20 September 2022

 

2022 Half year results

Six months ended 30 June 2022

· H1 revenue +13.4% to £5,188m, organic revenue growth +11.6%; 3.7% price and 7.9% volume/mix

·  Strong power brand performance in H1: +13.4% organic growth with Panadol, Theraflu, Otrivin, Advil and Centrum particularly strong

·   2/3 of our business gained or maintained share in the six months ended 30 June 2022¹

·   E-commerce 9% total sales, growth in the high teens

·   H1 Reported operating profit increased 22.1% to £900m, with margin 17.3% up 120bps

·   H1 Adjusted operating profit increased 21.2% to £1,191m, up 15.5% at constant currency (CER)

·   H1 Adjusted operating margin 23.0%, up 90bps (CER) and 150bps at reported rates

·  H1 net cash from operating activities was £680m, which included £224m related to the net cash outflow from separation, restructuring and disposals; Free cash flow for H1 2022 was £553m with free cash flow conversion of 102%

·   Net debt at 18 July 2022 was £10,707m; recently repaid £750m of £1.5bn term loan

·  FY22 organic revenue growth and Adjusted operating margin guidance unchanged from HY Trading update on 27 July 2022

Brian McNamara, Chief Executive Officer, Haleon said:

"I am incredibly proud that in the first half Haleon successfully completed its separation from GSK and became an independent listed company. This was the result of a huge amount of hard work and preparation, and I would like to thank all of my colleagues for their tireless efforts, focus and commitment.

Haleon performed strongly in the first half of the year with double digit revenue growth, importantly with a healthy balance of price and volume/mix reflecting brand strength across our portfolio. Furthermore, we gained or maintained share in most of our business, demonstrating that continued investment is driving sustainable growth, even in difficult market conditions. I am also pleased that we delivered margin expansion in the first half despite significant cost inflation and absorption of standalone costs for the business. Strong free cash flow generation underpins confidence in our ability to de-lever quickly over the coming years.

Whilst navigating the current macro-economic challenges and uncertainties, positive momentum in our business has continued into the second half. This combined with the strength of the business reinforces our confidence that we are well positioned to deliver on guidance this year and over the medium term."

Adjusted results					Reported results
Six months ended 30 June (unaudited)	2022	vs 2021				2022	vs 2021
Organic revenue growth2		11.6%3	Revenue			£5,188m	13.4%
Adjusted operating profit2	£1,191m	15.5%3	Operating profit			£900m	22.1%
Adjusted operating profit margin2	23.0%	90 bps3	Operating profit margin			17.3%	120 bps
Adjusted earnings per share2	9.6p	21.5%	Earnings per share			5.6p	5.7%
Free cash flow2	£553m	£364m	Net cash from operating activities			£680m	£446m

1. Market share statements throughout this report are estimates based on the Group's analysis of third party market data of revenue for the first six months of 2022 including IQVIA, IRI and Nielsen data. Represents % of brand-market combinations gaining or maintaining share (this analysis covers > 85% of Haleon's total revenue).

2. Organic revenue growth, Adjusted operating profit, Adjusted operating profit margin, Adjusted earnings per share and Free cash flow are non-IFRS measures; definitions and calculations of non-IFRS measures can be found on pages 38 to 45

3. Change at constant currency

4. The commentary in this announcement contain forward-looking statements and should be read in conjunction with the cautionary note on page 38

Outlook

FY2022 revenue and Adjusted operating margin guidance remains unchanged from the trading update on 27 July 2022.

 

FY2022 organic revenue growth is expected to be 6-8%. 

 

Adjusted operating margin in FY2022 is expected to be slightly down at constant currency on last year (FY21: 22.8%). Strong growth, the Pfizer synergies, pricing and ongoing supply efficiencies, will largely offset Haleon standalone costs (£175-£200m), continued investment, inflationary cost pressure and the impact of Russia and Ukraine. Assuming current spot rates are sustained for the rest of the year, currency will be slightly positive on adjusted operating margin.

 

In FY2022, the Adjusted effective tax rate is now expected to be at the lower end of the 22-23% range shared previously. FY2022 net interest expense is unchanged at £0.2bn and net capex guidance is unchanged from prior guidance, and remains c.3% sales.

Separation and Admission costs are now expected to be approximately £0.5bn (at current spot rates) between FY2022 and FY2024, with 80% of costs incurred in FY2022, and the balance split across FY2023 and FY 2024. Admission costs are expected to be just over £0.1bn. (Previously, Separation and Admission costs were expected to be approximately £0.4bn between FY2022 and FY2024, including Admission costs of up to £0.1bn most of which were expected to be incurred in FY2022).

All medium term guidance is reiterated, namely annual organic revenue growth of 4-6%, sustainable moderate Adjusted operating margin expansion at constant currency, Net debt/Adjusted EBITDA expected to be below 3x by the end of 2024 and initial dividend expected to be at lower end of 30-50% pay-out range (subject to Haleon Board approval).

Current trading

Positive momentum seen in the first half of the year has continued into the third quarter, albeit at a slower rate as expected, underpinning our guidance for FY2022 organic growth of 6-8%. We believe the business is well positioned to navigate the current macro-economic challenges including rising inflation and the potential impact this may have on consumer behaviour in the future.

Update on Zantac

As Haleon stated in the Group's announcement on 11 August 2022, Haleon is not a party to any Zantac claims.

Haleon has notified GSK and Pfizer that it rejects their requests for indemnification on the basis that the scope of the indemnities set out in the joint venture agreement only covers their consumer healthcare businesses as conducted when the JV was formed in 2018. At that time, neither GSK nor Pfizer marketed OTC Zantac in the US or Canada.

Presentation for analysts and shareholders:

A recorded results presentation by Brian McNamara, Chief Executive Officer, and Tobias Hestler, Chief Financial Officer, will be available shortly after 7am BST (8am CET) on 20 September 2022 and can be accessed at www.haleon.com/investors. This will be followed by a Q&A session at 11:30am BST (12:30pm CET).

For analysts and shareholders wishing to ask questions on the Q&A call, please use the dial-in details below which will have a Q&A facility:

UK:              0800 640 6441

US:              +1 646 664 1960

All other:      +44 203 936 2999

Passcode:      52 03 87

 

An archived webcast of the Q&A call will be available later on the day of the results and can be accessed at www.haleon.com/en/investors/  

Financial reporting calendar

 

Q3 2022 Trading Statement	10 November 2022
FY 2022 Results	March 2023
Q1 2023 Trading Statement	May 2023
HY 2023 Results	August 2023

Enquiries

Investors		Media
Sonya Ghobrial	+44 7392 784784	Zoe Bird	+44 7736 746167
Rakesh Patel	+44 7552 484646	Nidaa Lone	+44 7841 400607
Emma White	+44 7792 750133	Ross Whittam	+44 7796 204198
Email: [email protected]		Email: [email protected]

 

About Haleon plc

 

Haleon (LSE / NYSE: HLN) is a global leader in consumer health, with brands trusted by millions of consumers globally. The Group employs over 22,000 people across 170 markets, who are united by Haleon's purpose - to deliver better everyday health with humanity. Haleon's product portfolio spans five major categories - Oral Health, Vitamins, Minerals and Supplements (VMS), Pain Relief, Respiratory Health, Digestive Health and Other. Its long-standing brands - such as Advil, Sensodyne, Panadol, Voltaren, Theraflu, Otrivin, Polident, Parodontax and Centrum - are built on trusted science, innovation and deep human understanding.

For more information please visit www.haleon.com

 

Business review

Haleon is led by its purpose to deliver better everyday health with humanity. 

A clear approach to deliver on our growth ambitions is built on a world class portfolio of category leading brands in a growing sector across an attractive geographic footprint. These leverages competitive capabilities combining human understanding with trusted science, brand building and innovation, leading route to market and digital.

Haleon aims to outperform through a focus on increasing household penetration and capitalising on new and emerging growth opportunities across channels and geographies, underpinned by a strong focus on execution and financial discipline to improve profitability and sustain reinvestment in growth. Critically, running a responsible business, which is integral to all that we do, allows Haleon to reduce risk and support performance.

Taken together, this is expected to drive 4-6% organic annual sales growth, a moderate expansion in our margins while supporting our investment for growth, delivering consistent high cash conversion and maintaining a focus on our clear and disciplined capital allocation policy.

 

Delivering growth

 

During the first half, Haleon grew revenue organically 11.6%, with growth of Power Brands ahead of this at 13.4%. Haleon delivered strong growth and market share through increased household penetration, winning new consumers with exciting innovations and activation, as well as channel expansion and geographic expansion. In the first half 2/3 of Haleon's business gained or maintained market share.

In Oral Health, where revenue grew 5.1% organically, Haleon maintained its track record of market outperformance, with sales double the growth rate of the overall market, mainly driven by improved penetration of Sensodyne, particularly in e-commerce in the US and Parodontax in major markets. In aggregate, this resulted in category share growth with three quarters of the business gaining or maintain market share. Parodontax, one of the fastest growing toothpaste brands globally, launched in South Africa and grew double digit in Middle East and Africa. Additionally in Dental Appliance Care, our new innovation Poligrip Power Max Hold+ was rolled out to 16 markets and is performing well.

In Vitamins, Minerals and Supplements, where organic revenue growth was 11.9%, Haleon gained share overall including in the US and China. During the first half in the US Emergen-C grew double digit driven by engagement to drive growth with younger and more diverse households, and through innovation including Emergen-C Kidz which achieved 10% market share in its first year. This was amplified by in-season omni-channel and digital activations. In China, the Caltrate chewable tablets innovation enabled the brand to reach new younger consumers.

In Pain Relief, organic revenue growth was 11.7%. A stand out performer in the category was Panadol which gained share and saw organic growth in the first half was up in the mid twenties percent, double the level of the category. In the UK, the brand has increased share through deliberate incremental A&P investment in multi-channel media, as well as increased distribution and shelf presence to recruit and maintain new user groups converted during the pandemic.

In Respiratory Health organic revenue growth of 46.7% reflected the strong cold and flu season. Theraflu was supported by innovation launches and commercial execution which enabled the brand to meet strong demand. Theraflu outperformed the market gaining share from significantly improved penetration in the US contributing to Respiratory Health category share gain overall.

Digestive Health and Other saw organic revenue growth of 3.5%. Challenging conditions in the preventative antacid market adversely impacted Nexium, although our brands in the immediate relief antacid category, such as ENO and Tums performed well.

Haleon remains focused on innovating to underpin and accelerate growth. In the first half this included extending the portfolio demographically, with several natural variants launched in the first half targeting a younger consumer base. These included Theraflu Naturals, Robitussin Elderberry, and Emergen-C botanicals in the US, and non-medicated Otrivin, Breathe Clean and Theraflu Pro-Naturals in Central and Eastern Europe. In Oral Health, roll out of Sensodyne Nourish continued into new markets across Europe including the UK. Moreover, Parodontax Gum+ was launched in over ten markets and is performing well, particularly in France. Also, in Dental Appliance Care, our new innovation Poligrip Power Max Hold+ was rolled out to 16 markets and is outperforming the market. In Pain Relief Panadol Liquid gel caps were launched in Australia with good early feedback. In VMS, we launched Centrum Multi-gummies in tropical fruit.

During the first half a number of successful marketing campaigns supported brand performance. In particular the Take care Panadol campaign amplified brand activation and relevance during a key COVID-19 vaccination period. Furthermore, the brand won several awards for the campaign including the Annual International Award for Innovation in Media. Elsewhere Haleon won the prestigious I-COM data creativity award for the Flonase campaign which tracked flu symptoms and targeted likely sufferers. For the first half Haleon A&P spend was up 6% CER, equally split between offline and online media channels, and with the increase reiterating the commitments earlier this year to invest behind driving sustainable growth.

From a channel perspective, there remains significant opportunity for e-commerce penetration, and e-commerce grew high teens percent in the first half to 9% of total sales. Improved content, optimised media, increased investment in high traffic events and refreshed 'brand stores' all contributed to growth. In the US and China, Haleon's two largest e-commerce markets, sales grew 20% and 30%, respectively. Haleon also continues to invest in digital capabilities across the business and was recognised for the second year in a row at the Global Search Awards. Notably our digital portal marketing to Healthcare professionals is now live in 39 markets, with over 10m unique visitors.

Supported by strong execution and financial discipline

 

The business remains focused on driving efficiency, effectiveness and agility to make every investment count.

Haleon successfully separated from GSK including the completion of a technology systems cut over demonstrating strong execution and capabilities across the business.

Following demerger, Haleon had net debt of £10,707m. Strong cash generation during the first half underpins Haleon's confidence in its ability to de-lever rapidly to less than 3x net debt/Adjusted EBITDA by the end of 2024. Additionally, Haleon's long-term and short-term ratings were confirmed (Moody's: Baa1/P-2 S&P: BBB/A-2). The Group successfully completed the financing required for payment of the separation dividend and for the management of its ongoing liquidity.

 

Haleon delivered c.70% of expected FY2022 Pfizer synergies in the first half, and remains on track to deliver £120m synergies in FY2022, taking the aggregate Pfizer annual synergies to £600m (increased from £500m at the Capital Markets Day in February 2022).

 

Initiatives to drive value from third-party expenditure and offset headwinds from input prices and commodity inflation continue, including forward buying, value engineering and new supplier introduction, and initiatives to ensure continuity of supply. In the first half, Haleon managed to offset c. 40% of cost inflation through forward buying and other initiatives, as well as having hedged or locked through contracts c. 90% of H2 22 materials.

 

Furthermore, across the business, Haleon also undertook SKU rationalisation, improved logistics productivity through warehousing and outbound freight consolidation. Simultaneously, the business continued its insourcing initiatives, improved ROI on promotional spend and optimised price-pack architecture across the portfolio.

 

Excellent execution in markets remains a key pillar for driving growth and in Central and Eastern Europe, this was delivered through new communication toolkits and a successful pre-selling campaign underpinned share expansion in the first half for Theraflu. In the US, partnering with retailers enabled excellent execution both in store and online, enabled double digit Advil growth supporting double digit organic growth in Pain Relief sales over the first six months.

 

Running a responsible business

 

Running a responsible business remains an integral part of our strategy, and Haleon remains committed to tackling environmental and social barriers to everyday health.

 

On track with existing environmental targets

Haleon is on track to reduce its net Scope 1 and 2 carbon emissions by 100% by 2030 (versus its 2020 baseline), and to reduce its Scope 3 emissions (includes all relevant scope 3 carbon emission categories as outlined in the greenhouse gas protocol (GHG), the industry standard across the value chain) by 42% from source to sale by 2030 (versus its 2020 baseline). Initiatives in the first half included the agreement with Ameresco Solar Energy covering our manufacturing facility in Oak Hill, NY, providing electricity from a dedicated offsite solar park.

 

Haleon continues to develop solutions for all product packaging to be recyclable or reusable by 2030, and to reduce use of virgin petroleum based plastic by 1/3 by 2030. Examples in the first half included lightweight recycled plastic and plastic free packaging with Dr.BEST and Aquafresh toothbrushes in Europe.

 

Opportunity to make a difference with Health inclusivity

We continue to believe that Haleon has a compelling opportunity to make a meaningful difference to helping improve health inclusivity. Initiatives in the first half with our brands promoting inclusivity, included the Theraflu Rest and Recover initiative in North America and mobility initiatives with Caltrate in Asia Pacific to engage adults in China on bone health.

 

Internally, Haleon launched a leading parental leave policy for employees, entitling all employees, regardless of gender or sexuality, to 26 weeks fully paid parental leave effective 1 January 2023.

 

 

Building robust corporate governance

Haleon continues to build best practice corporate governance, in line with the requirements of a dual LSE premium listed and NYSE listed company. Board-level governance and committees have been established to ensure alignment with all requirements of the UK Corporate Governance Code. The Group's internal and external operational governance links in directly to the Board-level governance, enabling rapid escalation and visibility.

 

Operational review

Revenue by product category for the six months ended 30 June 2022:

	Revenue (£m)				Revenue change (%)
	2022	2021		Reported		Constant currency1	Organic1
Oral Health	1,438	1,360		5.7%		5.4%	5.1%
VMS	816	702		16.2%		11.9%	11.9%
Pain Relief	1,248	1,093		14.2%		11.8%	11.7%
Respiratory Health	683	455		50.1%		46.7%	46.7%
Digestive Health and Other	1,003	965		3.9%		0.3%	3.5%
Group revenue	5,188	4,575		13.4%		10.9%	11.6%

 

1. Definitions and calculations of non-IFRS measures can be found on pages 38 to 45.

 

Oral Health

· Sensodyne delivered mid-single digit revenue growth reflecting underlying brand strength, continued innovation and strong growth across key markets particularly Asia Pacific. This more than offset the negative impact of the COVID-19 lockdown in China in Q2.

·   Parodontax saw high-single digit revenue growth across all regions.

·   Denture care revenue was mid-single digit as a result of strong growth in EMEA and LatAm driven by demand returning following the decline seen during the pandemic.

 

VMS

·  Centrum revenue up mid-teens percent reflecting good growth across all regions, and up double digit in North America and Asia Pacific. Centrum and Emergen-C benefitted from increased capacity in North America.

·  Caltrate increased high-single digit given growth in China.

Pain Relief

· Panadol revenue up mid twenties percent reflecting a successful post COVID-19 vaccination campaign and activation to meet increased demand during the Omicron wave.

·  Advil growth in the low twenties percent benefitting from increased demand and retail stocking patterns in the US.

·  Low single digit growth from Voltaren primarily driven by growth in China and the US, which was partly offset by a decline in Germany.

 

Respiratory Health

·  A strong cold and flu season, well ahead of the historically low season in 2021 was supported by the COVID-19 Omicron wave underpinning results across all regions. This added 4% to group revenue growth in the first half.

·  In the US and Europe, the cold and flu season was around 20% ahead of 2019 levels. As a result of the rebound, Theraflu revenue more than doubled and Otrivin was up just under 50%. 

 

Digestive Health and Other

·  Digestive Health which is around half of this reported product category saw growth in Tums and Eno, Smokers health revenues declined slightly and skin health brands were up on last year.  

 

Geographical segment performance

 

Revenue by geographical segment for the six months ended 30 June:

 

	Revenue (£m)			Revenue change (%)
	2022	2021		Reported	Constant currency1	Organic1		Price1	Vol/Mix1
North America	1,873	1,595		17.4%	10.0%	10.4%		2.1%	8.3%
EMEA and LatAm	2,069	1,903		8.7%	10.6%	12.1%		5.5%	6.6%
APAC	1,246	1,077		15.7%	13.0%	12.3%		3.1%	9.2%
Group	5,188	4,575		13.4%	10.9%	11.6%		3.7%	7.9%

 

1. Price and Volume/Mix are components of Organic Revenue Growth. Definitions and calculations of non-IFRS measures can be found on pages 38 to 45.

 

Adjusted operating profit by geographical segment for the six months ended 30 June:

 

	Adjusted operating profit (£m)			YoY change	YoY constant currency
	2022	2021		2022	2022
North America	454	316		43.7%	29.0%
EMEA and LatAm	467	458		2.0%	6.2%
APAC	300	244		23.0%	18.7%
Corporate and other unallocated	(30)	(35)		(14.3)%	40.0%
Group1	1,191	983		21.2%	15.5%
Reconciling items between adjusted operating profit and operating profit2	(291)	(246)		18.3%	16.6%
Group operating profit	900	737		22.1%	15.1%

 

1. Definitions and calculations of non-IFRS measures can be found on pages 38 to 45.

2. Reconciling items for these purposes are the Adjusting Items, which are defined under "Use of Non-IFRS Measures". A reconciliation between Operating profit and Adjusted operating profit is included under "Use of Non-IFRS Measures".

 

Adjusted operating profit margin by geographical segment for the six months ended 30 June:

	Adjusted operating profit margin (%)			YoY change	YoY constant currency
	2022	2021		2022	2022
North America	24.2%	19.8%		4.4%	3.5%
EMEA and LatAm	22.6%	24.1%		(1.5)%	(0.9)%
APAC	24.1%	22.7%		1.4%	1.1%
Group1	23.0%	21.5%		1.5%	0.9%

1. Definitions and calculations of non-IFRS measures can be found on pages 38 to 45.

2. Reconciling items for these purposes are the Adjusting Items, which are defined under "Use of Non-IFRS Measures". A reconciliation between Operating profit and Adjusted operating profit is included under "Use of Non-IFRS Measures".

 

North America

·  Organic revenue growth in North America was +10.4%, with 2.1% price and 8.3% volume/mix.

·  Oral Health - revenue up low single digit, with Sensodyne up low single digit impacted by change in retailer inventory levels and disproportionately impacted by the cutover in Q2. Good growth in Parodontax.

·  VMS - revenue up mid teens percent given strong Centrum and Emergen-C growth supported by increased capacity.

·  Pain Relief - double digit revenue growth driven by Advil given increased demand during the Omicron wave and retail stocking patterns.

·  Respiratory Health - revenue up over 50% helped by the sustained rebound in cold and flu season well ahead of 2019 levels, including some benefit from new COVID-19 variants with similar symptoms, and successful market activation.

·  Digestive Health and Other - revenue flat with strong growth in Chapstick offset by weakness in Smokers Health.

· Adjusted operating margin increased 440bps to 24.2%, and by 350bps at constant exchange rates. Margin expansion was due to strong operating leverage as well as benefits from productivity improvements, portfolio optimisation and strong cost management partially offset by commodity and freight headwinds. The prior year reflected favourable comparatives following site investments and one-time manufacturing write-offs.

Europe, Middle East & Africa (EMEA) and Latin America (LatAm)

·  Organic revenue growth in EMEA and LatAm was 12.1%, with 5.5% price and 6.6% volume/mix.

·  Oral Health - mid single digit revenue growth due to strong Parodontax growth, robust recovery in Denture Care and continued Sensodyne growth.

·  VMS - revenue increased double digit driven by high single digit growth in Centrum and double digit growth in local strategic brands.

·   Pain Relief - mid single digit revenue growth largely reflecting double digit Panadol growth.

·   Respiratory Health - revenue up over 50% due to a strong cold and flu season significantly ahead of 2019 levels.

·   Digestive Health and Other - revenue up double digit with good results in all categories.

· Particularly strong double digit revenue growth in Latin America and Middle East & Africa underpinned H1 revenue. Additionally, Europe saw high single digit revenue growth in Northern Europe with strong double digit growth in Southern and Central and Eastern Europe, which was partly offset by challenging performance in Germany.

·  Adjusted operating margin declined by 150bps or 90bps at constant exchange rates largely driven by reduced sales from Russia / Ukraine as well as the one-time adverse impact of stock and receivable write-downs. Higher commodity and freight costs, and increased investment in A&P was offset by positive operating leverage, particularly from pricing, and efficiencies across the business.

 

Asia-Pacific

·  Organic revenue growth in Asia-Pacific was 12.3%, with 3.1% price and 9.2% volume/mix. This included a one-off benefit of c.2% related to separation from changes in distribution in Vietnam.

·  Oral Health - high single digit revenue growth in Oral Health reflected strong growth in India, partly offset by some weakness in China from COVID-19 related lockdowns.

·  VMS - low double digit revenue growth supported by successful immunity campaigns in China by Centrum and Caltrate, and Centrum in Taiwan. Innovations around gender based vitamins and probiotics contributed to growth. 

·  Pain Relief - revenue growth in the mid twenties percent benefitting from successful Panadol activation and execution in markets including Australia, New Zealand, Malaysia and Taiwan relating to Omicron COVID-19 wave and a successful campaign around the COVID-19 vaccination. 

·   Respiratory Health - rebound in cold and flu season resulted in revenue up high twenties percent.

·   Digestive Health and Other - revenue slightly down due to weakness in skin health brands.

·   Performance in South-East Asia, Taiwan and India was particularly strong during the first half and revenue up double digit. Revenue in China increased mid single digit for the first half despite a slowdown in the second quarter due to COVID-19 related lockdowns.

· Adjusted operating margin increased 140bps or 110bps at constant exchange rates to 24.1% driven by strong operating leverage combined with efficiencies, which were partly offset by higher A&P investment and higher commodity and freight related costs.

 

Summary of financial performance

 

Income statement summary

 

		2022	2021	%
		£m	£m	change
Total revenue		5,188	4,575	13.4
Gross profit		3,211	2,814	14.1
Adjusted gross profit1		3,258	2,860	13.9
Operating profit		900	737	22.1
Adjusted operating profit1		1,191	983	21.2
Profit before tax		864	736	17.4
Adjusted profit before tax1		1,155	982	17.6
Profit after tax attributed to shareholders of the Group		517	491	5.3
Adjusted profit after tax attributed to shareholders of the Group1		883	729	21.1
Earnings per ordinary share2
Basic (p)		5.6	5.3	5.7
Adjusted1 (p)		9.6	7.9	21.5

 

1. Definitions and calculations of non-IFRS measures can be found on pages 38 to 45.

2. Basic earnings per share for all periods presented have been adjusted retrospectively as required by IAS 33 "Earnings per share" due to the increase in the number of ordinary shares outstanding as a result of the Demerger activities that took place in July 2022. Basic earnings per share has been calculated by dividing the profit attributable to shareholders by the Company's weighted average number of shares in issue, with 9,234,573,831 shares outstanding as at the date of the report. There are no dilutive equity instruments for the periods presented.

 

Revenue

Revenue increased 13.4% at reported exchange rates and by 11.6% organically to £5,188m (H1 2021: £4,575m). Favourable foreign exchange added £112m to total revenue, mainly due to strengthening of the US Dollar against Sterling.

Gross profit

Reported gross profit increased by 14.1% to £3,211m (H1 2021: £2,814m) with gross margin was up 40bps at 61.9%. Similarly, Adjusted gross profit increased by 13.9% with Adjusted gross margin of 62.8% (H1 2021: 62.5%).

Positive movements in Adjusted gross profit margin were largely driven by pricing, favourable mix, Pfizer synergies and ongoing supply chain and manufacturing efficiency benefits. This was partly offset by higher commodity related costs and freight cost inflation.

Operating profit

Operating profit and operating profit margin increased by 22.1% to £900m (H1 2021: £737m) and by 120bps respectively to 17.3% (H1 2021: 16.1%). Adjusted operating profit increased by 21.2% to £1,191m (H1 2021: £983m) and Adjusted operating profit margin increased by 150bps or by 90bps at constant exchange rates to 23.0%.

Adjusting items within operating profit totalled £291m in H1 2022 (H1 2021: £246m), representing £20m (H1 2021: £77m) of costs related to restructuring activities associated with the Pfizer JV Transaction at a reduced level as we come to the end of the programme, Separation and Admission costs of £229m (H1 2021: £105m) as expected given the peak of work to execute separation will occur during 2022. Net Intangibles Amortisation and Impairment of £40m (H1 2021: £21m) and Disposals and others of £2m (H1 2021: £43m).

Adjusted operating profit and margin were driven by operating leverage as a result of the strong revenue growth, including healthy balance of volume and price/mix, combined with Pfizer synergies partly offset by higher commodity related costs and freight cost inflation, incremental costs of operating as a standalone company, and increased investment in A&P and R&D.

During the first half, A&P spend increased 6% at CER to represent 19.4% of revenue (H1 2021: 20.3%). A&P growth was behind revenue growth primarily due to scale benefits, a stronger than expected rebound across Respiratory Health and phasing of spend. Adjusted R&D expenditure totalled £137m, up 23.4% (H1 2021: £111m) and included the transfer of additional activities to the R&D functions following the implementation of a new operating model in Q4 FY21.

Net finance costs

Net finance costs increased to £36m, reflecting interest of £79 million related to the issuance of £9.2bn in notes in March 2022 offset partly by interest income of £43 million mainly related to the on-lend of funds to GSK Group and the Pfizer Group before the demerger.

Tax charge

The tax charge of £320m (H1 2021: £216m) represented an effective tax rate on IFRS results of 37% (H1 2021: 29%). The charge of £320m included a tax charge on adjusting items totalling £75m. Included within this was a non-cash tax charge of £104m that related to the revaluation of US deferred tax liabilities given the increase in the blended rate of US state taxes expected to apply as a result of the demerger. The tax charge on an Adjusted basis was £245m (H1 2021: £224m) and the effective tax rate on an Adjusted results basis was 21% (H1 2021: 23%).

Free cash flow

 

Net cash from operating activities totalled £680m in H1 2022 (H1 2021: £234m), which included a net cash outflow of £224m related to separation, restructuring and disposals. Free cash flow during H1 2022 was £553m, a £364m increase versus H1 2021. The increase in free cash flow benefitted from strong H1 2022 operating results, the phasing of tax payments due to repayments from prior years, continued working capital management with improved payables offset by higher receivables from strong revenue growth, as well as disciplined capital spend management. These increases were offset partially by annual distributions to non-controlling interests of £47 million that were made H1 2022 versus H2 2021, and lower proceeds from sale of intangible assets in H1 2022 vs 2021.

		Six months to 30 June
		2022	2021
		£m	£m
Net cash inflow from operating activities		680	234
Less: Net capital expenditure		(88)	(45)
Less: Distributions to non-controlling interests		(47)	-
Less: Interest paid		(4)	(9)
Add: Interest received		12	9
Free cash flow		553	189

 

Net capital expenditure

Net capital expenditure of £88m (H1 2021: £45m) included £92m (H1 2021: £124m) related to the purchase of PP&E and software offset partially by proceeds from the sale and disposal of PP&E and intangible assets of £4m (H1: 2021: £79m).

Net debt

At 30 June 2022, the Group's net debt was £8,836m, which mainly includes the amounts raised as part of the pre-funding commitment for the demerger.  Net debt is calculated as follows:

		As at 30 June 2022	As at 31 December 2021
		£m	£m
Cash and cash equivalents and liquid investments		1,334	414
Short-term borrowings		(332)	(79)
Long-term borrowings		(9,918)	(87)
Derivative financial assets		146	17
Derivative financial liabilities		(66)	(19)
Net Debt		(8,836)	246

 

On 13 July 2022, the Group drew down £1,493m under a 3-year term loan to complete the financing required for payment of the separation dividends resulting in net debt at separation of £10,707m. 

As of 1 September 2022, the Group's long-term and short-term credit ratings remain unchanged (Moody's: Baa1/P-2 S&P: BBB/A-2)

Sources of liquidity

As at 18 July 2022, the completion date of the demerger, Haleon had total liquidity of £2.9bn comprising £2.2bn ($1.4bn and £1.0bn) of bank facilities and £716m of cash and cash equivalents. The $1.4bn and £1.0bn Revolving Credit facilities are undrawn. Subsequent to the demerger, Haleon launched a $10bn US commercial paper programme and a £2bn Euro commercial paper programme.

 

Post Balance Sheet Events

For information and further details about the demerger activities that took place after 30 June 2022, see Note 15 of the Notes to condensed consolidated financial statements.

Principal risks

The risks and uncertainties affecting the Group include, but are not limited to, those discussed under "Risk Factors" on pages 17 to 45 of Haleon's prospectus and under "Risk Factors" in Haleon's Registration Statement on Form 20-F. A summary of the 2022 principal risks areas are set out below and the nature and impact of which remain essentially unchanged since the date of the prospectus filing. These are not listed in order of significance and are not the only ones facing the Group.

Competition: The Group operates in a highly competitive market and failure to successfully compete with competitors could have a material adverse effect on the Group's business.

 

Ability to identify and offer products at attractive prices that appeal to consumer tastes and preferences: The Group's success depends on its ability to anticipate and respond to changes in consumer preferences and a failure to adapt its strategy appropriately may have a material adverse effect on the Group's business and/or financial condition.

 

Supply continuity: The Group's business results are impacted by the Group's ability to manage disruptions in the Group's global supply chain.

 

Distribution: Increasing dependence on key retail customers, changes in the policies of the Group's retail customers, the emergence of alternative retail channels and the rapidly changing retail landscape may materially and adversely affect the Group's business.

 

Innovation: The Group may not be able to develop and commercialise new products effectively, which may materially and adversely affect the results of the Group's operations and financial condition.

 

Personnel attraction and retention: Failure to retain key personnel or attract new personnel could have a material adverse effect on the Group's business.

 

Reputation: Damage to the Group's reputation could have a material adverse effect on the Group's

business.

 

Climate Change and Sustainability: Failure to respond effectively to the challenges raised by climate change and other sustainability matters may have a material adverse impact on the Group's business and results of operations.

 

Pandemics, Epidemics or similar health concerns: A pandemic, epidemic or similar widespread health concern could have, and COVID-19 has had and will continue to have, a variety of impacts on the Group's business, results of operations, cash flows and financial condition.

 

Intellectual Property rights: The Group may not be successful in obtaining, maintaining and enforcing sufficient intellectual property rights to protect its business, or in avoiding claims that the Group infringes on the intellectual property rights of others.

Product recalls: The Group may incur liabilities or be forced to recall products as a result of real or perceived product quality or other product-related issues.

 

Cyber-security: Although the Group has a board array of information security measures in place, the Group's IT systems have been, and will continue to be, subject to computer viruses or other malicious codes, unauthorised access attempts, phishing and other cyber-attacks.

 

Legal and regulatory landscape: The Group's business is subject to legal and regulatory risks in all the markets in which it operates, which may have a material adverse impact on the Group's business operations and financial condition.

 

Ingredient regulation: The Group faces risks relating to the regulation and perception of the ingredients it uses in its products, which could materially and adversely impact the Group's business, prospects, financial condition and results of operations.

 

Litigation, disputes and regulatory investigations: Litigation, disputes and regulatory investigations may materially and adversely affect the Group's business, financial condition, results of operations and prospects.

 

Separation benefits: There can be no guarantee that the anticipated benefits of the separation will be realised in full or in part, or as to the timing when any such benefits may be realised.

 

Macroeconomic factors: The Group's business is subject to market fluctuations and general economic conditions, including inflationary pressures, each of which may materially and adversely affect the Group's business, financial condition, results of operations and prospects. Uncertainty, fluctuations or negative trends in the international economic climate have had and could continue to have a material adverse effect on the Group's business and profitability.

 

Related party transactions

Related party transactions are disclosed in note 13 to the condensed set of financial statements. There have been no changes to the related parties of the Group for the six-months period ended 30 June 2022. Upon the completion of the demerger on 18 July 2022, the GSK Group ceased to be a related party of the Group under IFRS.

Going Concern

The Directors have considered the Group's financial plan, in particular with reference to the period through September 2023 and taken into account debt maturities, treasury risk management policies, exposures to market and credit risk and hedging activities and the principal risks and uncertainties faced by the Group. For purposes of the going concern assessment, the Directors make estimates of likely future cash flows which take into account recent performance, external forecasts, committed debt facilities and management's knowledge and expertise of the cashflow drivers.

Considering the above, the Group's diversified geographic presence, product offering and consumer profile, the Directors believe that it is appropriate to adopt the going concern basis of accounting in preparing the Group's condensed consolidated financial statements.

Responsibility Statement

The Board of Directors approved this Half-yearly Financial Report on 19 September 2022.

The Directors confirm that to the best of their knowledge:

a) the condensed set of financial statements on pages 20 to 37 has been prepared in accordance with UK-adopted IAS 34 'Interim Financial Reporting';

b)  the interim management report on pages 1 to 16 includes a fair review of the information required by regulations 4.2.7 and 4.2.8 of the UK Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

The Directors of Haleon plc are listed on pages 266 to 268 of Haleon's prospectus and page 199 of the 20-F dated 1 June 2022. A list of current Directors is maintained on the Haleon plc website: https://www.haleon.com/who-we-are/board-of-directors/

 

By order of the Board

 

 

Brian McNamara	Tobias Hestler
Chief Executive Officer	Chief Financial Officer
19 September 2022