The consumer goods group behind Sensodyne toothpaste and Panadol painkillers has announced a £500 million share buyback alongside better-than-expected fourth-quarter results.
The FTSE 100 Haleon posted a 6.6 per cent increase in underlying revenue in the final three months of the year, leaving growth of 8 per cent over the year, the top end of its upgraded forecast.
Sales were lifted by an increase in prices, a “strong” cold and flu season that boosted sales of Theraflu, and its success in gaining or maintaining market share across 58 per cent of its business last year.
Adjusted operating profit increased 10.4 per cent to £2.5 billion last year and with free cash flow of almost £1.6 billion, as Haleon cut its net debt-to-earnings ratio from about four times to three times, a year ahead of schedule.
The strong cash generation, boosted also by the recent sales of its ChapStick and Lamisil brands, meant that Haleon planned a £500 million share buyback this year and proposed a total dividend of 6p per share for 2023, a payout ratio of about 35 per cent of adjusted profits, above previous guidance of about 30 per cent.
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Haleon forecast organic revenue growth of 4 per cent to 6 per cent this year, as well as in the medium term, and planned to cut its debt ratio further to about 2.5 times and to grow the dividend “at least in line with adjusted earnings” over the coming years.
The positive update lifted shares in the company by 5.4 per cent, or 16¾p, to 330¾p on the London Stock Exchange. It leaves the share price back in line with the 330p level the company was valued at when it was separated from GSK in July last year, in what was the biggest London listing in a decade. The shares have fluctuated since then, weighed down by thousands of US lawsuits claiming that Zantac, an old GSK blockbuster heartburn drug, caused cancer, and the large residual stake held by GSK and Pfizer, its joint venture partner.
GSK has since cut its holding to 4.2 per cent, although Pfizer, GSK’s former joint venture partner, retains 32 per cent, leaving an overhang.
Brian McNamara, Haleon’s chief executive, said today that it would look to buy shares back from Pfizer and GSK. “That’s the best way to do it if we can,” he said. “Obviously it’s not for us to decide … but certainly if we could do that share buyback at a discount, that would be the preferred way to do it, the best return for shareholders. We’re going to do the £500 million stock buyback this year independent of what Pfizer or GSK does.”
Since its demerger, Haleon has also been cutting costs, targeting annualised savings of about £300 million to partly reinvest, for example in automation and clinical R&D, at a cost of about £150 million last year and a further £150 million this year.
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McNamara, 57, declined to comment on the number of job cuts and also on a report last month that Haleon was in talks with the Indian drugs company Dr Reddy’s Laboratories to sell the smoking cessation brand Nicotinell.
As part of a review of its portfolio, Haleon sold Lamisil, an antifungal treatment, to Karo Healthcare last year for £235 million and last month agreed to sell ChapStick to Suave Brands, a portfolio company of Yellow Wood Partners, in a deal worth more than $500 million.
McNamara said that it continued to consider further brand disposals as well as bolt-on acquisitions.
Haleon is also benefiting from an easing of inflationary pressures and McNamara said he expected volumes, which rose 1 per cent last year despite increasing prices, to grow this year and to become “a bit more balanced between volume and price”.
Analysts at Bernstein said the results “should put to bed the bear story of Haleon not being able to grow volumes … Haleon is the staples of staples, without the valuation, yet”.
