Business context and reporting period
Haleon plc’s first annual report and Form 20-F covers the year ended December 31, 2022, with 2021 comparatives. It reports on a full-year basis, not a standalone 2022 Q4 period. Haleon demerged from GSK and began independent trading on the London and New York stock exchanges on July 18, 2022. Financial statements are prepared under IFRS as issued by the IASB.
Haleon is a global consumer-health company operating in Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | £10.858bn | £9.545bn |
| Reported revenue growth | 13.8% | (3.5)% |
| Organic revenue growth | 9.0% | 3.8% |
| Operating profit / margin | £1.825bn / 16.8% | £1.638bn / 17.2% |
| Adjusted operating profit / margin | £2.472bn / 22.8% | £2.172bn / 22.8% |
| Profit after tax | £1.119bn | £1.439bn |
| Profit attributable to shareholders | £1.060bn | £1.390bn |
| Diluted EPS / adjusted diluted EPS | 11.5p / 18.4p | 15.1p / 17.9p |
| Operating cash flow / free cash flow | £2.063bn / £1.579bn | £1.356bn / £1.173bn |
| Net debt at year-end | £9.868bn | Net cash of £246m |
| Net debt / Adjusted EBITDA | 3.6x | Not meaningful |
Organic growth comprised 4.3% price and 4.7% volume/mix. The reported revenue increase included £478m of favorable foreign exchange. Adjusted operating profit grew 13.8% at actual exchange rates and 5.9% at constant currency. Reported operating margin fell 40 basis points; adjusted margin was flat as reported and declined 60 basis points at constant currency. Gross profit margin was 60.6%, down 170 basis points; adjusted gross margin was 62.4%, versus 62.9%.
Net finance costs rose to £207m from £2m, principally reflecting interest on debt issued in 2022. The statutory tax charge was £499m (31% effective rate), including a £102m non-cash charge related to US deferred tax liabilities; the adjusted effective tax rate was 22%. Free cash flow was £406m higher year over year. Operating cash flow included £435m of net cash outflows related to separation, restructuring and disposals.
At December 31, borrowings were £10.440bn and cash and cash equivalents were £684m. Reported total liquidity was £2.472bn, including undrawn revolving credit facilities. The £1.493bn term loan drawn in July was fully repaid by year-end. 87% of debt was fixed-rate. The Group reported investment-grade ratings of Baa1 from Moody’s and BBB from S&P.
Material changes versus the prior comparable period
- Revenue and organic growth accelerated, with growth across all regions and categories; Respiratory Health organic revenue rose 32.6%, reflecting a stronger cold-and-flu season than in 2021.
- Profit attributable to shareholders and diluted EPS declined, despite higher adjusted operating profit. Higher finance costs, the statutory tax charge and adjusting items affected reported results.
- Net debt moved from a £246m net-cash position at the end of 2021 to £9.868bn, following financing and pre-separation distributions. Leverage was 3.6x at year-end, down from approximately 4x after demerger.
- Comparability is affected by Haleon’s July 2022 demerger and listing. The report presents predecessor-business comparatives and retrospectively adjusted EPS for the new share count.
Outlook, risks, contingencies and unusual items
Management reiterated medium-term annual organic revenue growth guidance of 4–6%, sustainable moderate adjusted operating margin expansion at constant currency, and strong cash conversion. For 2023, it expected profitable growth and broadly flat adjusted operating margin, with operating leverage and efficiencies offsetting investment and inflation, including an estimated 40-basis-point adverse transactional foreign-exchange impact at rates prevailing on February 10, 2023. The Group targets net debt/Adjusted EBITDA below 3.0x during 2024.
Management identified approximately £300m of annualised gross cost savings over the next three years, with most benefits expected in 2024 and 2025, and approximately £150m of restructuring costs in each of 2023 and 2024. Capital allocation priorities are investment for growth, balance-sheet strengthening, potential acquisitions, and return of surplus capital. The Board declared a 2.4p final dividend per ordinary share for 2022, subject to shareholder approval.
Material risks include inflation and input-cost volatility, supply constraints and unusually high demand for some products, competition and retailer bargaining power, product quality and safety, ingredient regulation, cyber and data risks, geopolitical instability including Russia’s invasion of Ukraine, and climate-related physical and transition risks. The Group’s operations in Russia and Ukraine represented less than 3% of 2022 revenue combined. Climate targets include 100% net Scope 1 and 2 emissions reduction by 2030 and net zero from source to sale by 2040; the report notes that some TCFD metrics and processes remain under development.
Adjusting items totaled £647m, including £411m of separation and admission costs, £172m of intangible amortisation and impairment (including a £129m impairment charge), £41m of restructuring costs, and £15m of disposals and other items. The Preparation H impairment was £111m; a further £70m or £75m impairment could result, respectively, from a 0.25-percentage-point higher discount rate or 0.25-percentage-point lower revenue growth assumption. The report also cites low headroom for Robitussin. Legal matters include PPI litigation, German competition litigation and potential indemnity claims concerning OTC Zantac; the Group says it is not a party to Zantac claims and cannot reliably estimate potential exposure. A settlement covering the vast majority of pending Nexium 24HR and Prevacid24HR PPI cases was recognised and described as not material to the Group’s financial position, results or cash flows. Uncertain tax-position provisions were £159m; contingent liabilities were £30m.
Important facts for investors to verify
- Review the reconciliation of IFRS results to adjusted measures, particularly the £647m of adjusting items and the drivers of lower statutory EPS.
- Assess debt repayment capacity, refinancing and interest-rate exposure, including the 2024 leverage target and upcoming bond maturities.
- Track delivery of the 4–6% medium-term organic growth objective, 2023 margin expectations, and the timing and costs of the planned savings programme.
- Monitor developments and any changes in provisions or disclosures for PPI, Zantac indemnity claims, German competition litigation and uncertain tax positions.
- Test impairment assumptions and sensitivity for major brands, especially Preparation H and Robitussin, and monitor the large indefinite-life brand asset balance.
- Check progress against supply-capacity, product-quality, cyber-security and climate commitments, including whether stated targets and TCFD metrics are independently substantiated.