Haleon plc(HLN)2024-02-29 22:22Financial Data and Key Metrics - Gross margin increased by 70 basis points in Q4, driven by easing inflationary pressures and pricing strategies [24] - The company ended the year with a strong cash position of £1 billion, allowing it to pay back a $700 million bond due in March and distribute dividends [11] - Operating profit grew nearly three points ahead of the rate of sales growth in 2023, with a 60 basis points margin improvement [45][69] Business Line Performance - Respiratory health division saw strong growth in Q4, with a 7.5% increase in the back half of the year, driven by geographic diversity and product portfolio strength [64][65] - Oral health segment performed well, with strong growth in Sensodyne and other brands, supported by innovation and pricing strategies [104][131] - VMS (Vitamins, Minerals, and Supplements) showed improvement, particularly with Centrum and Caltrate, driven by clinical studies and marketing support [60][61] Market Performance - In China, the OTC business saw significant demand due to COVID-related restrictions being lifted, with strong performance in Q1 and Q2 expected [22][34] - North America experienced a challenging environment in respiratory health, with flat performance in the back half of the year, while other regions like Central Eastern Europe, Japan, and Turkey saw higher growth [64][65] - India saw high single-digit sales growth, with Sensodyne leading with double-digit growth, despite some disruptions from the transition from Hindustan Unilever [88][89] Strategic Direction and Industry Competition - The company is focusing on innovation, with 67 new product launches in 2023, including Sensodyne Clinical White and other oral health products [15][121] - A&P (Advertising and Promotion) spend is being actively managed, with a focus on investing in growth areas and optimizing returns, particularly in oral health and VMS [2][16][48] - The company is targeting a 50-50 split between volume and price growth in the long term, with 2024 being a stepping stone towards this goal [50][137] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the 4% to 6% sales growth guidance for 2024, with organic profit expected to grow ahead of sales growth [21][28] - The company is managing inflationary pressures and expects gross margin to continue growing ahead of sales growth, supported by pricing and productivity programs [24][25] - The respiratory health market is expected to normalize, with fluctuations of plus or minus 0.5% to 1% in extreme seasons [65] Other Important Information - The company is actively managing its portfolio, with divestments and potential bolt-on acquisitions to strengthen its business [75][146] - A £500 million share buyback program is planned for 2024, with flexibility to execute it through open market purchases or placings with GSK and Pfizer [86][145] - The company is targeting a medium-term leverage ratio of around 2.5x, supported by strong cash generation and debt reduction efforts [129][101] Q&A Session Summary Question: Net benefit from savings in 2025 and A&P spend drivers - The company did not provide specific net benefit figures for 2025 but mentioned that productivity programs will provide a tailwind for 2024 [3] - A&P spend in 2023 was 80 basis points of potential sales, driven by rationalization post-GSK and reduced spend in the US respiratory market [1][2] Question: Volume performance in EMEA and LatAm - Volume declines in EMEA and LatAm were noted, particularly in Latin America, linked to hyperinflation in Argentina [128][123] Question: Respiratory health performance in Q4 - Respiratory health saw strong growth in Q4, driven by geographic diversity and product portfolio strength, with no significant one-offs or inventory discrepancies [64][65] Question: Innovation and R&D spend - R&D spend as a percentage of sales declined due to efficiencies and accounting changes, but the company remains committed to innovation, with 67 new product launches in 2023 [7][121] Question: Share buyback and capital allocation - The company plans a £500 million share buyback in 2024, with flexibility to execute it through open market purchases or placings with GSK and Pfizer [86][145] Question: Pricing and volume growth in 2024 - The company expects pricing to contribute more to growth than volume in 2024, with a long-term goal of a 50-50 split between the two [50][137]