Haleon plc Q3 2022 Trading Statement
Business context and reporting period
Haleon plc, a global consumer-health company operating across 170 markets with more than 22,000 employees, filed this Form 6-K on November 10, 2022. The accompanying unaudited trading statement covers the three and nine months ended September 30, 2022. Products span Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue | £2,892m | £2,490m | +16.1% reported; +8.1% organic |
| Operating profit | £569m | £507m | +12.2% |
| Operating margin | 19.7% | 20.4% | Down 70 bps |
| Adjusted operating profit | £725m | £631m | +14.9% reported; +4.1% constant currency |
| Adjusted operating margin | 25.1% | 25.3% | Down 20 bps reported; down 90 bps constant currency |
| Profit after tax | £365m | £382m | Down £17m |
| Net finance costs | £74m | £0m | Higher financing costs |
For the nine months, revenue was £8,080m versus £7,065m, up 14.4% reported and 10.3% organically. Operating profit was £1,469m versus £1,244m, while adjusted operating profit was £1,916m versus £1,614m. Adjusted operating margin was 23.7%, up 90 basis points at actual exchange rates and 30 basis points at constant exchange rates. Profit after tax was £909m versus £902m.
Q3 organic growth comprised 5.5% pricing and 2.6% volume/mix. E-commerce represented 9% of total revenue and continued to grow at a high-teens rate. Respiratory Health was the strongest category, with Q3 organic growth of 30.2%; VMS declined 1.4% organically due to difficult prior-year comparisons.
Net debt was £10,784m at September 30, 2022, compared with £10,707m at the July 18 demerger date and £8,836m at June 30. Cash and cash equivalents and liquid investments were £1,092m. The company had repaid a further £250m of its £1.5bn term loan, taking total repayment of that loan to £750m. The filing does not provide a clear operating cash-flow or free-cash-flow value for the period.
Material changes versus the prior comparable period
- Reported revenue growth benefited materially from currency translation; Q3 organic growth was 8.1% compared with reported growth of 16.1%.
- Respiratory Health revenue increased 40.2% reported and 30.2% organically, supported by elevated cold, flu and COVID-19 incidence, retailer stocking and innovation.
- Oral Health grew 6.7% organically, while Pain Relief grew 3.6% and Digestive Health and Other grew 8.4%.
- North America grew 2.9% organically in Q3, affected by tough comparatives from advance purchasing and retailer restocking in 2021. EMEA and LatAm grew 12.2%, and APAC grew 9.0%.
- Pricing and efficiency gains offset commodity, freight and other inflationary pressures, but margins were pressured by new standalone costs and adverse transactional foreign exchange, particularly involving the Swiss franc and U.S. dollar.
- Q3 profit after tax declined despite higher operating profit, primarily reflecting net finance costs of £74m versus nil in the prior-year quarter.
Guidance, outlook, commentary and risks
Haleon upgraded FY22 organic revenue growth guidance to 8.0%–8.5%. Adjusted operating margin is expected to be slightly above the FY21 level of 22.8% at actual exchange rates, assuming spot rates as of October 31, 2022 remain sustained. Management stated that transactional foreign exchange could create an adverse impact of up to 30 basis points, while favorable translational currency movements support the revised margin outlook.
Management cited positive volume/mix, pricing, efficiencies, brand strength, innovation and continued investment as supports for performance. It also noted that macroeconomic conditions remain volatile and uncertain. Key operating sensitivities include inflation in commodities and freight, foreign-exchange movements, COVID-19-related disruption, cold-and-flu incidence, retailer inventory and stocking patterns, and difficult prior-year comparisons.
The filing contains forward-looking statements that are subject to material risks and uncertainties, including those described in Haleon's prospectus and Form 20-F registration statement. Adjusted operating profit, adjusted margins and organic revenue growth are non-IFRS measures and are not substitutes for IFRS results. Cash flow, liquidity headroom, covenant information and detailed debt maturities are not clearly provided in this trading statement.
Important facts for investors to verify
- Whether the FY22 organic revenue growth of 8.0%–8.5% and adjusted margin outlook above 22.8% were achieved in the full-year results.
- The sustainability of Respiratory Health growth after elevated cold, flu and COVID-19 demand, advance purchasing and retailer stocking effects normalize.
- The impact of inflation, freight costs, standalone operating costs and transactional foreign exchange on future margins.
- Operating cash flow, free cash flow, leverage, liquidity headroom and the remaining repayment schedule for the £1.5bn term loan.
- The extent to which reported growth reflects currency translation, pricing, acquisitions, disposals or manufacturing service agreements rather than underlying organic performance.
- The reconciliation of adjusted results to IFRS results and the recurring versus non-recurring nature of separation, admission, restructuring and other adjusting items.