Haleon plc: FY2022 Results
Filing: Form 6-K filed March 2, 2023, containing the company’s unaudited full-year results for the twelve months ended December 31, 2022. Haleon is a global consumer-health company operating across Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other. The period included Haleon’s July 2022 demerger from GSK and transition to standalone operations.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | £10,858m | £9,545m | +13.8% |
| Organic revenue growth | 9.0% | 3.8% | +5.2 percentage points |
| Reported operating profit | £1,825m | £1,638m | +11.4% |
| Adjusted operating profit | £2,472m | £2,172m | +13.8%; +5.9% constant currency |
| Reported operating margin | 16.8% | 17.2% | Down 40 basis points |
| Adjusted operating margin | 22.8% | 22.8% | Flat as reported; down 60 basis points constant currency |
| Profit attributable to shareholders | £1,060m | £1,390m | Down 23.7% |
| Adjusted diluted EPS | 18.4p | 17.9p | +2.8% |
| Net cash flow from operating activities | £2,063m | £1,356m | +£707m |
| Free cash flow | £1,579m | £1,173m | +£406m |
| Net debt at year-end | £9,868m | Net cash £246m | Leverage 3.6x adjusted EBITDA |
Business performance and material changes
- Organic growth was balanced between pricing of 4.3% and volume/mix growth of 4.7%. Approximately two-thirds of the business gained or maintained market share.
- Power Brands delivered 10.1% organic growth. Respiratory Health was the strongest category, with 32.6% organic growth, supported by a strong cold and flu season. Pain Relief grew 8.9%, Oral Health 5.6%, VMS 5.0%, and Digestive Health and Other 2.9% organically.
- Reported revenue benefited from £478m of favorable foreign-exchange translation. EMEA and LatAm produced 10.9% organic growth, APAC 10.6%, and North America 5.9%.
- Gross margin declined to 60.6% from 62.3%; adjusted gross margin declined to 62.4% from 62.9%, primarily due to commodity, freight, and transactional foreign-exchange costs.
- Reported profit after tax declined largely because of higher finance costs, a higher statutory tax charge, and significant separation, listing, amortization, impairment, and other adjusting items. The statutory effective tax rate was 31%, compared with 12% in 2021; the adjusted rate was 22% in both years.
- Adjusting items totaled £647m, including £411m of separation and admission costs, £172m of amortization and impairment, £41m of restructuring costs, £8m of transaction-related costs, and £15m of disposals and other items.
- Standalone operating costs were approximately £0.2bn during 2022. Cumulative annual Pfizer synergies exceeded £600m.
- Net debt increased substantially following the demerger and issuance of approximately £9.2bn of notes in March 2022. Haleon repaid £1.5bn of term loans after separation and reported that 87% of debt was fixed-rate at year-end. Credit ratings were BBB from S&P and Baa1 from Moody’s.
Cash flow, liquidity, and capital allocation
- Operating cash flow included £435m of net cash outflows related to separation, restructuring, and disposals.
- Free cash flow conversion was 141%, compared with 82% in 2021. Net capital expenditure was £292m, compared with £149m in 2021.
- Year-end cash and cash equivalents were £684m. The balance sheet reported £437m of short-term borrowings and £10,003m of long-term borrowings.
- The Board proposed an inaugural final dividend of 2.4 pence per share, approximately 30% of adjusted earnings for the period since listing, subject to shareholder approval. The proposed payment date was April 27, 2023.
- Haleon announced its intention to redeem at par $300m of callable floating-rate senior notes due in 2024 on March 24, 2023.
Guidance, outlook, risks, and unusual items
- For FY2023, management expected organic revenue growth of 4%–6%, an adjusted operating margin broadly flat after absorbing approximately 40 basis points of adverse transactional foreign exchange, net interest expense of approximately £350m, and an adjusted effective tax rate of 23%–24%.
- The company identified initiatives expected to generate approximately £300m of annualized gross cost savings over three years, with benefits concentrated in FY2024 and FY2025. Restructuring costs of approximately £150m were expected in each of FY2023 and FY2024.
- Management expected leverage to decline below 3.0x net debt to adjusted EBITDA during 2024 and reaffirmed its medium-term objective of moderate margin expansion alongside 4%–6% annual organic revenue growth.
- Haleon reached a settlement intended to resolve the vast majority of PPI litigation cases involving Nexium24HR and Prevacid24HR. The company stated that the financial impact was included in FY2022 results and was not material to its financial position, results, or cash flows.
- Key operating risks include inflation in commodities and freight, transactional foreign exchange, standalone-company costs, retailer inventory changes, seasonal demand, China lockdown effects, product recalls, litigation, and execution of restructuring and cost-savings programs.
- The results were preliminary and unaudited; the audit of the 2022 statutory accounts was not complete as of the filing date. Non-IFRS measures, including adjusted operating profit and free cash flow, are presented as supplements to IFRS results and are not substitutes for them.
Investor verification points
- Confirm the final audited 2022 statutory accounts and any changes from the preliminary unaudited results.
- Assess the sustainability of the 4%–6% organic growth outlook, particularly after the unusually strong 2022 respiratory season.
- Track progress toward the planned £300m gross cost savings and the timing and cash cost of restructuring.
- Monitor deleveraging, refinancing needs, interest expense, and progress toward leverage below 3.0x in 2024.
- Verify completion and financial consequences of the PPI settlement and the planned $300m note redemption.
- Reconcile adjusted metrics with IFRS results, especially the £647m of 2022 adjusting items and the decline in reported earnings per share.