Haleon Plc - ADR

Company Overview

Business Model: Haleon plc is a global leader in consumer health, driven by its purpose to deliver better everyday health with humanity. The Company generates revenue primarily through the supply of goods to external customers across five core categories: Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other. Its business model integrates deep human understanding with scientific expertise to develop and market trusted brands.

Market Position: Haleon plc holds a leading position as a global leader in consumer health. The Company benefits from a portfolio of strong and durable brands, including Advil, Voltaren, Centrum, Caltrate, Otrivin, Robitussin, Preparation H, Fenistil, Nexium, Emergen-C, Theraflu, Panadol, Sensodyne, Excedrin, Biotene, Polident, and Vitasprint. These brands operate in relatively stable and profitable market sectors, and the Company's size, diversification, and market shares are considered to mitigate market-related risks.

Recent Strategic Developments:

• Portfolio Optimization:
  • On September 30, 2024, Haleon plc completed the sale of its Nicotine Replacement Therapy business outside the US to Dr Reddy’s Laboratories SA for a total consideration of £485 million, recognizing a £121 million gain on disposal.
  • On May 31, 2024, the Company disposed of the rights to the ChapStick brand to Suave Brands Company for a cash consideration of £324 million and a passive minority interest valued at £80 million.
• Strategic Investments & Acquisitions:
  • On December 27, 2024, Haleon plc acquired an additional 33% equity interest in Tianjin TSKF Pharmaceutical Co., Ltd. (TSKF) from Tianjin Pharmaceutical Group and Tianjin Pharmaceutical Da Ren Tang Group Corporation Limited for RMB 4,465 million (£486 million), increasing its effective ownership to 88%. The Company also secured an option to buy the remaining 12% of TSKF, recognizing a £177 million financial liability for this option.
  • On April 28, 2023, Haleon plc completed the acquisition of the Jacarepaguá (Brazil) manufacturing site from GSK plc for £70 million, resulting in a bargain purchase gain of £7 million.
• Shareholder Capital Returns:
  • Repurchased 102,272,727 ordinary shares from Pfizer Inc. for £315 million on March 21, 2024.
  • Executed an on-market share buyback program from August 1 to October 1, 2024, repurchasing 18,413,907 ordinary shares for approximately £70 million.
  • Completed an off-market purchase from Pfizer Inc. on October 3, 2024, for £230 million, resulting in the cancellation of 30,161,278 ordinary shares and holding 30,365,037 ordinary shares as treasury shares.

Geographic Footprint: Haleon plc operates globally, with its business organized into three reportable geographical segments: North America; Europe, Middle East, Africa and Latin America (EMEA & LatAm); and Asia Pacific (APAC). Key markets contributing significantly to revenue include the US & Puerto Rico, China, and the UK, alongside a substantial presence across the "Rest of the World." The Company maintains manufacturing sites in various locations, including Brazil, Spain, Slovakia, Italy, and China.

Cross-Border Operations: Haleon plc is incorporated in England and Wales, with its shares listed on the London Stock Exchange and American Depositary Shares traded on the New York Stock Exchange. The Company conducts its business through a vast network of wholly-owned and partially-owned subsidiaries across numerous countries, such as Argentina, Australia, China, Germany, Japan, the Philippines, South Africa, and Taiwan. Inter-regional transactions are conducted at arm’s length, adhering to transfer pricing rules and OECD principles. The Company applies IAS 29 'Financial Reporting in Hyperinflationary Economies' to its entities in Argentina and Turkey, effective January 1, 2024. Haleon plc's supply chain is complex and global, and it is a member of Manufacture 2030 to enhance supplier sustainability reporting. The Company maintains a dedicated cyber-security threat intelligence function and a comprehensive compliance program, including a Human Rights Policy aligned with international guidelines.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 60.7%
• Operating Margin: 19.6%
• Net Margin: 13.1%

Investment in Growth:

• R&D Expenditure: £298 million (2.65% of revenue)
• Capital Expenditures: £250 million (property, plant and equipment) and £68 million (intangible assets)
• Strategic Investments: £486 million for additional equity in Tianjin TSKF Pharmaceutical Co., Ltd.; £70 million for Jacarepaguá (Brazil) manufacturing site.

Currency Impact Analysis:

• The Group's reporting currency is Pound Sterling.
• Exchange movements on overseas net assets resulted in a (£132) million expense in 2024 (2023: (£420) million expense).
• The application of IAS 29 to hyperinflationary economies (Argentina and Turkey) effective January 1, 2024, resulted in a £9 million increase in opening retained earnings and a £6 million net monetary gain recognized in 2024. Revenue and operating profit were not materially impacted by this application.
• Haleon plc employs foreign exchange forward contracts and swaps, interest rate swaps, and cross currency interest rate swaps to manage foreign exchange and interest rate risks, including hedging future repayments and investments in overseas assets.

Business Segment Analysis

North America

Financial Performance:

• Revenue: £4,042 million (-3.6% YoY)
• Adjusted Operating Profit: £1,000 million (-9.6% YoY)
• Operating Margin: 24.7% Product Portfolio: The product portfolio in North America is consistent with the Group's overall offerings, including Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other. Market Dynamics: Not explicitly detailed. Geographic Revenue Distribution:
• US & Puerto Rico: £3,616 million (89.4% of segment revenue)

EMEA & LatAm

Financial Performance:

• Revenue: £4,631 million (+1.9% YoY)
• Adjusted Operating Profit: £1,054 million (+4.4% YoY)
• Operating Margin: 22.7% Product Portfolio: The product portfolio in EMEA & LatAm is consistent with the Group's overall offerings, including Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other. Market Dynamics: The region includes countries designated as hyperinflationary for accounting purposes (Argentina and Turkey), with IAS 29 applied from January 1, 2024. Geographic Revenue Distribution:
• UK: £384 million (8.3% of segment revenue)

APAC

Financial Performance:

• Revenue: £2,560 million (-0.1% YoY)
• Adjusted Operating Profit: £539 million (-0.4% YoY)
• Operating Margin: 21.0% Product Portfolio: The product portfolio in APAC is consistent with the Group's overall offerings, including Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other. Market Dynamics: Not explicitly detailed. Geographic Revenue Distribution:
• China: £987 million (38.5% of segment revenue)

International Operations & Geographic Analysis

Revenue by Geography:

International Business Structure:

• Subsidiaries: Haleon plc operates through a global network of subsidiaries, including wholly-owned entities such as Haleon Argentina S.A., Haleon Australia Pty Ltd, Haleon (China) Co., Ltd, Haleon Germany GmbH, Haleon Japan K.K., Haleon Philippines, Inc., and Haleon South Africa (Pty) Ltd. It also holds significant interests in partially-owned subsidiaries like Haleon Taiwan Consumer Health Corporation (55.0% ownership) and Tianjin TSKF Pharmaceutical Co., Ltd (88.0% ownership).
• Joint Ventures: Tianjin TSKF Pharmaceutical Co., Ltd. in China and Haleon-Gebro Consumer Healthcare GmbH in Austria (50.0% ownership) are key joint ventures.
• Licensing Agreements: Not explicitly detailed.

Cross-Border Trade:

• Export Markets: Not explicitly detailed.
• Import Dependencies: Not explicitly detailed.
• Transfer Pricing: Transactions between Haleon plc's geographical regions are conducted at arm’s length in accordance with OECD principles and relevant transfer pricing rules.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: £503 million for cancellation (132,434,005 ordinary shares) and £116 million for treasury shares (30,365,037 ordinary shares) in 2024.
• Dividend Payments: £570 million in 2024 (2023: £388 million).
• Future Capital Return Commitments: A final dividend of 4.6 pence per ordinary share (£419 million) for 2024 has been proposed, subject to shareholder approval.

Balance Sheet Position:

• Cash and Equivalents: £2,250 million
• Total Debt: £10,127 million (comprising £1,487 million short-term and £8,640 million long-term borrowings)
• Net Cash Position: (£7,877) million
• Credit Rating: S&P Global Ratings: BBB+ (stable outlook); Moody’s Investors Service: Baa1 (positive outlook). Short-term ratings: A-2 (S&P) and P-2 (Moody’s).
• Debt Maturity Profile: £1,487 million of borrowings are repayable within one year. £4,267 million of long-term borrowings are due in more than five years. New notes issued in September 2024 include €750 million (maturing September 2028) and £300 million (maturing September 2033). A CNY 2,679 million (£290 million) long-term bank loan was secured in December 2024, maturing December 2029.

Cash Flow Generation:

• Operating Cash Flow: £2,301 million

Currency Management:

• Cash holdings by major currencies: £1,790 million in Pound Sterling, £73 million in Indian Rupee, £40 million in Taiwan Dollar, £30 million in Euro, and £27 million in United States Dollar.
• Natural hedging through operational diversification aims to match local currency income with local currency costs.
• Financial hedging instruments include foreign exchange forward contracts and swaps, interest rate swaps, and cross currency interest rate swaps to manage currency and interest rate risks.

Operational Excellence

Production & Service Model: Haleon plc's production model involves operating a network of manufacturing sites globally, including facilities in Jacarepaguá (Brazil), Alcala (Spain), Levice (Slovakia), Aprilia (Italy), and Suzhou (China). The Company's operational philosophy is centered on its purpose of delivering better everyday health.

Global Supply Chain Architecture: Key Suppliers & Partners: Haleon plc's supply chain is characterized by significant scale and complexity, involving a mixture of direct and indirect supplies and services, such as raw materials and logistics. The Company is a member of Manufacture 2030, a platform dedicated to enhancing consistency and transparency in supplier sustainability reporting. A Supplier Code of Conduct establishes minimum standards for its global supplier base. Facility Network:

• Manufacturing: Key production locations include Brazil, Spain, Slovakia, Italy, and China.
• Research & Development: R&D centers support an expenditure of £298 million in 2024, focusing on new product development, intellectual property generation, and product registrations.
• Distribution: Not explicitly detailed.

Operational Metrics: Not explicitly detailed.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels: Not explicitly detailed. Customer Portfolio: Enterprise Customers: Haleon plc serves a large and diverse customer base, with no single customer accounting for more than 10% of the Group's total sales, which mitigates customer concentration risk. Regional Market Penetration: Not explicitly detailed.

Competitive Intelligence

Global Market Structure & Dynamics

Industry Characteristics: Haleon plc operates in the consumer health sector, specifically across Oral Health, Vitamins, Minerals and Supplements, Pain Relief, Respiratory Health, and Digestive Health and Other categories. The Company notes that long-term macro trends remain supportive for its business, and its market sectors are generally stable and profitable.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Not explicitly named in the filing. Regional Competitive Dynamics: Not explicitly detailed.

Risk Assessment Framework

Strategic & Market Risks

Global Market Dynamics: Haleon plc faces risks from global market dynamics, including the potential impact of extreme weather events on its operations and supply chain. While riverine and flash flooding, and heatwaves are identified as long-term hazards, the geographical spread of manufacturing sites is considered to mitigate the overall risk. Technology Disruption: The Company acknowledges the risk of cyber-security attacks or threats that could compromise its ability to manufacture, distribute, and sell products. Customer Concentration: Credit risk from customers is limited due to a large and diverse customer base, with no single customer representing more than 10% of sales.

Operational & Execution Risks

Global Supply Chain Vulnerabilities: The Company's supply chain is extensive and complex. It manages supplier-related risks through a Supplier Code of Conduct and participation in platforms like Manufacture 2030 for sustainability reporting. Regional Disruptions: Potential disruptions from extreme weather events are considered, but the diversified geographical footprint of manufacturing sites helps to reduce the overall impact. Trade Restrictions: Not explicitly detailed.

Financial & Regulatory Risks

Currency & Financial Risks: Haleon plc is exposed to foreign exchange risk from operations in various currencies (e.g., USD, EUR, CNY, INR, TWD), which it manages through hedging strategies. Interest rate risk on its debt portfolio is managed to minimize costs and volatility, with 59% of debt held at fixed rates (including swaps) as of December 31, 2024. Liquidity risk is managed centrally, supported by undrawn credit facilities and commercial paper programs. Regulatory & Compliance Risks: The Company operates under multi-jurisdictional regulatory frameworks. It maintains a compliance program to address misconduct and policy breaches. International tax risks include the implementation of OECD’s Pillar Two regime, which resulted in a £3 million income tax charge in 2024, primarily in Ireland. Provisions for uncertain tax positions amounted to £124 million in 2024. International Tax Strategy: Transfer pricing policies are aligned with OECD principles.

Geopolitical & External Risks

Country-Specific Risks: Economic risks include hyperinflationary conditions in countries like Argentina and Turkey, which impact accounting. Regulatory changes, such as increases in the UK statutory corporation tax rate, new Cantonal legislation in Switzerland, and changes in US state tax rates, affect future tax charges. Legal Proceedings: Haleon plc is involved in legal proceedings, including civil proceedings in Germany related to competition law. The Company is not a party to Zantac litigation, but has rejected potential indemnification claims from GSK plc and Pfizer Inc. related to OTC Zantac.

Innovation & Technology Leadership

Research & Development Focus: Global R&D Network: Haleon plc's R&D expenditure was £298 million in 2024. Its R&D efforts are focused on the development of new products and variants, the generation and improvement of intellectual property, and securing product registrations across its global markets. Intellectual Property Portfolio: The Company's intellectual property includes brands, licenses, patents, and know-how. Indefinite life brands are not amortized due to their strength, durability, and market support, while other intangible assets are amortized over their estimated useful lives, generally not exceeding 20 years. Licensing Programs: Not explicitly detailed. IP Litigation: Not explicitly detailed.

Technology Partnerships: Not explicitly detailed.

Leadership & Governance

Executive Leadership Team

International Management Structure: The Commercial Operations Board, comprising the CEO, CFO, and other senior leaders, acts as the Chief Operating Decision Maker, overseeing the performance and resource allocation for the Company's geographical segments.

Board Composition: The Board of Directors is responsible for approving the financial statements. Key committees include the Audit & Risk Committee, which oversees information security and cyber-risk strategy, and the Environmental & Social Sustainability Committee, which reviews the Human Rights Policy.

Regulatory Environment & Compliance

Multi-Jurisdictional Regulatory Framework: Primary Regulatory Environments: Haleon plc operates under diverse regulatory frameworks globally. In the UK, the OECD’s Pillar Two regime for a global minimum tax rate of 15% became effective January 1, 2024. Other jurisdictions, such as Switzerland and various US states, have seen changes in tax legislation impacting the Company. Argentina and Turkey are designated as hyperinflationary economies for accounting purposes. Cross-Border Compliance: The Company maintains a compliance program with regular updates to its Executive Team and Audit & Risk Committee. It encourages reporting of misconduct through independently managed channels. International Tax Strategy: Haleon plc's international tax strategy includes adhering to OECD transfer pricing principles for inter-company transactions. The Company has recognized a £3 million Pillar Two income tax charge in 2024, primarily related to Ireland.

Environmental & Social Impact

Global Sustainability Strategy: Environmental Commitments: Haleon plc is committed to reducing its net Scope 1 and 2 carbon emissions and achieving water neutrality at its manufacturing sites. The Company has assessed the impact of climate change on its financial reporting, identifying riverine and flash flooding, and heatwaves as long-term physical risks, but currently anticipates no material short-term financial impact due to the geographical spread of its operations and asset useful lives. Regional Sustainability Initiatives: The Company's supply chain sustainability efforts include membership in Manufacture 2030 and adherence to a Supplier Code of Conduct. Social Impact by Region: Haleon plc's Human Rights Policy aligns with international agreements, including the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, demonstrating a commitment to upholding the Universal Declaration of Human Rights and core labor standards.

Currency Management & Financial Strategy

Multi-Currency Operations: Currency Exposure:

Hedging Strategies:

• Transaction Hedging: Haleon plc selectively hedges foreign currency transaction exposures arising from internal and external trade flows using foreign exchange forward contracts and swaps.
• Translation Hedging: The Company uses borrowings denominated in, or swapped into, foreign currencies that match investments in overseas Group assets, and forward contracts in major currencies, to reduce exposure to the Group’s net investment in foreign operations.
• Economic Hedging: Not explicitly detailed.