a number of years quite successfully, and we'll continue to work with that dynamic in terms of where we're seeing stronger growth in some channels and where we're seeing less growth in other channels. And as I said, I think what's important for the U.S. is that we expect to see a return to growth next year.
Tom Sykes: Yes. And sorry, Dawn, just on that, just the drag from drug Q4 versus Q3, is that viewed as being similar in the U.S?
Dawn Allen: Yes. I think as I referenced earlier, in Q4, we still got more work to do in terms of ensuring that inventory lands in the right place. And I talked about depending upon consumption, the way to think about it is broadly another week to come out in terms of inventory.
Operator: Our next question is from Warren Ackerman from Barclays.
Warren Ackerman: It's Warren here at Barclays. So I got kicked out for a little while, so I didn't catch everything that was being said. But can I just clarify a couple of things. On the Oral Care business, the 6.9% in the quarter, that was a bit lower than consensus, Dawn. Is there anything weird going on with Aquafresh and the Denture business outside of Sensodyne that's worth calling out this quarter? That's the first one. And then secondly, are you able to say something about the kind of promo environment that you're seeing in, say, U.S. VMS and maybe in Germany, our data is showing both are ticking up quite substantially. Just wondering whether you've got any comment on that? And then just finally, on the inventory side of things. You said that the -- and again, you might have answered this already. You said that you're outperforming the market in the U.S. by 100 bps. I think you said the 100 bps. But we can see that the U.S. sell-out this quarter is down 1.5%. So if you're outperforming by 100 bps, are you saying that the U.S. market sell-out this quarter is down 2.5%? And if that is the case, are you able to maybe highlight why -- where the market in the U.S. has slowed sequentially? I'm still not 100% clear on that piece.
Dawn Allen: Yes. So let me talk about Oral Health. I mean, I think you're right, we have seen a softer performance from Aquafresh, from Denture Care. And obviously, we're lapping the phasing pricing from the prior year in Japan. But as I said, I think we feel really positive about Oral Care. We're performing incredibly well. Yes, in markets, as I talked about, where you see increased competition and promo, we're seeing some of that, particularly you referenced VMS. So when consumption is soft, competitive intensity increases and alongside that often promo increases, we are seeing that in VMS in the U.S. In terms of the inventory piece, I mean, yes, you're right. The consumption has continued to drop in North America. So the number that you quoted in Q3, that would be broadly consistent with what we're seeing. And as I said, we are outperforming the market by around about 100 basis points in the quarter. The main drag that's coming from -- I mean, you talked about it. VMS, we're seeing increased promo. That's one of the main reasons why the category is coming down. The other category to talk about would be Respiratory because if you remember, we're lapping a COVID spike last year. So I think between those 2 categories, they're probably the biggest drivers in terms of why would the total market consumption be lower in Q3 or worse in Q3 than Q2. But as I said, in terms of our performance, we continue to outperform in terms of consumption and that outperformance has improved every quarter this year in the U.S.
Warren Ackerman: Okay. Can I just clarify one other thing, Dawn, just quickly. So just sell-in, sell-out thing. So the sell-out, we think or we can see was down 1.5% this quarter on the scanner data, but you printed 0.4% organic growth. So that looks like a 200 bp restock compared to a 200 bps destock in the first half. So sequentially, that's 400 bps. And that includes the pharma destock. So if you actually look at the kind of gross restock, it's probably even higher than 200 bps, maybe 250, 300 bps. And you're saying, I think that a lot of that is not one-off. It's due to the fact that your inventories are naturally going up more in the faster-growing retailers like Amazon. So can you just clarify that, that actually that is the case rather than there's been buying ahead of pricing or any kind of weird kind of really early ordering? I'm just -- I'm still not quite clear on that piece.
Dawn Allen: Yes. I think there's a couple of things to say. I mean I referenced that different channels were in different spaces. I talked about we reduced inventories in drug channel versus the prior year. And we've also seen an increase in inventory in growing channels like Amazon, which is up double digit in the quarter. The other thing to say, obviously, in Q3, you've got the sell-in of cough, cold and flu. And I think that muddies the water a bit in terms of sell-in and sell-out. And obviously, as that stock sells through as we progress through Q4 and then obviously, depending upon the season, then we'll see the restock. But I think the important message around this is that we are making progress in terms of reducing the gap between sell-in and sellout. We expect to finish the year in a clean position, and we expect North America to return to growth next year.
Operator: Our next question is from Edward Lewis from Rothschild & Co Redburn.
Edward Lewis: Just 2 quick ones for me, I guess. Just looking at volume/mix growth in Asia Pac, I think it was up 4.4% this quarter on the 7.1% growth in the prior year. I guess there would have been some headwind potentially from GST in India. So it'd be interested to hear, Dawn, just sort of the difference there between sort of volume mix breakdowns. And then just on the SKU reduction, I see that's down to 19% now against minus 16%. I think it was in H1. How much impact would that have had in the quarter on volumes, if any at all? And is that -- do we expect more SKU reductions going forward?
Dawn Allen: Yes. So if I take the volume/mix question first in Asia Pac. I mean, if you look historically, 3/4 of our growth, 2/3 to 3/4 of our growth in Asia Pac is volume led. So I think it's a strong quality growth, and we continue to see that. And that's an important piece in terms of reaching lower-income consumers, broadening distribution. And that is driven by India and China, and we see double-digit volume growth in China. In terms of the SKU piece, you're right, we are making really good progress on this. And that is a key driver in terms of our productivity agenda. What we are doing as part of that exercise, whilst we are reducing the number of SKUs, what we're also thinking about is how do we ensure that for the consumer and for the shopper, a few things. One is that we have the range of our portfolio in terms of the consumers want. The other thing that we're doing is ensure that we're improving the shopability of our displays and our products are easier to find on shelf. So yes, there's an efficiency play with the SKU reduction, which is helping to take cost out, remove complexity in our supply chain, reduce inventory. But there's also a consumer benefit in terms of shopability, improvement on shelf and being really clear in terms of what are the range of our products. So I'd say from a volume perspective, I think we're managing that really well. And as we're taking SKUs out, what we're seeing is increased sellout of kind of our main runners or our top SKUs, which is what you would expect to see. And I think in terms of GST in India, actually, we didn't see a negative impact from that. It's an incredible job that the Indian team have done in terms of managing the execution of this across all of our packs at short notice. It's a reflection of the close partnership that we have with our customers, with our distributors and the team have managed it incredibly well. And as I said, we would expect that -- we would expect the benefit from that in terms of consumer offtake as we move into Q4 and as we move into next year as well.
Operator: We have a follow-up question from David Hayes from Jefferies.
David Hayes: I'm going to just flog this North American horse one more time, if I can. Just in terms of the -- just getting into the fourth quarter guidance of minus 1% and some of the context that you said. So broadly speaking -- I know I'm trying to simplify it probably too much. But broadly speaking, is the assumption that consumption will be basically flat year-on-year and then the 1-week reduction in the pharma channel will be, let's say, 100 basis points of headwind, and that's how you get to the minus 1% if you're thinking about the offtake shipment levels. Is that broadly the picture?
Dawn Allen: I think consumption is quite difficult to call. And I think there's a few moving parts. The first thing is, obviously, we've got a price increase, a modest price increase going live early September. We obviously need to see how the season plays out. We've talked about the variability in the cough, cold and flu season. And what we've said is globally on a full year basis, that could be -- in terms of the variability, either side of a normal season, that could be in the region of 50 to 100 basis points. So I think that that's probably a big swing factor. I think you've got the price increase. We could assume in that number, no change in consumption. But honestly, depending upon what happens with cough, cold and flu, as I talked about, there could be some variability around that. And as I said, I think the important message on North America is that we expect to end the year with clean inventory levels and get North America back to growth next year.
Operator: We have a follow-up question from Warren Ackerman from Barclays.
Warren Ackerman: Again, it's Warren here. Just on pricing, are you able to kind of indicate to us, Dawn, roughly when your pricing lands in North America, how much pricing you're taking and how you feel your pricing timing, I guess, relative to peers? And are you building in any kind of elasticity assumptions on the volume elasticity assumptions on that pricing that you're taking? That's just one follow-up. And then second one, you may have mentioned this already on Brazil, did you break down or can you break down what you're seeing in Brazil by category in terms of like the market is obviously slower, but is there any kind of specific kind of category call-outs where you're seeing kind of more local competition or any other kind of sort of change in trend in that country?
Dawn Allen: Yes. I think in terms of the pricing, so as I said, the pricing goes live. It's effective at the beginning of November. It's across parts of our portfolio. It's kind of -- it varies across SKU, but I'd say kind of low single digits. It's mainly across Oral Health and cough, cold and flu. I think we -- given that the market has moved and others have taken pricing, it's hard to call on elasticity. But I'd say given that the market is moving, then you would expect to see a lower level of elasticity. And as I said, the strength of our brands, so why do consumers buy our brands, they're buying it in terms of the science, the strength of formulation and the differentiation in terms of the delivery of our brands. And obviously, the pricing is related to tariffs. As I said, we're mitigating the tariffs through supply chain initiatives and then there's a small amount of mitigation coming from price. If I think specifically about Brazil, I mean, it's well documented in terms of the macro environment in Brazil, in terms of interest rates and the challenge for consumers. I think in Brazil, we have a strong performance. We're outperforming the market in terms of pain and VMS, but the market is soft. I think the area of weakness is specifically coming from EO, actually, in Brazil. But as I say, I think across LatAm, we have a strong performance in Q3, up double digit. We continue to outperform, but we are watching the macro environment in LatAm because it is changeable. But I think long term, LatAm remains and will remain a key growth driver for us.
Operator: There are no questions waiting at this time. So I'll turn the conference back over to Dawn Allen for any further remarks.
Dawn Allen: Okay. Well, thank you, everyone, for your time and interest in Haleon. We look forward to meeting a number of you at our up-and-coming conferences. Our next formal update will be our full year results in February. If you have any further questions, please contact our Investor Relations team. Thank you.
Operator: Thank you.