ii view: Haleon's healthcare numbers disappoint

A wide portfolio of brands, strong cashflows and a focus on reducing net debt. We assess prospects.  

Full-year results to 31 December  

• Total revenue up 13.8% to £10.8 billion
• Adjusted earnings up 3% to 18.4p per share
• Full year 2022 dividend of 2.4p per share
• Net debt of £9.87 billion, down from £10.7 billion in late June

Chief executive Brian McNamara said:

"2022 was an extraordinary year for Haleon, having successfully demerged from GSK to become the first listed company 100% focused on consumer health.

“Strong free cash flow generation of £1.6 billion enabled us to de-lever and provides us with increased confidence in reducing debt faster than originally expected.”

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ii round-up:

Consumer healthcare company Haleon (LSE:HLN) whose brands include Panadol painkillers and Sensodyne toothpaste today detailed full-year results shy of City forecasts. 

Earnings of 18.4p per share missed analyst hopes of nearer 19p, hindered by rising costs and foreign exchange headwinds. The dividend of 2.4p per share equates to 30% of adjusted earnings, at the bottom end of management’s prior 30-50% estimate.

Shares in the FTSE 100 company, which demerged from pharma giant GSK (LSE:GSK)  in 2022, fell by more than 3% in UK trading having come into these results down by less than 1% in 2023 so far. That compares to a similar fall for GSK shares, while the 100 index itself has risen by just over 4%. 

Haleon flagged its expectation for full-year organic sales to rise between 4% and 6%, down from 2022’s growth of 9% but in line with its previous estimate. 

A bearing down on costs is expected to save £300 million over the next three years, with much of that expected in 2024 and 2025. 

Haleon's product portfolio spans the five categories of Oral Health, Pain Relief, Respiratory Health, Digestive Health and Other, and Vitamins, Minerals and Supplements (VMS). 

Organic sales for Respiratory Health led the way over the year, growing by almost a third to £1.58 billion and aided by demand for flu medicines as populations emerged and mixed following the pandemic. 

Haleon recently reached legal settlements for most claims regarding alleged side effects for its heartburn remedies with the financial hit not material and included in these latest results. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results. 

A first-quarter trading update is scheduled for 3 May. 

ii view:

Headquartered in Weybridge, Surrey, Haleon employs over 22,000 people in more than 170 markets. Its many brands include Aquafresh, Contac, Voltaren, Centrum and Nicorette. Sales of Oral Health products generated its biggest slug of sales in 2022 at 27%, followed by Pain Relief at 24%, Digestive Health and other at 19%, VMS at 16% and Respiratory Health 14%. Geographically, both North America and Europe and Latin America account for almost 40% of sales, with Asia Pacific making up the balance of just over 20%.  

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For investors, the challenging backdrop of rising interest rates and a consumer cost-of-living crisis cannot be forgotten. Costs broadly for businesses remain elevated, consumers may still downgrade to cheaper supermarket brands, while significant sales overseas can see it hindered by currency movements. 

On the upside, a diversity of product categories and geographical regions persists. A focus on cost reduction is being made, free cashflows are expected to help reduce debt and potentially increase the dividend, while prior concerns regarding legal litigation looked to have eased. 

On balance, and while elevated inflation and cost headwinds generate some caution, exposure to potentially defensive healthcare products looks to give grounds for patience.  

Positives: 

• Diversity of product and geographical region
• Targeting costs

Negatives:

• Uncertain economic outlook
• Exposure to currency movements

The average rating of stock market analysts:

Strong hold