Haleon plc: H1 2023 Results
Filing: Form 6-K filed 2 August 2023. The report covers the six months ended 30 June 2023 and contains unaudited interim financial statements prepared under UK-adopted IAS 34. KPMG performed a limited review and reported no matters indicating material non-compliance; this was not an audit.
Business context and reporting period
Haleon is a global consumer-health company operating across Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other. Key brands include Sensodyne, Panadol, Advil, Voltaren, Theraflu, Otrivin, Polident, parodontax and Centrum.
Growth was broad-based, with pricing accounting for most organic growth while volume/mix remained positive. Approximately 55% of the business gained or maintained market share year to date through May 2023, based on Haleon’s analysis of third-party data covering approximately 90% of revenue.
Financial performance and liquidity
| Metric | H1 2023 | Prior period | Change |
|---|---|---|---|
| Revenue | £5,738m | £5,188m | +10.6% |
| Organic revenue growth | 10.4% | — | 7.5% price; 2.9% volume/mix |
| Gross profit | £3,550m | £3,211m | +10.6% |
| Gross margin | 61.9% | 61.9% | Flat |
| Adjusted gross margin | 62.3% | 62.8% | Down 50bps |
| Operating profit | £1,141m | £900m | +26.8% |
| Operating margin | 19.9% | 17.3% | Up 260bps |
| Adjusted operating profit | £1,271m | £1,191m | +6.7%; +8.9% constant currency |
| Adjusted operating margin | 22.2% | 23.0% | Down 40bps constant currency |
| Profit attributable to shareholders | £687m | £517m | +32.9% |
| Adjusted profit attributable to shareholders | £791m | £883m | Down 10.4% |
| Diluted EPS | 7.4p | 5.6p | +32.1% |
| Adjusted diluted EPS | 8.5p | 9.6p | Down 11.5% |
| Net cash flow from operating activities | £749m | £680m | +£69m |
| Free cash flow | £369m | £553m | Down £184m |
| Net debt at period end | £9,525m | £9,868m at 31 Dec. 2022 | Down £343m |
Net finance costs increased to £181m from £36m, primarily reflecting interest on debt issued before the demerger. The statutory tax rate was 24%, compared with 37% in H1 2022; the adjusted effective tax rate was 23%, compared with 21%.
Leverage was 3.4 times last-twelve-month adjusted EBITDA, compared with approximately 4 times at the July 2022 demerger. Cash and cash equivalents were £490m, or £461m net of bank overdrafts. Undrawn committed facilities totaled £1.0bn and $1.4bn.
Material changes versus the prior comparable period
- Organic revenue growth accelerated to 10.4%, driven by 7.5% pricing and 2.9% positive volume/mix.
- Respiratory Health grew 22.0% organically, supported by a strong cold and flu season and post-lockdown recovery in China.
- Pain Relief grew 12.9% organically, led by Fenbid in China and Panadol.
- Oral Health grew 10.8% organically, while Digestive Health and Other grew 7.7%.
- VMS declined 0.5% organically because of difficult prior-year comparisons and reduced immunity-related demand.
- Adjusted operating profit increased, but adjusted margin contracted because of commodity and raw-material inflation, transactional foreign-exchange losses, and costs associated with operating as a standalone company.
- Adjusted profit and adjusted EPS declined because higher interest costs and a higher adjusted tax rate more than offset operating-profit growth.
- Adjusting items declined to £130m from £291m, including separation and admission costs of £60m versus £229m in H1 2022.
- Net capital expenditure increased to £133m from £88m, while free cash flow conversion fell to 51% from 102%.
Guidance, outlook, risks and unusual items
- FY2023 organic revenue growth guidance was raised to 7%–8%, from “towards the upper end” of the prior 4%–6% range.
- FY2023 adjusted operating profit growth is expected to be 9%–11% on a constant-currency basis.
- Management expects FY2023 net interest expense of approximately £350m and an adjusted effective tax rate of 23%–24%.
- Haleon expects translational foreign exchange, based on 30 June 2023 spot rates, to reduce FY2023 revenue by approximately 4% and adjusted operating profit by approximately 6.5%.
- The Board declared an interim dividend of 1.8 pence per share, expected to be paid on 5 October 2023.
- Haleon agreed to dispose of its Lamisil topical rights for £235m, with total cash proceeds expected to be approximately £250m including working-capital release. Completion is expected in Q4 2023, with a pre-tax disposal loss of £5m expected at completion. Proceeds are intended to reduce debt.
- A productivity and agility program is expected to generate approximately £300m of annualized gross cost savings over three years, with most benefits expected in FY2024 and FY2025.
- Principal risks were unchanged: growth model, people and organization, trusted ingredients, supply-chain resilience, ESG, cybersecurity, and geopolitical instability. Other risks include financial, regulatory, legal and compliance, product quality, and product-user safety matters.
- Preparation H goodwill or brand valuation remains sensitive to assumptions; a 0.25% increase in the discount rate or a 0.25% reduction in revenue growth could result in additional impairment of £49m or £43m, respectively.
- Haleon completed the £69m acquisition of a GSK manufacturing site in Brazil; the purchase-price allocation remained provisional at the reporting date.
Important facts for investors to verify
- Whether pricing-led growth remains sustainable as consumer spending comes under pressure and whether volume/mix continues to be positive.
- Delivery of the 7%–8% FY2023 organic-growth and 9%–11% adjusted operating-profit guidance, including the stated foreign-exchange impact.
- Progress on margin recovery, inflation offsets, the £300m cost-savings program, and standalone-company cost phasing.
- Cash conversion, working-capital requirements, interest expense, and progress toward leverage below 3 times adjusted EBITDA during 2024.
- Completion and final proceeds from the Lamisil disposal, including the expected £5m pre-tax loss.
- Exposure to impairment risk for Preparation H and Robitussin, as well as supply-chain, product-safety, regulatory, cybersecurity and geopolitical risks.
- The filing’s adjusted and organic metrics, which are non-IFRS measures and should be assessed alongside reported IFRS results.