Haleon plc (HLN) ORD GBP0.01

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Haleon has reported full year revenue of £11.2bn, down 0.6%. Organic growth of 5.0% reflected increases in all regions and categories. Most of the growth was delivered by price hikes with a smaller but still positive contribution from volume and product mix.

Underlying operating profit rose 9.8% to £2.5bn helped by strong pricing and cost discipline.

Free cash flow of £1.9bn grew by £0.4bn. Net debt fell from £8.5bn to £7.9bn.

For 2025 organic revenue is expected to increase by 4-6%, with higher growth in underlying operating profit.

Haleon declared a final dividend of 4.6p, an increase of 10%, as well as a £500mn share buyback for 2025.

The shares were down 2.6% in early trading.

Our view

As expected, Haleon delivered solid growth in 2024. More of the same is expected in 2025 but the market appeared a little disappointed with the slow start to the year. Growth will need to pick up if guidance is to be met.

Both efficiency gains and the easing inflationary environment are helping the group to hold on to a bigger slice of its revenues with around £150mn of further cost savings expected this year.

That should support further increases in marketing spending to support its well-recognised brands. These include a number of household names such as Sensodyne toothpaste, Otrivin nasal spray, Panadol painkillers, and Centrum multivitamins. Continued investment in innovation and marketing is, in our view, essential to maintaining Haleon's leading brand positions. But that may also limit scope to drive margins further.

Even as inflation falls, these established brands have been helping Haleon to increase prices without impacting volumes. Customers tend to happily stomach a higher price when it comes to medicines they trust. We must caution that volumes could still start to dip if price hikes are taken too far, or the economic outlook deteriorates. But so far, we're impressed with Haleon's delivery of new and improved products which we view as key to growing market share and maintaining brand loyalty.

Launches of new categories, such as erectile dysfunction cream Eroxon, may drag on profitability until they gain consumer acceptance. But in time, dropping in new revenue streams to the existing portfolio should be positive for the bottom line.

A growing focus on emerging markets is helping to offset lower growth in more mature markets and e-commerce initiatives are also helping to reach more customers.

Despite the headway being made on debt levels and shareholder distributions, the dividend is still lagging most of the peer group. A relatively strong outlook means we should see further progress towards its revised net debt to cash profit target of 2.5 times.

Offloading some of its brands is one lever the group is pulling on to get there. If attractive prices can be obtained, we’re not averse to selling a handful of non-core names. But pulling too hard on this lever could be at the expense of organic growth and margin expansion in the future.

Strengthening the balance sheet should help free up some wiggle room to bridge the dividend yield gap with its competitors. But with an earnings multiple towards the top of the pack, there is certainly some expectation to deliver.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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