# Haleon delivered a strong performance whilst navigating a highly volatile environment

- Link: https://www.directorstalkinterviews.com/haleon%c2%a0delivered-a-strong-performance-whilst-navigating-a-highly-volatile-environment/4121108314
- Published: 2023-03-02T07:51:35+00:00
- Author: Amilia Stone

**Haleon plc **(LON:HLN) has announced its full year results for the twelve months
ended 31 December 2022 (unaudited).

**Strong growth with a healthy balance of price and positive volume/mix**

| ● | FY Revenue +13.8% to £10,858m, organic growth +9.0% with 4.3% price and 4.7% volume/mix | 
| ● | Positive Power Brand performance across the portfolio, +10.1% organic growth | 
| ● | 2/3 of our business gained or maintained market share^(1) in the 12 months ended 31 December 2022 |

**Pricing and efficiencies offsetting inflationary pressures**

| ● | FY Reported operating profit increased 11.4% to £1,825m | 
| ● | FY Adjusted operating profit increased 13.8% to £2,472m, up 5.9% constant currency | 
| ● | FY Adjusted operating profit margin 22.8%, flat year on year |

**Continued high cash generation**

| ● | FY net cash flow from operating activities was £2,063m, which included £435m related to the net cash outflow from separation, restructuring and disposals; FY 2022 Free cash flow of £1,579m | 
| ● | Net debt at 31 December 2022 was £9,868m, with 3.6x net debt/adjusted EBITDA | 
| ● | Inaugural final dividend proposed of 2.4p per share in respect of trading since demerger on 18 July 2022 |

**Positive outlook for 2023**^(2)**, settlement on majority of PPI cases**

| ● | FY2023 organic revenue growth expected to be 4-6% | 
| ● | FY2023 adjusted operating profit margin broadly flat after adverse transactional FX of c. 40bps | 
| ● | Settlement reached to resolve the vast majority of PPI cases (_Nexium24HR_ and _Prevacid24HR_) | 
| ● | Positioned well to deliver on medium term guidance |

> **Brian McNamara, Chief Executive Officer, Haleon said:**
> _“2022 was an extraordinary year for Haleon, having successfully demerged from
> GSK to become the first listed company 100% focused on consumer health. All the
> result of significant work and commitment from our colleagues around the world,
> and I would like to thank them for their tireless efforts and achievements._
> _In our first FY results, we delivered a strong performance whilst navigating 
> a highly volatile environment. Our organic revenue growth of 9.0% was well balanced
> between volume and price, with two thirds of the business gaining or holding share.
> This performance reflected the quality of our portfolio of category leading brands,
> successful innovation, and excellent execution in market._
> _Our agility across the business resulted in adjusted operating profit growth 
> of 5.9% constant currency despite significant inflation, standalone costs and 
> adverse transactional FX. Strong free cash flow generation of £1.6bn enabled us
> to de-lever and provides us with increased confidence in reducing debt faster 
> than originally expected._
> _As a standalone company we also further developed our Responsible Business agenda,
> particularly on health inclusivity and made progress delivering on our environmental
> ambitions.”_

**Outlook**

For FY 2023 the Company expects:

|  | ● | Organic revenue growth of 4-6% | 
|  | ● | Adjusted operating profit margin broadly flat after absorbing c.40 bps adverse transactional foreign exchange impact based on current market rates^(1) | 
|  | ● | Net interest expense of c. £350m | 
|  | ● | Adjusted effective tax rate of 23-24% |

1. As at 10 February 2023

Haleon’s evolution into an agile Consumer Health organisation

As a standalone company we are now taking advantage of opportunities to evolve at
speed across productivity, growth and portfolio.

| ● | _Increasing agility and productivity across the business:_ We have identified further opportunities to optimise existing processes and structures to become more agile. This will result in annualised gross cost savings of c. £300 million over the next 3 years, with the benefits largely in FY 2024 and FY 2025. We expect to incur c.£150m restructuring costs in both FY 2023 and FY 2024._ _ | 
| ● | _Growth and portfolio:_ We have identified further opportunities to drive growth across our strong portfolio of brands and structural growth categories. We will invest behind these opportunities particularly in areas such as innovation and are targeting to grow A&P and R&D ahead of sales. Furthermore, we will be proactive in managing our portfolio and will remain rigorous and disciplined where there are opportunities for bolt-on acquisitions and divestment. |

Taken together, these initiatives give us the capacity to invest and fuel our confidence
in delivering 4-6% organic top line growth whilst delivering on our guidance of 
sustainable moderate margin expansion.

**Update on litigation**

The Group recently reached a settlement agreement with plaintiffs’ counsel to resolve
the vast majority of PPI cases (_Nexium24HR_ and _Prevacid24HR_) pending against
the Group.  The financial impact is included in the FY results and is not material
to the Group’s financial position, results of operations or cash flows.

**Dividend**

Consistent with our previous guidance, the Board is declaring a FY 2022 dividend
of 2.4 pence which represents approx. 30% of adjusted earnings for the period since
listing.

Subject to shareholder approval, this dividend will be paid on 27 April 2023 to 
holders of ordinary shares and US American Depositary Shares (ADS) on the register
as of 17 March 2023 (the record date). The ex-dividend date is 16 March 2023. For
ordinary shareholders wishing to participate in the Dividend Reinvestment Programme(
DRIP), the election deadline for the DRIP is 4 April 2023.

Reflecting our stated priorities to invest into the business for growth and reduce
leverage our current intention is, subject to Board approval, to maintain our pay-
out ratio around the current level.

Subject to Board approval, future ordinary dividends are expected to be paid half-
yearly with approximately one third of the dividend paid as an interim dividend,
following the Company’s half-year results and paid in October, and the balance paid
as a final dividend, subject to shareholder approval, following the Company’s Annual
General Meeting.

**Presentation for analysts and shareholders:**

A recorded results presentation by Brian McNamara, Chief Executive Officer, and 
Tobias Hestler, Chief Financial Officer, will be available shortly after 7am BST(
8am CET) on 2 March 2023 and can be accessed at www.haleon.com/investors. This will
be followed by a Q&A session at 9:30am GMT (10:30am CET).

For analysts and shareholders wishing to ask questions, please use the dial-in details
below which will have a Q&A facility:

UK:              0800 640 6441

US:              +1 646 664 1960

All other:       +44 203 936 2999

Passcode:      77 03 05

An archived webcast of the presentation will be available later on the day of the
results and can be accessed at https://www.haleon.com/investors/

**Financial reporting calendar**

| Q1 2023 Trading Statement | 3 May 2023 | 
| HY 2023 Results | 2 August 2023 |

**Guiding strategy**

Haleon is led by its purpose to deliver better everyday health with humanity. 

A clear approach to deliver on our growth ambitions is built on a world class portfolio
of category leading brands in a growing sector across an attractive geographic footprint.
This leverages competitive capabilities combining human understanding with trusted
science, brand building and innovation, leading route to market and leading digital
capabilities.

Haleon aims to outperform through a focus on increasing household penetration and
capitalising on new and emerging growth opportunities across channels and geographies,
underpinned by a strong focus on execution and financial discipline to improve profitability
and sustain reinvestment in growth. Critically, running a responsible business, 
which is integral to all that we do, allows Haleon to reduce risk and support performance.

Taken together, this is expected to drive 4-6% organic annual revenue growth, a 
moderate expansion in our margins while supporting our investment for growth, delivering
consistent high cash conversion and maintaining a focus on our clear and disciplined
capital allocation policy.

Business review – Delivering growth

The strength of Haleon’s portfolio resulted in 9.0% organic growth during the year,
with the growth of Power Brands ahead of this at 10.1%. Throughout the year, Haleon’s
agility and strategy to outperform continued to deliver results through market share
gains driven by increased household penetration driven by exciting innovations and
activations. Across the portfolio and in the full year, two thirds of Haleon’s business
gained or maintained market share.

**Leading portfolio – performance driven by innovation, brand building and geographic
and channel expansion**

In **Oral Health**, where revenue increased 8.6% and organic revenue grew 5.6%, 
Haleon maintained its track record of market outperformance, with sales double the
growth rate of the overall market, mainly driven by increased penetration resulting
in market share gains across the portfolio, with all 3 Power Brands _Sensodyne, 
parodontax_ and _Polident/Poligrip_ outperforming. This growth was driven by strong
brand building campaigns and activation, key innovations and geographic expansion.
We launched a new formula with superior cleaning with _Sensodyne Complete Protection_,
continued building and activating the successful _Sensodyne Sensitivity & Gum_ across
markets. The launch of _parodontax Gum+ paste,_ targeting bacteria between teeth
and using technology to neutralise bad breath in over ten markets, performed well,
driving continued market share gain. The _parodontax_ brand geographic expansion
was also supported in India and South Africa leveraging investment in Expert marketing
capability. In Dental Appliance Care, _Poligrip Power Max Hold+_ with a precision
nozzle was launched in over 15 markets and is outperforming, growing the overall
category.

In **Vitamins, Minerals and Supplements**, Haleon continued to see share gain with
11.6% revenue growth and 5.0% organic growth. As expected, growth slowed in the 
second half as the Group lapped tough comparatives in the US from new capacity coming
on stream and increased consumption during Covid waves in 2021. Importantly, underlying
consumption remained broadly steady through the year. _Centrum_ outperformed growing
share driven by new engaging brand campaigns, new benefits innovations including
products centred around immunity with more natural and herbal ingredients saw strong
growth from geographic expansion in Middle East and Latin America.  Haleon continued
to build on its trusted science, reinforcing brand differentiation, with the clinical
study completed on _Centrum_ _Silver_ tablets, which demonstrated positive results
on cognitive capabilities of adults 65 years and older, thereby providing a new 
claim and activation for the product. The brand also saw strong growth from geographic
expansion in Middle East, LatAm, and in India we launched the brand in H2 and there
remains significant headroom for increased penetration.

In the US, _Emergen-C_ continued to see growth with younger and more diverse households
through innovation such as _Emergen-C Kidz_. In China, a gummy innovation for _Caltrate_
enabled the brand to reach new younger consumers. In addition, locally relevant 
brands such as _Scotts, BeTotal_ and _Calsource_ delivered double digit growth.

In **Pain Relief**, revenue increased 14.0% and organic revenue growth was 8.9%.
A standout performer was _Panadol_ which again gained share and saw organic growth
in the high-teens percent. Given the prolonged and sustained cold and flu season
and resulting increased demand for the brand through agility and execution in market
the brand gained share overall. The _Take care_ _Panadol_ campaign was particularly
successful, launched in over 10 markets amplifying brand activation and relevance
during a key Covid vaccination period, driving brand growth and externally recognised
with industry awards. _Advil_ also saw strong growth benefitting from increased 
market activation and consumption during the cold and flu season. The topical market
continues to see weakness largely due to strong consumption in the systemic analgesics
market. That said, _Voltaren_ was up low single digit overall helped by innovation
leveraging clinical data.

In **Respiratory Health**, revenue increased 39.5% and organic revenue growth of
32.6% reflected the strong cold and flu season with sales significantly above 2019
levels in North America and Europe in Q4. Cold and flu added 3% to Group organic
sales in 2022. _Theraflu_ was supported by innovation launches including _Theraflu
Flu Relief_ and excellent commercial execution which enabled the brand to meet strong
demand. Allergy organic revenue was up mid-single digit driven by _Flonase_ and 
we launched a differentiated multi-symptom formula innovation (pain reliever, antihistamine,
decongestant) _Flonase Flare Up Relief_ designed to attract consumers looking for
rapid relief.

**Digestive Health and Other** saw 7.4% revenue growth with organic revenue growth
of 2.9%, this business is split across three areas, c.50% digestive, c.25% skin 
health and c.25% smoking cessation brands. Challenging conditions in the preventative
antacid market adversely impacted _Nexium_, although our brands in the immediate
relief antacid category (e.g. _Tums_) saw growth. Skin Health saw high-single digit
growth, helped by _Chapstick_ following the addition of a new value distribution
channel. In smoking cessation organic growth was slightly down primarily reflecting
a number of large retailers reducing inventory towards the end of the year.

**Innovation accelerating growth**

The focus on innovation to accelerate growth continued and we strengthened the portfolio
with new launches. During the year locally relevant propositions were launched across
several markets, targeting a younger consumer base for whom relevance is increased
with natural based propositions. These included _Robitussin Elderberry_, and _Emergen-
C botanicals_ in the US, and non-medicated _Otrivin_ _Breathe Clean_ and _Theraflu
Pro-Naturals_ in Central and Eastern Europe.

**Marketing effectiveness**

Haleon Advertising and Promotion (A&P) spend was up 4% at actual exchange rates (
AER) and flat at constant currency (CER) for the year, with spend equally split 
between offline and online media channels. Importantly, consumer facing A&P spend
excluding Russia was up 6% (CER) for the year. In addition, Haleon drove further
efficiencies in A&P spend from bringing production in-house. Furthermore, spend 
declined in Russia.

Within our A&P spend, Haleon placed greater investment on streaming channels, retail
media (commerce) and search directed towards e-commerce. Marketing to Healthcare
professionals strengthened, with Haleon’s HealthPartner portal now live in 50 markets,
having recorded over 10 million unique visitors. During the year, a number of successful
marketing campaigns supported performance with Haleon winning multiple awards globally
across creative and design.

**Increased channel penetration**

Within the channels there remains an opportunity for increased e-commerce penetration,
and e-commerce grew 16% to 9% of total sales. Improved content, optimised media,
increased investment in high traffic events as well as refreshed ‘brand stores’ 
contributed to growth. In the US and China, Haleon’s two largest e-commerce markets,
sales grew 7% and 40%, respectively. Haleon also continues to invest in digital 
capabilities across the business and was recognised for the second year in a row
at the Global Search Awards.

**Supported by strong execution and financial discipline**

The business remains focused on driving efficiency, effectiveness and agility to
ensure investment delivers positive returns.

Haleon successfully separated from GSK in July 2022, including the completion of
a technology systems cut over demonstrating strong execution and capabilities across
the business, and successfully hiring and standing up all functions needed to operate
independently. Since then, the business has operated successfully as a standalone
company, with the total costs for this of c.£0.2bn incurred during the year, including
costs related to software, the majority of which are in the cloud rather than on-
premise.

The costs to run independently were partly offset by the incremental Pfizer synergies
delivered during the year, taking the aggregate annual synergies to over £600m (
increased from £500m at the Capital Markets Day in February 2022).

The Group remains focused on maintaining an efficient business. Initiatives to drive
value from third-party expenditure and offset headwinds from input prices and commodity
inflation continue, including forward buying, value engineering and new supplier
introduction, and initiatives to ensure continuity of supply. Over the year, Haleon
managed to largely offset significant inflationary cost pressures particularly on
raw materials through a combination of pricing, forward buying and other initiatives.
That said, an increase in freight costs and commodity costs along with transactional
FX losses resulted in adjusted gross profit margin across the business being down
50bps at AER to 62.4%.

Furthermore, across the business, Haleon also undertook SKU rationalisation, improved
logistics productivity through warehousing and outbound freight consolidation which
helped to partially offset freight and distribution cost inflation. Simultaneously,
the business continued its insourcing initiatives, improved return on investment
on promotional spend and optimised price-pack architecture across the portfolio.

At the demerger, Haleon had net debt of £10,707m. Strong cash generation since the
separation from GSK, resulted in net debt at 31 December 2022 of £9,868m, which 
underpins Haleon’s confidence in its expectation to de-lever rapidly to an expected
level of less than 3x net debt/Adjusted EBITDA during 2024. Following demerger, 
Haleon fully repaid £1.5bn of its term loan through a combination of operational
cash flows and £0.3bn of commercial paper issuance in H2. Net debt at 31 December
2022 included £75m of adverse translation FX incurred since the demerger. As debt
is largely matched to the regions where profit is earned, there is a natural hedge
on foreign exchange movements over time. At 31 December 2022, 87% of debt was fixed
with the balance being exposed to floating rates.

To further optimise its capital structure, on 2 March 2023, shortly after the opening
of the NYSE, Haleon will announce its intention to exercise its option to redeem
at par the $300m of Callable floating Rate Senior Notes due in 2024 on 24 March 
2023.

**Running a responsible business**

Running a responsible business remains an integral part of our strategy. Haleon 
remains committed to reducing our environmental impact, making everyday health more
inclusive, and operating with ethical and responsible standards of conduct.

_Progressing against existing environmental targets_

Haleon is on track to reduce its net Scope 1 and 2 carbon emissions by 100% by 2030(
versus its 2020 baseline). Initiatives in 2022 included the achievements of 100%
renewable electricity across all Haleon sites which we directly control and of Haleon’s
first carbon neutral site in Suzhou, China aligned with PAS 2060. Also in 2022, 
Haleon has announced its ambition to achieve Net Zero carbon emissions from source
to sale by 2040 aligned to guidance from The Climate Pledge and Race to Zero, as
well as submitted its Scope 1, 2 and 3 goals to the Science Based Targets Initiative
for verification and has registered its commitment to Net Zero.

Haleon continues to develop solutions for all product packaging to be recycle-ready
by 2025. Healthcare packaging currently has limited recyclability in the current
waste infrastructure due to challenges associated with the collection and sorting
of small formats. For this reason, our recycle-ready goal is a key milestone towards
making all packaging recyclable or reusable by 2030, where safety, quality and regulations
permit. Supporting initiatives in 2022 included the launch of _ENO_ in a recycle-
ready format in India. Haleon has also launched a new mouthwash bottle for _Aquafresh_
in Europe that uses 20% less plastic and is recycle-ready. The roll-out of recycle-
ready toothpaste tubes also continues across Oral Healthcare brands, with over 350
million recycle-ready toothpaste tubes launched in market in 2022.

_Opportunity to make a difference with health inclusivity_

We believe that Haleon has a compelling opportunity to make a meaningful difference
to helping improve health inclusivity. Haleon aims to empower 50 million people 
a year to be more included in opportunities for better everyday health by 2025. 
Haleon supported Economist Impact in its publication of the world’s first Health
Inclusivity Index in October 2022. We have supported the creation of the Index to
help governments, policymakers, health professionals, civil society organisations
and other businesses take evidence-based actions to collectively help improve health
inclusivity. By developing a deep understanding of what holds individuals back from
getting the right treatment or appropriate level of care, we can understand and 
inform our own actions as Haleon to help people be more included in better everyday
health.

An example of putting this into action is work that Haleon and Microsoft have collaborated
on to expand the functionality of the Seeing AI app for use on our consumer healthcare
product labels. This tool helps consumers who are blind, visually impaired or have
difficulty with reading the labels of products due to low literacy to access Haleon’s
product label information by scanning the barcode of Haleon products. Consumers 
can hear important use and safety information as narrated by the Seeing AI app.

Other brand initiatives focused on promoting health inclusivity in 2022 included
_Theraflu’s_ Rest and Recover Program in the US, and _Otrivin’s_ National Schools
Partnership on the ‘Actions to Breathe Cleaner’ program. The World Health Organisation
estimates 93% of children are breathing polluted air every day, and the aim of Actions
to Breathe Cleaner is to promote adoption of everyday actions that school children
can take to reduce the impact of air pollution on their health. This includes in
India, where _Otrivin_ through the Actions to Breathe Cleaner program has provided
10,000 ‘pollution capture pencils’ to school children. The mixture used at the core
of the pencils was made by mixing graphite with residue collected from twenty-two
air purifiers installed by _Otrivin_ at three schools with the poorest air quality
in Bengaluru.

These examples represent only highlights of the ways our brands are bringing focus
to Health Inclusivity through direct brand actions, support for Health Professionals
and building actionable insights through research collaborations.

_Building robust corporate governance_

Haleon continues to build best practice corporate governance, in line with the requirements
of a dual LSE premium listed and NYSE listed company. Board-level governance and
committees have been established to ensure alignment with all applicable requirements
of the UK Corporate Governance Code, Sarbanes-Oxley Act and New York Stock Exchange
Listing Standards. The Group’s internal and external operational governance links
in directly to the Board-level governance, enabling rapid escalation and visibility.

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