Haleon plc(HLN) - 2023 Q1 - Quarterly Report

FY2022 Financial & Operational Highlights Haleon's first full year as a standalone company demonstrated strong financial performance, strategic outlook, and capital allocation, alongside updates on key legal matters FY 2022 Key Performance Summary Haleon reported strong first-year results with significant revenue and profit growth, balanced organic expansion, and robust free cash flow FY 2022 Key Financial Metrics | Financial Metric | 2022 (£m) | Change vs 2021 | | :--- | :--- | :--- | | Revenue | 10,858 | +13.8% | | Organic Revenue Growth | 9.0% | - | | - Price Component | 4.3% | - | | - Volume/Mix Component | 4.7% | - | | Adjusted Operating Profit | 2,472 | +13.8% (+5.9% at CER) | | Adjusted Operating Profit Margin | 22.8% | Flat YoY | | Reported Operating Profit | 1,825 | +11.4% | | Adjusted Diluted EPS | 18.4p | +2.8% | | Free Cash Flow | 1,579 | +£406m | | Net Debt | 9,868 | - | - Two-thirds of the business gained or maintained market share in 2022, reflecting strong brand performance and execution[5][6] - Power Brands demonstrated strong performance with 10.1% organic growth, outpacing overall company growth[5][23] 2023 Outlook & Strategic Initiatives For FY2023, Haleon anticipates 4-6% organic revenue growth and broadly flat adjusted operating profit margin, alongside plans for c.£300m gross cost savings FY2023 Guidance | Metric | FY2023 Guidance | | :--- | :--- | | Organic Revenue Growth | 4-6% | | Adjusted Operating Profit Margin | Broadly flat (after c.40 bps adverse FX impact) | | Net Interest Expense | c. £350m | | Adjusted Effective Tax Rate | 23-24% | - The company plans to achieve c.£300 million in annualised gross cost savings over the next 3 years, with benefits primarily realized in FY2024 and FY2025[18] - Haleon will be proactive in managing its portfolio, remaining open to bolt-on acquisitions and divestments[18] Shareholder Returns & Capital Allocation Haleon proposed an inaugural final dividend of 2.4p per share, reflecting a 30% payout ratio, and rapidly reduced net debt, expecting to reach under 3x leverage by 2024 - An inaugural final dividend of 2.4p per share has been proposed for the trading period since the demerger on July 18, 2022[5][13] - The dividend represents a payout ratio of approximately 30% of adjusted earnings for the post-listing period, a level the company intends to maintain[13][15] - Net debt was reduced from £10,707m at demerger to £9,868m by year-end, with confidence in reaching a net debt/Adjusted EBITDA ratio of under 3x during 2024[40] Litigation Update Haleon reached a settlement for the majority of PPI cases, with the financial impact not considered material to the Group's financial position - A settlement was reached to resolve the vast majority of PPI cases (Nexium24HR and Prevacid24HR)[5][12] - The financial impact is not material to the Group's financial position, results of operations, or cash flows[12] Business and Operational Review Haleon's business review highlights strong performance across product categories and geographies, driven by innovation, marketing, and operational efficiencies post-demerger Performance by Product Category Haleon's portfolio delivered strong results, led by Respiratory Health's exceptional growth, with Pain Relief and Oral Health also showing robust performance Revenue and Growth by Product Category | Product Category | Revenue 2022 (£m) | Reported Growth (%) | Organic Growth (%) | | :--- | :--- | :--- | :--- | | Oral Health | 2,957 | 8.6% | 5.6% | | VMS | 1,675 | 11.6% | 5.0% | | Pain Relief | 2,551 | 14.0% | 8.9% | | Respiratory Health | 1,579 | 39.5% | 32.6% | | Digestive Health and Other | 2,096 | 7.4% | 2.9% | | Group Total | 10,858 | 13.8% | 9.0% | Oral Health Oral Health achieved 5.6% organic growth, driven by market share gains from Sensodyne, parodontax, and Polident/Poligrip, supported by innovation and expansion - Sensodyne delivered mid-single digit growth, with strong performance in India and the Middle East & Africa, though sales in China declined due to lockdowns[55] - parodontax grew high-single digits, with low-teens growth in North America, supported by strong consumption and innovation[55] - Denture care revenue was up high-single digits, driven by strong growth in EMEA and LatAm[55] Vitamins, Minerals and Supplements (VMS) VMS grew 5.0% organically, gaining market share, with Centrum showing mid-single digit growth and Emergen-C attracting younger households - Centrum revenue increased mid-single digits, with good growth in APAC and EMEA & LatAm[55] - Emergen-C revenue was up low-single digits, benefiting from innovations like Emergen-C Kidz[55] - A clinical study on Centrum Silver demonstrated positive results on cognitive capabilities in adults 65+, providing a new claim for the product[25] Pain Relief Pain Relief delivered 8.9% organic growth, with Panadol and Advil as standout performers, benefiting from increased demand during the cold and flu season - Panadol revenue grew high-teens percent, with double-digit growth across all three regions[55] - Advil revenue grew low-double digits, benefiting from increased incidences of Flu, Covid, and RSV[55] - Voltaren revenue grew by a low-single digit, with high single-digit growth in the US and mid-single-digit growth in China[55] Respiratory Health Respiratory Health saw exceptional 32.6% organic growth due to a severe cold and flu season, significantly contributing to overall Group sales - The strong cold and flu season added 3% to Group organic sales growth in 2022, with sales up c.30% compared to 2019[28][55] - Theraflu and Robitussin revenues grew by over 50%, while Otrivin was up over 30%[55] Performance by Geography All geographic segments contributed to growth, with EMEA and LatAm leading, while North America saw significant margin expansion despite overall margin declines in other regions due to standalone costs Revenue, Growth, and Margin by Region | Region | Revenue 2022 (£m) | Organic Growth (%) | Price / Vol-Mix (%) | Adj. Op. Profit Margin (%) | Margin Change (CER) (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | North America | 4,116 | 5.9% | 2.9% / 3.0% | 26.0% | +1.3% | | EMEA and LatAm | 4,270 | 10.9% | 6.4% / 4.5% | 22.9% | -2.0% | | APAC | 2,472 | 10.6% | 2.6% / 8.0% | 20.5% | -1.2% | North America North America delivered 5.9% organic revenue growth, driven by Respiratory and Pain Relief, with adjusted operating margin expanding significantly to 26.0% - Respiratory Health grew mid-thirties percent, with Cold and Flu sales significantly ahead of 2019 levels[63] - Pain Relief grew high-single digits, led by Advil[63] - Adjusted operating margin increased to 26.0% (+250bps AER, +130bps CER), driven by pricing and productivity[63] EMEA and LatAm EMEA and LatAm achieved strong 10.9% organic revenue growth, broad-based across categories, though adjusted operating margin declined to 22.9% due to standalone costs and FX - LatAm and the Middle East & Africa saw strong double-digit revenue growth[63] - Respiratory Health grew low-thirties percent due to a strong cold and flu season[63] - Adjusted operating margin decreased to 22.9% (-190bps AER, -200bps CER), impacted by standalone costs and transactional FX[63] Asia-Pacific APAC reported 10.6% organic revenue growth, driven by volume/mix and strong performance in South-East Asia, Taiwan, and India, despite a margin decline to 20.5% - Performance in South-East Asia, Taiwan, and India was exceptionally strong, with growth over 20%[63] - Pain Relief revenue grew in the twenties percent, led by Panadol[63] - Adjusted operating margin decreased to 20.5% (-100bps AER, -120bps CER) due to increased A&P investment and standalone costs[63] Key Growth Drivers and Operational Efficiency Growth was driven by innovation, marketing, and e-commerce expansion, while operational efficiency was achieved through successful GSK separation and Pfizer transaction synergies - E-commerce grew 16% to 9% of total sales, with strong growth in the US (+7%) and China (+40%)[34] - Consumer-facing A&P spend (excluding Russia) was up 6% (CER), with increased investment in streaming, retail media, and e-commerce search[32][33] - The company successfully separated from GSK, incurring c.£0.2bn in standalone costs for the year[36] - Aggregate annual synergies from the Pfizer transaction reached over £600m, an increase from the £500m guided at Capital Markets Day[37] Corporate Responsibility Haleon is committed to responsible business practices, making significant progress on environmental sustainability and promoting health inclusivity through strategic initiatives Environmental Initiatives Haleon is on track with environmental goals, achieving 100% renewable electricity and progressing towards 100% recycle-ready packaging by 2025 - On track to reduce Scope 1 and 2 carbon emissions by 100% by 2030 (vs 2020 baseline)[43] - Achieved 100% renewable electricity across all directly controlled Haleon sites in 2022[43] - Progressing towards making all product packaging recycle-ready by 2025, with over 350 million recycle-ready toothpaste tubes launched in 2022[44] Health Inclusivity Haleon aims to empower 50 million people annually by 2025 through initiatives like the Health Inclusivity Index and the Microsoft Seeing AI app - The company aims to empower 50 million people a year by 2025 to be more included in opportunities for better everyday health[45] - Collaborated with Microsoft on the Seeing AI app to help blind or visually impaired consumers access product label information by scanning barcodes[46] Consolidated Financial Statements (unaudited) Haleon's consolidated financial statements for FY2022 reflect strong operating cash flow, significant debt assumption post-demerger, and a decline in reported profit after tax Income Statement Haleon's FY2022 income statement shows increased revenue and operating profit, but profit after tax and diluted EPS declined due to higher finance costs and tax Consolidated Income Statement Summary | Account | 2022 (£m) | 2021 (£m) | % Change | | :--- | :--- | :--- | :--- | | Revenue | 10,858 | 9,545 | 13.8% | | Gross profit | 6,577 | 5,950 | 10.5% | | Operating profit | 1,825 | 1,638 | 11.4% | | Profit before tax | 1,618 | 1,636 | (1.1)% | | Profit after tax for the year | 1,119 | 1,439 | (22.2)% | | Profit attributable to shareholders | 1,060 | 1,390 | (23.7)% | | Diluted earnings per share (pence) | 11.5p | 15.1p | (23.8)% | Balance Sheet Haleon's FY2022 balance sheet shows a slight increase in total assets, a substantial rise in liabilities due to new borrowings, and a corresponding decrease in total equity Consolidated Balance Sheet Summary | Account | As at 31 Dec 2022 (£m) | As at 31 Dec 2021 (£m) | | :--- | :--- | :--- | | Total Assets | 34,815 | 34,451 | | Intangible assets | 28,436 | 27,195 | | Total current assets | 4,059 | 5,251 | | Total Liabilities | 18,358 | 7,971 | | Long-term borrowings | 10,003 | 87 | | Total current liabilities | 4,370 | 4,238 | | Net Assets | 16,457 | 26,480 | | Total Equity | 16,457 | 26,480 | Cash Flow Statement Haleon's FY2022 cash flow statement indicates strong operating cash inflow, significant investing outflow due to related party loans, and financing inflow from new borrowings Consolidated Cash Flow Statement Summary | Activity | 2022 (£m) | 2021 (£m) | | :--- | :--- | :--- | | Net cash inflow from operating activities | 2,063 | 1,356 | | Net cash outflow from investing activities | (8,784) | (33) | | Net cash inflow/(outflow) from financing activities | 6,911 | (1,236) | | Increase in cash and cash equivalents | 190 | 87 | Net Debt Haleon's net debt stood at £9,868m at year-end 2022, a significant shift from a net cash position in 2021, primarily due to demerger-related borrowings Net Debt Position | Component | As at 31 Dec 2022 (£m) | As at 31 Dec 2021 (£m) | | :--- | :--- | :--- | | Cash and cash equivalents | 684 | 414 | | Short-term borrowings | (437) | (79) | | Long-term borrowings | (10,003) | (87) | | Derivative financial instruments (Net) | (112) | (2) | | Net Debt / (Cash) | (9,868) | 246 | Non-IFRS Measures & Reconciliations Haleon provides reconciliations for non-IFRS measures like Adjusted Results, Organic Revenue Growth, Adjusted EBITDA, and Free Cash Flow to offer clearer insights into underlying performance Reconciliation of IFRS to Adjusted Results Haleon reconciles IFRS to Adjusted Results by excluding items like separation and restructuring costs to provide a clearer view of underlying operating profit Reconciliation to Adjusted Operating Profit | Reconciliation to Adjusted Operating Profit (£m) | 2022 | 2021 | | :--- | :--- | :--- | | IFRS Operating Profit | 1,825 | 1,638 | | Net amortisation and impairment of intangible assets | 172 | 16 | | Restructuring costs | 41 | 195 | | Transaction-related costs | 8 | - | | Separation and Admission costs | 411 | 278 | | Disposals and others | 15 | 45 | | Adjusted Operating Profit | 2,472 | 2,172 | - Adjusting items are excluded to enhance comparability and include costs related to restructuring, separation from GSK, transaction costs, and disposals[94][96] Organic Revenue Growth Organic revenue growth, a non-IFRS measure, excludes currency and M&A impacts, showing Haleon's underlying 9.0% growth for FY2022 Organic Revenue Growth Components | Component (%) | 2022 vs 2021 | | :--- | :--- | | Reported Revenue Growth | 13.8% | | Effect of Exchange Rates | (5.0)% | | Effect of Acquisitions/Disposals/MSAs | (0.2)% | | Organic Revenue Growth | 9.0% | Adjusted EBITDA Adjusted EBITDA, a key non-IFRS metric, increased to £2,730m in FY2022, providing a measure of operational profitability before non-cash and adjusting items Reconciliation to Adjusted EBITDA | Reconciliation to Adjusted EBITDA (£m) | 2022 | 2021 | | :--- | :--- | :--- | | Profit After Tax | 1,119 | 1,439 | | Add: Tax, Net Interest | 706 | 214 | | Operating Profit | 1,825 | 1,638 | | Add: Adjusting Items | 647 | 534 | | Adjusted Operating Profit | 2,472 | 2,172 | | Add: D&A and Impairment | 258 | 241 | | Adjusted EBITDA | 2,730 | 2,413 | Free Cash Flow Free cash flow, a measure of cash available for distribution or debt, was £1,579m in 2022, with a strong 141% conversion rate of reported profit after tax Free Cash Flow Components | Component (£m) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash inflow from operating activities | 2,063 | 1,356 | | Less: Net capital expenditure | (292) | (149) | | Less: Distributions to non-controlling interests | (48) | (35) | | Less: Interest paid | (163) | (15) | | Add: Interest received | 19 | 16 | | Free cash flow | 1,579 | 1,173 | - The free cash flow conversion rate for 2022 was 141%, compared to 82% in 2021[130]