Haleon H1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2026

Key Takeaways

  • Positive Sentiment: Organic sales growth improved to 3.1% in Q2 from 2.2% in Q1, supported by a better price-volume mix and 1.4% volume growth. Haleon maintained its full-year guidance for 3%–5% organic sales growth and expects a stronger second half.
  • Positive Sentiment: North America showed improved execution, delivering 3.1% growth and 2% volume growth, driven by shelf resets, innovation such as Clinical Repair and Excedrin Rapid Relief, and e-commerce growth at twice the market rate. Management expects further improvement in the second half.
  • Positive Sentiment: Operating margin expanded by 120 basis points at constant currency, primarily through supply-chain productivity and gross-margin improvement rather than reduced advertising investment or excessive pricing. EPS rose 12%, while management expects high-single-digit operating profit growth and strong EPS growth in the second half.
  • Positive Sentiment: China grew at a high-single-digit rate in Q2, led by Centrum, Caltrate and Voltaren, with Douyin sales up more than 100% following increased content and marketing investment. Latin America also accelerated to high-single-digit growth, and management expects that momentum to continue.
  • Negative Sentiment: Europe remained a difficult market, with low-single-digit category declines and Haleon growth of only about 0.4%, while respiratory health continued to weigh on results. Management expects cough, cold and flu to recover from two years of declines, but does not expect the category to return to its prior peak immediately; Middle East-related freight and contract costs are also expected to increase in the second half.
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Earnings Conference Call
Haleon H1 2026
00:00 / 00:00

There are 12 speakers on the call.

Operator

Good morning. Thank you for attending today's Haleon Half Year 2026 results. My name is Sarah, and I'll be your moderator today. All lines will be muted during the presentation portion of the call, with the opportunity for questions and answers at the end. If you'd like to ask a question, press star one on your telephone keypad. I'd like to pass the conference over to our host, Jo Russell, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you very much. Good morning, everyone. Welcome to Haleon's conference call for our half-year results. I'm Jo Russell, Head of Investor Relations, and I'm joined this morning by Brian McNamara, our Chief Executive Officer, and Dawn Allen, our Chief Financial Officer. Just to remind listeners on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans, and expectations. Please refer to this morning's announcement and the company's U.K. and SEC filings for more details, including factors that could lead to actual results to differ materially from those expressed in or implied by such forward-looking statements. We have posted today's presentation on the website this morning, along with a video running through the results in detail. Hopefully you've all had the chance to see that ahead of this call.

Speaker 1

With that, I'll hand back to the operator, and we can open for Q&A.

Operator

Thank you. Again, if you would like to ask a question, please press star followed by one on your telephone keypad. To remove a question, press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question is from Cédric Burkhard with Citi. You may ask your question.

Speaker 2

Yes, good morning, everyone. Hi, Jo. Hi, Brian. Hi, Dawn. Just a couple of questions, please. One on top line and one on margin. The one on top line will be about North America. Could you just shed some light on the progress you've made there, especially maybe quantify the shelf reset benefits and also how we should think about the organic growth sequence for the rest of the year with the various building blocks? On margin, I guess another profit beat, but how would you assess whether the business actually remains invested enough, and what are the KPIs you would have internally to make sure no category and no market starts overearning? Thank you.

Speaker 3

Great. Thanks, Cédric. Listen, I'll take the first question. I'll probably kick off the second, pass to Dawn. First of all, I feel good about the progress in North America. Maybe I just start with a bigger step back, Cédric. As you all saw, 3.1% organic sales growth in the quarter. That's a sequential improvement from Q1, which was 2.2%, we definitely saw a better balance of price and volume mix, with volume mix at 1.4%. A few other maybe highlights. Emerging markets, obviously another sequential improvement at 6.3%, we do look to see that strengthen in the back half. One of the drags to the emerging markets was Middle East, where we have a disproportionately kind of large market share versus the balance of our business there, we've just seen significant market declines in places like Dubai and Pakistan.

Speaker 3

We believe that will get better in the back half based on our plans, not counting on the market to do anything different or the war to end. I would say those are two key building blocks. Europe. Europe has been more challenging. What I'd say is we ended the quarter where we expected, in line, probably a bit stronger in North America, a bit weaker in Europe. We've definitely seen a Europe market which is declining, we were relatively flat, up, I think, 0.4% or so in the quarter. Getting to North America, 3.1% growth with 2% volume. I'd maybe put it in 3 buckets of what we're seeing. One is the stronger execution, we've talked about that. That's the shelf resets, the self-placements across key categories and key customers. The second I say innovation is delivering.

Speaker 3

We've launched the third pillar of our clinical range and clinical repair in the U.S., that's doing extremely well. It's beyond that. We've launched things like Centrum Age Defy, Excedrin Rapid Relief, innovation is performing well. Maybe the third pillar is around e-commerce. We're seeing good momentum in e-commerce, strong double-digit growth twice the market rate. For me, listen, good progress in the U.S. I feel good about that. Still more work to do. Very encouraged by the progress. Certainly, we're going to have a stronger second half than first half, we're confident in that's obviously embedded in our guidance of holding our guidance of 3%-5%.

Speaker 3

Moving to your margin question, I'm going to pass it to Dawn to maybe talk a bit of the margin and the building blocks. I'd start with a bit of your own question on investment, just my perspective. I think we are investing in the business. A&P in the first half grew 3.2%, broadly in line with sales, slightly ahead, but broadly in line with sales. Our A&P is roughly just below about 21% as a percentage of A&P. I think it's strong investment and growth. There's specific areas where we've increased investment, and we're constantly doing resource allocation just to ensure that we're investing behind the key growth areas that we believe we have won ring room and key innovations. I feel like we're invested well in the business. That said, our priority is growth.

Speaker 3

We don't want to invest in the business just for the sake of investing. We want to invest where we see growth opportunities. Listen, in the second half, we expect a step-up of investment and growth, and that will show up in A&P. It'll also show up in different areas, like we're investing in China and on Douyin because we have a good business on Douyin. Our portfolio is a bit less exposed to that channel, but we're growing 100%, and we see more opportunities there. We're going to invest more there, and we're going to invest some more in activations in the U.S. Where we see opportunity, we're going to drive things. Let me leave it there.

Speaker 3

The only other thing I'd say before I pass it to Dawn is what the gross margin and productivity has enabled us to do is have the P&L flexibility to invest where we need to, but also drive strong EPS growth if it makes sense. To be clear, we're not holding back on investing in the business. We feel like we're investing where we need to be, and we see opportunities, we'll invest more. Dawn, maybe a bit on the margin.

Speaker 4

Good morning everyone. I think what's important to say on the margin is we have delivered the margin through efficiency. We are driving long-term sustainable improvements in our supply chain. To Brian's point, the margin has not come from cutting investment. It's not come from taking too much price. When you look at our pricing, our pricing is in line with inflation, and this is a really important point, that it is coming from efficiency. The 120 basis points improvement in margin, in operating margin at constant currency, is coming from gross margin up 140 basis points. We also have a 40 basis points benefit coming through FX, which if you think about, it's quite nice to have a tailwind from FX for a change.

Speaker 4

To Brian's point, that is pulling through and driving strong EPS in the business, and it is giving us flexibility and agility. Why that's important is when you look at the second half, we will start to see costs come through from the Middle East impact as we roll off fixed price contracts and our hedging positions. It means that given that we've got the strength in the supply chain productivity program, it means we won't have to take exceptional pricing to cover it. We will be able to absorb that cost. From a margin perspective, we also expect in half two that we will deliver high single-digit operating margin growth as we have operating profit growth as we have in half one.

Speaker 4

Let me take your second part of the question, which was about A&P and the KPIs and how we think about A&P. People buy our brands because they are superior, meaningful, differentiated, and salient, which means that people are aware of them. Therefore, continued strong investment in A&P at 20.9% as it is today, is really important for our brands. The way that we think about that, there's probably three main areas in how we think about it. The first question is, are we buying efficiently? If you look at the first half, we have mitigated the majority of our inflation in terms of how we are buying that media. The second piece is, are we spending effectively?

Speaker 4

We have quite a sophisticated market mix modeling tool where we look at the incremental retail sales growth and ROI around that spend, both of those are up in the first half. The third question is, are we driving growth through reach and relevance? When we think about this, we're trying to match our spend with where consumers are consuming that media or where they're getting their media from. 60% of our spend is allocated to digital, and we continue to increase that spend behind social and expert, which are both up in the first half. When we think about A&P, we keep it quite dynamic. In areas where we're performing really well, like oral health, China, India, we increase our investment.

Speaker 4

In areas where it needs less investment, for example, when cough, cold, and flu season was weak in Q1, obviously that's an area where we would shift investment to other areas that all the time it's very dynamic, that we're ensuring that we're making our money work harder and we continue to look for opportunities to invest.

Speaker 3

Good. Thanks, Dawn. Next question. Thank you.

Operator

Thank you. Our next question is from Guillaume Delmas with UBS. You may ask your question.

Speaker 5

Thank you very much. Good morning, Brian, Dawn, and Jo. Couple of questions for me. The first one on respiratory health. We had another weak quarter in Q2. I think it shaved off 150 basis points of your organic sales growth. My question is, of the three buckets of cough and cold, allergy, smokers health, which are the ones where you would expect an improvement materializing relatively quickly? Is your confidence in OSG organic sales growth accelerating in the back half largely underpinned by expected sequential pickup in respy? Do you think the acceleration should be more broad-based than that in the back half? Second question, just China, high single-digit growth in the second quarter, despite low incidents of cough and cold and some negative pricing.

Speaker 5

Maybe can you touch on what is driving what seems to be, I guess, double-digit volume growth in China, and how should we think about this pricing pressures? Is it more of a one-off? Is it the cost of competing in that hospital channel? Does this have any negative implications for your margins in the region? Thank you very much.

Speaker 3

Great. Thanks, Guillaume. Listen, I'll take the first question on respiratory, I'll pass the China question to Dawn. Listen, on respiratory health, you're right, three buckets in respiratory health, cough and cold, allergy, and the smallest piece being smoker's health. First of all, on cold and flu, cold and flu is about half the size in Q2 than it is in Q1. It's off-season, so it tends not to be as volatile. You are right that Contac, which is a very big cold and flu brand in China, just saw very little, if any, pickup in the quarter. We believe that's just an extension of what was a very difficult cold and flu season. I'll get back to cold and flu in the back half in a second. You have allergy, which did well in Q1.

Speaker 3

It was down a little bit in Q2, just a phasing of the season piece, and you just expect that. That's normal. You tend to see some seasonal swings in allergy, but it's never to the degree of cold and flu in the impact. Third is smoker's health. Listen, smoker's health still declined in the quarter, but it's declined at a lower rate than it did in Q1. We're starting to see a stabilization of that business as we go forward, and we have plans in place where we're, like most things, like in the U.S. in general, we're seeing better execution, and we're seeing improvement as they go. Now, on cold and flu, as we look at the back half in cold and flu, we know that we've had two years of decline in cold and flu.

Speaker 3

I think I've said in the past, been associated with the category for over 20 years, it's not necessarily common that that happens, but it's not unheard of. We've obviously done all the work to understand, is that a cyclical or a structural thing? We believe it's cyclical. What we're assuming in the back half is we see growth off of this two years of decline. We still don't expect it to be at the level it was from two years ago. Obviously, in cold and flu, that's more Q4 weighted because that's when the cold and flu season is. That's a bit of the frame around respiratory and what we're seeing. Dawn, you want to talk a bit about China?

Speaker 4

Yeah. Let me take the question in three parts. Let me talk about Asia-Pac, then I'll talk about China, and then I'll come onto your specific question around hospital channel and price. When we look at Asia-Pac, when you look at the growth profile of Asia-Pac, over the last few years, more than 80% of that growth is coming from volume. That's a really good growth profile for that region. I think obviously, and you see that also coming through in the year to date, and actually even stronger growth in Q2. China is a really important driver of that. China was up high single digit in Q2. Main drivers, we increased investment in Douyin. Douyin grew more than 100% in the quarter. Key brands that underpin that were in Centrum, Caltrate, really strong in terms of driving growth in Douyin.

Speaker 4

We have actually doubled the amount of content creation in that channel. That's a really strong driver of performance. The other strong driver of performance was actually on Voltaren, where we increased our presence. Voltaren, 2%. Innovation continues to do really well. We have actually put that now through the hospital channel. Hospital channel is a channel that we have always been in in China. That's not new. What's new is now Voltaren is in that channel, which is a real positive. You're right, pricing was negative in Asia-Pac in Q2. I'm not worried about that. It was driven by going into hospital channel where we have a volume-based procurement pricing model, as well as investment in Douyin. When you look at the gross profit growth in Asia-Pac, that's strong.

Speaker 4

When you look at the margin improvement in Asia-Pac at constant currency, that's also strong. For me, it's a real positive. It shows that the investment that we're putting in to drive growth in China and in Asia-Pac is actually coming through. As I said, we're still seeing margin improvement overall in that region.

Speaker 6

Thank you very much.

Speaker 3

Thanks, Dawn. Let's go to the next question.

Operator

Thank you. Our next question is from Nicolas Theron with Bank of America. You may ask your question.

Speaker 6

Hi, Brian. Hi, Dawn. Hi, Jo. Just two questions from me, please. The first one is on your VMS business. Do you think there's any consumer need that your current portfolio is not really able to address? Do you think that you need to do M&A to do that? It's a bit of a thorny question. The second one is going back to the pain relief, big acceleration in Q2 versus Q1. Maybe if you could just explain to us the key drivers behind the acceleration and whether you think mid-single digit is the growth for that business going forward. Thank you.

Speaker 3

Great. Thanks, Nicolas. First, on the VMS business. Listen, I think, first of all, we like our portfolio. We have seen, by the way, if we look at Centrum in the U.S. specifically, we've seen improvement in the first half of the year, so mid-single-digit growth. Actually, if I look at latest consumption data, so now we're into July, you're starting to see double-digit consumption behind the activations and the shelving resets and everything we're doing on that business. We do like the portfolio we have. Listen, there are higher growth spaces within VMS we don't participate in. We're looking at that also organically. How can we introduce new products under Centrum? How can we drive that?

Speaker 3

One example I would give you is our GLP-1 variant on Centrum, which we launched in the U.S. as part of our broader GLP-1 effort to support consumers on that journey and activate in retail. I've always said every portfolio can benefit potentially from a bit of bolt-on M&A, a bit of divestment as we go. I feel good about the portfolio we have, and I'm confident that while the VMS has been a bit of an up-and-down business for us over the last few years to acknowledge that we have plans in place where we feel like we're going to get that to a place where it can deliver the growth that we would like. On pain relief, it was a stronger quarter in pain relief. I think that links to a few things.

Speaker 3

First, I'd say we saw strength in Voltaren, that linked to a launch in China, by the way, of a Voltaren 12-hour variant that's doing very well. Also in the U.S., we're seeing some strength in Voltaren behind some of those changes we've talked about across shelving, because we also saw benefits from shelving across Voltaren. Panadol has grown healthy growth and ahead of our global number, that's behind good activations, but also the rollout of Panadol Dual Action, which is the combination of acetaminophen and ibuprofen. We market that under Advil Dual Action in the U.S., but outside the U.S., we market that and we've launched that under Panadol. Overall, I'd say a stabilization and slight growth of share in Advil.

Speaker 3

We're starting to see share growth in Advil, which we'd expect, although the category is still a bit muted, we're ahead of the category. Overall, I feel there's some fundamental things that are happening in pain relief that helped drive those numbers.

Speaker 7

Thank you.

Speaker 3

Okay. Thank you. Next question.

Operator

Thank you. Our next question is from Warren Ackerman with Barclays. Please go ahead.

Speaker 7

Good morning, Brian, Dawn, Jo. It's Warren here at Barclays. Apologies if this question's been asked before because I just jumped on late, multiple results today. I just want to just dive a little bit deeper on a couple of places. Latin America, Brian, looks like it's accelerated from low singles to high singles. Can you talk a little bit about the new team that you've got in LATAM and kind of what you're doing differently in terms of price-pack architecture and understanding local consumers better? Do you think this kind of step-up in Latin America is sustainable? Is it a one-timer, or do you see kind of real legs for the improvement in that region? The other region I just wanted to touch on was, again, Europe.

Speaker 7

Sorry if this has been asked already, it did seem a little bit softer in the quarter sequentially in Q2 versus Q1. Just wondering whether you can sort of outline, is there anything weird happening in the pharma channel? Is it Germany? What are you seeing in terms of kind of consumer dynamics in that region? That would be super helpful. Thank you.

Speaker 3

Thanks, Warren. I don't think either of those questions were asked, I'll take them both. Listen, on Latin America, you're right. What we saw was kind of flattish in Q1, and we're seeing high single-digit growth in Q2. I would say, is that sustainable in the back half? I'd expect to see similar results to that high single digits, albeit maybe a bit of phasing Q3, Q4, just because of some base effects and stuff. To take a step back, on January 8th, when we announced the new operating model, we also announced a new leader in Latin America, Andrés, who has spent many years at a Colombian-based company called Quala in Latin America, and then spent some time at Unilever once that company was acquired. Clearly, deep understanding of the Latin American markets, and the consumer.

Speaker 3

I think he has come in and has done a very robust assessment of what is happening and has taken actions. One of the actions we've talked, Warren, that I believe I've mentioned in the past, is very quickly identified a bit of an opportunity in Brazil and a few other markets on our price gaps on Sensodyne. Very quickly did a pilot test and saw that would drive double-digit volume growth. We've executed against that. We've taken pricing down. Again, it wasn't broad-based pricing on Sensodyne. It was a particular SKU on Sensodyne and the price gap versus one of our competitors that got a little out of whack. We've made that change, and we moved.

Speaker 3

I'd say just purely on execution across the region, understanding moves we need to make, and looking as we go forward of better capitalizing on the low-income consumer, where obviously we have a tremendous case study in India on the low-income consumer that's driven now over 20% growth on Sensodyne and also huge opportunities we're seeing in Centrum in EMEA. I think he's making good progress again on all this stuff. Encouraged with the progress. You never want to declare victory. We're not complacent. I feel like the back half, what we're seeing in Q2 is sustainable in the back half. On Europe, there's no question what I said earlier, Warren, you may not have been on, is that if I look at where we ended up in the quarter, it was in line with our expectations of what we thought we would deliver in the quarter.

Speaker 3

It was a bit better in the U.S. It was a bit tougher in Europe. There's no question that we're seeing a tougher market in Europe, and we're seeing low single-digit declines in the categories. Now that said, as you saw, we delivered roughly flat results, up 0.4% or so. We are growing market share in Europe. Sensodyne continues to perform well and broadly, we're performing. I feel like, listen, as we look at the balance of the year, we're not counting on anything changing in the Europe dynamic. Obviously, we're just very focused on driving our execution, driving our innovation, delivering the growth that we think we can get in that market. We certainly have seen a tougher backdrop in Europe than we had seen as the year has gone on.

Speaker 7

Super, Brian. Thank you.

Speaker 3

Okay, next question.

Operator

Thank you. Our next question is from Misia Gervis with BNP Paribas. You may ask your question.

Speaker 8

Thanks. Morning, all. One question on cold and flu, please. Can you please remind us what the timeline for the sell-in for the season? Also, one of your competitors speaks a lot about a major innovation in cold and flu coming. Do you see this as a bit of a challenge for you? The second question would be on price volume split for H2. You did say that you're not intending to take any material pricing, should we think about H2 being a bit balanced between price and volume? Last question would be on one-offs. Were there any notable one-offs benefiting your Q2 delivery? Thank you.

Speaker 3

Good. What I'll do is let me take the cold and flu question, and then I'll pass Dawn to the second part of that question, and then the one-off question. Listen, on cold and flu, the sell-in happens as we speak. July and August typically is when sell-in happens in cold and flu. It's as expected. Typically, in cold and flu, the big potential for any seasonality effect happens later in the year in Q4. As far as competitive activity, listen, nothing we were unaware of. We feel like we have good plans in the U.S., and combined with all the executional improvements that we are seeing and then the plans we have behind our cold and flu portfolio. Again, never complacent, never take anything for granted. We're aware of launches of multiple competitors.

Speaker 3

We feel good about our cold and flu plans in the back half. Dawn?

Speaker 4

If we think about the price volume mix, we have been working hard to improve that balance, the price volume mix. You've seen in the quarter the step-up in volume performance. With volume mix at 1.4%, where is that coming from? We have obviously talked about Asia-Pac and significant volume growth in Asia-Pac in the quarter. We also saw a big step-up in North America to 2% in terms of volume mix on the back of all of the execution activities, innovation that Brian has talked about. Those two step-ups in the quarter were offset by EMEA & LATAM, where volume mix was down on the back of a very tough macro picture in Europe and obviously softness in the Middle East, given what's happening there. If we look to the second half, we continue to focus on a balanced price volume mix.

Speaker 4

We would expect to see a step-up in volume mix half two versus half one, particularly given that we have cough, cold, and flu in Q4. As I said, from a pricing perspective, I would expect pricing to be broadly similar second half versus first half. To come to the third part of your question, I guess there have been activities, whether it's Amazon Prime Day, whether it's World Cup, where we've had activities in terms of U.S. soccer. What I would say is obviously they've both been successful for us. If I think about phasing Q2, Q3 or sell in, sell out, there's nothing significant to call out in that respect.

Speaker 8

Okay, thanks, Dawn.

Speaker 3

Next question.

Operator

Our next question is from David Hayes with Jefferies. Please go ahead.

Speaker 9

Thank you very much. Good morning, all. Two from us. Just came back to the growth profile in the second quarter, obviously doing a 3%, but still that 4%+ ambition midterm remains aloof in what is a relatively benign cold and flu season. I guess the question is, there's lots of moving parts as you talked about, Brian, Asia cold and flu-

Speaker 3

Yeah

Speaker 9

doesn't affect Middle East, U.S. momentum's building, Brazil execution improvement. Just that gap, can you quantify what broadly that the big ones are that leaves that gap there? I guess where that leads me is would you expect to do 4%+ through the second half as those gaps are resolved, as you're alluding to? The second question, just on the margin, obviously very impressive margin delivery. You talked again about some of the drivers of that. The question is, A, is the supply chain delivery a little bit lumpy? You've got a lot of savings in the first half, might be a bit less in the second. On the COGS inflation, I guess some of the contract manufacturing rolls off in terms of the agreements.

Speaker 9

Can you just give us a sense of cost of goods sold inflation in the first half versus what you might expect in the second half? Thank you so much.

Speaker 3

Thanks, David. Listen, I'll take the first one, and then I'll pass the questions on margin and supply chain over to Dawn. Listen, on the growth profile, by the way, you are right that we are below our 4%-6% medium-term ambition, and we are very focused on getting back to there. If you take a step back, David, on what we need to be to get to that 4%-6% ambition, and then maybe what is the difference between that and Q3, I think in one area is emerging market growth, which we saw sequential improvement at 6.4% in the quarter. We do expect that that can get to high single digits, and we would expect that to get there in the second half. What is driving that? Certainly, we've seen mid-teens growth in India. We're confident that will continue.

Speaker 3

We talked about Latin America and the improvement we've seen in Q3. We've talked a bit about China in high single digits in Q2. The other piece that's been a drag to that high single-digit growth has been Middle East. Our Middle East/Africa business was flat. In Middle East, we are disproportionately big in the Middle East. If I look at my market shares in the Middle East, in many cases, they're double where they are in the market. Brands like Panadol in Pakistan is an 80-plus kind of share. What we've seen is we've seen declines in the market in both Dubai and Pakistan. That said, verse Q2, we expect that to improve in the back half and not expecting wars to stop or anything like that based on our plans and what we're going to do and the activations we're going to drive.

Speaker 3

We'd expect to see an improvement on that as we go into the back half. The other piece is we've said, listen, U.S., for us to get to that growth number, needs to be in that 3%-4% range. I'm very encouraged by the progress we're seeing in the U.S. Again, not complacent, not declaring victory, but really feel good about the progress that they're making, and we think it's very encouraging. Europe, you would expect Europe to be in a low single digit, 2%-3% growth. Obviously, it's a bit lower than that as we look at the back half. That's the algorithm to get us into that 4%-6% range in a confident way.

Speaker 3

On the back half, listen, I'm not going to guide beyond what we've already said, which is confidence in the 3%-5%, and the building blocks that I've laid out, which is you see the progress in North America. We expect to have less of that drag from the Middle East going forward. Then obviously cold and flu, which will be more Q4 focus. What we're expecting to see is growth versus a year ago, versus 2 years of decline. Not expecting to see it as high as it was in 2024, just as a benchmark. Dawn, maybe I pass it over to you to the margin question.

Speaker 4

Yeah. As I said earlier, in terms of the margin progression, this is coming from the productivity savings in supply chain. Just as a reminder, there's three parts to that. The first one is around complexity reduction, so harmonizing packaging, formulations, optimizing the number of SKUs. The second one is operational efficiency. This is all about debottlenecking in the plants, process improvement, equipment optimization. The third one is about optimizing our broader network in terms of what we do in-house, what we co-manufacture. When I think about that holistic program, it continues to deliver incredibly well. I don't see it as lumpy. We track the pipeline of potential future savings. We track that into the future. When I look at half two versus half one, that's looking good.

Speaker 4

In terms of the COGS piece and increasing costs, we have seen a small increase from Middle East in the first half, particularly in freight. As I said earlier, I would expect that to increase in the second half as we come off some of the contracts. When I look at the gross margin, we've had 140 basis points improvement in the first half. I would still expect us to deliver improvement in the second half. Will it be to the same extent given that we'll be absorbing some of the Middle East costs? I think that depends on how much those costs are. As I said, we would expect to absorb that. I think some growth in gross margin. I think the other things to talk about, we will continue to invest in the business.

Speaker 4

You saw us in the first half, A&P, we increased ahead of revenue. Second half, we'll continue to invest. The other thing that we will have in the second half is the benefit from the operating model changes. We said at full year that we expected that in total to be in the range of GBP 175 million-GBP 200 million, of which one third, broadly one third, we expect to be in this year. A bit similar to the supply chain productivity savings, we'll decide how much of that do we reinvest in terms of future capabilities and how much do we drop through. When you look at that overall, as I've said, I would expect half two operating profit to also be high single digit, but different moving parts in the P&L.

Speaker 4

When you look from an EPS perspective, 12% growth in EPS in the first half is very strong. I would also expect strong EPS growth in the second half.

Speaker 9

Thank you.

Speaker 3

Thanks, John. Next question.

Operator

Our next question is from Callum Elliott from Bernstein. Please go ahead.

Speaker 10

Hi, good morning. Thank you. I wanted to start with Oral Care, please. The 6.2 is obviously objectively a fantastic growth number. But at the same time, I think it is also the slowest quarterly growth for nearly four years. One of your biggest Oral Care competitors reported yesterday a mid-single digit decline in organic sales for their Oral Care business. I guess you are probably benefiting from their struggles, as I think you have been for the past several quarters. But they are not a bad company, I don't think, and I don't think anybody would say that they are. I think it would be dangerous to assume that they will continue to be such a big share donor over the longer term.

Speaker 10

I guess what I am getting at here is, can you talk a bit about the moving pieces, the drivers of longer term, what the sustainable growth rate for that Oral Care business should be? My second question, I was really interested in your comments around what Andrés is doing to fix LatAm, Brian. Without meaning to be too pejorative, it strikes me that fixing price gaps really should be bread and butter for a company of your size. I guess I am surprised that you need to be poaching senior leaders from Unilever to do that. I guess my question is, can you speak a little bit to the infrastructure in your business around this kind of competitive intelligence? Do you think this Brazil Sensodyne pricing example is just an isolated incident?

Speaker 10

Or do you systematically need to be doing more to improve this kind of infrastructure across the company? Thank you.

Speaker 3

Okay. Thank you, Callum. On Oral Care, 6.2%, still feel very good about that. I expect that that will improve in the back half. Nothing really to see from the 7.3 on half year to the 6.2 in Q2. Within that, Sensodyne continues to be very strong, parodontax continues to be very strong, and mid-single digit kind of growth on Denture Care, which is what we expect. Listen, this is a business that has grown at this level for years in the past. If I think about our competitors, our competitors in Oral Care are both fantastic companies and fantastic competitors. Have a ton of respect for both of them. A lot of times what you see is what we are driving is incremental category growth and incremental consumers into the more premium segment of the category via the innovation we have.

Speaker 3

If I look at Clinical White, then Clinical Enamel, and then Clinical Repair this year, in all three cases, they were the largest innovations in the U.S. market in that given year in the toothpaste category. There's more to come. I look forward, and I see more innovation coming that we already have in the can. Post the Clinical range, we already have a very clear view of what that pipeline looks like, and I really feel good about that. A lot of times when you see our competitors moving around on stuff, it tends to be because they're fighting each other. Do not take any of them lightly. We've been consistently driving that growth through new users, new penetration, and it's the very simple thing, which is now half the people in the world have sensitive teeth.

Speaker 3

A bit more than a third of those people use a sensitivity toothpaste, we continue to drive that growth. By the way, well beyond the U.S., by the way. I mentioned earlier India, our second largest market, second only to the U.S., over 20% growth. Two years ago, we introduced a low-income consumer SKU in India at INR 20. It took a bit of time for that to gain critical mass. In the last quarter, it was over 40% of our volume was driven by that low-income SKU, and half our growth is coming from that. I think we have a very broad-based program. Also there's parodontax, by the way, which grows consistently in the mid-teens.

Speaker 3

Overall, do not complacent, the ups and downs of our competitors in any given quarter tend to be less relevant to us than just our agenda and what we're driving on that. The other piece is we're also a much less promotion-driven business, to be clear. We invest quite heavily in advertising and promotion and dental detailing. We don't necessarily get into the fray on fighting the promotion game. That's what I say. Listen, in Latin America As I said, when we created the new operating model, I was aware that we needed to make a change in Latin America, I want to be very clear.

Speaker 3

Also made the decision that having Latin America, Middle East, Africa, and India, given the growth profiles and the opportunities, and having the right talent in those businesses, was a decision I made, and I think it's going to pay dividends for the longer term. Understand your comment and agree with your comment, like anything else, Callum, when people are trying to run the business and drive the business and taking different pricings, every now and then you have a misstep. Would we have caught that if Andrés didn't go in? I would expect we would've. It happened at some point in the back half of last year. He happened to be put in place and do it. Listen, he's a great talent. I'm really happy to have him.

Speaker 3

I'm happy to have him and Kedar and Özlem, which are our new leaders across our three regions, on my leadership team and reporting directly to me. It's all part of this operating model change we've made, which was all about driving growth and agility. Happens to be providing also some efficiencies that Dawn mentioned, which will help us in the back half. It's all about streamlining and simplifying what we do. Okay?

Speaker 10

Thank you very much.

Speaker 10

Next question. Next question.

Operator

Thank you. Our last question is from Edward Lewis with Rothschild & Co Redburn. Please go ahead.

Speaker 11

Yes, thanks very much. A couple from me, more bigger picture. I guess first one, Brian, if I think about the Investor Day last May, you talked about wanting to reach a billion more consumers. You've made investments in India, you made investments in China this year, the world's got a bit more volatile. Just an update on how you're thinking about that longer-term view. Dawn, when I think about Investor Day, things like AI were obviously mentioned, it's just made so much more impact on our lives now. I presume all of us are using it so much more. When I think about your outlook in terms of how you're thinking about driving margins, how much more of a benefit are you seeing from deploying these kind of capabilities than you would've thought before?

Speaker 3

Thanks for the question, Ed, I'll pass it to Dawn on that AI question. Listen, we set out a strategy that had two ambitions, a billion more consumers, and delivering industry-leading shareholder returns. I think both of those were really important. What that did in the organization is opened up the opportunity and strategically for us to go after the low-income consumer, where we see opportunities that haven't been addressed before. Now, some of this low-income consumer stuff does take time to build momentum. If I talk about India and the 20-rupee pack, you have to sell a lot of 20-rupee packs to start having an impact on that business. That is having an impact on that business. 20% growth, half that growth is coming. It's so much more than just offering packs, by the way.

Speaker 3

It's the route to market, it's the communication, it's the education, it's the dental detailing. That strategic shift for us is really important because that's something that we see as a medium-term, long-term growth opportunity in emerging markets. We have some really good proof points of where it's working, we are in the process of making that broader in other areas. We've done much more than India, I've talked about India because it's the one that started, now we're two years in. Listen, the volatility in emerging markets is always there. I don't think that will change the consumer need that we see in the low-income consumer, it's about providing, by the way, it is about providing really great products at accessible price points in a way that helps meet their needs.

Speaker 3

We still believe that opportunity is there. Dawn, on AI?

Speaker 4

Yes. I think you're right. Look, AI is obviously a fast-moving space, and we are investing in AI, and we are seeing the benefits. Let me give you just a sense of that, and I'll give you an example across supply chain, across our demand space in terms of growth, and then maybe just broader productivity. In terms of supply chain, we have built quite a connected chain of AI interventions, from consumption-based forecasting to production scheduling, preventative maintenance, and inventory deployment. Examples of that would be on our consumption-based forecasting. This has improved our forecast accuracy by 5%-6%. It's also reduced our stock cycle times as well, which is obviously important in terms of our levels of inventory.

Speaker 4

If I look at our AI scheduling and digital twins, for example, at our Nyon site, that's our digitally enabled work process solution has delivered a five percentage point in operational effectiveness. Similarly, in terms of preventing unplanned shutdowns, for example, at our Dungarvan site, that's also delivered a similar level of operational improvement. From a supply chain, that is definitely embedded, as I said, in terms of a holistic space. If we look from a demand perspective, we have embedded AI across insight, innovation, marketing, and commercial execution, so all of the steps along that path. From an insights perspective, we have a great tool that is enabling us faster and deeper access to actionable insights.

Speaker 4

From an innovation perspective, we're leveraging AI in terms of faster claims generation, and in terms of marketing, we're actually leveraging AI in terms of reducing the cost of our content production. Then in commercial execution, in terms of AI around tools such as Next Best Action that we talked about Capital Markets Day, that's also driving sales growth. Actually quite an end-to-end demand space AI capability that we're embedding. Then the third area, just more broadly across the organization, obviously tools like Copilot, language translation with our tools like Lingo. Even if I think about finance in terms of some of our core finance processes like optical recognition in terms of invoices are also driving process improvements and savings. Look, I guess like everybody else, we're on a journey with AI. It is changing quite quickly.

Speaker 4

I think all of the things I talked about earlier, what that is enabling us to do in terms of supply chain productivity, the benefits that we're getting from the operating model changes, that's enabling us to test and learn in this space and build capabilities for the future.

Speaker 3

Great. Thanks, Dawn. Well, that was the last question. Thanks everyone for joining us today. I look forward to catching up with you at upcoming roadshows and meetings. As always, feel free to reach out to the IR team with any further questions. Thanks for your interest and continued support. Enjoy the rest of your day.

Operator

Thank you. That concludes Haleon half year's 2026 results. Thank you for your participation. You may now disconnect your lines.

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