Haleon plc (NYSE:HLN) Q4 2023 Earnings Call Transcript

Haleon plc (NYSE:HLN) Q4 2023 Earnings Call Transcript February 29, 2024

Haleon plc misses on earnings expectations. Reported EPS is $6.54 EPS, expectations were $10.27. HLN isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Sonya Ghobrial: Good morning everyone. Thanks very much for joining us for our Full Year Results Q&A. Hopefully by now you’ve had time to look at our presentation as well as the press release and watch the video in the Investors section of our Haleon website. As usual, I’m joined by Brian McNamara, our CEO; and Tobias Hestler, CFO. So, with that we’d like to get started with Q&A and hand over to the first question. Thanks.

Operator: The first question comes from the line of Rashad Kawan Morgan Stanley. Please go ahead.

Rashad Kawan: Hey guys, good morning and thanks for taking my question. Congrats on the results. Two for me please. The first one in terms of absolute margin developments, you’re calling out 3% transactional FX impact another 3% from M&A. so that’s about a £150 million headwind. I think you likely get about £100 million from cost savings to partly offset that some more from kind of operating leverage. So, you’ve taken some pricing obviously in the back half of last year. Can you just talk about how you expect gross margin to develop over the year? How much of the £100 million in savings you plan on reinvesting et cetera? Just trying to get a sense for the margin evolution over the year? And then my second question just on the shape of the P&L for this year.

You’ve given guidance on Q1. But how should we think about the different moving parts over the year in terms of price mix and volume again you’re still benefiting from some carryover pricing so do you expect growth to be priced like again? Do you plan on taking more pricing? Any color there is helpful. Thank you very much.

Brian McNamara: Okay. Thanks Rashad. Tobias I’ll pass that to you.

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Q&A Session

Tobias Hestler: Great. So, on your margin question so for 2024. So I think we’ve given you as you say the building blocks with translational FX 2 and 3 down, so that gives you about 20 bps negative. That’s largely driven by the dollar and the euro. So, it’s a big currencies, of course, we’ll update you as we go through the year and our ad memo each quarter how that evolves. We’ve given you the M&A building blocks which is down 1% and 3% that gives you another about 40 bps of margin that is negative. And then I think as you said we said we’re very confident in our guidance. One we’re very confident in the 4% to 6% sales growth guidance but we’re also very confident in being able to grow organic profit ahead of the rate of sales growth.

And if you just want to put it a little bit into perspective, you see what we delivered in 2023. We delivered 60 bps of margin improvement. So, operating profit grew nearly three points ahead of the rate of sales growth. And then on your question on how we see that going through the P&L line? So, on gross margin we expect gross margin to grow ahead of the rate of sales growth. You’ve seen that come through in Q4. So, in Q4 gross margin was up 70 bps, given easing of inflationary pressures, the pricing coming through a little bit of help because we didn’t have to recall we had in the prior year. But overall I think the algorithm will start working on that. And then as you mentioned the productivity program we said about a third of the £300 million to come through.

Again we feel confident in the £300 million delivery about a third of that is a drop to help us next year, but it’s not going to drop to the bottom-line because we’re going to use and want to have the flexibility to use that to invest in the business. And investing in a business for us means; one, systems tools processes because as you know we’re doing this program because we need to make the business more agile and faster and we have to reinvest a bit in the business on that. Secondly, investing in R&D clinical trials. We’ve seen great results we had last year on VMS trials on Centrum other things we have done. So, investment there. And then lastly, investing in A&P because we want to grow A&P more than we did in 2023. So, all of that with the productivity program and gross margin going up, gives us confidence that we’ll have operating leverage also in 2024.

And then your second question was on price volume and how to think about that going into the new year? So, let me maybe take a step back. So, first of all, we’ve grown volume for the year not just last year also throughout the prior year. So, I think this business has been and we’ve delivered a very resilient business and we’ve been very mindful on how much price we took. So, I think shows you the resilience of the business. So, we believe also next year we’ll be able to do both, grow price and grow volume. Now, last year as we had said was more price led. So, last year 85% of the growth came from price, 15% came from volume. In the longer run, we want to be back to about 50-50 between the two. 2024 will be a stepping stone in that direction, but we won’t be back to 50-50.

So I think that’s how I would see that going into 2024.

Rashad Kawan: Thank you very much.

Operator: The next question comes from the line of Guillaume Delmas, UBS. Please go ahead.

Guillaume Delmas: Thank you. Good morning to B.S. Brian and Sonia. So, I’ve got two questions. The first one is on your respiratory health division, which had a very strong finish to the year, quite in sharp contrast to most of your listed competitors. So could you maybe shed some light on this surprisingly strong performance in Q4. And also I guess making sure that there were no one-offs or any particular sell-in, sell-out discrepancy that could explain this good Q4? And then my second question is on your VMS operation because there’s been a clear improvement toward the end of the year led by Caltrate in China, Centrum and also some stabilization for emergency. So with additional marketing support put behind this business and also against the backdrop of improved category growths, would it be fair to assume that VMS should return to its medium term ambition of mid to high single-digit growth as early as in 2024? Thank you.

Brian McNamara: Thanks, Guillaume. I’ll take those questions. Let me start with respiratory performance. I think you’re right. We did see good growth in Q4 of our respiratory book follow, just under 11%. And it was 7.5% in the back half. Now I think 1 of the reasons that those results look different than some of our competitors is also has to do with our portfolio and geographic footprints. So for example, the US is about 32% of our respiratory business. Now in the US, in the back half, our business was basically flat in respiratory, but the market was down kind of mid to high single-digits. Now — so 68% of our businesses outside the US and we saw much higher instances in some other geographies, specifically the places like Central Eastern Europe, Japan and Turkey, and we performed quite well in those environments.