Tsakos Energy Navigation Q1 2023 TU Earnings Call Transcript

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Provided by Quartr
May 3, 2023

There are 12 speakers on the call.

Operator

Good morning or good afternoon all and welcome to the Halion Q1 2023 Trading Update. My name is Adam and I'll be your operator for today. I will now hand the floor over Sonia Gabriel to begin. Sonia, please go ahead when you are ready.

Speaker 1

Good morning, everyone, and welcome to Helium's conference call for our Q1 trading statement. Thanks all for joining us on what I know is a busy results day. I'm Sonia Gabriel, Head of Investor Relations, and I'm joined this morning by Tobias Hessler, our Chief Financial Officer. Just to remind listeners on the call that on the call 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.

Speaker 1

K. And SEC filings for more details, including factors that could lead actual results to differ materially from those Spreads in are implied by any such forward looking statements. This morning, we'll run through a small number of slides before opening the call for Q and A. For those listening to our webcast, if you'd like to ask a question, please use the dial in details on Page 2 of today's press release. As you will have seen, 2 weeks ago, we provided an update with our AGM.

Speaker 1

Normally, we'd expect our Q1 trading statement to be before the AGM. This year was an exception due to the impact of the date of incorporation of helium. Whilst the focus today is on revenue performance, we've also provided group profit and margin on both the reported and an adjusted basis, with a full reconciliation, including for organic revenue growth in the appendix. For information, we do not intend to provide quarterly profit data on an ongoing basis and will only do this for as long as Pfizer reports our results as part of its financial statements And until our registration rights agreement with Pfizer and GSK terminates. With that, I'd like to hand the call over to Tobias.

Speaker 2

Great. Thanks, Sonia, and good morning, everyone. Let me first start with our Q1 highlights. As you have seen from our AGM trading update a couple of weeks ago, We had a strong start to the year with 9.9% organic revenue growth, driven by a healthy combination of both positive volume mix as well as increased price. This performance is particularly impressive considering that we lapped a 16% growth in Q1 last year.

Speaker 2

Our Power Brands continue to deliver good growth of around 10% with strength from Peridontax and our respiratory brands TeraPro and Ottermann along with the recovery in Voltaren. Our local growth brands were also strong, up 14% with double digit growth from Fendbit, Contact, Robitussin and Flonase just to name a few. Growth was underpinned by the exceptional execution across our teams. With a number of new innovations, including Pananetra in Australia, the expansion of our gummies range for Centrum and the launch of emergency crystals in North America. Our growth was profitable with inflationary cost pressures offset by price inefficiencies across the business, resulting in strong operating leverage.

Speaker 2

It is a strong start to the year. And as you saw in our AGM trading update, we were pleased To increase our organic sales guidance to be towards the upper end of the prior 4% to 6% range shared previously. While other guidance remains unchanged and we are on track for our deleveraging target. Turning now to our Q1 results. Revenue of DKK3 billion reflected 9.9 percent organic revenue growth.

Speaker 2

Adjusted operating profit increased by £60,000,000 to £691,000,000 up 3% constant currency And resulted in a 23.1% margin, down 140 basis points constant currency. Margin was down for two reasons, much as expected from 1, adverse transaction of foreign currency and 2, Higher standalone costs, given we demerged from GSK in July last year, and I'll come back to this shortly. Turning to the drivers of revenue growth in more detail. Revenue increased 13.7% To SEK 3,000,000,000 on a reported basis. There was a 3 80 basis points benefit from translational foreign exchange, mainly due to the year on year sterling weakness compared with our major trading currencies, including the U.

Speaker 2

S. Dollar and euro. All in all, we delivered 9.9 percent organic sales growth with 2.8% volumemix and 7.1% price. It's worth bearing in mind that the 2.8% growth in volume mix cycles the ERP systems Cut over and distribution model changed last year, which fully reversed in Q2 last year. And the 7% price increase Included the annualization of pricing taken last year along with a one point benefit from hyperinflation economies, for example, Turkey and Argentina.

Speaker 2

Looking now at performance across our categories. Looking at the quarter, I was particularly pleased that our health revenues grew 6 0.6% or up more than 8% excluding the system cutover. Sensodyne was optionally single digit, underpinned by continued share gains, benefiting from innovation and strong growth across a number of markets including Middle East and Africa. In the U. S, Sensodyne was up double digit reflecting consumption growth and pricing along with normalizing retailer stocking patterns.

Speaker 2

Our other growth driver in the category, Peridontax, was up double digit. As expected, VMS organic revenues declined 3.7%, largely due to a decline in our immunity brand, Emergency, We've had a tough comparative in Q1 last year from the Omicron wave. Syntrum, where consumption patterns are more steady, So high single digit revenue growth globally. Pain relief revenues were up 11% with Panadol and Advil Up low and high single digit respectively. Voltaren saw high single digit growth with strength in Central and Eastern Europe, China and the U.

Speaker 2

S. Respiratory revenues were strong, driven by increased consumption from cold and flu incidences Along with the rebuilding of inventories given low levels at the end of last year. Finally, Digestive Health and other revenue was up 7% The strong growth across blended fiber and Tums along with mid single digit growth in EMEA. Smoker's health was up low single digit And Skin Health Brands were up low teens with ChapStick performing well. Let me now move to look at geographic segment performance.

Speaker 2

We delivered strong organic revenue growth across all our regions. Our emerging markets saw 17% growth, which included a 3% benefit from pricing taken in hyperinflation economies. Emerging markets made up 35% of our revenue With growth led by China up nearly 30%, along with broad based growth in other emerging markets. Developed markets grew 6%. Looking at each region in more detail, starting with North America.

Speaker 2

Organic revenue increased 5.1% with 3.6% price and 1.5% volume mix. The regions are low single digit growth in oral health and a 20% decline in VMS, lapping the comparative from strong emergency demand last year. As I said before, one thing we have observed is that emergency demand has been skewed towards times of COVID demand. Having said that, innovation remains strong and we recently launched emergency crystals, which allows consumers to use the product without water. Whilst it's early days, initial feedback has been strong.

Speaker 2

Cleaner relief was up low double digit Driven by pricing and continued strong demand for Advo. Voltaren was also strong, up mid teens percent. Respiratory health was up in the low 30s percent benefiting from sustained cold and flu incidences and restocking following low levels of inventory at the end of last year. This was underpinned by continued uptake for successful new innovations, including Theraflumax strength and Flonase headache and allergy release. Turning to Europe, Middle East, Africa and Latin America.

Speaker 2

Organic revenue increased 13.1% with 12.6% price and 0.5% growth in volume mix. As you will recall, this region was the most impacted from the ERP cut over last year. Excluding this impact, The region would have shown mid single digit volume growth. There was strong growth in Middle East Africa helped by Sensodyne and Panadol. In Europe, revenue was up double digit with broad based growth including Germany, which was up middle single digit.

Speaker 2

Across the categories, OrecHealth saw good growth, largely driven by Sensodyne, up high single digits And ParaDontax, which was up low teens percent. We're seeing good consumer uptake for a number of brand innovations, including ParaDontaX, Gum and Brett. In BMS, the region saw a mid single digit decline, Reflecting capacity coming on stream last year and a temporary decline in some local brands. Having said that, Senshaun was up high single digit, reflecting our continued activation and strong execution across the region. Pain relief revenue was up high single digit, Reflecting good growth from Panadol and Voltaren.

Speaker 2

Respiratory sales were up in the mid-thirty percent range, Driven by strong cold and flu season significantly ahead of last year. Parafluid ottamin saw particularly strong growth helped by new innovations including Paraflu Pro Naturals. Digestive parts and other saw sales up high teens with good growth across most of our brands. Finally, turning to Asia Pacific. Organic revenue increased 11.7% With 3.4% from price and 8.3% from volumemix.

Speaker 2

Growth from pricing was lower than our other regions given the less pronounced inflationary environment. As a reminder, this region was not impacted by the ERP systems cut over. China, our 2nd largest market overall was up nearly 30%, following the easing of COVID related restrictions and subsequent rising cases. Elsewhere, as we expected, Australia and New Zealand declined high single digits given the high comparative last year from COVID related demand. Looking across the Asia Pacific region as a whole, our local growth brands performed particularly well.

Speaker 2

Within the categories, oral health saw low single digit growth underpinned by strong growth in Denture Care and Peridotex. Sensodyne saw good growth in Japan and India, offset by weakness in China. In VMS, We saw high single digit growth underpinned by successful consumer campaigns for Centrum and IntainRelief, segmented revenues more than doubled. And Voltaren saw strong growth following the reopening of China. Respiratory revenues were up in the mid-30s driven by contact in China, which also more than doubled.

Speaker 2

Turning now to our operating performance. We delivered €691,000,000 of adjusted operating profit, an increase of €60,000,000 Adjusted operating profit was up 3% constant currency. I'm pleased to report strong execution with pricing and efficiencies helping to offset inflationary cost pressure with positive operating leverage from strong revenue growth. During the quarter, we saw the impact of the prior year ramp up of the standalone costs, which had approximately 180 basis points negative impact. As you will recall, in half one of last year, we were a segment of GSK and so incurred a very limited amount of these, We've been subsequently ramped up through the year as we built out our teams and infrastructure to be a standalone company.

Speaker 2

Hence, We had a large year over year impact of these costs in the Q1. We expect the negative margin impact to reduce from Q2 as we cycle over the comparators, which included more of those costs. As expected, We also incurred $25,000,000 in transactional FX losses, largely from the U. S. Dollar and our Swiss cost base.

Speaker 2

This had a 90 basis points adverse impact on our Q1 margin. This effect will continue in the second quarter. From Q3, we will cycle over the base effect from last year and the impact of the Swiss francs depreciation was more pronounced. Finally, there was also a €39,000,000 benefit from movement in foreign exchange on a translational basis. Taken together, this resulted in a 10% reported increase in adjusted operating profit and a 23.1% margin.

Speaker 2

As I mentioned earlier, at the AGM, we increased our organic sales guidance. We now expect to achieve organic sales growth towards the upper end of our 4% to 6% range, in line with our medium term up. All other guidance remains unchanged. Before opening to Q and A, I'd like to Provide you with some information to help with modeling between the first and second half of this year. On revenue, we expect organic revenue growth Higher in the first half of twenty twenty three as we move through the year and annualize pricing.

Speaker 2

On margin, we would expect a lower margin in the first half than for the full year. Whilst we continue to expect positive operating leverage in 2023, it's important to keep in mind a couple of factors which will impact the year on year movements in the first half. First, we have guided to adverse transactional foreign exchange having an impact on the full year of around 40 basis As you know, we started to see the impact of adverse foreign exchange in the second half of twenty twenty two And therefore, this will continue into the first half of twenty twenty three. 2nd, we shared last year that a standalone cost were around 2 €100,000,000 We expect a similar amount in 2023, but the phasing of these costs is different year on year. In 2022, standalone costs were skewed to the second half of the year with around 70% of costs incurred in the second half of twenty twenty two.

Speaker 2

However, in 2023, these costs will be more evenly balanced through the year. And as such, there's an adverse impact year on year in the first half on margin. So to sum it up, Heydion has delivered a strong first quarter performance with strength across both our power brands and local growth brands. We delivered operating profits growth and strong operating positive leverage across the business. This gives us confidence that we are on solid foundation to deliver our full year guidance.

Speaker 2

Given the momentum across the business and what remains a challenging market environment, we remain confident of delivering our medium term guidance as we stated in this morning's results release. With that, I would like to hand back to the operator to open up for questions.

Operator

Thank you. Our first question today comes from Ian Simpson from Barclays. Ian, please go ahead. Your line is open.

Speaker 3

Good morning, everyone. A couple of questions From me, if I could. Firstly, I wondered if we could dig a little bit into oral health and the growth rates there. So As a whole, it grew 6.6%. You've said, that Paragon tax grew double digit.

Speaker 3

You've said that Sensodyne grew double digit in the U. S. I was just wondering what the sort of drags on growth In oral health work, because obviously, something's got to be growing significantly below that double digit to get the division as a whole Coming out at 6.6. So any help there to unpick it would be great. And then secondly, in respiratory, I appreciate that it's difficult to know for sure, but Any thoughts as to where inventory levels in the distribution were in Respiratory as we kind of exited Q1 And whether that restock across respiratory and I guess to a lesser extent pain had pretty much normalized Or whether we should expect to see any sort of restock benefit in Q2 as well and perhaps any attempt to quantify the restock benefit in Q1?

Speaker 3

Thank you very much.

Speaker 2

Sure. Thanks, Ian, for the question. So let me start with oral health. So I think on oral health, Bit of a drag in China. So as I mentioned, weakness there, the overall market is down and also some work for us to do On our execution there, so confident that also this will come back.

Speaker 2

Secondly, we have still a What we call a family or a health business branded mostly under Agfa Fresh, which I think Had a weak quarter. It's, as you all know, not strategic for us. So we're deprioritizing that. And I think that's ultimately what That's the delta to the drag of the growth and pulls it back to the overall results, which in my view were very strong with 6 6% reported and over 8%, if you normalize the impact Of the systems cutover. And just on the systems cutover on the categories, it was mainly in oral health and a little bit in pain relief.

Speaker 2

And across the regions, it was mostly in EMEA, LATAM and very little in the and a little bit in the U. S, nothing in APAC in the APAC region. On your second question on respiratory, so we think as we do by the way every year, We managed down our inventory towards the end of the season. We believe by end of Q1 that inventory levels in cold and flu are At the right level, so they're healthy and healthy in the way that they should be as we're getting out of the In the Northern Hemisphere. So I think talking to our regions, I think they've managed that well.

Speaker 2

So I don't expect Any shift between Q2 and Q1, yes? We've given you I think there was a bit of help On that in Q1, because as you remember, COVID demand really shot up sorry, called the flu demand, largely driven by COVID really spiked up massively in late December, both in China with the change in the COVID Policy and then secondly in the U. S, which means shelves got wiped out and there was probably a bit of restocking happening very early in the year from that Demand that was created in December. And then as we went through the quarter, the team has done what they've always done, manage demand down, so you exit the The season at a healthy level.

Speaker 3

Very clear. Thank you.

Speaker 2

Thanks, Ian.

Operator

The next question is from Guillaume Delmas from UBS. Guillaume, your line is open. Please go ahead.

Speaker 4

Thank you very much. Good morning to Guillaume and Sonia. I have a couple of questions. The first one is on the slide in your appendix. I think it's Slide number 20, will you provide some color on the key moving parts affecting your quarterly organic sales growth this year?

Speaker 4

When I look at Q2, I see a couple of pluses. So the reversal of the cutover and China, No minuses. So would it be fair to assume another strong print in Q2 maybe at or above the level of Q1? Or have you seen any material changes in your trading environment in April that will make us a little bit more cautious? And then my second question is on VMS specifically.

Speaker 4

So sequentially there, we see an improvement for both Centrum and Coldtrade in the Q1, should we see that as evidence that the VMS category is reaccelerating already or is it more down To some significant share gains for both brands. And related to that on emergency, can you maybe remind us How much of your revenues in VMS are derived from emergency? And would it be fair to assume that emergency will be far less Off the drag to your VMS performance from Q2 onwards. Thank you.

Speaker 2

Yes. Thanks, Guillaume. So let me start with your VMS question first, right. So I think working it backwards. So yes, Immersion is going to be less of a drag of growth because it was up massively in Q1 of last year.

Speaker 2

And I think you might remember from the full year results where I had shown the total U. S. Demand, There was this massive spike from the Omicron wave and we've always seen emergency with immunity claim Pretty much correlating with that and relating directly to that. And I think this year we just saw the reverse of it That it came down again against this very, very high base in the prior year. And then of course, we're moving A little bit out of and the emergency is also a little bit more seasonal.

Speaker 2

So we're moving out of the season as well as we get into the summer months, Yes. So yes, emergency less of a drag. And yes, as you've seen Centrum and Caltrain, both very Healthy, exactly what we've always said. Geographic expansion, activation of Centrum around the world, Further innovation on the product as well as the ability to take price and also Caltrade doing well in China. So that covers the 3 launches brands in the categories.

Speaker 2

And I think then we have some local VMS brands, they had a bit of a mixed performance in Q1. So we had, for example, a brand like Scotts in Southeast Asia. Again, recycling in Southeast Asia over a lot of COVID related demand last year that came down. There's another Brand we have in Italy where there's a different shipping and promotional pattern this year. So I think those Temporary declines that will come back.

Speaker 2

If you take the big step back on VMS, To just take a full year stack on it, 7% growth over 4 years on an annualized basis, it just shows you that we've been able to continue to grow. The consumers that came into the category are staying In addition to us driving growth from innovation and expanding the brand. Now With respect to the Q2, so we're not giving any growth guidance for quarters. What we put into your appendix is just a few things to keep in mind. I think at the plus last year, by the way, was It improved sales last year.

Speaker 2

So the ERP pulled, increased The sales last year, so it's reversing out this year. And as I said just earlier, I mean, we would expect sales growth in the first half To be stronger than the second half from a number of the factors that I had explained. Thank you. Thank you.

Operator

The next question comes from Faham Bey from Credit Suisse. Faham, your line is open. Please go ahead.

Speaker 5

Hi, good morning guys. Thanks for the question. A couple from me as well. I think you mentioned you had an annualization of pricing and an incremental pricing in Argentina and Turkey. Should we expect further incremental pricing in your markets as you look to offset particularly the transactional FX headwind in H1.

Speaker 5

And whilst we're there, could you also update us on the hedging policy and the potential associated costs with that. And secondly, There was a very strong performance in North America at Sensodyne and Voltaren. Should we see this as a turnaround in performance? Or are there any short term dynamics that we should be aware of? Thank you.

Speaker 2

Good. Thanks, Farhan. So, look, on hyperinflation, I think the team has done a really good job in taking the Sorry, pricing to offset the impact and I think that will probably most pronounced in countries like Argentina and Turkey. We believe the hyper look, it's hard to predict where it's going, but I would say from where we sit today, I would expect the full year impact or the tailwind from This hyperinflation on the organic growth rate to be less for the full year than it is now because we're starting cycling over some of those pricing actions in the second half of the year, yes. In the second half of the year, yes.

Speaker 2

And I mean, as you saw, we've made it transparent to you how much it was Because it's just it's a tail to the organic growth rate, but it will be less as we go through the year. We also I think from a on your hedging question, so I think as we said, we started hedging, for example, the Swiss francs, over time, also than hedging on the Australian dollar, so currencies that are widely available. I think it's very hard to hedge emerging market currency. So I think that is one that There will always be a certain impact on that. And just on hedging more broadly, of course, I mean, it's going to remove Or reduce the volatility, but at some point it's going to catch up on us because it's not going to you can't hedge currencies Forever, but it's just going to smoothen it out over time and we start doing that.

Speaker 2

I think in North America, I I think, look, very pleased with the performance. I think Voltara now, I think, Last year, there were the private label came to the market as obviously as expected. So I think It stabilized from that. There were a lot of launches into that category. And I think it's very clear that we are winning and then gaining share with Voltaren, Which is positive.

Speaker 2

Secondly, on oral health, also good performance. I think good launch performance, success with Price increases and the brand being also good volume growth. Prior year, we had some movements in trading patterns, those have normalized. So it was maybe a little bit of an impact on that. And Having that normalized, which your weekly orders sometimes go a little bit up or down, but I think ultimately good underlying performance on that brand In the U.

Speaker 2

S.

Speaker 4

Thank you.

Operator

The next question comes from Rashad Kwan, Morgan Stanley. Roshan, your line is open. Please go ahead.

Speaker 6

Hey, thank you for taking my questions and good morning, Tobias and Sonia. A couple for me, please. So First one is you accelerated obviously your pricing over the quarter, particularly in EMEA and LatAm. And so I guess 2 part question there. Have you seen any changes in demand elasticity as a result?

Speaker 6

And then just kind of following up on taking additional pricing this year. And then my second question is around China. Can you talk about a little bit more about kind of what you're seeing on the ground there? You mentioned it was Up close to 30% with Fenbit growth particularly strong, some Sensodyne weakness. I mean, what are you seeing across the rest of the portfolio?

Speaker 6

How's the recovery kind of come in relative Your expectations and kind of how do you see that play out for the rest of the year? Thank you.

Speaker 2

Sure. Good. So on your question on pricing and elasticity, so we've not seen negative reaction from On the pricing, we have been taken. So I think very, very consistent to what we've talked about last year. So we believe our products Do not have a high elasticity, I think probably has a lot to do with our Brand portfolio being all therapeutic.

Speaker 2

And then secondly, also our products are not in your daily, weekly Our monthly shopping basket, either. So I think that makes these products sticky. It's very consistent to prior crisis that we have seen. Of course, we've watched it tightly. I mean, where we have sort of the perfect data is in the U.

Speaker 2

S. When you look at private label, Private label shares over the last year have been stable and actually in the last 1 month and the last 3 months actually Private label has lost share. So I think so the branded products have gained share. So we're not seeing any widespread move or change of People picking private label off the shelf. And look, if you take it down to subcategories, it's the same as We talked that full year there is 1 or 2 of the smaller subcategories that will pronounce the private label wherever small moves, but we've not seen Any broader change in consumer behavior and the same is also true across our European markets, Western European markets.

Speaker 2

If you think about Asia, it's a much less pronounced pricing environment anyway less inflation. We also have taken less pricing there. And then if you look at our emerging market footprint where we've taken a lot of pricing, I think I will call this more business as usual in quotation marks. So the team pricing up to what they can do. And last but not least, I think you've seen volume going up.

Speaker 2

I think we've continued to deliver volume growth. We did so Throughout all of last year and again in Q1, which I think sort of team is doing a good job in pricing at a level That we're still able to do both growing volume and growing price, yes? Then about additional pricing. So I think, look, we got the majority of our price increases True. I think the team will do what is needed as we go, of course, especially in emerging markets See that's a bit unpredictable, but I would expect the majority of the pricing having been taken, there might be Something to comment as you said, recycling over 3% in Q1 last year, which went then up.

Speaker 2

So I think you also have the base effect That comes in, yes. In China, I mean, I think it's I mean, of course, I mean, there was this massive spike of COVID related demand, I mean, if we just speak to our employees, I mean, there's no good official data. But I mean, if I Speaking to our teams there, we believe probably more than 80% of our employees had Got sick at some point with COVID or cold and flu like illnesses, so there was a lot of demand. The team actually You did a brilliant job of using our local manufacturing there to triple the output and able Shift to demand, that helped us meet the demand on products like Contact and Fenbit. On a product like Fenbit actually, part of it is The demand, but the other part is also we're coming back with the product because the product was actually pretty much blocked before because When the restrictions were still in place, if you bought the fever reducing medicine, then your apps that you needed You used to move around the country freely moved from green to orange to red.

Speaker 2

So actually it blocked you buying a fever reducing medicine And that block has removed. So I think that our Fenbit product was sort of not selling at all or at very, very little. So I think there's a comeback of that to Sort of normal level plus then this massive extra demand to that came from the COVID change. Other brands, I think, look, I mean, VMS was up low level digits, so the brand, the Caltranslate also doing well, Centrum doing well. And I think then oral health Soft, I mean, overall the market is down.

Speaker 2

There was free product given out. So I think our health, I think We're not yet the market isn't yet where we wanted to be. So I think that is coming back. But overall, I think, look, We've done well. We've done reacted very, very agile to the change in a policy and we're able to meet Our consumer needs doing that.

Speaker 2

Thank you.

Speaker 6

Very helpful. Thank you.

Operator

Next question comes from Salim Panuti from JPMorgan. Salim, your line is open. Please go ahead.

Speaker 7

Good morning. Thank you for taking my questions. My first question is on your top line guide for the year. So you seem to say that Some of the strong growth in Q1 is an impact we were seeing in Q2. We still have a good growth in Q2, but then a slowdown in the second half.

Speaker 7

I wanted To understand how much of a flu season variability is embedded in your guidance, I. E, what kind of flu season do you have in? And if the flu season were to be good or bad, what kind of variability that would have as an impact on the growth in the second And then my second question, probably a bit related. So you help us with the H1 margin Moving parts. That implies quite a step up as well in margin H2.

Speaker 7

So I would understand that maybe you have No FX transaction and maybe lower stand alone cost on a year on year basis, but at the same time, probably a much slower Pricing benefit and as well as less operational leverage. So can you give us a bit more comfort about that margin expansion in the second half?

Speaker 5

Thank you.

Speaker 2

First, Alain, thank you. So, look, on the cold and flu season, right, I mean, Clearly, Q1, we've done well. We took all we capitalized on the benefits with the surety the team had. We have that. I think that the strong delivery in Q1 was the key reason we upgraded the guidance for the year Because we've delivered on that.

Speaker 2

For the rest of the year, I think it's very much in line with what we said at full year. It's very hard to Dick, to recall the flu demand will be for two reasons. One is, we don't know what's going to happen for out of season use. So we're going to see that And we can probably talk more about it when we talk early August, the half year results. Because I mean, what we've seen last year and the last 2 years, there was a lot of out of season use of cold and flu products because we had Omicron with being Having cold and flu like symptoms, and I think this is one we don't know.

Speaker 2

So right now, it's still there, but we need See if that happens, and that then has an impact on growth versus last year, a plus or minus. We're ready if it comes, but If it doesn't, it would be a drag. So that's unpredictable. And then for the next season, so which is in the winter season, In Q3, we would expect to re pipe the trade very much similar to what we did in prior years. And then for Q4, we would normally assume an average season.

Speaker 2

And then it just depends on You get a spike like we had last year that there's an early season or not, but normally you cover most of what you do from Q3. I mean broadly, we still think on a full year up to a percentage point up, down From a cold and flu swing, I mean, which is also I think what you've pretty much seen in Q1, right? Not all the Q1 gains, which is seasonal. There's also we do pricing, we do launches. So that's what it Comes down to, so look, we'll keep you updating it.

Speaker 2

We reported as a separate category and give you as much transparency As we can on that. On half 2, the margin being higher in half 2, I think has I think Again to do with this cold and flu. So we shift the seasonal demand for cold and flu in Q3. So Second half has higher sales, mainly on respiratory, and without an associated A and P with it because the A and P has been Spend through the season in Q4 and into Q1. So there's a mismatch between the spend and when we make the margin.

Speaker 2

There's also Higher sales then of course have an impact on a higher gross margin as You get the benefit from that. I think that's probably the biggest drivers on half 1. And of course, year over year, Yes, you'll see the, so I've done with the building blocks. We're starting to cycle over The negative transactional impact and also the standalone cost in the second half If you do your year over year planning, yeah.

Speaker 1

One other thing, Selena, maybe just mention is just on that revenue thing as well. Just think about obviously, we've delivered some really strong growth China in Q1, we said around 30%. That benefit of FEMBID and contract, etcetera, is not going to continue at that rate as we move through the year. So I'll just keep that in mind as well.

Speaker 2

Thanks, Sonia.

Speaker 7

May I just ask an extra one on that? You also mentioned Some replenishment or restocking in U. S. Overall, I believe. How material was that?

Speaker 2

Sorry, can you repeat that? Or Yes.

Speaker 7

I wrote in your In your commentary record presentation, yes, in U. S. Overall, that's what you

Speaker 2

mentioned, yes? Yes. Yes. So On the

Speaker 1

Last year what I said, last year in Q4, in oral health, you were impacted by some retailers lowering their levels So that's now washed through. You're not seeing that happen continue yet? That's it, yes.

Speaker 2

Yes. Thanks, Sonia.

Speaker 7

Thank you.

Operator

The next question comes from Bruno Montaigne from Bernstein. Bruno, your line is open. Please go ahead.

Speaker 8

Tobias, I would like to talk a bit more about that margin discussion from Juste. If H1 is down By 80, 90 basis points, that would almost imply the second half is up by that amount. That would mean the exit rate of margin The second half is around 23.4%. Is that the right level to think about to start thinking about 2024 margin and so The usual operating leverage comes on top of that? Or is that actually fundamentally H2 margins will always be higher than H1?

Speaker 8

So how do we think? Is that the right starting point, the 23.4% or should we take out seasonality? The second question is more related to the U. S. I mean, your pricing is a lot lower there than in the other regions.

Speaker 8

Can you just remind me why that is? Did you do more pricing earlier on? Or why is it so much lower? And can you also comment on the market share performance of Sensodyne, whether it's in the U. S.

Speaker 8

And in Europe? Are you still gaining market share or not? Thank you.

Speaker 2

Great, Bruno. So I think on the half two margin, I think I would always Expect half 2 margins to be better and higher, right? I think and that really comes from Shipping, the manufacturing and shipping and selling the seasonal the cold and flu seasonal demand in Q3 and early Q4. And then really on the activizing our advertising and promotion spend on that income and sales Later in Q4, actually when the season starts hitting, so somewhere from November on, you're starting to go on air with those products, You're going to advertise those throughout the whole winter months and while the inventory sits there and gets depleted towards Q1. So I think that's probably the most seen as historically in the prior businesses as well.

Speaker 2

So I think that's Why I don't think half 2 margin is a guide for half 1. Plus of course, of course, we want to have the agility To invest behind launches as well, so it might change a little bit on that as well. And on your U. S. Question, so the pricing in the U.

Speaker 2

S. In Q1 was lower. That was a bit lower than it was Before, because we shipped, we sold some short dated inventory. So on a number of brands, we have some short dated inventory. There's a way to sell.

Speaker 2

There are special customers that sell. You're able to sell that through at a discount. So that depressed the pricing number for Q1. I think that's temporary in nature. So I think You're doing the right thing, but that's why you get a slightly lower headline number on pricing for North America that we put out.

Speaker 2

Other than that, I think the team has done What we say in the pricing they put through, they've done well. And I think there is no concerns on our ability to take price In the market, yes. And then I think on market share, I think at Ora Health also in the U. S, I think we're look, I mean, it's good. I think we had a good Ora Health performance Globally, I think we're in my view doing well against gaining share.

Speaker 2

Now what you have to be a little bit mindful of is that Pricing was different across the players. So you also have to look a little bit at volume because I think There's players that the pricing strategies I think are a little bit different across the players. I mean, as you know, Our pricing philosophy has been we price up as much only as much in order to make up the cost of the inflation And in order to maintain volume gains and other players might have different philosophies of pricing more about accepting volume Declines as well, but overall, I think feel good about where the U. S. Is and also when I look at the launch plans as well that was Coming through on innovation basis as well.

Speaker 2

And we'll give you the market share numbers at half year. We believe you need at least 6 In order for them to be meaningful, so we'll do it at half year and full year always. So you're going to see that when we put out our half year results in.

Speaker 8

Could I just come back on that first point? So there's seasonality in the margins. Could you sort of obviously, your company is quite new to it, not yet used to the usual level of Seasonality and margin. At group level, is the seasonality in H1 and H2 as big as 100 basis points? Is it materially bigger?

Speaker 8

What should we think order of magnitude and

Speaker 2

So look, I wouldn't To give you that detail, right, I think you just see sales, sales being always higher in the second half of the year, particularly On respiratory products, and I think you see that also when you look historically in the numbers that we reported half 1, 2 or and especially on the respiratory side, yes.

Speaker 8

Okay. Thank you.

Speaker 4

Thank you.

Operator

The next question comes from Chris Pitcher at Redburn. Chris, your line is open. Please go ahead.

Speaker 2

Hi, Chris.

Operator

Hi, Chris, can you make sure you're not muted locally? We will move on for that. The next question comes from Tom Sykes from Deutsche Bank. Tom, your line is open. Please go ahead.

Speaker 9

Thank you. Good morning, everybody. Just coming back to your comments on inventories. I know you said you'd run them down as usual, but you also said that you don't really know whether you're going to get the out of season Demand or not? So would you say the inventories are where they should be Expecting decent out of season demand or where they should be expecting a normal low season, please?

Speaker 9

And then could you just repeat the comments you made on the power brands versus the local brands, please? I I think you said local was up 14%. Obviously, there's China hyperinflation, etcetera, in that figure. Could you just give what your longer run expectations are for local versus power again, please? Thank you.

Speaker 2

Sure, Tom. So, Doug, on the cold and slow inventories, I think we believe we are In a healthy place towards the end of the season, right? I think as it normally would be, right? Look, mean, there is different there is ultimately, there's only so much we can influence if a retailer decides they want to hold more or less stock that's ultimately up to them. We just make sure that we're not overstocked because we don't want to be caught up in Q3 when the big restocking happens and you say, oh, by the way, there's still a lot of There's still a lot of inventory, right?

Speaker 2

And I think, look, it's usually a bit easier to do when you have large retailers where we buy the data and we know exactly how much they have. I think when you look when you go into markets where we sell to individual pharmacy, that's a big job of the sales force to do to ensure that The pharmacies have ramped down and half the normal base amount that they need to get through the summer because that's always it's not that there's no Hold them through to summer, there's always been a base amount. The question is just is there a little bit more than that? I mean, this is not spiky, right? I think When you look at the last 2 years, the out of season demand, it didn't come in the cold and flu waves.

Speaker 2

It was sort of a consistently slight Higher demand that went through the summer, if you remember the charts I put in at that full year, right? I think we don't it's not the Winter season where you have to be ready for these massive demand swings that spike up where you suddenly the weekly demand goes up 3x, 4x And then comes down again, right? It's more this question on throughout the summer, is it going to be higher or lower than we had And prior years, yes. And then on the Power Brands, so what I had said is that Power Brands were up 10%, the local growth brands were 14%. I think overall, I think between Power and Local Growth Brands, these are our growth drivers.

Speaker 2

We would expect them to We drive the majority of our growth because that's what we allocate our A and P, that's where we Half our innovation and these brands need to drive our growth, yes. I mean that local growth brands in the quarter did a bit more Can happen and I think this time it just happened because there's a number of respiratory brands in there that have done particularly well. Also, we have some brands where we repiped, like on Tums. You remember, we had a recall Last year, we repiped that. So I think that also benefited the local growth brands, right?

Speaker 2

I think the hyperinflation impact isn't particularly different on the local growth brands compared to the power brands because when you look at countries like Argentina and Turkey, They're selling a high portion of Power Brands as well. So the mix isn't significantly different on those.

Speaker 9

Okay. Many thanks.

Speaker 2

Thank you.

Operator

The next question comes from Olivier Nicolai from Goldman Olivier, your line is open. Please go ahead.

Speaker 10

Hi, good morning, Tobias and Sonia. Just two questions, please. First of all, considering the Strong start of the year and the better profitability in Q1. Could we expect another strong year of cash generation And therefore, net debt to EBITDA to be very close to 3 times by your end. And to that As a second question, one of your main shareholders commenting the Feet that they will start selling in a slow and methodical manner.

Speaker 10

Concerning that Strong cash generation, but despite your high level of net debt to EBITDA today, would you consider participating in any potential Sure. Placing or should we will be start at this stage? Thank you.

Speaker 2

Thanks, Rodrigo. So look on cash On cash generation, right, I'm very confident that we're going to delever to less than 3 during 2024. We're on track with that. So from that point of view, no update on that, but I think, I mean, overall, you started well and overall confident in our ability to meet the targets that we have. We Our ability to meet the targets that we have set out on that, yes.

Speaker 2

On the Pfizer interview that popped up, I mean, I can't comment on it. I saw it also in the press this morning. So you would need to ask them on that. But I think ultimately, Not a surprise. They've always said in the sense they want to it's not strategic to them.

Speaker 2

They want to monetize it In an orderly and a reasonable fashion, so and given that the selling windows opens, I think and that lockup is over that that would happen over time. I mean for us I think really important I think I The capital allocation priorities we set out at the beginning of the year is number 1, investing in the business 2, deleveraging and strengthening the balance sheet Then 3, looking and exploring inorganic growth opportunities and then It's a 4th bucket looking at dividend and share buybacks. Now you know from the AGM that we have the authority Do that, but clearly I think any decision would follow the priorities we've laid out, which are the 4s that I just quoted.

Speaker 10

Thank you very

Operator

much. Our final question today comes from Chris Pitcher from Redburn. Chris, your line is open. Please go ahead. Hello.

Speaker 11

Can you hear me now?

Speaker 2

Yes, Chris. Yes, second time, let me.

Speaker 11

Good. Thank you for that. Apologies if my questions have been asked because I Had to drop off the call, but I'll be quick. On ParaDontax, given the comments you've made around the strength of growth in Asia and EMEA And backing out the other stuff, I mean, the brand looks to have grown 20%, 30%. Is that excessive?

Speaker 11

And if not, could you talk us through where The new marketing and the products are getting particularly good traction by country and whether you're seeing any noticeable Cannibalization from Sensodyne. And then the second one on Skin Health. Growth there has been improving sequentially. Now you're through the divestments. Should we reconsider the growth of that subcategory?

Speaker 11

I appreciate it's small, but it does appear to be emerging as quite strong growth. And did you give specific ChapStick growth? Thank you.

Speaker 2

Yes, Chris. Look, I mean, on periodontax, I mean, overall, I think it's the growth is in the teens, which is Good. That's where we expected to be, right? I mean, I think given the geographic expansion and also some of the launches that are happening, I think We're not concerned about cannibalization of Sensodyne because I think it's a it's ultimately you have a When you look at what the consumers need, you have a prevalent need, right? And I think the prevalent need is either Sensitive taste or it is bleeding gums, right?

Speaker 2

And I think ultimately you want to solve those needs. And really the goal for us is bringing consumer into the franchise. So if you're predominantly concerned about bleeding gum, can I give you a Paridontax? And then if also you're worried about sensitive taste, I can give you the in the combination product that additional benefit. Orum parodontax, I think when you look at bleeding gums and breasts, I think it's also one where we Make it more transparent to users what the consequences are of bleeding gums of gingivitis that it has a much bigger consequence.

Speaker 2

So I think we believe there is I think Much more people enter the category and household penetration that can be increased through to periodontax. On your question on Skin Health, I mean, look, it's a little bit of an up and down, but I think what happened in Q1 Of this year in Skin Health is I think ChapStick has done well. So I think a good start there. So I think that has held. Look, I mean, I think it's the products we have are good.

Speaker 2

There's there They follow our go to market model. So from that point of view, happy And happy to take the good results, but I mean this is not a strategic category Yuri, for us overall, I think in most of these brands tend to be more local or in the example of Still a little bit more regional brand.

Speaker 11

Thank you very much.

Speaker 2

Thank you.

Operator

This concludes today's Q and A session. So I'll hand back to the management team for any concluding remarks.

Speaker 2

Great. Thanks everyone for your questions, for engagement. So look forward to continuing the dialogue and We'll speak soon again. Thanks very much and have a lovely day today. Bye bye.

Speaker 2

Thank you. Thank you.

Operator

This concludes today's call. Thank you very much for your attendance. You may now disconnect your line.

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Earnings Conference Call
Tsakos Energy Navigation Q1 2023 TU
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