GSK Introduces Haleon to Investors

Global leader in consumer health set to be a newly independent company with focused strategy to deliver sustainable above-market growth and attractive returns to shareholders

• Demerger and listing of Haleon expected in July 2022
• New company to focus 100% on consumer health, with clear purpose to deliver better everyday health with humanity
• Exceptional portfolio of category-leading brands includes, Sensodyne, Panadol, Advil, Voltaren Theraflu, Otrivin, and Centrum
• Haleon expected to deliver annual organic sales growth of 4-6% in the medium term
• Haleon expected to deliver moderate sustainable expansion of adjusted operating margin in the medium term
• Attractive growth profile and strong cash generation of Haleon expected to support capital allocation priorities to invest in future growth and deliver sustainable returns to shareholders
• Initial dividend expected to be at lower end of 30-50% pay-out ratio range (subject to Haleon Board approval)
• Targeting net debt/adjusted EBITDA <3x by end 2024 (from up to 4x at demerger)

At an update to investors today, GSK will announce that the proposed listing of Haleon (the newly independent company to be formed following the demerger of the GSK Consumer Healthcare business) is expected in July 2022, and will provide detail on the strategy, outlook and plans for the new company.

Emma Walmsley, Chief Executive Officer, GSK said: “Today is an important milestone for GSK as we formally introduce Haleon to investors. It comes ahead of what promises to be the most significant corporate change for GSK in the last 20 years, to create two new growth companies that will positively impact the health of billions of people. Haleon has been built through a series of progressive strategic M&A and divestment moves taken in the last few years, creating a focused, global consumer healthcare business with an exceptional portfolio of brands. Through the demerger we will unlock the potential of both GSK and Haleon, and in today’s meeting will show why we believe Haleon will be a strong, highly successful growth-orientated company.”

Brian McNamara, Chief Executive Officer Designate, Haleon said: “We are excited to share our plans for Haleon and the incredible opportunity we have before us.  Led by our purpose – to deliver better everyday health with humanity – Haleon is strongly positioned to play a vital role in a growing, more relevant sector than ever. Today, we will show investors how our world-class portfolio of brands, alongside our competitive capabilities and a compelling strategy to outperform, underpins our confidence in delivering annual organic sales growth of 4-6% in the medium term, and a sustainable financial performance that can drive continued investment in growth and deliver attractive returns to shareholders.”

Global leader focused on consumer health

Haleon has been created from a series of progressive strategic moves to develop the GSK Consumer Healthcare business. The business has been transformed through the successful integrations of the Novartis consumer health portfolio in 2015 and the Pfizer portfolio in 2019. This transformation has provided a platform to focus, scale and optimise many aspects of the business including divesting lower growth brands, implementing a new R&D/innovation model, rationalising the manufacturing footprint and optimising the supply chain, alongside continued investment in brands, innovation and capabilities.

This has created a leading global consumer healthcare business, which achieved £9.5 billion in sales during 2021. Led by a highly skilled management team with deep experience and a track record of success in consumer healthcare and FMCG, the business has a portfolio of world-class brands. It offers a compelling proposition that combines human understanding with trusted science.

Exceptional portfolio of category-leading brands

Haleon is the global leader in each of the major categories in which it operates – Therapeutic Oral Health; Vitamins, Minerals and Supplements; Pain Relief; Respiratory Health; and Digestive Health. The portfolio comprises global power brands such as Sensodyne, Panadol, Advil, Voltaren, Theraflu, Otrivin, and Centrum; and iconic, local strategic brands such as TUMS, ENO, Flonase, ChapStick and Emergen-C.

Human understanding with trusted science

Haleon has a suite of proprietary assets focused on generating deep human understanding to support brand innovation, engagement with experts and education of consumers. These include cutting-edge centres for shopper research, consumer knowledge, and social listening to generate new insights, identify future trends and rapidly test new concepts and claims.

Alongside this, Haleon has deep technical and scientific expertise, with world-class regulatory and medical capabilities and trusted relationships with more than three million healthcare professionals worldwide. It has a global, standalone R&D network with three centres supporting 1,400 highly skilled scientists, including practising dentists, pharmacists, nutritionists, and medics.

Together, this platform of human understanding and trusted science enables Haleon to operate end-to-end across consumer science and consumer experience, providing a strong competitive advantage to develop and launch innovation. Over the last three years, Haleon has successfully delivered more than 19,000 regulatory applications and approvals.

In 2021, R&D investment was £257 million, representing 2.7% of sales. This is competitive with industry peers, and it will remain a priority area for future investment and allocation of capital.

Global footprint and industry-leading route-to-market

Haleon serves more than 100 markets worldwide and has an established presence in all key channels, including one of the largest networks and coverage of pharmacies globally with leadership in Europe and strong partnerships with mass retail and pharmacy chains in the US. In the last two years, investments have resulted in a two-fold increase in e-commerce sales, a key growth channel, with particularly strong market outperformance in China.

Strategy to outperform

Haleon’s strategy comprises four key elements to deliver above-market sales growth and sustainable financial performance:

• Drive penetration growth across the Haleon portfolio. Continue to drive further market share gain and category growth in all five global categories through brand innovation and reaching new consumers with Haleon products.
• Capitalise on new and emerging growth opportunities across channels, geographies and portfolios. These include continuing to grow e-commerce sales; expanded use of brands, notably by accelerating innovation in the US and China and with rollouts in emerging markets; new portfolio opportunities with two planned Rx-to-OTC switches in the US, and a strong focus on accelerating consumer trends such as Naturals, with more than 30 Naturals projects currently in the pipeline.
• Strong execution and financial discipline. Haleon’s leading gross margin and rescaled, optimised cost base provide a strong platform for excellent marketing and commercial execution, disciplined cost control and re-investment ahead of sales growth in brand innovation and advertising and promotional (A&P).
• Running a responsible business with a strong commitment to tackling environmental and social barriers to better everyday health is integral to everything Haleon does. Haleon has a structurally smaller environmental carbon and plastic footprint relative to peers and has set 2030 targets to reduce its environmental impact further. Haleon has also set ambitions to support inclusion and diversity internally and has set external social targets to help improve people’s access to better everyday health.

Strong organic sales growth with sustainable margin expansion and strong free cash flow

The business is well-positioned to build on its track record of performance and grow sustainably ahead of the market in the medium term. The fundamentals for the £150 billion consumer healthcare market are strong, reflecting an increased focus on health and wellness, significant demand from an ageing population and emerging middle class, and sizeable unmet consumer needs.

Over the period 2019-2021 Haleon delivered 4.4% sales growth CAGR^[1], ahead of the market despite the adverse impact of the COVID pandemic. At the same time, Haleon has balanced investment with delivering on its margin ambitions, growing its adjusted operating margin from 19.5% to 22.8% in 2021. This would have equated to an adjusted operating margin of approximately 25% based on 2017 exchange rates^[2] and adding back the dilutive impact of the additional divestments.  Free cash flow has been equally strong with around £1.5 billion of free cash flow generated in each of 2020 and 2021, excluding proceeds from divestments and costs for integration and separation.

Looking forward and reflecting structural market trends, and the investments made and planned for the business, Haleon is targeting in the medium term, on a constant currency basis:

• Annual organic sales growth of 4-6%;
• Sustainable moderate expansion of adjusted operating margin;
• Continued high cash conversion, with net debt/adjusted EBITDA <3x by the end of 2024

2022 Considerations

Haleon expects to achieve organic sales growth in the range of 4-6% for 2022. The adjusted operating margin is expected to benefit from continued strong operating leverage and the realised benefit of price increases during 2021. Haleon will also continue to drive brand investment (A&P) ahead of sales growth. Inflationary cost pressures and supply chain costs are expected to be well-accommodated given the gross margin profile of the business (commodity-related costs account for <10% of sales) and ongoing realisation of supply chain efficiencies. Finally, the 2022 margin will reflect the contribution from upgraded annual cost synergies resulting from the completed integration of the Pfizer portfolio of approximately £600 million (£100 million higher than previously announced) with approximately £120 million expected to be delivered in 2022. These synergies largely offset new annual costs in 2022 associated with running a standalone public limited company of £175-200 million.

Attractive growth profile supports capital allocation priorities

The combination of strong organic sales growth, moderate operating margin expansion and consistent high cash generation in the medium term offer existing and prospective shareholders an attractive growth profile that supports capital allocation priorities to maintain the track record of investing in growth and deliver attractive shareholder returns. Haleon has developed a capital allocation framework set across three areas, and prioritised to:

• Invest in the business to drive sustainable growth and attractive returns;
• Deliver shareholder returns, with the initial dividend expected to be at the lower end of the 30-50% pay-out ratio range (subject to Haleon Board approval);
• M&A that is compelling and consistent with company strategy.

Haleon is expected to have a net debt/adjusted EBITDA ratio of up to 4.0 times following the demerger. Haleon plans to target net debt to an adjusted EBITDA ratio of <3x by the end of 2024 and maintain a strong investment-grade balance sheet.

Board of Directors

As previously announced, Sir Dave Lewis has been appointed as Non-Executive Chair Designate of Haleon. As Chair Designate, he is preparing for the demerger and, following best practice, leading the process to establish a Board of Directors for the new company. This new Board will include the appropriate mix of skills, experience, diversity, and continuity, relevant for Haleon to represent and maximise the value of this new business for shareholders. Two of the Board Directors will be appointed by Pfizer.

Demerger process

The separation of GSK Consumer Healthcare, to form Haleon, is subject to approval from shareholders, and will be by way of a demerger of at least 80% of GSK’s 68% holding in the Consumer Healthcare business to GSK shareholders (the Consumer Healthcare business is a Joint Venture between GSK and Pfizer, with GSK holding a majority controlling interest of 68% and Pfizer holding 32%).

As previously announced, GSK will retain up to 20% of its holding in Haleon, which it intends to monetise in a disciplined manner to strengthen new GSK’s balance sheet further. Before the demerger, GSK is expected to receive a dividend of more than £7 billion from Consumer Healthcare, supporting recapitalisation of the GSK balance sheet and creating new flexibility to invest in innovation and growth. Pfizer will receive a dividend of more than £3 billion and will retain its 32% stake post the demerger.

A circular is expected to be sent to shareholders in connection with approval of the proposed demerger in June 2022, alongside publication of a prospectus in connection with the listing of Haleon.

A shareholder vote for approval and subsequent demerger is expected in July 2022. Haleon shares are expected to attain a premium listing on the London Stock Exchange, with ADRs listed in the US.

Original source here.