Haleon plc 2022 Half-Year Results
Filing: Form 6-K dated 20 September 2022, reporting the unaudited six months ended 30 June 2022. Haleon completed its separation from GSK and became an independently listed consumer-health company in July 2022. The comparative information reflects predecessor accounting and has been prepared as if the Group existed throughout the periods presented.
Financial performance
| Metric | H1 2022 | H1 2021 | Change |
|---|---|---|---|
| Revenue | £5,188m | £4,575m | +13.4% reported; +11.6% organic |
| Gross profit | £3,211m | £2,814m | +14.1% |
| Gross margin | 61.9% | 61.5% | +40 bps |
| Reported operating profit | £900m | £737m | +22.1% |
| Operating margin | 17.3% | 16.1% | +120 bps |
| Adjusted operating profit | £1,191m | £983m | +21.2% reported; +15.5% CER |
| Adjusted operating margin | 23.0% | 21.5% | +150 bps reported; +90 bps CER |
| Profit attributable to shareholders | £517m | £491m | +5.3% |
| Adjusted profit attributable to shareholders | £883m | £729m | +21.1% |
| Basic EPS | 5.6p | 5.3p | +5.7% |
| Adjusted EPS | 9.6p | 7.9p | +21.5% |
Organic growth comprised 3.7% price and 7.9% volume/mix. Respiratory Health grew 46.7% organically, Pain Relief 11.7%, VMS 11.9%, Oral Health 5.1%, and Digestive Health and Other 3.5%. E-commerce represented 9% of total sales and grew at a high-teens rate.
Cash flow, debt and liquidity
- Net cash from operating activities was £680m, compared with £234m in H1 2021; this included a £224m net cash outflow for separation, restructuring and disposals.
- Free cash flow was £553m versus £189m, with reported free-cash-flow conversion of 102% versus 36%.
- Net capital expenditure was £88m, equivalent to approximately 1.7% of H1 revenue.
- Net debt was £8,836m at 30 June 2022, compared with net cash of £246m at 31 December 2021. Net debt increased to £10,707m at separation after post-period financing and dividend transactions.
- At 18 July 2022, liquidity was £2.9bn, comprising £2.2bn of undrawn bank facilities and £716m of cash and cash equivalents.
- Long-term borrowings were £9,918m at 30 June 2022, primarily bonds issued in connection with the separation. Credit ratings remained Moody’s Baa1/P-2 and S&P BBB/A-2.
Material changes and unusual items
- Haleon completed its demerger and began regular trading on the London Stock Exchange on 18 July 2022 and on the New York Stock Exchange on 22 July 2022.
- H1 adjusting items were £291m, including £229m of separation and admission costs, £20m of restructuring costs, and £40m of intangible amortisation and impairment.
- Separation and admission costs are now expected to total approximately £0.5bn between FY2022 and FY2024, with approximately 80% incurred in FY2022. Admission costs are expected to be just over £0.1bn.
- The reported effective tax rate increased to 37% from 29%, partly due to a £104m non-cash charge from revaluation of U.S. deferred tax liabilities following the demerger. The adjusted tax rate was 21% versus 23%.
- Haleon delivered approximately 70% of expected FY2022 Pfizer synergies in H1 and remains on track for £120m of FY2022 synergies, with aggregate annual Pfizer synergies increased to £600m.
- After period end, Haleon repaid £500m of its term loan in August and a further £250m in September, using operating cash flow and commercial-paper proceeds.
Guidance, outlook and management commentary
- FY2022 organic revenue growth guidance remains 6%–8%.
- FY2022 adjusted operating margin is expected to be slightly lower year over year at constant currency, versus 22.8% in FY2021.
- Management expects pricing, Pfizer synergies and supply efficiencies to offset much of the £175m–£200m of standalone costs, inflationary pressure, continued investment and the impact of Russia and Ukraine.
- FY2022 adjusted effective tax rate is expected at the lower end of the previously indicated 22%–23% range. Net interest expense guidance remains approximately £0.2bn, and net capex remains approximately 3% of sales.
- Medium-term guidance is unchanged: 4%–6% annual organic revenue growth, sustainable moderate adjusted-margin expansion at constant currency, net debt to adjusted EBITDA below 3.0x by the end of 2024, and an initial dividend at the lower end of a 30%–50% payout range, subject to Board approval.
- Management reported continued positive momentum into the third quarter, although at a slower rate than in H1, and cited inflation, consumer behavior, supply continuity, foreign exchange and geopolitical conditions as uncertainties.
Risks and contingencies
- Haleon is not a party to Zantac claims and states that it never marketed Zantac in the United States or Canada. GSK and Pfizer have sought indemnification; Haleon rejects those requests. The filing states that any potential liability cannot currently be reliably estimated.
- Other principal risks include competition, changing consumer preferences, supply-chain disruption, retail-channel concentration, innovation execution, product recalls, cyber-security, intellectual property, regulatory matters, litigation, climate change, pandemics, inflation and the risk that separation benefits are not fully realised.
- Robitussin and Preparation H were identified as sensitive to reasonably possible changes in impairment assumptions, including discount rates, operating margins and long-term growth rates.
- Directors concluded that the going-concern basis remains appropriate, based on financial plans through September 2023, available facilities, debt maturities and expected cash flows.
Investor verification points
- Reconcile reported and adjusted results, particularly the £291m of H1 adjusting items and the increased separation-cost estimate.
- Monitor leverage reduction from the £10,707m post-separation net debt position and progress toward net debt to adjusted EBITDA below 3.0x by year-end 2024.
- Assess whether price increases and productivity initiatives continue to offset commodity, freight, inflation and standalone-company costs without weakening volume or market share.
- Verify delivery of the 6%–8% FY2022 organic-growth target as respiratory demand normalises and Russia, Ukraine and China-related impacts continue.
- Track the outcome of Zantac indemnification disputes and other legal or regulatory proceedings, for which the filing does not provide a clear quantifiable exposure.
- Distinguish non-IFRS measures such as organic growth, adjusted operating profit and free cash flow from IFRS results when evaluating performance.